after the shut-down: the debt ceiling

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http://www.newyorker.com/online/blogs/comment/2013/10/the-real-fight-the-debt-ceiling.html



The U.S. markets had been closed for several hours when Congress, at midnight, let the government shut down, but, even so, they already reflected how things were going in Washington. Stocks were down, continuing a slow-motion slide that’s seen the S. & P. 500 drop on eight of the past nine days. It’s hardly been a momentous decline so far—the S. & P. has fallen about two and a half per cent from its all-time high, and is still up for the month—but it seems clear that markets are getting a little queasy about the shutdown.

Even if the shutdown is resolved, though, investors have a bigger concern on their minds: namely, the possibility that Republicans might actually refuse to raise the nation’s debt ceiling in a couple of weeks. The ceiling is the legal limit on the amount of money that the government is allowed to borrow, and raising it is necessary not just to keep the government running in the future but to allow it to pay for obligations it’s already incurred. As Justin Wolfers and Betsey Stevenson convincingly showed last year, the 2011 imbroglio over the debt ceiling put a significant dent in both business and consumer confidence, held back hiring, and further weakened the recovery. It also sent the stock market tumbling—even though a debt-ceiling deal was eventually reached, the Dow fell almost fourteen per cent in less than a month during the crisis, in part because it made people realize that a U.S. default was no longer unthinkable. (It also led to the first downgrade of the U.S.’s credit rating in history.) So it’s hardly surprising that the standoff in Washington is spooking—if not yet terrifying—investors. Markets dislike uncertainty, and what the Republican hard-liners in the House of Representatives have done, most significantly, is to make the future look uncertain by suggesting that, if they do not get the concessions they want (above all, the repeal of Obamacare) they are willing to let the U.S. default.

What’s painful about this uncertainty, of course, is that it’s entirely self-inflicted. The U.S. has no trouble getting people to lend it money at eminently reasonable interest rates, so the only way we can default is if we simply choose not to pay our bills. And what’s really scary about it is that the concessions Republicans are asking for aren’t concessions that the Democrats can even consider, since they would turn the legislative process on its on head, allowing a minority of lawmakers to rewrite laws as they see fit.

The way you get a law passed (or repealed) in the U.S. is, after all, pretty well laid out in the Constitution: you need a majority in both houses of Congress, and you need a President who will sign the bill. If the President vetoes it, you need a supermajority to override the veto. Obamacare is the law of the land because it cleared these hurdles.