On to the debt ceiling...

[Guest Phailadelphia]

Now that the fiscal cliff drama is over (for now), and in an ongoing effort to keep this subforum alive now that elections are over...

 

We have the debt ceiling hostage situation coming up sometime in February. House Republicans are trying (again) to hold the debt ceiling hostage, requesting excessive spending cuts from the budget and threatening to let the US default on its debts if the Democrats don't agree. The Obama Administration has warned the GOP that if they try to hold the debt ceiling hostage again they will simply use their (legal) power to mint a few $1T coins and deposit them at the Fed in exchange for the money necessary to repay US debt obligations on time. This article details exactly what happens if the government defaults on its debts:

 

http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/07/this-is-what-would-happen-if-we-breach-the-debt-ceiling/

 

This is what would happen if we breach the debt ceiling

 

Posted by Ezra Klein on January 7, 2013 at 12:34 pm

 

Want to make sure your calendar is clear when we hit the debt ceiling? Then don’t schedule anything between Feb. 15 and March 1.

 

That, according to a new analysis by the Bipartisan Policy Center, is the likely range for debt-ceiling doomsday: The day when the Treasury Department runs out of room to maneuver and we actually begin to default on obligations. Either Congress figures out the debt ceiling before that date or things get very bad, very fast.

 

 

Imagine we hit the debt ceiling Feb. 15. The BPC’s analysis suggests that federal spending over the next month will be about $450 billion. Federal revenues will be nearer to $277 billion. That means that the government will have to default on about 40 percent of its obligations.

 

The choices it will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything — really, everything — else. The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.

 

This is the difference between a debt-ceiling shutdown and a government shutdown. As Shai Akabas, a research at the Bipartisan Policy Center, puts it, “in a government shutdown, the government is shutting down future obligations. With the debt ceiling, They’ve already obligated the money. They owe these people the payments now, and they can’t make them.”

 

Then, of course, there’s the financial-market chaos. Trillions of dollars in derivatives and other financial products are based on the interest rate that the federal government pays when borrowing. U.S. government debt is, after all, supposed to be the safest investment in the world, and so it’s used to “benchmark” all other sorts of debt. A spike in the Treasury rate would mean a spike in credit card rates and mortgage rates, not to mention all manner of more esoteric financial derivatives. The damage to the economy would be tremendous, and it would occur at every level, from individuals looking for a loan to buy a house to hedge funders trying to play the markets.

 

“Think about what we’re talking about here,” says Steve Bell, director of economic policy at the BPC. “We’re talking about the reserve currency of the world. We’re talking about the deepest and most liquid markets in the world. And we’re sitting here wondering if we’ll cover our obligations?”

 

All of this, amazingly, is something of a best-case scenario. It’s what happens if we breach the debt ceiling in an orderly way. But the federal government needs to make more than 100 million individual payments between Feb. 15 and March 15. Those payments are all computerized and those computer systems aren’t build to stop making half of them, or to prioritize some above others. There’s a real question as to whether the federal government could reprogram its software to seamlessly begin picking and choosing which bills to pay and which to ignore. If there’s a glitch, then it’s possible that after assuring bondholders that they’ll never miss a payment, the government will accidentally fail to pay them, causing widespread confusion about whether the guarantee remains valid, and throwing financial markets into a panic.

 

Nor does any of this account for public outrage over the spectacle of the U.S. government prioritizing bondholders over everyday Americans. “This could lead to some interesting headlines,” says Bell. “Imagine: ‘America pays Chinese debt instead of Social Security.’ “

 

Additionally, the easy ways out don’t look so easy. The White House has already said it doesn’t believe that it would be constitutional for the president to invoke the 14th Amendment and simply continue paying our debts. That doesn’t mean, warned Bell, that it won’t happen. But if it does, those payments will go out under a cloud of uncertainty. Interest rates are unlikely to remain unaffected.

 

The same goes for the “platinum coin” option, in which the Treasury takes advantage of a poorly worded law meant to help coin collectors and mints a trillion-dollar coin with which to pay our debts. Imagine a Japanese bond trader who hears we’re now running our government off of a trillion-dollar coin created through a loophole in the law. Is there any way that trader is going to keep lending to America at near-riskless rates? The result might be better than default, but it won’t be good.

 

The consequences, meanwhile, will be lasting. We will have done something we told the markets we would never, ever do. The United States will have proven itself a riskier borrower with a more broken political system than anybody thought. The BPC estimates that the last debt-ceiling fight cost us $19 billion in higher borrowing costs over the next decade, and in that case, we didn’t even breach the debt ceiling. If we go further this time, the costs will be much higher, and much longer lasting.

 

Ironically for those who want to use the debt ceiling as leverage to reduce the deficit, busting through the debt ceiling would make our future deficits far worse. The damage to the economy now would increase the deficit, as spending goes up and tax revenues go down when the economy flags, and the higher borrowing costs later would increase the deficit, as we’d be paying more to service our debt than the Congressional Budget Office expects.

 

I want to clarify something that a lot of folks seem to misunderstand about the debt ceiling: It's not an increase in spending. If the debt ceiling is not raised, the federal government cannot pay its debt obligations. It's true, yes, that raising it allows the government to borrow more. But not raising it for this reason alone is idiotic if not extremely dangerous. Moreover, Congress is the one who passes the budgets, not the President. So for them to say "we're not allowing Obama to continue his reckless spending" as their primary reason for not raising the debt ceiling is just absolute nonsense.

 

To put it into a metaphor, not raising the debt ceiling is kinda like a "dine and dash." Congress ordered food and doesn't want to pay for it. Or perhaps a better metaphor is signing a 1-year lease on an apartment and then two months into the lease you tell your landlord to lower the rent or you're not going to pay it. That's ridiculous, right? Right.

 

I'll post more in here over the next few weeks. There's been more deficit reduction going on than a lot of Congressmen are willing to admit and that people aren't aware of. Part of it has to do with small, incremental spending cuts that have been enacted since 2011 and part of it has to do with the recovering economy.

Edited January 11, 2013 by Phailadelphia

[WindyCitySports 407]

It isn't a ceiling if you can just keep raising it every year.

[Guest Phailadelphia]

It isn't a ceiling if you can just keep raising it every year.

 

They should just do away with it permanently if you ask me.

[Vin+ 3,121]

[OSUViking 505]

Some of the people at my school are saying that we should just let the US hit the debt ceiling. This again proves the people at my school are idiots...

[Thanatos 2,847]

At some point, we need to drastically cut spending as the Republicans are saying. We cannot keep spending more and more. Nor does the idea of minting trillion-dollar coins of questionable legality, (not even certain that Obama can do this without Congress putting it into circulation unless the coin actually is worth $1T), really seem to be a good idea. Are they saying they will keep doing this until Congress "falls in line" with what the President wants? That idea really seems to be a power play from the White House.

 

The two parties need to work together to figure out how to raise the debt ceiling temporarily, but lower spending so that we don't have to keep raising the ceiling, something which I firmly believe is not economically feasible- to do away with it altogether, as Phail suggested. Essentially, you would be trusting the government to not go crazy spending now that they don't have a limit- and do you really trust them not to do that?

 

The Federal government is way too large, which is the fault of both parties, but the Dems want to just let it keep on growing. The Republicans want to do something *now* to fix a problem that doesn't have an immediate solution, and neither party seems to be willing to compromise.

 

In short: we're screwed unless someone steps forward and sets up a plan both parties can agree to.

[OSUViking 505]

I agree; we can't keep spending like this and think there won't be any consequences. I just flat out don't think that defaulting on our debt will be good in anyway; in fact, it would be absolutely devastating to both us and the world economy.

[Guest Phailadelphia]

At some point, we need to drastically cut spending as the Republicans are saying. We cannot keep spending more and more. Nor does the idea of minting trillion-dollar coins of questionable legality, (not even certain that Obama can do this without Congress putting it into circulation unless the coin actually is worth $1T), really seem to be a good idea. Are they saying they will keep doing this until Congress "falls in line" with what the President wants? That idea really seems to be a power play from the White House.

 

The two parties need to work together to figure out how to raise the debt ceiling temporarily, but lower spending so that we don't have to keep raising the ceiling, something which I firmly believe is not economically feasible- to do away with it altogether, as Phail suggested. Essentially, you would be trusting the government to not go crazy spending now that they don't have a limit- and do you really trust them not to do that?

 

The Federal government is way too large, which is the fault of both parties, but the Dems want to just let it keep on growing. The Republicans want to do something *now* to fix a problem that doesn't have an immediate solution, and neither party seems to be willing to compromise.

 

In short: we're screwed unless someone steps forward and sets up a plan both parties can agree to.

 

I don't disagree that spending needs to be scaled back, but right now is not the time to do it. The economy is too sluggish as is. If you enact severe spending cuts it's only going to get worse. This is why Democrats want to wait on the cuts and probably why the GOP wants to do it now. If the economy enters another depression or growth slows further, the GOP can claim its due to Democrat policies, yadda yadda yadda.

 

The $1T coin is completely legal. So is executive action to raise the debt ceiling without the consent of Congress. Those are last ditch efforts if Congress is unwilling to work with Democrats to raise the debt ceiling.

 

At this point the debt ceiling is only symbolic anyway. Budgets aren't passed with the debt ceiling in mind so I don't see how it's existence is helping keep federal spending in check. And if Congress is going to use the threat of default and the subsequent economic disaster and mayhem that would result, it's better to ditch the thing altogether imo.

 

The budget deficit will decrease on its own as the economy improves too. We've already reduced the budget deficit by $2.4T over the last couple of years. The sooner the economy improves, the sooner the budget deficit shrinks as tax revenues rise and unemployment benefits claims decline. These are the primary drivers of budget deficits right now.

Edited January 12, 2013 by Phailadelphia

[Thanatos 2,847]

I agree; we can't keep spending like this and think there won't be any consequences. I just flat out don't think that defaulting on our debt will be good in anyway; in fact, it would be absolutely devastating to both us and the world economy.

 

I completely agree and in no way am suggesting that we default.

 

It is simply also true that we cannot just keep on spending and raising the ceiling when we hit it.

 

First thing to go needs to be foreign aid, IMO. After we withdraw every single military personnel that is not within the US borders. We can then assess them on a case-by-case basis to see which countries we feel like we must have a military presence in, (how about: one- the US). The trouble is, both parties have hard-line stances on things they will not cut, and between them, those hard-line stances include pretty much everything we could cut, so nothing is done.

 

I don't disagree that spending needs to be scaled back, but right now is not the time to do it. The economy is too sluggish as is. If you enact severe spending cuts it's only going to get worse. This is why Democrats want to wait on the cuts and probably why the GOP wants to do it now. If the economy enters another depression or growth slows further, the GOP can claim its due to Democrat policies, yadda yadda yadda.

 

The $1T coin is completely legal. So is executive action to raise the debt ceiling without the consent of Congress. Those are last ditch efforts if Congress is unwilling to work with Democrats to raise the debt ceiling.

 

At this point the debt ceiling is only symbolic anyway. Budgets aren't passed with the debt ceiling in mind so I don't see how it's existence is helping keep federal spending in check. And if Congress is going to use the threat of default and the subsequent economic disaster and mayhem that would result, it's better to ditch the thing altogether imo.

 

The budget deficit will decrease on its own as the economy improves too. We've already reduced the budget deficit by $2.4T over the last couple of years. The sooner the economy improves, the sooner the budget deficit shrinks as tax revenues rise and unemployment benefits claims decline. These are the primary drivers of budget deficits right now.

 

Then when is the time to do it? At least setting up a system where we begin the process of determining what to cut, would be a good idea to include in any compromise that raises the debt ceiling again. That way, we at least have a direction to head towards.

 

There are many on the right who do not feel that the $1T dollar coin is legal. I'm sure the left thinks it is. Thus why I said it was of "questionable legality." It depends on who you're listening to, and I am not at all qualified to figure out which one is telling the truth, only that there are lawyers on both sides of the issues using legalese to push their side's agenda. What is pretty set in stone is that it would be using a law that was absolutely never designed for this extremity in a way it was not designed to be used.

 

I would rather force the government to have to continually try to raise the ceiling, because if we keep on doing that, my hope is that eventually the american people will get fed up with doing so and get some people in office that will actually work to cut spending so we cease having to raise the ceiling. Otherwise, it could fade from the public's mind, and allow the government to just spend whatever.

Edited January 12, 2013 by Thanatos19

[WindyCitySports 407]

They should just do away with it permanently if you ask me.

I think the debate should be between that and defaulting, none of this pushing it off each year garbage.

[Guest Phailadelphia]

Then when is the time to do it? At least setting up a system where we begin the process of determining what to cut, would be a good idea to include in any compromise that raises the debt ceiling again. That way, we at least have a direction to head towards.

 

There are many on the right who do not feel that the $1T dollar coin is legal. I'm sure the left thinks it is. Thus why I said it was of "questionable legality." It depends on who you're listening to, and I am not at all qualified to figure out which one is telling the truth, only that there are lawyers on both sides of the issues using legalese to push their side's agenda. What is pretty set in stone is that it would be using a law that was absolutely never designed for this extremity in a way it was not designed to be used.

 

I would rather force the government to have to continually try to raise the ceiling, because if we keep on doing that, my hope is that eventually the american people will get fed up with doing so and get some people in office that will actually work to cut spending so we cease having to raise the ceiling. Otherwise, it could fade from the public's mind, and allow the government to just spend whatever.

 

I'm not qualified enough to really make that call, but if it were up to me I'd probably say when the government and the Fed aren't actively trying to improve a sluggish economy. Probably somewhere in the range of 3-4% GDP growth annually.

 

I'm not sure I'd want to outline cuts in advance either. The economic situation between now and at full-employment output is going to be VERY different. I'd rather see a commitment from both sides that they will address the situation at some point...but not another fiscal cliff mess.

 

The $1T coin idea became irrelevant today anyway. Both the Treasury and the Fed came out and said "no way, Jose" (and you Ron Paul folks think the Fed is bad...haha).

 

Is a situation where we never have to raise the debt ceiling realistic? For the vast majority of our history have we not continued to increase federal spending? People want lots of things, and those things cost money. And as time goes on they want more and more. It's going to begin to boil down to cuts in public services and entitlements or tax raises...and I believe the majority of Americans are going to pick tax raises.

Edited January 13, 2013 by Phailadelphia

[SteVo+ 3,702]

Someone with economic expertise please explain to me why cutting spending affects the economy in an adverse manner. I'm honestly trying to know, not trying to come off as a "that's a dumb argument" person, because I really wish I understood economics better. And regardless of that response, does military spending affect it in the same manner? Because that's America's biggest enemy, in my opinion, and if we've built our economy to a point where it depends upon our ridiculous military budget, then we need to rebuild our economic foundation.

[OSUViking 505]

Someone with economic expertise please explain to me why cutting spending affects the economy in an adverse manner. I'm honestly trying to know, not trying to come off as a "that's a dumb argument" person, because I really wish I understood economics better. And regardless of that response, does military spending affect it in the same manner? Because that's America's biggest enemy, in my opinion, and if we've built our economy to a point where it depends upon our ridiculous military budget, then we need to rebuild our economic foundation.

 

Although a lot of people wave this away as "Keynesian" talk, I think it's just general common sense. If you cut spending, that's less aid that's going to the poor and elderly (I don't support cutting this for moral issues, but I do think that they're a drain... if anything, we should reform them and make them more efficient). The big thing is that the decrease in spending will result in public sector employees being fired. In times of economic hardship, this will balloon unemployment. I think the general line of thought with cutting spending during times of prosperity is that there will be a vibrant private sector there to pick them up. I don't think that's the case right now.

 

EDIT: I still can't wrap my head around military spending and its effects on the economy. You can probably boil it down to continuous Cold War paranoia, military industrial lobbying, and the Pentagon having a lot of leeway in the government.

Edited January 13, 2013 by Vikingfan465

[SteVo+ 3,702]

So that argument is why we shouldn't cut from "entitlement" programs? I'm fine with that, even though I hate our current entitlement system. No need to do anything that could endanger the economy.

 

But why is neither political party willing to call out the biggest problem: "defense" spending? You could leave all your social programs, unemployment, etc. alone and cut a massive piece of government expenditures en route to a budget that's much closer to being balanced.

[OSUViking 505]

So that argument is why we shouldn't cut from "entitlement" programs? I'm fine with that, even though I hate our current entitlement system. No need to do anything that could endanger the economy.

 

But why is neither political party willing to call out the biggest problem: "defense" spending? You could leave all your social programs, unemployment, etc. alone and cut a massive piece of government expenditures en route to a budget that's much closer to being balanced.

 

 

It's because of the reasons I listed. Many politicians/Americans are still insanely paranoid about the Cold War and the resurgence of nations like Iran, North Korea, and China. Lobbying from military contractors no doubt plays a role, because more defense money = more toys the Pentagon will buy. The Pentagon also has a lot of power in the government.

 

Also, yeah I definitely support making entitlement programs more efficient so that they don't waste money and so we can fix problems developing within them. I don't think either side will agree to defense cuts, so I've lowered my expectations to forcing the military to spend more efficiently and stop throwing money away on stupid projects while they cancel badly needed advancement programs.

[Guest Phailadelphia]

Someone with economic expertise please explain to me why cutting spending affects the economy in an adverse manner. I'm honestly trying to know, not trying to come off as a "that's a dumb argument" person, because I really wish I understood economics better. And regardless of that response, does military spending affect it in the same manner? Because that's America's biggest enemy, in my opinion, and if we've built our economy to a point where it depends upon our ridiculous military budget, then we need to rebuild our economic foundation.

 

Government expenditures are a direct component of GDP (Y = C + I + G + NX). If it rises, GDP rises. If it falls, GDP falls. That's a gross over-simplification, but if anyone wants me to get more technical (and with graphs!!!!!1111one) I will. I can't promise I can put it into laymans terms though.

 

I think the primary driver of government expenditures is the Keynesian concept of fiscal multipliers. For example, $1 of welfare could for example (and this is an arbitrary number I'm pulling out of thin air) pump $1.75 into the economy via the recipient spending it and thereby increasing demand and job growth. This is the simplest way I can define the concept of Keynesian deficit spending.

[CARDINAL 205]

Government expenditures are a direct component of GDP (Y = C + I + G + NX). If it rises, GDP rises. If it falls, GDP falls. That's a gross over-simplification, but if anyone wants me to get more technical (and with graphs!!!!!1111one) I will. I can't promise I can put it into laymans terms though.

 

I think the primary driver of government expenditures is the Keynesian concept of fiscal multipliers. For example, $1 of welfare could for example (and this is an arbitrary number I'm pulling out of thin air) pump $1.75 into the economy via the recipient spending it and thereby increasing demand and job growth. This is the simplest way I can define the concept of Keynesian deficit spending.

 

but Taylor, I think your not entirely correct. With such a huge deficit each year like America has, it leaves less money to invest in economic activity, which conversely affects both NX and NCO (Net Capital Ouflow, which for anybody who doesn't know what that is, it's basicly the money used to either buy imports, or foreigners buying your country's exports)

 

Having a plan to reduce the deficit over like the next 7-10 years will help more with businesses hiring than a short term spending measure, even though I think a targeted one can be a reasonable argument!

 

*NOTE*

The aspects of GDP (Gross Domestic Product)= C + I + G + NX stand for the following, just to clarify:

C = Consumption (so domestic consumption of goods and services)

I = Investment (as in physical capital investment in the operations of like a factory, so equipment, machinary, anything that is a physical factor in the production of a good or service)

G = Government Spending / Purchases (so anything that the governement provides in terms of public services, like water services, snow removal, cleaning the streets, etc.)

NX = Net Exports (which is total exports - total imports, so the total amount of goods and services that a country exports to other countries minus the total amount of goods and services that a country imports from other countries)

[Zack_of_Steel+ 3,014]

[BwareDWare94 723]

Can someone explain what exactly the term "entitlement" refers to, because I've seen a lot of inflammatory propaganda attacking that term as if it refers to things such as welfare and unemployment, etc.

 

I don't think that either of those systems is perfect (and personally think we actually could do something about the abusers), but why are so many right wing voters insistent that everybody who uses or has used Welfare or Unemployment is someone who's "Milking the system?" I've never understood how such a vehement opinion could be based on such little knowledge of the people who use said programs.

 

But, back to my original point, why are these referred to as entitlements by some people, and is that the correct term? Also, could a worse term have been applied to these things, if it is correct? Talk about begging the right wing, white nut jobs who have no idea about real struggle to come up with stupid shit centered around the term.

[BUCK3Y3 44]

Can someone explain what exactly the term "entitlement" refers to, because I've seen a lot of inflammatory propaganda attacking that term as if it refers to things such as welfare and unemployment, etc.

 

I don't think that either of those systems is perfect (and personally think we actually could do something about the abusers), but why are so many right wing voters insistent that everybody who uses or has used Welfare or Unemployment is someone who's "Milking the system?" I've never understood how such a vehement opinion could be based on such little knowledge of the people who use said programs.

 

But, back to my original point, why are these referred to as entitlements by some people, and is that the correct term? Also, could a worse term have been applied to these things, if it is correct? Talk about begging the right wing, white nut jobs who have no idea about real struggle to come up with stupid shit centered around the term.

Alot of people do abuse the system. There is no worse abuser of taxpayer money than the federal government however. Especially the current administration.

 

" Likewise, the word "entitlement" has long been the standard terminology for payments made under government programs that guarantee and provide benefits to particular groups. Persons who have demonstrated their eligibility to claim such payments are entitled (i.e., "qualified for by right according to law") to receive them. The usage has nothing to do with pejorative connotations associated with the word (e.g., "a sense of entitlement") which are often applied to denote people expecting or demanding something they do not merit."

Edited January 20, 2013 by ManBearPig

[Guest Phailadelphia]

but Taylor, I think your not entirely correct. With such a huge deficit each year like America has, it leaves less money to invest in economic activity, which conversely affects both NX and NCO (Net Capital Ouflow, which for anybody who doesn't know what that is, it's basicly the money used to either buy imports, or foreigners buying your country's exports)

 

Having a plan to reduce the deficit over like the next 7-10 years will help more with businesses hiring than a short term spending measure, even though I think a targeted one can be a reasonable argument!

 

Businesses don't hire if there is no demand for products and services.

[Guest Phailadelphia]

http://www.businessinsider.com/the-coming-shrinking-of-the-deficit-2013-1

 

America Will Be Shocked When This Deficit Chart Comes True

Joe Weisenthal

 

 

America Will Be Shocked When This Deficit Chart Comes True

Joe Weisenthal | Jan. 20, 2013, 5:58 AM | 13,581 | 76

 

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When it comes to projecting the deficit (or anything, really) forecasters have a tendency to overweight what's happening right at the time they're making the forecast.

 

So for example, during the late 90s, the CBO imagined ongoing surplus, and the eventual end of the national debt.

 

Now a phrase you hear a lot is "trillion dollar deficits as far as the eye can see."

 

But some of the best economists are predicting a rapid diminishing of the deficit.

 

In his 10 Questions For 2013 note, Goldman's Jan Hatzius wrote:

 

By 2015, we expect the federal deficit to be down to $500bn, or just under 3% of GDP. If this forecast is correct, concerns about the federal deficit are likely to diminish over the next few years.

 

Why will the deficit fall in half like this? Because of what we've been writing about a lot, lately: Deficits aren't about spending and taxes. They're about growth or lack thereof. For decades deficits as a % of GDP have been closely correlated with economic improvement.

 

This chart of deficits as a % of GDP (red line) vs. the unemployment rate (blue line) is uncanny, holding tight across multiple fiscal regimes.

 

 

Bill McBride of Calculated Risk put together a deficit projection that's pretty closely in line with Hatzius'. If it plays out, America will be shocked.

 

Edited January 20, 2013 by Phailadelphia

[Guest Phailadelphia]

http://www.washingtonpost.com/politics/hold-house-votes-to-suspend-debt-limit/2013/01/23/58f2013c-6574-11e2-85f5-a8a9228e55e7_story.html

 

House votes to suspend debt limit

 

 

By Rosalind S. Helderman, Wednesday, January 23, 12:24 PM

 

A measure to suspend the nation’s legal limit on borrowing for nearly four months cleared a key vote in the House Wednesday, as Republicans broadly endorsed a new tactic that would temporarily remove the threat of a potentially calamitous government default from their ongoing fight with Democrats over government spending.

 

The measure, which would set aside the legal debt ceiling and allow the government to borrow as needed to meet spending obligations through May 18, was adopted on a 285 to 144 vote.

 

Just before the vote, Democratic leaders in the Senate said they would accept the House measure without changes and a Senate vote is expected as soon as next week. And the White House, too, has said President Obama will not stand in the way of the bill.

 

As a result, House passage apparently eliminates the possibility of an economy-rattling crisis next month, when the Treasury Department has said it will exhaust extraordinary measures put in place to extend its ability to borrow since the government hit its $16.4 trillion limit on Dec. 31.

 

Without congressional action, the government would be unable to pay its bills, a scenario that would likely rock the world economy.

 

The House vote, however, does little to resolve Washington’s central debate over the size and scope of government. Congress faces new deadlines in a matter of weeks, on deep automatic spending cuts set to take effect on March 1 and the expiration of an appropriation measure keeping the government operating on March 27.

 

Opposition came from 33 Republican conservatives who said it was a mistake for the GOP to give up its most potent point of leverage in forcing Democrats to reduce spending.

 

One hundred and eleven Democrats also voted against the measure because they said the short-term fix would allow uncertainty to hover over a still-fragile economy.

 

They also said Republicans should not attach conditions to a bill that would allow the government to borrow money to meet obligations it has already incurred.

 

The GOP’s measure would impose a new requirement on Congress, key to winning support from a broad range of their own members: Both chambers of Congress must adopt a budget by April 15, as required by law, or have their congressional pay withheld until the start of the new Congress in 2015.

 

“All we’re saying is Congress: follow the law. Do your work. Budget,” said Rep. Paul Ryan (R-Wisc.), the party’s former vice presidential candidate, explaining the measure on the floor.

 

“We owe our constituents more than that. We owe them solutions. And when both parties put their solutions on the table, then we can have a good..debate about how we fix the problem,” he said.

 

Republicans have in recent days rallied around the slogan, “No Budget, No Pay,” an effort to shift attention to the Senate’s failure to adopt a budget in nearly four years. They hope their new pressure campaign could help reverse public opinion about who is to blame for gridlock over spending.

 

Polls have indicated the public pins fault for Washington’s lurching crises on House Republicans.

 

Senate Budget Committee Chairwoman Patty Murray (D-Wash.) said Wednesday that her panel will, indeed, move to draft a budget blueprint this year, confirming a similar pledge made by Sen. Charles E. Schumer (D-N.Y.), the Senate’s third ranking Democrat, on Sunday.

 

Murray characterized the decision as one that had been under discussions for weeks, long before the House moved. And she pledged to write a budget that addressed the problem of debt with a “balanced approach” that would protect government programs that help the middle class.

 

Schumer said that would mean a budget that would pair spending cuts with higher tax revenues.

 

A Senate budget that would include higher taxes would sharply clash with a House plan that will be advanced later this year by Ryan, chairman of the House Budget Committee.

 

He has promised House conservatives a budget proposal that would balance within the next decade. That would likely require severe cuts, far deeper even than the budgets that he has proposed for the last two years, already slammed by Democrats for their sharp spending reductions and their overhaul of Medicare. Those spending plans each took nearly 30 years to balance the budget.

 

Wednesday’s House vote represented a victory by Speaker John A. Boehner (R-Ohio), who had faced a series of embarrasing revolts from conservative members of his own party in recent weeks.

 

Boehner had long insisted that the GOP would not accede to any increase in the debt ceiling unless it was paired dollar-for-dollar with matching cuts or reforms.

 

But, with the help of Ryan, a respected voice among fiscal hawks, Boehner was able to convince members at a somber three-day retreat in Virginia last week that the party must recognize the realities of a reelected Democratic president and Senate.

 

In that environment, he argued the GOP should defuse the potentially politically damaging fight over the debt ceiling and instead use other threats, including the possibility of a government shutdown in April, to push for spending cuts.

 

Among the conservatives who voted with Boehner were Reps. Steve Stockman (R-Texas) and Mick Mulvaney (R-S.C.), both of whom just three weeks ago would not support Boehner in the formal vote for speaker.

 

Unlike the vote on extending most of the Bush-era tax cuts, GOP leaders rushed to vote yes early in the roll call. Cheers went up as the tally crossed the majority level and the embattled House Majority Whip Kevin McCarthy (R-Calif.) - whose vote-counting operation has been repeatedly questioned in recent months - received handshakes from the rank-and-file after the gavel fell.

 

Boehner also on Wednesday called on the Senate to follow the House’s lead and adopt a budget that will balance within 10 years. He said the House will not agree in May to a long-term increase in the debt ceiling without an agreement that would significantly reduce deficits.

 

“It’s time for Congress to get serious about this, “ he said.

 

That vow had House Democratic leaders concerned that Wednesday’s vote merely represented a shift in tactics by their Republican opponents. They said the economy will not fully recover until the GOP makes clear it will never allow the government to default.

 

“House Republicans continue to play with economic fire. They are playing political games and that undermines certainty,” said Rep. Sander Levin (D-Mich.), the top Democrat on the House Ways and Means committee.

 

Paul Kane contributed to this report.

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Businesses don't hire if there is no demand for products and services.

 

Very true, but you have to establish the right business climate and conditions before you can help to increase Aggregate Demand!

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Wasn't really sure where to put this.