Debt Ceiling: What Obama Should Say
Friday, July 29, 2011, 4pm (as the markets close for the weekend). My fellow Americans: Today we face a crisis that we should have averted, but haven’t. Come Tuesday, the federal government will no longer be able to pay for all of the government’s obligations, duly passed by Congress and signed into law by me. At this point, it’s exceedingly unlikely that the Congress will be able to pass an acceptable extension of the debt ceiling that can be made law in time to avert an enormous reduction in government operations. This is not a political speech. I will leave the dissection of who offered and refused what to the pundits. Today I lay out my administration’s plan for operations under the current debt limit. Here are the main points:
- America will always pay its debts, in full, and on time. Period. This is the first priority for a number of reasons. First, it’s the right thing to do – as any borrower knows, the only way to ensure and improve your ability to borrow in the future is to meet your financial obligations today. Second, failing to meet this obligation would, quite fairly, result in higher borrowing costs for the government, which would mean even higher deficits and debt. Third, higher interest rates on the government would cascade throughout the economy, causing increased costs on everything from mortgages and home equity loans to business loans to credit cards. Higher mortgage rates would likely exacerbate our housing crisis by making home purchases more expensive. Nothing could be worse for our fragile economy – except perhaps the massive drop in government spending being forced by Republican extremists.
- Social Security and Medicare benefits will be paid in full. The dedicated funding sources for these programs mean that every dollar collected in payroll taxes and interest on the trust funds must be spent on the program’s benefits. To divert these funds to other purposes, such as active military personnel salaries, would require the Treasury to issue additional debt to the trust funds. The debt ceiling precludes this. So Social Security checks will go out, though they may be delayed by a day or two because the government has the added complexity of dealing with matching inflows with outflows.
- The safety net that protects children, the poor, and the unemployed, will be maintained. Protecting the weakest among us is a critical function of government, and it will continue. Federal support of children’s nutrition programs, temporary aid for needy families, Medicaid, and unemployment aid will be fully funded. Unfortunately, as federal government spending is dramatically reduced, spending on unemployment support is almost certain to rise as cuts in federal spending reverberate through the economy. And perversely, we will not be able to fund efforts to train the unemployed and help them find new jobs.
- Everything else the federal government does must be cut by nearly 90%. Until the debt ceiling is raised and we can begin to once again meet the obligations provided for by Congress in its appropriations, we are forced to make the following cuts:
- Most civilian government employees are furloughed until further notice. With few exceptions, our contractors must stop work on all federal government contracts. This action effectively stops millions of our citizens from working, being paid, and spending.
- Until the debt ceiling is raised, we will not pay any of the bills due our contractors. These are American companies that have already provided goods and services to the government and the American people, for which they are owed money under existing contracts. They will be paid; but we can’t pay them until we raise the debt ceiling. Until we do that, many of these companies, especially the small ones, face potentially crippling financial consequences. All will force employees to take leave without pay, and some may go out of business, because the federal government is suddenly unable to pay its bills.
- Until the debt ceiling is raised, active duty military personnel will receive only 50% pay. I have asked Congress to pass emergency legislation making it illegal to initiate or pursue foreclosure or eviction proceedings against any serviceman or woman or their families until this crisis is resolved. This will provide a level of financial protection to our military personnel, but it also extends the damage of the crisis to all of those who’ve rented to or underwritten loans for our servicemen and women.
- Until the debt ceiling is raised, most funding for research will stop, including funding for the Centers for Disease Control, the Food and Drug Administration, and the National Institutes of Health. Clinical trials and the approval process for new drugs will stop.
- The Environmental Protection Agency will shut down. That means not only that environmental cleanup activities will cease, but also that construction projects around the country will have to wait until the debt ceiling is raised for required approvals. Similarly, new oil drilling permits, needed for our efforts to become energy-independent, will be unavailable.
- Until the debt ceiling is raised, the Internal Revenue Service will continue to collect tax revenue, but it will not issue refunds due taxpayers.
- Most federal assistance to the states and localities, aside from Medicaid and unemployment assistance, will stop until the debt ceiling is raised. This includes grants for education, highway construction, and public transportation subsidies. Inevitably, with states and localities facing the same low tax revenue problem that’s a root cause of federal budget deficits, this will cause significant hardship locally, with layoffs likely among teachers, construction workers, bus drivers, and other state and local government employees.
There you have it. Few, aside from certain extremists, will applaud the sorry state of affairs I just described. The longer this impasse continues, the more damage is done to our economy, to our businesses, and to our people. Do not confuse the debt ceiling crisis with the larger, looming problem of the deficit and the debt. They are not one and the same, and one is of far more immediate concern. Imagine you’re in the middle of the ocean on a boat with big holes in the sail. That’s like the deficit; until we fix the sail, we’re not going to get very far, and we may eventually starve. Everybody on board can see the problem, and everybody knows that we need to fix it — though we don’t have agreement about how to do so. But this boat also has a leak, which is like the debt ceiling crisis. If we don’t fix the leak, it doesn’t much matter what happens to the sail — we’re all going to sink. Right here, right now. So I say to the Congress: fix the leak. Stop holding the economy hostage. Pass a debt ceiling bill without unrelated measures that can’t stand on their own merits. And when you bring me that bill, plan on sticking around for a few hours to work on the debt reduction framework. To the American people: every day until they pass such a bill, please keep telling Congress to get it done. And every day after, stay engaged, and hold each of us accountable for our actions, both today and in the future. Thank you for your time.