Politics & Policy

Ceil Us In?

What to do about the debt ceiling

Should Congress vote to raise the debt ceiling? If it does, what should Republicans get in exchange from the White House? National Review Online asked some experts — economists, academics, and politicos.


Joseph Burke

The United States should not raise the debt ceiling. The current unfunded liabilities of the United States are $113 trillion, mostly because of Medicare. This is more than $1 million per taxpayer. Now more than ever, there is the political will for serious fiscal reform. This is what the American people want: It is why the Tea Party was formed, and why the Republicans were successful last fall. This is a historic moment, and if the Republicans kick the can down the road, they will pay dearly for it next year.

Medicare reform should be a priority; the age of eligibility for benefits should be increased, and all entitlement programs should be means-tested. Obamacare should be repealed, as it will increase the cost of health care and, by extension, our Medicare liability. Better yet would be to leave these programs to the states. Just a couple of days ago, the S&P downgraded the outlook of U.S. sovereign debt. Raising the debt ceiling will send the signal to markets and voters that the Republicans are not serious about fiscal reform. This would increase the interest rate on our debt, worsen our financial condition, and accelerate us along the track to a fiscal crisis.

 — Joseph Burke is assistant professor of economics at Ave Maria University.

Douglas Holtz-Eakin

Yes, Congress should raise the debt limit. Being a good steward of the U.S. credit rating means that it has to pay Obama’s credit-card bill. And it should do so as quickly as possible — on the day it returns from recess.

Yes, Congress should attach conditions to raising the debt limit. Being a good steward of the U.S. economy means that business as usual — a clean increase in the debt limit — cannot be an option. Quickly changing direction is imperative to avoid the looming financial crisis. Simply passing a straight-up debt-limit increase would send financial markets the message that the U.S. is content to continue toward its fiscal abyss.

Conservatives should attach to the debt limit annual caps on total spending for the next ten years equal to those in the House-passed budget. There are other viable contenders ranging from alternative spending limits (such as those proposed by Senator Corker) to a balanced-budget amendment that limits taxes and spending (such as that of Senators Hatch, Cornyn, and Toomey).

But the House has already agreed to the levels in the budget. If it passes those caps quickly, the onus will be on the Senate to pass a debt-limit increase and on the president to sign it. If either balks, the battle shifts from raising the debt limit to whether there should be spending restraint. That is the right battle for conservatives to fight from both a policy and a political standpoint.


— Douglas Holtz-Eakin is president of the American Action Forum.

Phil Kerpen

To win the debt-ceiling showdown, the Republican House leadership must first do what all 47 Senate Republicans did when they voted for the Toomey-Vitter amendment — debunk the false assertion that failure to raise the debt limit is tantamount to a default on Treasury bonds. Buying into this scare story — as too many otherwise-thoughtful Republicans have done — gives away any real leverage because it makes not raising the debt ceiling unthinkable.


The Toomey-Vitter approach, also known as the Full Faith and Credit Act and championed in the House by Tom McClintock (R., Calif.) and Scott Garrett (R., N.J.), would take away from the administration the discretion to default on Treasury bonds. It would require bondholders and Social Security recipients to be paid first in the event the debt ceiling is reached. There is more than enough revenue on a cash-flow basis to take any default risk off the table.


Passing this legislation in the House — even though the Democrats already have stopped it in the Senate — would help educate the public that default is not at stake. It would demonstrate that failure to raise the debt ceiling would cause a default only if President Obama and Treasury Secretary Geithner recklessly chose to put payments to vendors or other expenditures ahead of debt service.


By passing the Toomey-Vitter bill, the House can gain real leverage to demand that the administration make deep cuts in spending and fundamental reforms like the Medicaid block grants at the heart of the Ryan budget — or face the daunting prospect not of default, but of operating the government on a cash-flow basis.


 — Phil Kerpen is vice president for policy at Americans for Prosperity.

Nicole Gelinas

Congress will raise the debt ceiling, something that the Federal Reserve as well as the White House wants (the Fed is worried about market panic). In return, Republicans — or somebody! — should insist that the nation’s financial regulators, including the Fed, do what they should have done starting nearly three years ago. That is, regulators should make the nation’s banks do their job of clearing out bad home-mortgage debt fast while respecting the rule of law.

Some numbers illustrate why our economy can’t grow — and remember, growth is a big part of tackling the future cost of servicing the national debt as well as paying for programs such as Medicare. Compared to its level in 2000, the U.S. population in 2010 was up 9.3 percent. Inflation was up 26.6 percent. Yet home-mortgage debt, at the end of 2010, was 110 percent higher than its 2000 level. That’s twice as high as it was a decade previously, even after three years’ worth of torturously slow defaults.

Every dollar that homeowners spend servicing the mistake of a home valuation circa 2005 or 2006 — valuations approved by lenders — is a dollar that they can’t invest in the capital markets, creating the jobs and growth that we need to stay ahead of our federal borrowing. As Morgan Stanley’s Stephen Roach said last week, the government’s policy of “foreclosure containment” is part of what’s impeding the creative destruction that the economy needs in order to recover.

America has no choice but to shed this debt. We can continue to bleed the debt out gruesomely slowly — as we have over the past three years. Unless we’ve enjoyed the past three years, though, we should do it faster.

To jump-start the process, regulators should force mortgage servicers to foreclose on long-defaulted homeowners — and to get each foreclosure done on a strict deadline and following the law. If the servicers can’t or won’t do that — or if they don’t think it’s economical — then they can write the principal of the debt down on each applicable mortgage, taking the home out of delinquency.

Would that mean more financial-industry distress and short-term turmoil? As Sarah Palin might put it, you betcha. But it would get us a step closer to putting our capital toward productive use, instead of throwing good hard-earned cash after bad debt. Growing fast, we’d be in a much better position to tackle entitlements — and the national debt, whose ceiling Congress is about to hike.

— Nicole Gelinas is contributing editor to the Manhattan Institute’s City Journal and author of After the Fall, just now released in paperback.

Grover Norquist

My preference would be to keep the administration on a short leash and extend the debt limit by only a small amount and for a short period of time. This debt-limit increase is one of the few pieces of legislation that Obama must sign. Why not have such an extension every month and attach to each of them something small, reasonable, and related to debt or spending?

If there is only one debt-limit vote between now and November 2012, every congressman, senator, and interest group will demand that a favorite reform be attached. If there are twelve each year, our team can be polite and wait its turn. If there is only one plane out of Casablanca, folks have sharp elbows. If there is a plane every week, one can be polite and let others step ahead in line.

 — Grover Norquist is president of Americans for Tax Reform.

Brian Wesbury

The U.S. federal budget is a complete and total mess. Politicians, especially the administration, need an intervention. A group of peers (fellow politicians) should gather round and symbolically cut up the credit card. Refusing to raise the debt ceiling unless there is some serious commitment to cutting future spending is not extreme, nor is it risky. It’s necessary. Everyone knows that the U.S. is on an unsustainable fiscal path. Everyone knows that tax hikes cannot fix the mess. The political answer of kicking the can down the road is no longer viable. Confiscating all the wealth and income of the top 1 percent, 3 percent, or 5 percent will not solve the problem. We need some adults in Washington, D.C. Our lawmakers and executive cannot keep giving away other people’s money to buy votes for themselves. If they do, we will end up like the European nations that are finding out that there is an end to tax and spend and the end does not look pretty.

Don’t believe the “end of the world” predictions or the “apocalypse now” rhetoric. The markets understand that spending is a problem, and raising taxes to pay off the uncontrolled use of the credit card will lead to bankruptcy anyway. The markets understand that not raising the debt ceiling is not the equivalent of default, especially if it ends up forcing serious and real commitments to cutting spending on entitlements in the future. Hide the credit card. Somebody has to.

— Brian Wesbury is chief economist with First Trust Advisors.


Keith Hennessey

A parent gives his irresponsible child a credit card. That child maxes out the card by paying only the first month’s installment of an incredibly expensive annual subscription.

The parent confiscates the credit card to prevent new irresponsible spending. He must still, however, pay the existing credit-card debt. He must also honor the remainder of the contract his child has signed, even if doing so means he must incur more credit-card debt and ask for an increase in his credit-card limit. Unless he is willing to risk bankruptcy or a lawsuit, he must honor the financial obligations his family member incurred.


The parent has control only over new spending commitments, and he must now severely cut back on those. He places his child on a strict allowance and cuts spending throughout the family budget.


Congress must raise the debt limit. Not doing so would eventually lead to defaulting on Treasury bonds, a potentially catastrophic event. Along with that debt limit, Congress should impose a statutory cap on all non-interest spending.


The president and his allies will demand a clean bill or weaker reforms. Republicans should allow them to try to pass such a bill. They should vote no but not filibuster. When it becomes clear that such a bill lacks even the simple majority needed to pass the House and the Senate, Republicans will have a stronger hand in negotiations.


— Keith Hennessey has served as senior White House economic adviser and deputy director of the National Economic Council. He is a research fellow at the Hoover Institution and blogs here.

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