A little over a decade ago, the U.S. nearly defaulted on its federal obligations in an unnecessary fight over raising the nation's debt limit.
Well, here we are again, with House Republicans, Senate Democrats and the White House locked in a to-the-death struggle over raising the debt ceiling again or defaulting on U.S. bills.
The fight, which raged on in 2011, caused turmoil in financial markets — the stock market in particular — and led to the first debt downgrade in U.S. history. The Dow dropped 5.5% on Aug. 8, 2011, posting its sixth largest decline in history as the U.S. approached default.
Rather ironically, investors bought U.S. Treasury bonds, even after S&P downgraded U.S. debt for the first time ever, because a simultaneous European sovereign debt crisis was deemed more of a risk than a U.S. default. This time around, there is no such distraction that would make U.S. bonds more appealing than weaker paper across the pond.
These games of chicken, debt ceiling battles, government shutdowns and other styles of brinksmanship do nothing to engender goodwill between the world's biggest borrower and its biggest individual, institutional and international lenders.
While one assumes cooler heads will prevail and the debt limit will be raised, without any mandated spending cuts, as happened three times during the Trump administration, one still needs to worry that this could be a "burn it all down" moment in which there is no agreement, and a "technical default" takes place.
This would leave the U.S. unable to pay Social Security, or other mandated bills, or even miss an interest payment on its outstanding debt. This would be uncharted territory. And potentially, seismic.
The U.S. Treasury said tax receipts in April totaled nearly $130 billion, well above year-ago levels. This could push off the day the big bill comes due until July, rather than June.
Still, that day is fast approaching with no sign that House Republicans will agree to increase the debt limit without a commitment to cut several hundred billion dollars in annual discretionary spending. The White House remains unwilling to negotiate over a House-passed plan that guts veteran benefits, food stamps and other social programs.
This would be tedious and funny if it were not so repetitive and didn't affect real lives and the safety and security of U.S. debt, which is effectively a repository of funds for all manner of investors who believe in the "full faith and credit" of the United States government.
On the one hand, the White House is right to refuse to play a game that would force the U.S. to default on borrowing already authorized and spent.
If I were President Joe Biden, I would indeed play hardball on this issue. I would point out that Republican administrations have contributed more than half of the nation's debt pile and have raised the debt limit without any strings attached routinely when their party occupied the White House.
On the other hand, given a debt-to-GDP ratio that exceeds 100%, the U.S. should re-examine its budget priorities and find ways to reduce annual deficits and bring the national debt under control.
Of course, that is easier said than done.
Among defense spending, entitlement spending and interest on the national debt (now considerably higher given the recent and steep hikes by the Federal Reserve), there is not much to cut that would make a dent in the debt.
Were the U.S. not so polarized politically, raising the future retirement age for the likes of Social Security and Medicare would make sense as millennials and Gen Z are likely to see their life expectancy rise dramatically in the decades ahead.
A small hike in the retirement age, from today's 67 years to 70, would save trillions of dollars in unfunded liabilities and help the U.S. bring future spending under control.
It's as an unpopular idea here as raising the retirement age to 64 is in France, but as the bipartisan Simpson-Bowles Commission report showed, some 15 years ago, it's a necessity given the future unfunded liabilities of the U.S. government.
That, by the way, is the trade I would make if I were Biden. I would seek a permanent hike in the debt limit, so the bills will be paid on time, and then follow the recommendations of Alan Simpson and Erskine Bowles. While their proposal may be forgotten today, it is no less relevant than in years gone by.
Their recommendations were fair and square, calling for defense budget audits, modest increases in entitlement eligibility and public investments in productivity-enhancing programs from education to infrastructure. Some of that has been done in the years since, but more is necessary.
Throw away the notion of minting a trillion-dollar platinum coin to fund our obligations.
Stop fighting a losing game. Give Alan and Erskine a call.
It's our only way out.
— Ron Insana is a CNBC contributor and a senior advisor at Schroders.