Limit Debt Before Raising Debt Limit

The sobering news that Standard & Poor's has lowered its assessment of U.S. Treasury securities from “stable” to “negative” raises the stakes even higher for the upcoming debate about raising the debt ceiling.

The Obama administration and Congressional Democrats are already laying the groundwork to accuse Republicans of being reckless in insisting that the debt ceiling vote be accompanied by debt reduction measures. White House officials warn that a failure to raise the debt ceiling would be anything from "catastrophic" to "Armageddon-like." Sen. Clair McCaskill said it would be “profoundly irresponsible” of Republicans to vote against raising the limit even though she voted no in 2007 -- along with a number of her Democratic colleagues.

In reality, it would be irresponsible to automatically raise the debt ceiling without implementing meaningful fiscal reforms.

As a junior senator in 2006, President Obama understood this. Explaining his vote against raising the debt limit, then-Senator Obama stated the increase was " a sign that the U.S. government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our government’s reckless fiscal policies." He complained that " increasing America’s debt weakens us domestically and internationally" and that "Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren."

Precisely.

While White House officials and Democrats on the Hill try their best to convince the American people that a failure to raise the debt ceiling would spell disaster, the real danger lies in allowing our massive debt to continue to grow unchecked.

Days before the S&P announcement, International Monetary Fund (IMF) officials stressed that "it is important the United States undertakes fiscal adjustment sooner rather than later." In their Fiscal Monitor Report, the IMF warned of the consequences if the bond market loses confidence in our ability to rein in the deficit. Although "market concerns about sustainability remain subdued in the United States," the IMF said, markets tend to react "late and abruptly to deteriorating fiscal conditions." We learned just how abruptly conditions can change when S&P announced its downgrade just days later.

As long as our debt burden continues to grow, higher interest rates remain a constant threat and "further delay in action could be costly." The IMF report warns that deficit reduction is "particularly urgent in the United States to stem the risk of globally destabilizing changes in bond markets."

Even with historically low interest rates, the interest payments alone on our debt already consume around 10 cents of every tax dollar and are projected to consume over 20 percent of all tax revenue by 2020 -- that's one out of every five tax dollars. And that's if we're lucky. If our foreign investors -- who own roughly half of all publicly held U.S. debt -- begin to doubt our will to balance our budget, interest rates could rise sharply.

In short, all of the grim consequences Democrats are warning about are just as strongly linked to failure to limit the debt as they are to failure to raise the debt limit. Blindly raising the debt ceiling may postpone fiscal catastrophe, but it will not avert it. The only way to prevent a financial doomsday is to enact significant and lasting spending reforms.