Tim Geithner has claimed that a failure to raise the debt ceiling by August 2nd will result in the US defaulting on its debts, which will in turn have "catastrophic" effects...on stuff. Until statements to the contrary arise, I am going to ascribe that view as the White House's position on the issue. If Geithner's view is correct, then it would follow that the debt ceiling needs to be increased so that we can sleep at night for another year and hope that Obamanomics finally gets enough fairy dust together to magically lift the US out of this recession.
But it doesn't appear that the issue is that simple...mainly because not everyone who has a say in the matter agrees with Geithner's conclusion. That is not to say that the debt ceiling is irrelevant, but rather that the result of maintaining the current debt ceiling would not catastrophic. There is simply no getting around the fact that our country is drowning in national debt - we are committed to spend more money than we can raise right now. The issue facing congress is essentially what expenditures should be prioritized, and which can be reduced or eliminated in the future.
The underlying concern in Washington is what is the plan going to be moving forward? One fear is that Moody's is going to lower the US's credit-rating, thereby making it either more difficult or at least more expensive for America to borrow money...to pay its debts. Well, would that really be the worst -case scenario? If analysts who disagree with the WH and believe that the US will not default are correct and the result of Aug. 2nd passing with no action is that the US is downgraded, won't we still survive?
Sen. Pat Toomey believes so. He points out that the Debt Ceiling relates to our ability to borrow money, and not our ability to raise money, and the US doesn't become broke at the stroke of midnight - we still have the ability to pay some debts. His position is essentially that confidence in US Bonds will not evaporate on August 3, and that we can survive by showing that our nation is serious about paying its debts and is working towards a national policy of fiscal responsibility - hence his support for a Balanced-Budget Amendment to the Constitution.
There is no easy way out of this situation for the US - no solution comes without its share of pain. On one hand, we can raise the debt limit and keep borrowing money on the hopes that the economy turns around before we get back to this point. However, with unemployment creeping higher - number that is underscored by the vast numbers of people who have given up seeking employment - and still no budget proposal from the Democrat-controlled Senate, it seems at best a risky wager that we will soon see a light at the end of this tunnel. If the economy does not turn around, we will quickly find ourselves back here with an even bleaker view. On the other hand, now may be the time to make a stand, get serious about the budget, borrowing and spending and make some hard cuts so we can start to build moving forward.
But then, the Democrat keep going back to their same old well - minimal cuts that save a nominal amount of money spread-out over a long-period of time, plus immediate tax increases. In short, raise taxes and kick the can down the road and proclaim the problem solved.