The Mercury News Weekend
Debt ceiling battle isn't what Congress imagined
It began as a way to make it easier for the federal government to sell bonds to finance the U.S. role in World War I.
Now the requirement for a legal ceiling on the federal debt has become a political time bomb that could cause an economic explosion.
Congressional Republicans are trying to use it to reestablish their fiscal credentials. But there is little evidence it's been an effective way to restrain federal spending. Since 1917, Congress has debated and voted debt ceiling increases more than 100 times.
Six months before the real deadline for acting again, it's threatening to become worse than ineffective — something that could undermine economic stability.
Failure to increase the debt ceiling won't affect the spending. But it could cause the government to default on its financial obligations and create a global recession.
Republicans' tax cuts and defense increases make them as complicit in the underlying deficit problem as the Democrats are for passing large domestic social programs.
And for the third time in a dozen years, the House GOP is mounting such an effort soon after a Republican administration that showed little spending restraint.
Until World War I there was no such thing as a debt ceiling, and Congress voted each time the government wanted to issue bonds to finance a specific undertaking. But in the Second Liberty Bond Act of 1917, Congress ceded that authority to the Treasury but set an overall limit of $15 billion.
Then, in 1939, it passed the Public Debts Act, combining separate government loan programs into one with a debt ceiling of $49 billion (or about $1 trillion today).
Over the last 30 years, deficit spending has grown faster under both parties. Increasing partisanship made the debt ceiling fights more acrimonious. On at least three prior occasions, all during Democratic administrations, GOP congressional majorities sought and failed to achieve significant federal spending curbs by leveraging debt ceiling increases.
Each time, House Republicans refused initially to increase the debt ceiling without spending curbs. Each time, they yielded, but only after creating unnecessary financial havoc, gaining minimal cuts and losing politically.
The latest impasse became inevitable last November when Republicans won narrow House control and vowed to oppose the next debt ceiling increase without significant spending cuts.
With Democrats holding both the Senate and the White House, they are fighting an uphill battle, both tactically and politically. Their principal recourse — shutting down the government — proved unpopular in the past. And causing a government financial default could prove even more disastrous.
Technically, the Treasury has reached the ceiling for making outlays. But as in past crises, Treasury Secretary Janet Yellen has various technical tools at her disposal that will delay the real showdown for a few months.
Then, without compromise, economic disaster will loom. It's hardly what Congress had in mind back in 1917.