Fiscal Responsibility

Republicans’ Fiscal Games Could Have Broad Impact

The United States will run out of borrowing authority on Thursday, and the impacts could be felt in all areas of the economy.  The Washington Post describes the negative impacts of not ensuring America can pay its bills:

“The Obama administration will have to decide whether to delay — or possibly suspend — tens of billions of dollars in Social Security checks, food stamps and unemployment benefits if negotiations to raise the federal debt ceiling are not resolved this week, experts say, one of the many difficult choices officials will have to make at a time when the government will essentially be running on fumes.”

“Economists roundly agree that no matter which course Obama chooses, a drop in federal spending that large would exert a huge drag on economic growth. And in contrast to what happens during a traditional downturn — the safety net expands to help the vulnerable — assistance to seniors and low-income people could be delayed or reduced if Congress doesn’t raise the debt ceiling.”

“Officials may also have insufficient funds to operate major parts of the government that are open during the shutdown, such as the Federal Aviation Administration and the FBI.”

“According to the Bipartisan Policy Center, which has done the most detailed analysis of federal finances in a debt-ceiling breach, administration officials would have to consider delaying or suspending tens of billions of dollars in critical payments to low-income people and seniors.”

“Under the most alarming scenario, as soon as Friday, payments to Medicare and Medicaid providers, unemployment benefits, Social Security checks and tax refunds would be postponed for one to four days.”

“Food stamps due to be distributed Oct. 25 could be held until Oct. 30. The same would happen to payments to defense contractors.”

“With huge payments due in early November, the situation would become grimmer. Nearly $60 billion in Social Security checks, veterans benefits and pay for active-duty troops is due Nov. 1. Those could be delayed nearly two weeks, according to the Bipartisan Policy Center’s analysis.”

“But delayed safety-net payments are one of the biggest worries because of their outsize economic impact.”

“Americans who rely on those programs to buy groceries or pay rent would suddenly be without that aid. According to Moody’s Analytics, food stamps and unemployment benefits have significant ripple effects, given that needy families tend to spend the money immediately. Moody’s estimates that every $1 spent on food stamps or unemployment benefits tends to drive about $1.70 in economic growth.”

International leaders also highlighted how a default would ripple across the world, as reported by the New York Times:

“Leaders at World Bank and International Monetary Fund meetings on Sunday pleaded, warned and cajoled: the United States must raise its debt ceiling and reopen its government or risk ‘massive disruption the world over,’ as Christine Lagarde, the fund’s managing director, put it.”

“The fiscal problems of the United States overshadowed the official agendas for the meetings, with representatives from dozens of countries — including two of Washington’s most important economic partners, Saudi Arabia and China — publicly expressing worries about what was happening on Capitol Hill and in the White House.”

“‘This cannot happen, and this shall not happen,’ Baudouin Prot, chairman of the French bank BNP Paribas, said at a meeting of the Institute of International Finance also being held in Washington. ‘The consequences of this would be absolutely disastrous.’”

“Participants at the meetings remained on edge, given the gravity of the threat. Ms. Lagarde said ‘that lack of certainty, that lack of trust in the U.S. signature’ would disrupt the world economy.”

“Wolfgang Schäuble, the German finance minister, issued his own urgent appeal. ‘The fiscal standoff has to be resolved without delay,’ he said in a statement released by the I.M.F.”

Instead of playing games with seniors’ Social Security benefits or the global economy, Republicans should reopen the government and ensure America can pay its bills so we can begin negotiations on long-term fiscal issues.