You may remember August of 2011 where the Republican party held a gun to the head of the world economy. No? Well, you do now.
First a little background on what the Debt Ceiling is:
The United States constitution gives the Congress the power to take on debt and write budgets
. In the old days, Congress had to vote on each loan but to streamline the process the debt ceiling was created in 1917 by the Second Liberty Bond Act
, in order to raise money for the first world war. Shortly before World War 2, the Public Debt Acts of 1939 and 1941 created the debt ceiling that we know and hate today.
The resulting Budget Control Act
established a bi-partisan, bi-cameral super committee was meant to find Real Cuts and Real Savings to protect our precious children's economic future. Long story short, they failed miserably and triggered what is known as "sequestration" or, a massive an unnecessary experiment in austerity that will send us back into a recession quicker than you can say Trillion Dollar Coin
Fast forward through the election and at the end of next month, the US will hit the ceiling (technically we already did, but money is fungible) and thanks to the fiscal cliff deal sequestration is also set to go off on March 1st.
What Happens If We Do Nothing?
We hit the debt ceiling and default on our debt, triggering a massive economic shock that will damage the world's economy at least as much as a limited nuclear exchange in Europe would.
At the same time, the US government would automatically slash $500 Billion dollars from military and defense spending (read: firing servicemembers) and $500 Billion dollars from "discretionary spending" (read: fuck the poor, let's eat grandma).
Shit, That Sounds Bad! What Are Our Options?
There are a few!
The sanest would be a clean repeal of sequestration and a clean raise of the debt ceiling, but let's be honest: that ain't gonna happen.
The second sanest is that, using a trick of the law
that lets the treasury mint platinum coins of any denomination, we just bring out a trillion dollar coin, stick it in an account, and pretend that this all makes sense. But wouldn't that create inflation?! No, and here's Krugman with why
The third sanest is a constitutional crisis wherein the president cites the 14th Amendment, which says that the US will honor its debts, and tells the treasury to just keep swimming. This is tenuous ground at best and basically no one involved has signaled that they're willing to do it.