In summer 2011, after a long showdown, Congress agreed to raise the statutory limit on federal debt. It wasn’t the first time we’d raised the debt limit. And no one expected it to be the last. That’s the problem.
Under Ronald Reagan, we raised the debt limit 18 times. Under Bill Clinton we raised it eight times. Under George W. Bush we raised the limit another seven times. By the time Obama took office, it became routine. The 2011 debt limit hike raised the cap by about $2 trillion—to $16.4 trillion. Just 18 months later, the Obama administration is insisting on raising it again.
What the Obama team says it wants this time is a “clean” raise—a hike in the debt ceiling that’s paired with no significant changes. In other words, the president wants to continue the same old routine: raise the debt limit, spend more, borrow more—wash, rinse, repeat.
The White House argues that a clean hike is the only way to avoid a potential downgrade of the nation’s creditworthiness. If the GOP resists authorizing a hike in the limit, political instability will make creditors wary of further lending, raising the nation’s borrowing costs and destabilizing the global economic system.
Perhaps they should pay a little more attention to what the big credit rating agencies are actually saying. Earlier this week, Fitch put the U.S. government on notice: Yes, it wants the debt limit raised without a major fight, but it also warned that the fundamental strengths of the country’s creditworthiness “are being eroded by the large, albeit steadily declining, structural budget deficit and high and rising public debt.” Without a credible medium term deficit reduction plan, the agency says, a downgrade of the U.S. credit rating is likely by the end of this year. Fitch isn’t the only agency to sound this alarm about unsustainably high debt levels. As The Wall Street Journal noted this week, all three rating firms “have implored lawmakers to lower the country's debt relative to its economic output.”
So what this episode of our national debt limit drama needs to be about is figuring out, or at least beginning to figure out, a way to end the ugly cycle of debt buildup and debt limit hikes. It’s the refusal to do that—the stubborn insistence on continuing with spending and entitlement policies that have made debt limit hikes a routine in Washington—that’s the biggest problem.
President Obama should be sensitive to this. After all, in 2006, as a young Democratic Senator, he faced a vote to raise the debt limit from $8.1 trillion to $8.9 trillion. The deficit was much smaller then—less than $250 billion, compared to today’s $1 trillion-plus gaps—but Obama declared his opposition the debt limit hike anyway. “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure,” he said. “It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies.…Leadership means that ‘the buck stops here.’ Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt and a failure of leadership. Americans deserve better.”
Since winning the presidency, Obama has distanced himself from those remarks and the vote they went with, saying it was an example of a new senator making “a political vote.” But Obama is still playing politics with the debt limit—just from a different perch. He had it right the first time. The fact that the debt limit is up for a vote yet again is a sign of reckless fiscal policies. And the fact that Obama doesn’t seem to want to end the cycle of spending and borrowing that brought us to the point of needing yet another hike is, as he said, a failure of leadership.