"It is hard to make a rational argument for the debt ceiling as it is now structured," he says. "Basically, the debt ceiling gives the Treasury the authority to borrow money to pay debts we already owe. As you know it doesn't authorize new spending."From the perspective of a business executive like Mr. O'Neill the ceiling is only an impediment to the efficient operations of the U.S. Government--witness the volatility that the financial markets are going through as the Dow Jones Industrial Average fell 198.75 points today amidst speculation about the prospect of stopping government checks on August 2nd. (Avoiding a ratings downgrade is a separate, more difficult problem to solve.)
But our system is built not for efficiency but on the principle of checks and balances. It forces the branches of government to reach consensus on weighty matters such as waging war and judicial appointments. When the bodies are controlled by opposite parties, gridlock is frequently the result.
Congress uses the tools afforded by the Constitution to enforce constraints on a President of another party. Rather than cast a vote against the Vietnam war, Congress defunded it in 1973, thereby forcing America's withdrawal in 1975.
The House Republicans through the mechanism of the debt ceiling are attempting to restrict the spending that was approved by previous Congresses. They hold a weak hand because Republicans control only one half of the Legislative branch, and because they have to be mindful that a U.S. debt default next week may have potentially catastrophic effects on the global financial system.
In my humble opinion I think the Federal Reserve in concert with the U.S. Treasury has various tools to keep the money flowing well past the supposed deadline, but they've never been tested and would set a bad precedent for operating without Congressional authorization. As we approach August 2nd and the crisis mounts, however, we may yet see those tools in action.
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