Key takeaways:
- Republican leadership is facing a difficult task of instructing their rank-and-file on the difference between debt default and a government shutdown.
- Tax cuts, war spending, and a change in the composition of federal revenue have caused budget surpluses to disappear.
- The Republican Party is divided on how to approach the debt ceiling issue, with some members not understanding the implications of their threats.
Washington, DC – With the looming debt ceiling deadline, Republican leadership is facing a difficult task of instructing their rank-and-file on the difference between debt default and a government shutdown. Democrats maintain that they should raise the debt ceiling without any strings attached. However, some Republicans are calling for a 10-year plan to balance the budget, a goal many fiscal experts deem politically unrealistic.
In 2001, Alan Greenspan, then-chairman of the Federal Reserve, warned senators against using budget surpluses to pay off the national debt. Since then, tax cuts, war spending, and a change in the composition of federal revenue have caused the surpluses to disappear.
The Treasury Department is currently shuffling money around to keep paying our bills, but if the debt ceiling is not raised, the Fed would have to buy private-sector debt to control interest rates since its main policy lever, U.S. Treasury bonds, would disappear.
The Republican Party is divided on how to approach the debt ceiling issue, with some members not understanding the implications of their threats. With the deadline quickly approaching, it is unclear how the situation will be resolved. It is up to the Republican leadership to ensure that their party is on the same page and that the debt ceiling is raised in a way that is beneficial to the American people.
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