If you grew up in Nebraska, as I did, you needed someone else to make jokes about. As such, we tended to pick on the good people of Kansas. For example, the story went around that a Kansas law stipulated that when two cars simultaneously approach an intersection at a right angle, both must stop and neither could proceed until the other has passed. I’d always believed that no government could pass such ridiculous laws until I began to read about the debt ceiling debate going on in Washington. So far, each side says they want to reach a bipartisan compromise, but only after the other side has conceded its position. So, we’re facing budgetary brinksmanship.
Whether you vote red or blue or, like most Americans, don’t vote at all, you have to give credit to the House Republicans who have used the debt ceiling to force a debate on budgetary policy. Usually, it’s the bond vigilantes who force spendthrift governments to face reality by refusing to buy more bonds or accepting new debt at insupportably high interest rates—witness Greece. With 10-year U.S. Treasury yields still below 3%, global bond markets are still willing to accumulate our debt, so the limiting factor must be on the supply side, and by balking on the normally routine matter of increasing the statutory debt limit, House Republicans were the ones to say, “no mas.”
There will, of course, be mas bonds. The question has become how long we can continue to deal with the federal deficit on our terms before the global bond market forces us to do so on the IMF’s terms. Here’s where we get to that Kansas crossroad. Protecting senior citizens (Ouch—I’m eligible for Social Security in 3 ½ months!) and federal medical insurance entitlements, on one side, and standing firm against anything that looks like a tax increase on the other side, has left us unable to move forward. As I write this, the impasse may be inching towards some resolution, and I don’t believe that the government will have to choose between either servicing our outstanding debt or issuing checks to our troops that will bounce. I agree with the President that this is an opportunity to reshape our entitlement programs around financial and demographic reality, to squeeze some of the highly distortive subsidies out of our personal and corporate tax codes, and to shape our future before the bond vigilantes do it for us.