“Debt Ceiling” is Just Another Chupacabra

Want to scare the living daylights out of people?  Convince them there’s a scary beast that comes out at night and sucks the blood out of its victims . . […]

Want to scare the living daylights out of people?  Convince them there’s a scary beast that comes out at night and sucks the blood out of its victims . . . and then tell them “it’s coming for you next.”

In reality, no one has proved the existence of the Chupacabra (just don’t try to tell my grandmother that), but today the media is trying to convince us that it has reincarnated in another, even scarier, form—the debt ceiling.

Much like the modus operandi of the mythical beast, we all know something is sucking the life out of our economy, leaving politicians scratching their heads for answers in the morning.  Yesterday’s scapegoat was the fiscal cliff.  But the “fiscal cliff” turned out to be more of a fiscal pothole, leaving legislators to place the blame for the next financial apocalypse upon the debt ceiling, if we don’t implement their side’s policies.

So what happens if we do pass, yet another, economy-collapsing deadline?

Technically, we’ve already passed the ceiling of $16.394 trillion (but some leeway gives the Treasury a few extra dollars until all hell breaks lose), but if we do pass the latest deadline two things will happen, according to many fear-mongers:  1) the U.S. will default on its debt for the first time in history, and 2) the government will completely shut down.

If the U.S. defaults on its debt, our credit rating will inevitably suffer even more dramatically than it has.  If downgraded, yet again, the cost to borrow money will increase and our debt will be amplified.  Our nation’s security suffers when our “not-so-friendly” economic partners around the world realize that they have increasing power over our economy.  The effects will quickly trickle down to us common folk in the form of our own increased borrowing costs and a number of other cascading economic repercussions.

If the government shuts down it won’t be pretty either.  The elderly won’t get their Social Security checks and medical coverage, all air travel will cease, millions of federal employees will be out of work, the military won’t protect our borders, and national parks and museums will shut down.

In reality, none of this will happen.  Hitting our debt limit does not mean we have to instantly stop spending—as is already evident.  All it really means is that we can no longer spend more than what we have coming in (what many argue we should be doing anyway).  The Treasury will still be able to allocate the spending of all of our current tax receipts.

If we pass the deadline, the first thing the Treasury will do is ensure that we pay our obligations, at a minimum.  Economists concur there would be few things more damaging to our long-term success than defaulting.  At a minimum, we will continue to pay the interest on our debts, ensuring that we do not default.  This doesn’t guarantee that Fitch and Moody’s won’t consider a slight credit rating decrease, but it does guarantee we won’t default, sending our ratings into a death spiral.

Continuing with its process of allocating to our greatest needs, the only government function that the Treasury will allow to shut down are “nonessential services.”  (Many of us wonder why, if they are so “nonessential,” are we paying for them in the first place?)  Most assuredly, our government considers Social Security, Medicare, national defense, and transportation essential to our economy.

You might not be able to go to your favorite national park, but grandma and disabled people won’t be left in the street either.

Lastly, because we live in a quick-fix, Band-Aid and Duct tape kind of world, my prediction is that we will just do what politicians have done best in the last century: kick the can down the road by raising the debt ceiling and doing little else to fix the real problem.

The real Chupacabra that everyone should be afraid of is our nation’s spending problem.  Our debt ceiling is the result of years and years of spending more than the money that we have.  It didn’t start with Barack Obama—under Clinton our debt increased by nearly 25% and “W” raised it another $5 trillion over eight years—but this president is certainly putting the cherry on top by adding nearly another $1.5 trillion in debt each year in office.  If this trend continues, and many suspect it will, we will have again doubled our debt by the end of his second term.

We aren’t going to default or shut down the government because of the current “debt ceiling crisis” and our current Congress and President will never come to terms with a panacea.  But, if we don’t kill the real economic bloodsucker soon, that giant can of IOU’s will one day be too big to kick down the road and we may have to learn what a real crisis looks like.

Justin Vélez-Hagan is the National Executive Director of The National Puerto Rican Chamber of Commerce and an Adjunct Instructor of Economics at the University of Maryland-University College.  He is also the Sr. Contributing Writer for Politic365 and can be reached at Justin@Politic365.com or @JVelezHagan.