All of the Possible Outcomes of the Debt Ceiling Fight Explained

With the government shutdown continuing and less than a week to avert default on U.S. debt, we stand at a critical juncture. It’s conceivable that by Oct. 17 we could be facing the biggest financial meltdown since the Great Depression. Or, just maybe, reason will triumph, and Republicans in the House will accede to a hike of the debt ceiling, putting an end to the shutdown, averting a financial crisis and allowing the slow-but-steady recovery to continue.

It’s easy to overstate the consequences of political fights — heck, Republicans have been putting on a clinic of late with regard to Obamacare — but the outcome of this one could well determine the economy for the next five years or so. Here’s a look at the possible scenarios we’re facing:

Best-Case Scenario: A Punt

Let’s face it: Republicans are probably not going to do the smart thing at this point and just pass a clean Continuing Resolution and debt ceiling hike. The GOP went out on a limb in a very big way by triggering the shutdown, and now thanks to the sunk cost fallacy, they are unwilling to back away and cut their losses. Rep. Marlin Stutzman, R-Ind., framed the GOP position neatly when he said: “We have to get something out of this. And I don’t know what that even is.”

The problem is that the Obama Administration has been absolutely unwilling to give the GOP an inch, and it’s easy to see why. If every debt ceiling and budget fight becomes a hostage situation, America loses. Republicans may scoff, but this could be just as bad for them as the Democrats; Four years from now, Ted Cruz could be president and facing a recalcitrant Democratic Senate, which is demanding an assault weapons ban in exchange for simply passing a budget.

Moreover, Democrats are frankly unwilling to compromise further than they already have. As Speaker John Boehner, R-Ohio, has essentially admitted, there was a deal in place for Republicans to pass a clean Continuing Resolution at sequester funding levels, significantly lower than Democrats would have preferred. Republicans then walked away from this compromise in order to try to stop the Affordable Care Act. Needless to say, Democrats are not very interested in helping Republicans walk away from a mess of their own creation with even a hint of a fig leaf.

So how does this get resolved? Well, the best-case scenario is probably that Republicans agree to pass a very short-term Continuing Resolution and debt ceiling hike. Democrats have signaled that they would vote for a two-month debt ceiling hike in order to avert the present crisis, and then agree to discuss the budget with Republicans.

This would give the Republicans a potential out, and the tiniest of victories; That is, they could win the concession that Democrats would talk with them about the budget and entitlements. They probably would even be able to win a repeal of the medical device tax, which a number of Democrats oppose due to parochial interests. Then, in December, when nobody is looking, Republicans could quietly pass a longer debt ceiling hike and continuing resolution.

This is dysfunctional and requires a lot of kabuki and winks and nods, but it’s probably the best-case scenario right now. It would avert the immediate crisis, get the government opened back up, allow the Republicans to withdraw with a shred of dignity and allow Democrats to stand firm. The problem is that a significant number of conservatives won’t go for it.

Middle-Ground Scenario: Continued Chaos, but No Disaster

A number of House Republicans and a handful of Senate Republicans are dead-set against dealing with the Democrats, unless Democrats essentially cede control of government to them. These Republicans, egged on by the rightest of the right wing, continue to call on Republicans to refuse to compromise and threaten a fight against any who dare to stray.

That said, the potential consequences of failing to hike the debt ceiling are catastrophic, and for the most part, Republicans know it. Oh, sure, there’s the occasional fool like Rep. Ted Yoho, R-Fla., who thinks the U.S. unilaterally defaulting on its debt would somehow stabilize world markets — a move akin to stabilizing your finances by refusing to pay your mortgage — but for the most part, grown-ups in the GOP recognize that failure to pass a debt ceiling hike would be disastrous.

While it may not be ideal, it’s possible that Republicans will decide to pass a clean debt ceiling hike whether or not an agreement is reached on the government shutdown. Of course, this would still leave all the attendant problems of the government shutdown in place, but at the very least, the economy would not completely melt down before Halloween.

Of course, if Republicans weren’t a bunch of Yohos, they probably would have done this already, which means our worst-case scenario is frighteningly likely.

Next page: The worst-case scenario of the debt ceiling fight

Worst-Case Scenario: The Second Great Depression

The absolute worst-case scenario would be for Republicans to fall prey to their intra-party squabbling and fail to raise the debt ceiling.

What would the consequences of this be? Well, nobody really knows. The U.S. debt is 16 trillion dollars, about 20 percent of the world’s annual GDP. Granted, failure to increase the debt ceiling wouldn’t bring all $16 trillion due all at once, but it would call into question the value of all of it. If the U.S. isn’t going to pay off Bond A, why would they pay off Bond B?

In short, anyone who holds U.S. bonds would have to worry that those bonds might not be worth anything. We’re already seeing the market react to this possibility: The rates on short-term treasury bills have almost tripled in the last week, a sign that investors are backing out of the debt market.

This doesn’t just affect rich people with money in T-bills. In a very real sense, everyone in the U.S. has money in treasury bills. The Social Security Trust Fund, for example, holds $2.7 trillion in U.S. bonds. Default could result in delayed or simply missed payments for Social Security recipients, Medicare and Medicaid recipients, and U.S. troops. Moreover, simply paying interest out of revenues — something the Treasury Department would have no choice but to do — would immediately cut government expenditures by as much as 40 percent.

This would be a complete disaster, obviously. Which is why even in the absence of a debt ceiling hike, the Obama Administration would probably be forced to act. Of course, that brings its own problems.

Alternate Scenario: The 14th Amendment Gambit

In the event that Congress chooses not to raise the debt ceiling, President Obama would have three choices. The first would be to let the American and global economies melt down. This obviously is not going to be his first choice. The second option is to give in to Republican demands and delay the Affordable Care Act, which he has repeatedly said he will not do. So what’s left?

Well, Obama could simply order the Treasury Department to ignore the debt ceiling. He could take the almost whimsical step of minting the quadrillion-dollar platinum coin, or he could rely on the 14th Amendment to the Constitution, which includes a clause saying, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” That would be a rather tortured reading of the amendment; The language was meant to indicate that the U.S. government would pay its debts, but not those incurred by the Confederate States of America. For that reason, Obama has shied away from saying he would invoke it.

Still, given a choice between true default and a legally dodgy workaround, Obama might have no choice but to choose the latter, and that would leave him in a precarious situation. Republicans have been itching to impeach Obama since roughly January 21, 2009. If Obama invoked the 14th Amendment to stave off destruction, Republicans could accuse him of breaking the law and finally get their chance to impeach him.

Of course, Obama wouldn’t be convicted by the Senate, nor the public at large. Republicans would be impeaching the President for the crime of trying to save the country from the destruction they caused. But of course, if Republicans had any political sense, we wouldn’t be in this situation.

Photo Credit: Thinkstock


Jim Ven
Jim V3 years ago

thanks for the article.

Donna Ferguson
Donna F5 years ago

I'm catching up on old posts. Thank goodness the shutdown is in the past (for now). If the stupid congress will only pass a decent budget!!!!!

Joe Langer
Joe Langer5 years ago

Jessica L. asks, "Could the government shutdown force the privatization of necessary services our tax dollars used to fund? Police, firefighters, and military for example? FedEx and UPS already compete with USPS very successfully. This could lead to a resurgence of militia activity."

In the short term, no, but if you are thinking of something more permanent, yes, Anarchy would mean we would have to do all those things for ourselves. It would also mean higher prices, less help for those in need, no regulation so say goodby to the environment, No Accountability, no standards for law enforcement, might makes right, etc. I don't think we really want to live in that world. Yes, militias would rise, and that would not be a good thing in any way shape or form.

Joe Langer
Joe Langer5 years ago

David F. asks, "Obama sends a 2011 budget proposals to the Dem. Senate and has his legs cut off with a 99 to 0 hell NO vote. He sends a 2012 budget proposals to the Dem Senate and has his legs cut off with a 97 to 0 hell NO vote and a 414 to 0 hell NO vote in the house. Not a single Democratic vote. Where’s the President, golfing. No one is negotiating."

Obviously the President did his part, but no one was cooperating with him. After working all that time on those budgets you mentioned, there is no reason why he shouldn't play a game of golf. If anything happens that needs his attention playing golf wouldn't stop him from dealing with it. In fact, I'm sure a lot of negotiating gets done on golf courses all over this country on a regular basis. But how does the lack of cooperation on the part of congress become Obama's fault in your mind? Clearly he did his part when he submitted those budgets. A hell no vote, as you put it, would put the ball directly in the Congresses court. If I were the President my response would be, "so, ok, what do you want?" I'm sure the President spends a lot of time waiting for a response questions like that with this congress.

Joe Langer
Joe Langer5 years ago

Susan T. asks, "Somebody explain this to me. On 2/4/2013, President Obama signed into law the “No Budget, No Pay” Act. It provided that if by April 15, 2013, a House of Congress has not agreed to a concurrent resolution on the budget for fiscal year 2014 then the pay for the Congressional members would be suspended until they reached a concurrent resolution or the last day of the 113th Congress, whichever is earlier."

The reason it has not been implemented is simple. The section of that bill which effected the pay of members of congress (the main subject of the bill was the debt limit, in spite of the title) was unconstitutional, because of the last Amendment to the Constitution:

"Amendment XXVII-No law varying the compensation for the services of the Senators and Representatives shall take effect until an election of Representatives shall have intervened."

No new law concerning the pay of Senators and Representatives can be implemented before the next election in 2014. After that they would have to wait until after 2016. And so on. The way this was written was to make it effective only for actions applying in the year 2013. It was completely unconstitutional, and only passed tacked on to the bill as a publicity stunt, because then they could say they did it. They completely left out the fact that it could not be implemented. I'm sure Obama only signed it because the main actions of the bill were helpful at the time, i.e. extending the debt limit until

Judie B.
Judie B5 years ago

David F., try a little research sometime:

Evelyn M.
Evelyn M5 years ago

Reading a most interesting book A Secret Gift by Ted Gup. All about the anonymous gift of $5 his grandfather had given to about 75 people in very dire straits in 1933, the year I was born. The author has tracked down descendents of those meager gifts and what it meant to the families at that time. It's eye-opening. I wonder how my parents managed with 4 daughters during the Great Depression then I came along. They never talked about it, I'll have to see if my 96 yr old sister can remember any of it. My God, Congress! Fix this mess or we'll be right back in the 1929-33 years.

Kathy K.
Kathy K5 years ago

I hope folks finally wake up to the self-centered idiocy of the Republicans and throw them all out of office.

janice b.
jan b5 years ago

Ronnie Reagan republican President triples the deficit & gets 18 clean debt ceiling increases
President Obama cuts our deficit in half and gets compared to Hitler by the right wing.

Lynn C.
Past Member 5 years ago