In a world with so much news and content, it is easy and even advisable to sometimes ignore noise from Washington, D.C. Unfortunately, we must urgently direct our attention to Congress, especially to Speaker Kevin McCarthy and the Republican majority in the House, as they make threats and maneuvers around a statutory debt limit that allows the federal government to raise funds and meet its obligations.
I use the phrase “raise funds” but I do not hide that this means the ability of the Treasury Department to borrow. Over the decades, when tax receipts were insufficient to cover spending on vital services, programs and military operations, the Treasury looked elsewhere, selling notes, bonds and other investment securities. Generations of investors and finance professionals were schooled that the obligations of the U.S. Treasury are risk free – and many of our laws, financial regulations and practices rely on this principle. Bond investors, most of them in the United States, invested trillions to fund deficits and they rightly expect to be paid back.
To be sure, when it comes to the state of our fiscal house, no party is completely to blame and no party is blameless.
The last president to achieve a balanced budget was Bill Clinton – nearly 30 years ago. Since that time, not every tax cut or spending program was well-advised nor supported by all. None of this changes the fact though that over the centuries, the U.S. has asserted its full faith and credit to make promises to investors. Members of the U.S. House should not break these promises or imperil the creditworthiness of the U.S. to get on cable news, gain Twitter followers or even make a point about spending.
Treasury Secretary Janet Yellen has reported that the Treasury will run out of funds as early as June and become unable to pay all of obligations due, including Social Security benefits, military pay, funding support for states like Maine and interest payments to those investors who financed previous spending. The only serious, realistic and responsible choice is for Congress to temporarily lift a cap previously set on borrowing to fund existing obligations and programs.
The federal government has for too long spent too much in relation to what it raises in tax revenue. Borrowing is sometimes necessary to finance defense, fight pandemics and furnish relief during economic depression, but it should not be an instinctive strategy to fund government. However, we must resist the temptation to use debt limit votes to raise this point because a failure to change the cap will have acute, severe and manifestly unfair impacts on the world outside Washington.
Those who think we spend too much are right. But in this case, Congress can either be right or do the right thing.
During past debates on the debt limit, some professionals have offered blind reassurance of an eventual deal and some politicians have been too quick to predict disaster. Set aside both those voices and consider what default, or even just coming close to it, will mean not for the U.S. Treasury or the state of Maine, but for you.
If a handful of extremists cause drama until the last minute, equity markets will react. This volatility will change the value of private and public retirement funds, college savings accounts and charitable endowments. Is that fair? Upon an actual default, your bank will face liquidity crunches. Credit will tighten and the costs of buying a home or financing a vehicle will greatly increase in an already inflationary environment. Is that fair to you?
In Maine, Gov. Janet Mills and the Legislature have always balanced our budget and lived within our means. Maine has built its Rainy Day Fund up to a record high more than $900 million and Maine does not borrow for ongoing operations like Washington. Each year, our state pays amounts due to its bond investors in full and on time.
In Washington, each member of the Maine federal delegation in times past has in their own way demonstrated calm, resolve and a willingness to buck party or make hard choices. Maine deserves nothing less from our senators and representatives now on upcoming debt limit votes.
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