The debt-limit drama is heating up. By mid-October, the U.S. government will run out of the legal authority to issue new debt. That means it won’t really be able to operate. On cue, the House Republicans have now released their enormous, exorbitant, foolish list of demands in exchange for lifting the debt limit. Obama has refused to negotiate on the topic. House Republicans, by contrast, are begging for him to enter talks. Their theory seems to be that in exchange for giving President Obama something that he wants (but that they don’t want to give), he should give them a bunch of things they want (but that he doesn’t want to give).
The House Republicans, and, unfortunately, many of my brothers and sisters in the media, misunderstand what is going on here. The debt-limit increase is not something that Congress “gives” President Obama. It’s something the Congress will give President Reagan, and President Bush (I and II), and President Clinton. It’s something they’ll give all the prior Congresses, including ones in which current House GOP leadership served in and ran. And above all, it’s something that Washington gives to the holders of the trillions of dollars of bonds this country has issued over the last 30 years—central banks, financial institutions, companies, and individuals who are legally entitled to interest and principal payments.
The government spends more than it takes in every year, and has done so for the last many decades, under every partisan arrangement imaginable—full Republican control, full Democratic control, Republican presidents with Democrats running Congress, Democratic presidents with Republicans running Congress, etc. (In the late 1990s, there was a brief moment where the government actually made a small profit.) In addition, we fund our biggest and most cherished entitlemen—Social Securit—by issuing bonds as IOUs to the Social Security Trust Funds. Simply by living and breathing, the government’s debt rises each year.
To fund current operations and pay off debt that has been accumulated in years past, the government sells bonds. Some roll over very quickly, but others endure for 10 years, 20 years, or 30 years. The government needs to increase the debt limit so it can raise cash to pay for next year’s operations. But it also needs to raise cash to pay for last year’s, and last decade’s, and last century’s operations. Bonds we issue today are paying for the stimulus package approved by Democrats in 2009. But they’re also paying for the Medicare Prescription drug benefit—an expensive entitlement without a funding mechanism that was rammed through a Republican Congress whose members included Speaker John Boehner and Rep. Paul Ryan, and signed into law by President George W. Bush.
Go check out the Bureau of the Public Debt, which has a wealth of information. On Feburary 18, 1986, in the middle of Ronald Reagan’s second term, the government sold 30-year bonds, at a yield of 9.25 percent (those were the days!). That issue, CUSIP # 912810DV7, is still trading today. On November 7, 1991, when George H.W. Bush was president, the government issued 30-year bonds at an 8 percent rate. We’ll be paying interest on those until 2021. On August 7, 1997, with President Clinton in the White House and Republicans controlling the House, the government issued $10.37 billion in 30-year bonds paying a 6.375 percent interest rate. In August 2006, with George W. Bush in the White House, the government auctioned $14 billion in 30-year bonds yielding 4.5 percent. In November 2011, the government raised $17.224 billion, selling 30-year bonds at a 3.125 percent interest rate. These bonds were issued to fund the operations of government and the payment of benefits in the 1980s and 1990s—to pay for satellites in the last years of the Cold War, to fund the Gulf War and the Iraq War and the bombing of Serbia, to support a generation of research at the National Institutes of Health, to pay for the medical care of our grandparents. The taxpayers are currently making payments on all those bonds, and the government needs to increase the debt limit so it can continue doing so.
In the corporate world, those who fail to make payments wind up losing ownership in bankruptcy. It’s not quite that way with government debt. When a public entity defaults, or even acts in a way that makes people suspect it might default, the market freaks out. The borrower loses credibility, respect, and the ability to participate in the market in the future. Which is why cities and states work so hard to avoid defaulting on bonds—they’ll gladly stiff suppliers, workers, and citizens long before they’ll stiff bondholders.
Yes, the debt has exploded in recent years, in large part because the government ran successive trillion-dollar deficits during the recession and the early years of the recovery. But as this chart from the Center for Budget and Policy Priorities shows, a great deal of today’s debt can be traced to policies enacted before President Obama arrived.
That chart is one way of looking at the problem. Here’s another way. I went back and looked at the monthly reports on the U.S. debt, to determine how much the total U.S. national debt outstanding had increased under different presidents over the past 30 years. (Note: the total debt outstanding differs ever so slightly from the amount of debt subject to the limit.) This may be didactic and repetitive, but stick with me. When Reagan took office, in January 1981, the national debt was $934 billion. Between January 31, 1981, and January 31, 1989, the debt rose to $2.697 trillion—a threefold increase, or $1.763 trillion. Between January 31, 1989, and January 31, 1993—the Bush I years—the national debt jumped $1.47 trillion to $4.167 trillion, up 54 percent. During the Clinton years, January 31, 1993 to January 31, 2001, debt rose another $1.55 trillion to $5.716 trillion, up 37 percent. During the Bush II years, the national debt soared, rising $4.9 trillion, or 86 percent, to $10.632 trillion. The national debt soared again during the Obama years, too. As of August, the national debt stood at $16.738 trillion, up $6.1 trillion, or 57 percent, since the president’s inauguration. Every president inherits debt, and then adds more. But of the current national debt, 63 percent predates President Obama’s arrival in the White House. Every president inherits debt and then adds more.
Many of today’s House Republicans have only arrived in Washington, D.C., since 2010, and seem to take the position that they’re not responsible for debt and spending they didn’t personally approve. But that’s a crazy stance to take. The leaders of today’s House GOP were present at the creation of much of the tax and spending policies that created the mismatch between revenues and spending. To act like they had nothing to do with it is ridiculous. What’s more, you don’t get to pick and choose which past governmental obligations you’re willing to actually fund. It would be like people moving into a house that is continually being remodeled and then saying they won’t pay the mortgage or the contractors.