Tuesday, May 17, 2011

Americans Oppose Raising Debt Ceiling

By a 47% to 19% margin, Americans say they would want their member of Congress to vote against raising the U.S. debt ceiling, while 34% don't know enough to say. Republicans oppose raising the debt ceiling by 70% to 8% and independents by 46% to 15%. Democrats favor raising the ceiling by 33% to 26%.

These results are based on a May 5-8 Gallup poll, which asked Americans about the issue but did not offer reasons for or against raising the debt ceiling. The Congress is generally expected to pass debt ceiling legislation, although it is unclear what additional provisions will be needed in order to secure passage.

A majority of Americans (57%) say they are closely following the news about "discussions to raise the U.S. debt ceiling, the maximum amount of money the U.S. government can borrow by law." Republicans are following the issue more closely than are Democrats and independents; upper-income Americans are following it more closely than lower-income Americans; and those with a postgraduate education more so than those with a high school education or less.

Americans are more likely to oppose than favor raising the debt ceiling, regardless of how closely they are following the news about the issue. Among the 23% who are following the debt ceiling discussion very closely, 62% are opposed and 25% are in favor of raising the current ceiling. Among those who are following the issue less closely, opposition outnumbers support by at least a 2-to-1 margin.

The U.S. government has now reached its $14.3 trillion debt ceiling yesterday, May 16. The May 5-8 Gallup poll suggests that a vote in favor of raising the debt ceiling could be a difficult one for many members of Congress, particularly for Republicans.
Former Fed. Res. Chairman Alan Greenspan

Resolution of the issue was suppose to take considerable time and maneuvering. Members of both parties  needed to come to agreement on legislation that adds enough spending cuts, tax changes, and perhaps budget processes -- such as requirements to force spending reductions if the ratio of government spending to GDP reaches a certain point -- that can garner a majority of votes in both houses of Congress.

In one sense, this is more of a political than a financial issue. As former Federal Reserve Chairman Alan Greenspan noted, the Congress has already passed legislation spending the money at stake, so there seems to be little choice but to allow the Treasury to raise the funds it needs to meet the government's obligations. Federal Reserve Chairman Ben Bernanke and Treasury Secretary Tim Geithner have also noted that raising the debt ceiling is financially essential. In this same vein, many on Wall Street and many investors around the world seem confident that after the required political battling, the Congress will raise the U.S. debt ceiling.
Federal Reserve Chairman Ben Bernanke

Americans conditioned by so much news coverage of the enormous federal budget deficit may be reacting to the idea of raising the debt ceiling more in the context of a political deficit discussion as opposed to a financial market implications context. Nevertheless, the public's perceptions are clearly negative, suggesting the debt ceiling vote is a political hurdle lawmakers will need to overcome.

Probably anticipating that eventuality, the Treasury seems to be working on plans to extend its financing efforts so that it will be Aug. 2 before default potentially becomes a reality. In turn, this lag time could create considerable uncertainty in the global financial markets as the summer progresses.
Treasury Secretary Tim Geithner

Regardless, it may be worthwhile to think back to what happened with the financial bailout legislation -- the so-called TARP -- in 2008. This was another unpopular piece of financial legislation that the president, the Treasury secretary, and the Fed chairman all supported, saying it was essential for global stability. After first voting this legislation down and watching the markets plunge, the Congress passed TARP. Efforts to pass unpopular legislation to raise the debt ceiling could create similar challenges.

The only way the debt ceiling can be raised is with a vote by Congress. Currently, President Obama and Republicans are squabbling over hiking it. Obama is talking about it, but we're not seeing real action yet. And this is the moment for something to start happening. We all know what the problems are. Why not just deal with them? No more kicking the can down the road, no more whistling past the graveyard. Now is the time to deal with the fiscal problems we have in an adult-like manner.
Economics Correspondent Rebecca Jarvis

Economics Correspondent Rebecca Jarvis explained that the U.S. is facing this ongoing debt question because the country is spending more money than it's making. She said, "For every dollar that the U.S. government spends, about 60 cents of that dollar comes from collections in taxes. But 40 cents of that money comes from our borrowings. That means we need to raise debt as a country in order to really generate the kind of growth and pay the kind of commitments that we've made to pensioners, to people who are taking Social Security, Medicare -- all of these programs that are out there -- that are supposed to help Americans." Javis continues, "We have to borrow to make good on those commitments. As a result of that ... (if) we don't pass the debt ceiling, some of those things could actually be hindered. Payments on many of those programs may not be met."

Though analysts believe the debt ceiling will be reached today, Jarvis said the actual major deadline for the country is August 2, 2011. She said, "That's the day when the Treasury and Congress can't get any more money to meet their obligations. There's been a lot of trepidation around this because, not only is this a question of a debt ceiling, but it's also a question of just too much debt. So there's fear about that in general."

Co-anchor Chris Wragge noted that a new Gallop poll says 47 percent of Americans don't want the debt ceiling to be raised. However, Boehner and Mr. Obama both agree the limit should be raised. But the ways each official has of getting there are totally different.

She explained, "What you have from Speaker Boehner is a plan where we raise the debt ceiling, but we also cut future spending. From the president, what we have is more of a plan where we raise the debt ceiling and we sort of strip out that future question mark and we approach that future question mark at a later date and also potentially raise taxes in order to get there."

Wragge switched gears, asking about the possible impact of the arrest of International Monetary Fund (IMF) chief Dominique Strauss-Kahn on Greece -- a nation he was instrumental in bailing out of financial ruin -- and the rest of the world.

Dominique Strauss Khan

Jarvis said, "Remember, Greece is in this rut because it took on too much debt as a country and the International Monetary Fund, as well as the overall European Union, had to step up to bail them out. Right now, the market is relatively unfazed by the question of Dominique Strauss-Kahn's future. But the market is fazed by the future of Greece - because it's a huge question, and it will have huge implications, and a ripple effect for us here in the United States. When it was an open question last week, before all of this drama around the IMF chief, it was still a major issue for the markets, and we did see declines here in the United States of that market, as well."

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