Making tomorrow's crisis today's
Mounting federal debt is a looming future problem; economic uncertainty and dysfunction in federal operations caused by a grandstanding Congress is a current problem. Of all the ironies in what's now year 3 of a politically-caused permanent fiscal crisis, this is the richest: Supposed worries about the future could cause a financial calamity in the present and already have cost federal agencies dearly.
That federal debt and the pace of entitlement spending is a problem that requires resolution soon isn't a question. But it's not a genuine crisis – not at this moment, at any rate. We know so because the world collectively says it isn't. American debt continues to be bought at record low interest rates everywhere. There is no abrupt yanking up of rates in an effort to make Treasury bonds more attractive, no emergency creditors hovering in the wings. There is time to bring spending and revenue in line, in other words. Any panic that exists is self-induced.
But what a panic it is – it's causing some lawmakers to again talk about doing the once-unthinkable, and that's to let the federal government default by refusing to raise the debt limit.
It "may be necessary to partially shut down the government in order to secure the long-term fiscal wellbeing of our country," said Senate Minority Whip John Cornyn (R-Texas) in a Jan. 4 op-ed in the Houston Chronicle, using logic similar to the major in Vietnam who said it was necessary to destroy a town in order to save it.
What Cornyn didn't explicitly say is that his "partial government shutdown" would be caused not by failure to approve annual spending bills, but by forcing the government to prioritize which bills to pay as a result of having its ability to issue further debt constrained.
The Treasury Department has consistently said it lacks the ability to make those prioritization decisions. But even if it has that authority, so what? A default would be a default, whether it's in America's ability to pay on bonds, pay entitlements, pay its employees – pay anything. Cornyn and some like-minded lawmakers apparently actually believe in partial default, something as believable as being partially pregnant.
Any default would be ruinous to the United States's standing as a cornerstone of global capitalism. The crisis that could lie in the future would come crashing around us now.
Meanwhile, uncertainty around sequestration, year-to-year funding and the debt limit have already taken a toll on the economy and federal operations. By inducing crisis conditions today, lawmakers have made it harder for the federal government to plan and execute over the long-term. Being perpetually stuck in short-term time horizons isn't conducive to efficiency nor stability; both are being sacrificed in the name of a manufactured crisis. - Dave