We were told over and over again that if America didn't raise her debt-ceiling, the financial roof would come tumbling down about our ears. We were told that the consequences for our credit rating would be disastrous. We were told that the stock market would crash.
So, our elected representatives passed a debt-ceiling increase. Democrats complained that the increase didn't raise taxes; Republicans complained that the increase kicked the proverbial can down the road on spending. Democrats claimed victory for having forced Republicans to raise the ceiling at all; Republicans claimed victory for having forced Democrats to offset increased spending with certain cuts.
And the economy tanked anyway.
On August 2, the stock market dropped 265 points. Standard and Poor's 500 moved into negative territory for the year. Fitch Ratings said that the U.S. may have its debt downgraded from triple-A status anyway. Microsoft, Exxon Mobil and Johnson & Johnson all have better credit than the government of the United States at this point. "I'm not so sure that the debt deal is well received or if it's what everyone wanted," Steven Carl, head equity trader at Williams Capital Group, told CNBC.
Because of the debt deal, things are slated to become even worse. If the debt-ceiling had not been raised, the government would have been forced to choose between spending initiatives. The debt-ceiling would have provided a hard cap; it would have prevented President Obama from being able to press for new spending initiatives. Now, with the "Super Congress" (a smaller group of Congress people supposedly dedicated to cutting costs) in charge of cutting the deficit, we can expect a new push for higher taxes, especially since reports are that the constituency of the Super Congress will be "moderate."
None of this would have been possible without the apocalyptic doom-talk coming from the White House and members of Congress. There was no emergency on the horizon. As Kevin Williamson of National Review pointed out, our revenues for the rest of the year easily would have paid our debt service requirements. We would have had to cut back on our discretionary and entitlement spending, but we need to do that anyway if we want to survive the current fiscal crisis.