The United States is perilously close to the debt ceiling, and while the markets haven’t been spooked yet, and everyone is still mostly assuming that a deal will be struck to raise the debt limit before Thursday, Congress’ inability to do even its most basic responsibilities makes it at least possible that the U.S. will default on its loans for the first time in history.
Quick explainer: The U.S. borrows money from a number of entities including foreign governments, domestic banks and corporations, and sectors of the U.S. government, which the federal government borrows from. To pay for debts that it has already incurred, the U.S. has to raise the total amount that it is in debt, which requires Congress to raise the limit that we can legally be in debt, a.k.a. raise the debt ceiling. If we fail to raise the debt ceiling, the U.S. will default on its loans, which will cause our interest rates to rise (just like your rates would rise if you defaulted on a credit card payment), and that cost would go down to the tax payer.
Why would we ever do that? If we default, it will be in some sense entirely voluntarily: the only reason we would blow past the debt ceiling is a failure to decide not to.
And that’s why we would deserve the resulting loss of financial credibility. While the U.S. is still very financially stable, if we can’t be trusted to pay our debts because Congress is too crazy, then we can’t be trusted to pay our debts.
That’s going to take a rebuff to the Tea Party, who decided back in 2011 that the ransom for keeping the government running and non-delinquent was a long list of policy demands that most people don’t want. They are still trying to play that game, even though the demands are shrinking. If the U.S. can’t turn to this minority faction of the minority party and say, sorry we have more important stuff to deal with, save your whining for the budget negotiations, then we deserve the default.
It’s still more likely than not that a deal will be struck before Thursday, and we can all breathe a tentative sigh of relief, but given how dysfunctional Congress has been up to this point, that’s no slam dunk. Either way, we’ll get what we deserve.