The legal limit for the national debt is $14.3 trillion, and the federal government could run out of money later in the summer if the limit is not raised. We'll discuss how San Diego will be affected if the debt ceiling is not raised. Plus, hear the main arguments against raising the debt limit.
Guest
Erik Bruvold, president of the National University System Institute for Policy Research
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CAVANAUGH: Speaker of the house Republican John Boehner is expected to make a major economic speech outlining the conditions that must be met before his party agrees to raise the national debt ceiling. Next Monday, the U.S. government is expected to reach its debt ceiling of $14.3 trillion. If by August Congress does not vote to raise that limit, the U.S. will not be able to fulfill many of its financial obligations of now, this type of gamesmanship that goes on frequently in Washington, but many are concerned that this time could be different. Here to tell us why is my guest, Erik Bruvald is president of the national university system institute for policy research. Eric, good morning.
BRUVALD: Good morning, Maureen.
CAVANAUGH: Why is it that people seem to be concerned that this standard maneuver of raising the debt ceiling might become a political showdown this year.
BRUVALD: Well, the questions about the national debt have raised to, really, unprecedented levels in the discourse in Washington at this time. And what currently seems to be in play is that the House of Representatives, controlled by the Republicans, is -- are going to put conditions on the DEBT sealing increase. And there's concern that those conditions will be unacceptable to the White House and the senate. And so much like that game of chicken, where two cars go down the road, each one is gonna be looking for the other one to brink first.
CAVANAUGH: How will San Diego be affected if the federal DEBT sealing is not raised?
BRUVALD: Well, I think people sometimes forget, but when you look at the federal reports that come out, about one FIFKT of our region's economy is driven by federal government spending. We have about a hundred and 60 pillion dollar gross region product, and about 33 billion of that is made up by federal spending.
CAVANAUGH: And so where does that federal money go in San Diego, though?
BRUVALD: Had, not atypical to the rest of the nation, about a third goes to the three major entitlement programs, Medicare, Medicaid, and Social Security. That comes out to about $12 billion. Another 40 percent or so, about $15 billion goes to the veteran's administration, and the [CHECK] ranging from anything from military contracts to the pay that goes to uniformed personnel, and to supporting the military bases. And then the remaining 25 TWRS percent is split between a whole number of different programs from food stamps to the post office, to grants, to our yesterdays for research.
CAVANAUGH: Now, if indeed this games of chicken, as you call it, resulted in the debt ceiling not being raised in time, what programs that we receive here would be in jeopardy? Not all of them, right?
BRUVALD: That's right. So imagine that the federal spending in San Diego County is a $1 bill. If you pay the interest on the national debt and most people looking at this worst case scenario believe that the interest payments on the debt will be made so the United States doesn't go into default. We have taxes able to cover about 60 percent or $0.60 of that bill, $0.40 of it, 40 percent, we borrow. So without the debt ceiling being increased, we'd have to cut 40 percent. And there's a variety of ways that the federal government could do it. I don't think any of them are things that people like. For example, we could make a decision to pay those major entitlement programs, make our obligations to Social Security Medicare and Medicaid. But then -- and then pay our armed forces, the people in uniform. But then we'd have to council every other government program and end 70 percent of the military contracts here in San Diego. Conversely, we would pay for our national defense and our veterans' administration, we'd have enough money for Medicare and Medicaid. But we wouldn't have enough money for Social Security. So we wouldn't be able to meet Social Security obligations. And when you start to put things in that perspective, it just becomes pretty clear that we've moved beyond the rhetoric of -- that some have been using of cutting up the credit cards or the just saying notice to the debt. We have a structural problem, we have a long-term need to deal with something about it, but an immediate cutback of that nature would go beyond the political pale.
CAVANAUGH: And moving this discussion out of San Diego for the moment into the larger world, many, I know, are concerned what not raise the debt ceiling might do to really international -- the international monetary system.
BRUVALD: Sure. If the United States were to demonstrate that its political system would unable to deal with this, then likely what you would see is that the value of the dollar would dramatically decline against world currencies, and: And what does that mean? Means that any imports that wee bringing into the United States, and we only need to look at the last months, we import a lot of identity, and what drove the price of open was a approximate weak dollar in the last new months. So imagine that all our imports would dramatically increase in price. And the other thing that would have to happen is that the United States to keep anything afloat interest rates would likely dramatically rise as well. And so anybody's credit card or adjustable rate mortgage or any sort of adjustable rate credit would dramatically go up as well as interest rates spiked.
CAVANAUGH: Now, Eric, you are a self proclaimed conservative, and this gains manship with this chicken, game of chicken is being driven by conservative Republicans in Washington and you're coming out strongly against this, don't even play around with this. Why do you feel so strong he with this?
BRUVALD: Well, I guess the one thing that I might add, I once learned something wise from my west Kansas grandmother that it takes two to tango, so I think clearly this is being driven by the house, the Republicans in terms of putting conditions on it, but I also think that the senate and the White House haven't offered up and compromises right now for themselves of what they would be willing to live with. So i'm not sure we shouldn't say a pox on both houses, but be that as it may, we've got a long term structural problem in this country in terms of our federal budget. The cost of government subbing driven, largely by, three very popular programs: Medicare, Medicaid, and Social Security. This isn't government people living high on the hog, or pensions going through the roof. Those things do drive cost, but the big burritos are those three programs and we've got to, oaf the long-term, dale with them. But to try and do it in the crisis of the debt ceiling is probably unrealistic to the challenges and the difficulty that's gonna be in terms of adjusting those programs to to levels so that we can live within our means.
CAVANAUGH: So what are we looking at now, Eric? What will be the procedures between now and the cut off point where indeed they have to decide whether or not to raise the debt ceiling before some of these programs just basically have to go into default or be cut or something?
BRUVALD: Well, there's two particular time lines to look at. And I think the latest news that we've heard that the formal debt ceiling will be hit some time in the next 2 to 3 weeks. You know, this is a big huge government with lots and lots of spending. So the precise moment in time is a little hard to reach. But we think in the next 2 to 3 weeks we'll hit up against that limit. Then there's a period of time, people are saying two months, three months, Secretary of Treasury, Timothy Geithner, has a number of different mechanisms that he can use to kind of juggle the books if you will, to stop paying back loans that were made between different funds and sides of government to use maturing bonds to finance new bonds. So essentially 2 to 3 months of struggling. But most people's expectation is by August. If we're still playing this game of, you know, he said she said or a failure to reach compromise, at that point upon the federal government's gonna have to start making choices. Very difficult choices about which bills it pays and which ones it doesn't.
CAVANAUGH: Eric you've made this complicated subject just a little bit easier. Thank you so much.
BRUVALD: Well, thank you, Maureen, and again, I think we'll see what the summer brings, and hopefully cool minds will prevail in the warm weather of Washington.
CAVANAUGH: President of the national university system institute for policy research. If you would like to comment, please go on-line, KPBS.org/These Days.
