Since 1962, the U.S. has reached its debt ceiling 74 times, about once every eight months. Every time, the ceiling has been raised with little notice outside Washington and little, if any, change in the trajectory of government spending. But when opposing parties have held the White House and Congress, the process has always resembled a Kabuki dance. What should be a debate becomes an exercise in scoring political points.
The difference today is that the world is watching. Observers around the globe can expect to hear many old myths:
• The Treasury is certain that there will be wrenching dislocations in the capital markets if the ceiling is not raised. In fact, there is no secret Treasury analysis suggesting the world will collapse. Because we've always raised the ceiling, we simply don't know the consequences of not doing so. Four times the ceiling has been reached, remaining in place for months while Congress found consensus, and there was no disruption to the capital markets.
• The Treasury will raid pension funds to avoid exceeding the debt ceiling. When the ceiling is reached but not exceeded, the Treasury has lawful tools to free up borrowing capacity and prolong the time until the ceiling's technical breaching. The Treasury correctly calls the tools "extraordinary" since they are out of the ordinary course of business, but in reality they are neither extreme nor dangerous.
• The government will default on Treasury obligations if the ceiling is not raised. It is critical that we not default, but we don't have to. Hitting the ceiling means that we can spend only what we collect in taxes. According to the Congressional Budget Office, tax revenues for 2011 will be around $2.2 trillion, with net interest on the debt costing $225 billion. We can afford that interest and therefore not default.