As congress barrels closer and closer to a government shutdown on October 1, it’s worth remembering just how bad this would be. On top of the embarrassment this would cause America, it would cost us $2 billion, according to the OMB.
That’s to say nothing of the people unable to receive food stamps, veterans unable to collect benefits, and the multitude of federal workers and beneficiaries who would go without pay. At a time when our economy is on such feeble footing, this is the last thing we need.
But it might be the only thing that could save us, because as bad as a government shutdown is, a breach of the debt ceiling would be catastrophic.
Investment in American debt is considered by markets to be the safest investment one could make. By defaulting on that debt we no longer continue to be that perfect safe investment, and as a result our rate of borrowing goes up. This is all well and good, except that this mess goes way beyond just affecting America’s debt score.
Our borrowing rate is the benchmark for trillions of dollars in investments, from city and state borrowing, mortgages, student loans, credit card rates, and housing rates, to even stock market trades. If the borrowing rate on American debt gets shaken it would send shockwaves through the world economy that would dwarf what we saw in 2008.
And the way things are playing out now, the Republicans are going full speed ahead toward a default on our debt unless something major happens.
For those who haven’t been paying attention, the House Republican Caucus has gotten themselves into a frenzy over the idea that President Obama might defund Obamacare if they threaten to shut down the government.
John Boehner, being a mildly sensible man, heard this and immediately knew this was an awful idea. He was around during the last government shutdown under Newt Gingrich, and remembers full well what happened: The Republicans' approval tanked and Democrats gained huge numbers of seats in the next midterms. So John Boehner tried to push current House Republicans from this idea, and the younger Tea Party Republicans pushed back.
At this point he could have led, gone to his caucus and said, "Enough is enough, we need to start acting like adults if we ever want to win back the White House." But that's not what happened. Boehner is now telling his members to take the debt ceiling hostage as opposed to shutting down the government, because the stakes are higher.
And that’s where things stand. The Republicans are ready to shut down the government and/or breach the debt ceiling to put a crimp in the implementation of Obamacare. On one side you have the Tea Party Republicans who wants to shut down the government, and on the other the old-school Republicans who think this is a loser for their party. So it seems to me there are two ways this plays out.
In the first scenario, Boehner succeeds and the government stays open. The Tea Party Republicans, having been kicked back by party leadership and frothing at the mouth to pick a fight, use the debt-ceiling battle instead as their opportunity to try to defund Obamacare, sending the world economy into a tailspin.
The president won't do this. He's been abundantly clear that he will not be held hostage by threats to the full faith and credit of America's debt. The Tea Party Republicans won't like this and will stand their ground, defaulting on the debt and destroying the underlying foundation of our economy.
In the second scenario, Boehner loses the battle against his own party and the government shuts down. Polling shows Americans are against this and will disproportionately blame Republicans the same way they did in 1996. The Republicans start to see what Boehner did in the last shutdown, that extreme government makes most Americans very unhappy. The town halls they have that are usually filled with conservative activists suddenly get filled with the family/friends/allies of federal workers angry that they are out of work. Frightened, they pass a bill that turns the lights back on at the federal government and then go home with their heads hung low, but still with conservative street cred for shutting down the government.
By the time the debt ceiling comes crashing down two weeks later there will be no more political willpower for another big fight, and a bill will be passed once again to raise the ceiling.
So if you're the kind of person who cares about this nation's economy, I would be praying that the government shuts down in six days. Otherwise, the consequences could be much, much worse.