The U.S. government’s ability to borrow to pay its legal obligations could screech to a halt on Aug. 2, and many believe the world’s economy hangs in the balance.
It could be even worse for Mississippi if the U.S. is unable to pay existing legal obligations due to not raising the debt ceiling, said U.S. Rep. Bennie Thompson (D-MS).
“A state like Mississippi, which receives more money from the federal government than it sends it, would be disproportionately harmed by any failure of our financial system,” Thompson said.
Raising the debt limit is particularly important to students, Thompson said.
A significant percent, 18-19 percent, of Mississippi’s public school support comes from the federal government, including the meals program and the ability to purchase computers and other aides.
“Public education is something that Mississippi can’t support on its own,” Thompson said. “That is why federal help is so important.”
Higher education would also be impacted, as many students rely on FAFSA resources, including pell grants, subsidized loans and work-study.
“Without it, I would not have finished college, probably, and there are many in the same situation,” Thompson said. “I used work-study and student loans throughout college.”
Problems in the U.S.A.
Not getting it done could also sink programs like Social Security, and President Obama has come under fire recently for saying that Social Security checks may not go out.
The budgeted expenditures for August total to $306.7 billion, while the projected revenue is $172.4 billion
This leaves a deficit of $134.3 billion that the federal government will be unable to pay.
If the government used August revenues to pay for August expenses in Social Security benefits ($49.2B), Medicare/Medicaid ($50B), interest on debt ($29B), unemployment benefits ($12.8), active military salaries ($2.9B) and federal salaries ($14.2B), there would only be $14.3 Billion left to pay for the Department of Education ($20B), IRS Refunds ($3.9B), Veteran’s Affairs ($2.9B), Defense Vendors ($31.7B), not to mention the Justice department, FAA, FTA and other federal agencies totaling $89.9 billion.
While the average college student faced with this situation might decide to eat out less or cancel their Netflix subscription, the choice becomes much harder for the federal government.
The U.S. has also recently come under attack by rating agencies in a recent release.
The U.S.’s AAA rating is basically like having a perfect credit score, and Moody’s Investors Service is threatening to downgrade that if the U.S. isn’t able to pay its current bills and do something about the debt.
Jon Moen, chair of the University of Mississippi’s economics department, said this would be quite the blow.
“It will just, in effect, raise the rate of interest the U.S. government has to pay on borrowing,” he said “In other words, more of our taxation and revenue will go to paying interest (on our debt) rather than on entitlements, expenditures and things like that.”
What exactly is the debt ceiling?
According to the U.S. Department of the Treasury, the debt limit is the total amount of money that the U.S. is allowed to borrow to meet existing legal obligations.
The room made available to pay these obligations, such as Medicare and Social Security, will be gone by Aug. 2 unless the limit is raised.
It does not authorize any new spending commitments.
Since 1960, the debt ceiling has been raised 78 times, with 49 of those raises coming under Republican presidents. It has risen from less than $1 trillion to approximately $14 trillion.
If it isn’t raised, the U.S. will begin to default on its legal obligations for the first time in history.
Why isn’t it getting done?
Thompson, who has served in the U.S. House since 1993, said the issue went through Congress with little fanfare.
This time around, however, it has been coupled with future spending, and Thompson said many in the Republican leadership would like to use it as an opportunity to further their agenda.
“It has always been a straight up or down vote,” Thompson said. “The new leadership in the House has decided that they want to add some budget cuts or other considerations to this vote, because that is their preference, and they are the leadership, so we are in this quagmire.”
University of Mississippi Political science chair Richard Forgette said the issue is political, in that the new members of the House ran, and won, on not incurring more federal debt.
“Now they are being faced with their own words,” Forgette said. “Are we going to increase the debt ceiling? Not without some other significant deficit reduction such that those members of Congress can go back to their constituencies and say and explain why they voted for the debt ceiling increase.”
Moen agreed that the issue rested more on politics than economic sense.
“I’ve seen very few people in Washington arguing intelligently about what we want to do,” Moen said. “They seem more interested in winning their battle rather than solving or at least coming up with a reasonable solution to the federal government’s fiscal situation.”
Moen said with the election looming, neither side wants to be seen as the one giving something up.
U.S. Sen. Thad Cochran (R-MS) said raising the debt ceiling is something that Congress has to do, whatever it takes.
“It is important and necessary to economic good health,” he said.
Thompson said he has not heard what those conditions would be, but he does know where he would draw the line.
“I am one of those individuals who said to the president that it would not be wise for him to tamper with Social Security, Medicare and Medicaid,” Thompson said. “I would vote to raise it, but not on the expense of the neediest people in my state.”
Social Security does three key things that affect a lot of Mississippians, Thompson said. It benefits to survivors, if no life insurance was present. It is also the only option for many people who are disabled
As well, it is the only retirement option for many in the state. Medicare and Medicaid are just as important to a number of Mississippians, the U.S. representative said.
“Those programs are basically operating with bare bones budgets as is,” Thompson said. “And so, if we started cutting those programs, we will just add a lot more burden to individuals on Social Security and the health care needs of many in our state.”
Thompson said the best course of action would be to up the debt limit, and then focus on attacking the deficit in the near future.
Cochran said the debt limit wasn’t something that could be played with.
“It is one of those situations where I don’t think we have any alternative but to approve the legislation that is necessary to put Congress in support of administrative actions that will permit us to carry out the financing of the national debt,” Cochran said. “We will continue to pay our bills — it is not that we are going to ignore obligations that we have.”
U.S. Rep. Alan Nunnelee (R-MS) said this short-term solution would only be passed with some provisions.
“I’m not opposed to a short-term solution,” he said. “As long as there are spending cuts to offset the raise in the debt ceiling.”
The McConnell plan is one short-term solution being suggested by members of both parties. Under that plan Congress gives the president the power to raise the debt ceiling without requiring a majority vote in favor of the action for the next year or more.
“I don’t like the idea,” Nunnelee said. “It’s an old Washington approach to a serious problem. It doesn’t matter how or if a problem is solved, it matters who gets the blamed. I don’t think that’s the right approach. We need to deal with the problem itself.”
U.S. Sen. Roger Wicker (R-MS) said passing the McConnell plan might be necessary to prevent a downgrade of U.S. debt.
“As a last ditch effort to prevent a default and to prevent our country’s credit rating from being downgraded from AAA, I would consider such an approach,” Wicker responded. “I don’t think it’s anyone’s first choice.”
Forgette said he expects a short-term resolution to be passed before Aug. 2, but that nothing to address the longer-term issue of decreasing the deficit will be reached.
Rather that will be a point for 2012, the presidential election year, Forgette said.
from the DM by Cain Madden, Lee Harris and Taylor Smith
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