Ezra Klein’s lazy debt limit reporting 

I don’t know why Ezra Klein wastes time writing his own blog posts when he could just as easily cut and paste from Treasury Department press releases. Here he is parroting Timothy Geithner’s chicken little routine on the debt ceiling yesterday:

The debt ceiling had to be raised seven times during the Bush years, and the policies that helped drive those increases — not to mention the financial crisis that followed them — have not been undone under Obama.

This is true enough, but Ezra conveniently forgets to mention that the debt ceiling has already been raised three times during Obama’s first two years in office. In February 2009, Obama asked for and received a $789 billion debt limit hike to help pay for his stimulus plan. In December 2009, Congress passed a stand alone $290 billion debt ceiling increase and in February 2010, the Democrats in Congress hiked the limit another $1.4 trillion to today’s $14.3 trillion max. Ezra continues:

Throughout the financial crisis, America’s great advantage was its status as the single safest investment in the world. That makes it easier for us to borrow money to ease a downturn. It makes it easier for our central bank to buy bonds to keep interest rates low. It gives us tools and flexibility that, say, Greece simply doesn’t have. But all of that is based on the market’s perception that our debt is, indeed, a safe investment, that we will pay it back, that we won’t inflate our way out of the fiscal holes we dig, that our political system will make tough decisions when necessary.

Confidence, once lost, is hard to regain. “It’s like a cat who jumps on a hot stove,” says Bill Gross, co-founder of Pimco. “Burn it once, and it doesn’t jump back on there.”

Which gets to the essential irony of this whole conversation: By taking the debt ceiling hostage in a bid to address the deficit, Congress could provoke the exact calamity it’s seeking to prevent. What we worry about when we worry about the deficit is that the market will lose confidence in our ability to pay back our debts and begin charging more to buy Treasurys. There’s no quicker way to undercut the market’s confidence in the U.S. government than for it walk up to the abyss of default.

Reading this you’d think waiting a single day past the Treasury identified May 16th deadline would cause financial Armageddon. History tells a slightly different story. Three times over the last thirty Congress has failed to raise the debt limit after the Treasury Department alerted them that their borrowing authority had been reached: 1985, 1995, and 2002. The longest stretch occurred during the 1995-1996 showdown when the debt limit was reached in November 1995 but Congress did not raise the limit until March 29, 1996. Did investors lose confidence in U.S. Treasuries? Did interest rates sky rocket? Did we turn into Greece? No. None of that happened.

Wonder why Ezra left all these facts out of his story.

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