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What Brookings Scholars Said about the Debt Ceiling

Fred Dews
Fred Dews Managing Editor, New Digital Products - Office of Communications

October 16, 2013

  • 11 min read

The debt ceiling crisis ended Wednesday night, October 17, when the House and Senate passed new legislation, signed by President Obama, to reopen the federal government and raise the Treasury’s borrowing limit. During the last two weeks, Brookings experts offered thoughts and recommendations. Visit FixGov blog for new research and recommendations on how to make government work, and visit our federal budget topic page to follow the latest research from across Brookings.


October 17:

 


October 16:

Justin Wolfers, appearing on “Now with Alex Wagner” (MSNBC), says that despite an impending deal, “this isn’t over. … We’ve got a system of perpetual gridlock. There is a real risk that one day, we play chicken often enough, someone goes off the cliff, and if we keep playing, we’re going to price that risk and that’s going to cost you and me.” Watch below:

 

Gerald Cohen says despite a potential solution, there still may be dangers:

Though it looks like Washington has come to the realization that playing politics with the full faith and credit of the U.S. government is a mistake, given the current standstill, it is possible that an increase in the debt ceiling may not be fully in effect by the October 17th drop-dead date. As a result, I update and extend some of the work done in that earlier piece and discuss the dangers of any delay in payments even on the shortest-term Treasury instruments.

 

 


October 15:

Philip Wallach responds to Saul Jackman’s FixGov post in which he argued that President Obama should, if necessary, declare a national emergency and raise the debt ceiling through executive order. Wallach, who agrees that breaching the debt ceiling would be “potentially catastrophic,” says that “if there are really no other options, then there is a strong case to be made that the President should seriously consider breaking the law embodied by the debt ceiling without pretending that his doing so is legal.”

 


October 14:

Saul Jackman argues that President Obama “has the institutional authority to put an end to this game, thus unilaterally preventing an international economic crisis.” Writing on FixGov blog, Jackman says:

…the President is charged constitutionally both with executing the appropriations bills authorized by Congress as well as protecting the full faith and credit of the United States. A unilateral increase in the debt ceiling may be the only way to uphold his Constitutional duties. As such, his primary constitutional responsibility is to implement the laws in such a way as to best protect the interests of the nation. And the longer this crisis plays out, the clearer it will become to all involved – especially President Obama – that a state of emergency is upon us, and that the best way he can protect the interests of our nation is to unilaterally raise the debt ceiling.

 

 


October 13:

 


October 11:

 

John Hudak and Thomas Mann are calling for a “grand bargain for democracy,” not just a bargain to reopen the federal government and increase the debt limit:

We need President Obama and Congress to agree to take off the table the partisan war’s new weapons of mass destruction – government shutdowns, threats of public default, and sequesters. Hostage-taking to gain unilateral concessions not achievable through ordinary bargaining and putting in place automatic, indiscriminate spending cuts in the absence of budget agreements diminish our democracy and imperil our economy.


October 10:

On the FixGov blog, Philip Wallach and William Galston discuss possible solutions to the shutdown and default crises.


October 9:

Doug Elliott says that the “vast majority of investors believe a failure to increase the debt limit would be a disaster.”

The only way that Wall Street can influence the Tea Party is by putting their money where their mouth is and selling stocks. Congress would notice a 500 or a 1,000 point decline in the Dow. Even then, the real impact would be through persuading those Republicans in the House who are not hard core Tea Party members that they have to push Speaker Boehner to pass an increase in the debt limit. The more radical members of the Tea Party just do not see the world as the rest of us do.

The vast majority of investors believe a failure to increase the debt limit would be a disaster, but most of them believe, along with me, that even our Congress is not stupid enough to force a default. So you have the ironic situation that many are looking at the stock market to tell them whether action is necessary, yet the market signal will not come as long as the market thinks Congress will do the right thing in the end. An investor who sells now expects to regret that decision once Congress acts. This is the real danger; that Congress does not realize what investors really think until it is too late.

 

Bill Galston rounds up what some members of Congress who think hitting the debt ceiling is not “unthinkable” have been saying about breaching it. “Hardly anyone who knows anything about this issue agrees with these sanguine assessments,” says Galston.

Gerald Cohen explains why “equity markets are swooning and short-term U.S. Treasury interest rates are spiking, but longer-term interest rates are flat-to-down.”

Isabel Sawhill, who says that “the consequences of default should be sobering,” offers four ideas on how Republicans and Democrats can find agreement on the issue. 

October 8:

October 7:

Alice Rivlin, who directed the Office of Management and Budget during the last government shutdown in 1995, says “Although the debt ceiling figured in 1995 partisan rhetoric, it was still unthinkable that politicians would force the Treasury to stop paying the government’s bills or actually default on its debt.”

October 2:

Philip Wallach reviews the history of past debt ceiling crises, noting that “when push came to shove Congress raised the ceiling in each case” and calling particular attention to the episode in 1996.

September 30:

Henry Aaron says that “If Congress leaves the debt ceiling at a level inconsistent with duly enacted spending and tax laws, the president has no choice but to ignore it.”

Get all research and commentary from Brookings experts on the debt limit debate »