There's a big fight brewing over the debt ceiling, with fears of a government shutdown creating chaos in the markets.
But a government shutdown did not cause a stock market crash in 1995 or early 1996, and it did not create widespread catastrophe, despite what you hear from the White House and Democrats in Congress.
The problem is, fights over the debt ceiling dating back to the Reagan Administration have not resulted in follow-through on promised spending cuts from the early ‚Äė80s going forward.
As stock market expert Mark Hulbert points out, the Dow Jones Industrial Average rose from 3,800 in early November 1994 to 4,900 a year later, when the first government shutdown took place under the Clinton Administration (the second occurred from the middle of December 1995 to early January 1996).
That‚Äôs largely because the Congress tends to raise the debt ceiling at the eleventh hour. And that‚Äôs the overarching problem.
The U.S. debt ceiling has been raised 11 times since 1996, amidst a worldwide bubble in government as politicians the world over try to fix their economies by drinking themselves sober.
And as Congress has raised the government debt ceiling those 11 times, almost in lockstep, the Government Accountability Office could not sign off on the government‚Äôs books for 14 consecutive years, because its regular audits found the nation‚Äôs books in terrible disarray.
President Ronald Reagan faced a budget stand-off in 1981, and signed an increase in the debt ceiling to hike it above $1 trillion for the first time. But few spending cuts were agreed upon, and the deficit continued to rise.
Reagan also signed off on an increase in the government‚Äôs debt ceiling in 1985 and in 1987, and again, few spending cuts were agreed upon and the deficit continued to rise.
Reagan approved the increase in 1987 only after he vowed to lend support to a new anti-spending, budget-balancing bill by Senators Phil Gramm (R-Texas), Ernest Hollings (D-S.C.) and Warren B. Rudman (R-N.H.).
The 1985 budget balancing law, the Gramm-Rudman-Hollings Balanced Budget and Emergency Deficit Control Act, went far beyond agreeing to spending cuts here or there.
It forced Congress to adhere to balancing and restructuring the budget, with spending caps and automatic spending cuts, called sequesters, something not seen in years since.
Reagan approved a two-month extension to raise the debt ceiling at that time by a quaint $20 billion to $2.3 trillion, to accommodate federal borrowing through that July.
However, according to the New York Times, the White House later rejected spending cuts, and announced its 1988 budget actually would not cut the deficit to a $108 billion ceiling set in the budget-balancing law, as it had originally projected.
Marlin Fitzwater, then the chief White House spokesman, cited an analysis by the Office of Management and Budget which predicted that, because of slower economic growth, the 1988 deficit would be about $135 billion, $27 billion higher than projected.
And Gramm-Rudman failed, however, to prevent large budget deficits.
Here‚Äôs what else happened:
When the Reagan Administration faced a budget stand-off with Congress in 1985, he used a familiar tactic, mimicked later by Clinton Administration‚Äôs Treasury Secretary Robert Rubin in the mid-90s ‚ÄĒ raiding retirement funds.
Reagan reportedly did so to make sure retirees were paid their Social Security benefits, and generally not to pay for government operations. The AARP tried to sue the Administration to block the raid on the Social Security Trust Fund, but its suit was dismissed.
During the Clinton Administration, the government hit the debt ceiling and a stand-off ensued with the GOP-led Congress. Treasury Secretary Rubin artfully avoided default by borrowing money from at least two federal pension funds. The debt ceiling was later raised after a brief government shutdown amid warnings from Clinton that the government might temporarily stop mailing Social Security checks. But that didn‚Äôt happen.
However, Reagan had a decent back-channel to then Democrat Speaker of the House Tip O‚ÄôNeill, whereby Reagan courted the Speaker in order to allow for smoother passage of legislation the president supported.
It might seem wishful thinking to hope for that change we all want to believe in between the White House and Congressional Republicans, given the vitriol between President Barack Obama and today‚Äôs GOP Speaker of the House, John Boehner of Ohio.
Notably, the president was against raising the debt ceiling before he was for it. On March 16, 006, then Illinois Senator Obama was opposed to hiking the ceiling, noting: ‚ÄúThe fact that we are here today to debate raising America's debt limit is a sign of leadership failure. Leadership means that ‚Äėthe buck stops here.‚Äô Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better. I therefore intend to oppose the effort to increase America's debt limit.‚ÄĚ
The debt limit increase then passed on a vote of 52 to 48.
Jake Tapper of ABC News reports that when ‚Äúasked about that quote -- and vote -- today, White House press secretary Robert Gibbs said that it was important that ‚Äúbased on the outcome of that vote‚Ä¶the full faith and credit was not in doubt.‚ÄĚ
Tapper reports that Gibbs noted then-Sen. Obama used the vote ‚Äúto make a point about needing to get serious about fiscal discipline‚Ä¶.His vote was not necessarily needed on that.‚ÄĚ