Government Shut Down and Debt Ceiling Limit 101

There’s a lot of misconceptions and finger pointing over the government shut down and debt ceiling limit- so here’s my attempt at adding some non biased clarity:

The reason why this “crisis” is allowed to happen is due to the strange process of how the government manages its budget- they have a separate process for taking on debt obligations and another one for actually paying for them.

If you think about it, it really makes no sense to do it this way. It’s like you going out to buy a house and car, sign up for the mortgage and car payments, only to then later decide if you’re going to pay the recurring bills or not. Yeah, some people actually operate this way, but it’s typically associated with fraud and criminal activities. Law abiding people honor their commitments and pay their bills.

So when the debt ceiling needs to be raised, it’s associated with prior approved spending that requires the ceiling to be raised. The key to remember here is the ceiling isn’t raised to allow the government to approve new spending, but to pay the bills of the spending that was ALREADY APPROVED. This is where many people get confused, they think raising the ceiling encourages more spending, but what it actually does is just pay for past spending obligations, not new ones.

Once upon a time the two processes were tied together, requiring the debt ceiling to be raised at the same time new spending was approved, so you couldn’t have one without the other. This was known as the Gephardt Rule, named after its proponent and creator congressman Dick Gephardt.

The rule combining the two steps was waived by Republicans after they took the House and Senate back in 1994. I don’t fault Republicans for doing this, as this was a political maneuver that either side would likely do when they don’t have the Presidency. It becomes a nice weapon to use against the opposing party President about over spending. We can be fairly certain that if the Republicans controlled the Senate, House, and Presidency like the Dems had, they would have kept using the Gephardt rule to their advantage.

Of course using this “funding” weapon can lead to government shutdowns. This is nothing new and we’ve have several of them over the years between the two parties.

The big difference now is no party in recent history has ever threatened to not raise the debt ceiling and allow the country to default on its debts. The first time this occurred was in 2011 with the arrival of the Tea Party Republicans. The ensuing debt limit standoff between the President and the House resulted in the lowering of our national credit rating for the first time in history, which sent the markets in a spin.

Typically in the past neither party was thought to ever be willing to force a default by not raising the ceiling, but used the opportunity for the vote to humiliate the President of the opposing party as being an out of control spender.  There would be some grand standing and speeches, but the ceiling was raised without needing a countdown clock to Armageddon.  This time things are different with the advent of the Tea Party elected politicians being willing to raise the bar to making the threat of an actual default a negotiation tool.

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