The Conversation

By Nicole Hemmer

The US government shutdown is in its second week, but attention in the country has shifted elsewhere: to the looming debt ceiling crisis. On October 17, the US runs out of money to pay its bills.

Both crises share root causes: they have been created by House Republicans as leverage in policy fights. Unlike the slow, grinding pain of the shutdown, however, the debt-ceiling crisis carries the possibility of truly catastrophic consequences.

There was some movement on Capitol Hill on Thursday, but president Barack Obama has reportedly failed to agree on an offer from Republicans that would extend America’s borrowing authority for six weeks.

While we wait to see if the immediate crisis is averted, here’s a guide to the debt ceiling and the dysfunctional American government.

To start things off, what’s the debt ceiling?

The debt ceiling is simply a cap on the amount of money the US Treasury can borrow.

Congress, because it controls the “power of the purse", determines what that cap is. The current debt ceiling is US$16.7 trillion.

When does the US hit that debt ceiling?

It already hit the ceiling back in May. Since then, the Treasury has been using “extraordinary measures” to continue to meet its obligations.

October 17 is the day the Treasury says those measures run out.

What happens then?

Various levels of economic catastrophe, depending on which bills don’t get paid and how long it takes to restore the borrowing power of the government.

The US economy would immediately contract, and world markets would likely suffer as well. On Wednesday, Christine Lagarde, the head of the International Monetary Fund, warned:

Failure to raise the debt ceiling would cause serious damage to the US economy, but also to the global economy as a result of the spillover effects.

Even the threat of default has real economic consequences. Stock prices have been tumbling in the US over the past month (rallying on Thursday when rumours of a potential short-term deal began to circulate), and bond markets began showing signs of trouble on Tuesday as the cost of short-term borrowing rose sharply.

That sounds pretty awful. Why would anyone want that to happen?

This is the craziest aspect of the whole debt ceiling crisis: Almost everyone agrees the US has to raise its debt ceiling before the deadline, even the Republicans who are refusing to raise it.

But then again, most Republicans didn’t want to shut down the government either, understanding (rightly) that it was going to cost their party a great deal of political capital with very low chances of victory.

Wait. If the Republicans don’t want a government shutdown and don’t want a default, why is all this happening?

The short answer is the Tea Party.

The longer answer is that the Republican Party is split between conservative hardliners who will brook no compromise and conservative pragmatists who will. The pragmatists outnumber the hardliners, but the hardliners exercise more power for two reasons: they have a more vocal base, and they have shown an ability to effectively remove from office (via primary challenges) Republicans who don’t go along with them.

It was the hardliners who pushed the US to the brink of default in 2011, costing the country its AAA credit rating. Their refusal to compromise also led to sequestration with its deep, inane cuts to the federal budget.

Republican leaders’ unwillingness to cross this group ultimately led to the government shutdown, which a number of GOP politicians and strategists considered a strategic error. And it’s proven to be as much: in the past week the Republican Party’s approval ratings have hit historic lows.

But if it’s such bad strategy, why do it?

For a few reasons. First, this type of “crisis government" — though harmful to the GOP’s national reputation — has allowed them to gain concessions from Democrats they would never have been able to achieve through normal legislative order. Not only did the Budget Control Act that ended the 2011 debt ceiling crisis deliver major spending cuts, the showdown over the shutdown resulted in Democrats agreeing to continued reductions in spending without increased revenues.

Second, self-interest and national interest have begun to diverge widely for Republicans. Speaker John Boehner faced a serious Tea Party revolt that nearly cost him his position earlier this year. Part of his continued capitulation to the hardliners comes from that battle.

Likewise, many House members hail from solidly Republican districts in which retaining their seats means staying firmly on the right to ward off a primary challenge. And finally, a number of Republicans have their eye on the 2016 presidential primaries, where they believe their conservative credentials will make or break their chances for the nomination.

If no governing gets done in the meantime, so be it. They’re not exactly fans of a functioning government anyway.

So what does all this mean for the possibility of default?

President Obama is hoping that the divisions between hardliners and pragmatists will allow him to wedge Republicans. Pragmatists are pretty frustrated with the shutdown and the debt ceiling showdown. Representative David Nunes called fellow Republicans “lemmings in suicide vests” for allowing the shutdown. Senator Lindsay Graham, commenting on Republican attempts to defund Obamacare by shutting down the government, lamented:

We took an unpopular law and chose a more unpopular tactic to deal with the law.

Boehner now seems to recognise he’s bitten off a bit more than he can chew. On Thursday he offered the extension to the debt ceiling to allow time for negotiations on major issues like entitlement spending and tax increases. Republicans and Democrats have been unable to broker a deal on these issues for several years now, so it’s hard to see this as anything more than kicking the can that much further down the road. But it would end the immediate crisis.

Boehner’s offer, by the way, didn’t include opening the government.

So that’s it. We meet back here in six weeks and do it all again? And the government stays shut down?

Welcome to Washington in the Tea Party era.

This article was originally published at The Conversation