The United States is in debt up to its eyeballs - or more realistically the Statue of Liberty's eyeballs. On May 16, America hit the debt ceiling. which is slightly less than $14.3 trillion. That works out to about $46,000 for every man, woman and child in the nation.
Despite those staggering numbers, the broadcast networks have relegated their coverage primarily to the politics involved, rather than the economics. Reporters have complained about the "partisan sniping" over spending cuts or tax hikes, but have barely included any economists in their coverage.
CNNMoney.com described the debt ceiling as "a cap set by Congress on the amount of debt the federal government can legally borrow." The Obama administration wanted a "clean" (read unconditional) vote on raising the debt limit and got its wish on May 31, when the House voted down such a debt limit increase with a large bipartisan majority (318 nays, 97 yeas).
Clearly even members on both sides of the aisle in Congress have realized that the debt is unsustainable and, while conservatives have argued that the debt ceiling should not be raised without budget cuts and spending conditions, liberals (and some in the news media) are predictably calling for "revenue" increases (taxes). Reuters columnist James Pethokoukis warned the GOP not to "go wobbly" on the issue of taxes. He cited the weak economy's slow growth, projected spending levels if nothing is done and concluded that faster economic growth is "the key to boosting tax revenue."
Obama has made it clear he wants a compromise deal by July 4, although the Treasury Department has said the absolute deadline for a debt limit increase is August 2.
Despite those crucial deadlines and the potential economic "calamity" that could result if no deal is brokered, the networks have consulted very few economists, and have mostly reported this story as a political horserace. Only two economists, one of them government official Ben Bernanke, Fed chairman, were included in the 38 news stories mentioning the debt limit since June 10. That was the day the White House announced their desire to see a political deal by July 4.
Instead, the networks mostly consulted politicians or administration officials including President Obama and a number of Congressmen. Four people were quoted but unidentified. The Business & Media Institute looked at two weeks of network news reports that mentioned debt for coverage of the debt ceiling between June 10 and June 24.
Conservative and Liberal Economists Both Concerned about Default
Debt ceiling coverage, as is often the case, was portrayed as more of a political fight than a potential economic catastrophe. Yet, economists on both sides say that is the reality.
If the United States were to default on its debts August 2, it could be "a calamity" according to the former chief economist of the IMF, Simon Johnson.
Johnson, a liberal who argued that the solutions is for the U.S. to adopt a "European-style VAT" tax and let the Bush tax cuts expire, isn't the only economist concerned about what could happen if Congress doesn't agree on a plan that would raise the debt ceiling by that date.
But default is not the only economic worry facing the U.S. Ignoring massive deficits could also result in real problems according to the IMF. As MarketWatch reported in April, "The U.S. is projected to have a fiscal balance as a percentage of GDP of - 10.8% in 2011, the biggest percentage among advanced countries."
"IMF officials are worried that delay in slashing the deficit might cause the bond market to lose faith in the U.S. ability to cut its deficit, which would push interest rates higher and possibly destabilize the global economy," MarketWatch wrote. Others, including Bernanke, have also warned about the "unsustainable" levels of federal debt.
Moody's rating agency announced recently that for the U.S. to maintain its triple-A rating, not only will the debt ceiling need to be increased and default "avoided," "the rating outlook will depend on the outcome of negotiations on deficit reduction."
"A credible agreement on substantial deficit reduction would support a continued stable outlook; lack of such an agreement could prompt Moody's to change its outlook to negative on the Aaa rating," the press release said according to ABCNews.com.
Conservative economists have also warned against allowing the U.S. to go into default on its debts. Douglas Holtz-Eakin, the CBO director under President Bush, called default "a bad idea."
"Little defaults, big defaults; default's a bad idea period and there should be no one who believes otherwise," Holtz-Eakin said at a bipartisan panel discussion in Washington, D.C.
"The dumbest thing to do would be to default even for one day right at this point," he said. "I don't see much good coming out of these notions that somehow if we got a big budget deal it would be OK not to pay interest for a few weeks or few days."
Another liberal economist, Dean Baker, has said "If the government had to default on its debt, it would shake the financial markets even more than the collapse of Lehman in September of 2008. We would see a freeze-up of lending and companies would be forced to dump millions of workers, as they could no longer meet their payrolls." In Baker's "disaster scenario," Wall Street would be done for.
The networks need to include more economists, especially on issues like the debt ceiling. Unfortunately, broadcast news reports have often excluded economists. When President Obama submitted the largest federal budget in history, the networks reacted by portraying him as a fiscal conservative. But they also mostly ignored economic experts who were critical of that budget.
Debt Negotiations Break Down, Networks Fail to Report It
On June 23, Republican negotiators walked away from the negotiations led by Vice President Joe Biden. Yet, the networks didn't even mention it that night on the evening news programs.
According to the Wall Street Journal, "House Majority Leader Eric Cantor, R-Va., in an interview after a negotiating session he described as bitterly contentious, said he would not be attending Thursday's scheduled meeting of the bipartisan deficit-reduction leadership group. Mr. Cantor said he believed it was time for the negotiations to move to a higher level."
"The White House and Democrats are insisting on job-killing tax hikes and new spending," Senate Minority Whip Jon Kyl, R-Ariz., said according to the Journal. "That proposal won't address our fiscal crisis, our jobs crisis, or protect and reform entitlements."
The talks had tentatively come up with more than $2 trillion in spending cuts (over 10 years) but "we have to get over this impasse on taxes," Cantor said.
The stalemate over raising taxes increases the possibility of a short-term deal rather than an agreement for significant spending cuts.
According to Reuters, the talks are now in the hands of President Obama and House Speaker John Boehner, R-Ohio. "Officials insist the goal of negotiations remains a deal that will allow the United States to meet its obligations beyond next November's presidential election - and that means an increase of $2 trillion to $2.5 trillion. But a smaller, short-term package to stave off default is becoming a more serious option as the clock ticks."