Let’s say you get yelled at by your boss and you stand there and take it. When you go home and (metaphorically) kick the dog, that’s a proxy fight. You don’t want to fight the real right, so you have a placeholder instead. This happens all the time through history. Nations fight in Korea and Vietnam because a war on Communist Russia itself will end in nuclear annihilation.
For all the doomsday talk of the debt ceiling, it is merely a proxy fight for the budget itself. In fact, it’s a fight over last year’s budget. A few months ago, Tea Party supporters were outraged when tens of billion in “cuts” in the FY2011 budget amounted to merely $352 million in real budget reduction. Then there’s the current budget, which exists either in Paul Ryan’s plan or Barack Obama’s imagination.
The Federal government has the ability to issue debt, but has a limit that requires Congressional approval to raise. States don’t generally have this luxury, but they will issue bonds in a similar fashion. The debt limit increase itself is based on the amount overspent in the federal budget, so much of it is baked in the cake anyway. While some people play politics with the vote, like the half term Senator from Illinois, it’s generally accepted that you have to pay the piper, or at least borrow money from the Chinese to pay the piper.
In true proxy fight fashion, the Republicans chose to avoid having their asses handed to them in a budget fight right before the campaign season. Plus, there’s the lingering memory of the government shutdowns in 1995. The result would be the same anyway. When we run out of money, doors will close.
Think of the debt ceiling like a credit limit. We get to raise the limit as we see fit, so think of it like Donald Trump’s line of credit after he declared bankruptcy. Right now, it’s like a home equity line of credit, where the amount is based on our annual income (the GDP). Since we only have the one credit card, we use it to pay for everything. We have the minimum payment, since we rarely pay down the balance on the card. We have our security system (defense) and our retirement plan (Social Security). We have health insurance payments (Medicare). There’s mandatory spending like utility bills and car payments. We also have some discretionary spending like those fancy Scotch and Waygu beef parties.
Some expenses are more important than others, but they are all bills to be paid. If the credit card company gets wind that we are avoiding creditors, they’re going to raise our interest rate. The easiest solution is to spend less. Gaining income is tough, especially in this economy.
The current negotiations over the debt ceiling are, in fact, budget items. We are creating the budget for FY2012 right now. That’s why this fight is so contentious. The Democrats managed to go two years without a budget. This time, they have only a few months. For all the bickering, we are right back where we were the day the debt ceiling increase vote failed. The ceiling has to be raised in order to spend more money. If the president ignores the ceiling, the Republicans will have the moral high ground to block every budget submitted by his party.
The credit line will end. Maybe not today, maybe not tomorrow. But soon, and for the rest of the administration.