Dealing with the Debt Ceiling

The Republicans who were supported by the Tea party are talking about not agreeing to an increase in the national debt ceiling as a way of putting a lid on more federal spending. Treasury Secretary Geithner is telling lawmakers that failing to raise the debt ceiling could "Have catastrophic economic consequences".

Not mentioned in any of the articles I've seen about this matter is the impact not raising the debt ceiling would have on interest rates being paid on short term U.S. debt. Right now U.S. treasury bills are paying less than 1% interest in trillions of debt. If we don't raise the debt ceiling, it's my understanding that the bond rating services would be obliged to downgrade our credit rating as a nation -- which would result in our having to offer higher interest rates to induce people to buy our bonds and short term paper. This is in addition to numerous other dire consequences predicted by Geithner.

Mark Thiessen in the Washington Post tells us that "The Treasury Department has many tools it can use to continue paying U.S. obligations during an impasse -- such as suspending sales of non-marketable debt, trimming or delaying auctions of marketable securities and under-investing in certain government trust funds." He also argues that if the GOP stands firm, Obama will be forced to agree to serious spending concessions in order to get the debt ceiling raised.

So it looks like a game of high stakes "chicken". Who will cave first?

Vern