Okay–I’m sure that readers of this blog are well aware of the current threat by the usual suspects to hold the debt limit hostage in order to get concessions on spending from the administration and the Democrats in Congress.
I’m also sure that most of those readers understand what the debt limit actually is–unlike the intended targets of the crazies’ messaging. America’s debt ceiling does not authorize spending–it authorizes government to borrow funds as necessary to pay for spending that Congress has already authorized. (That’s why the GOP obediently voted to raise it during the Trump administration–even though the Trump tax cuts significantly increased the deficit and thus the amount to be borrowed.)
Here’s an analogy: you went shopping and maxed out your credit card. The bill from the credit card company comes due, and your spouse says “We aren’t paying it until you agree to [whatever].” You either accede to the whatever, or destroy your credit rating, find yourself unwelcome in the places you shop, and incur higher interest rates in the few places that still accept your business.
In 2011, when Republicans last played this game, the delay in raising the limit caused a downgrade of U.S. Treasury debt, raising government borrowing costs by $18.9 billion over ten years.
If the GOP’s current game of chicken succeeds–if America fails to pay the bills Congress has previously racked up–the country (and globe) would descend into recession, Social Security and Medicare payments would stop, federal workers, soldiers and defense contractors wouldn’t be paid… And you could kiss your tax refund goodby.
The U.S. is one of only two countries requiring a separate vote to raise the debt limit–most countries understand that a vote to spend X on program Y implicitly authorizes payment even if funds need to be borrowed. For many years, rational lawmakers in both parties routinely raised the limit.
Since “rational” no longer describes most GOP lawmakers, what should the administration do? I’ll let Paul Krugman answer that question.
Krugman warns that “it’s not even clear that the Biden administration could surrender if it wanted to.”
The current crop of House Republicans makes the Tea Party, which (alas) used the debt limit to blackmail President Barack Obama, look reasonable. Today’s G.O.P. doesn’t even seem to have a coherent set of demands; a significant number of caucus members may well want a crisis, preferring to “watch the world burn” under a Democratic administration.
If surrender isn’t an option, what is?
Democrats could seek a “discharge petition” to force a vote on raising the debt limit despite opposition from G.O.P. leaders. This would both take time and require support from a handful of sane Republican House members. But it’s surely worth trying.
Second, it’s probably possible to use financial engineering to bypass the debt limit. The most famous proposal calls for minting a platinum coin with a face value of, say, $1 trillion, depositing that coin with the Federal Reserve and spending out of the bank account thus created. Believe it or not, this would almost certainly be legal.
Another option would involve raising money by issuing “premium bonds” when existing debts come due — bonds whose face value is the same as that of the bonds they replace, so that they don’t officially increase the debt, but offer high interest rates, so they sell for much more than their notional value.
Krugman also points to language in the 14th Amendment providing that “the validity of public debt shall not be questioned,” and suggests that language might be construed as authorizing the government to ignore the debt ceiling rather than defaulting on payments.
Which option should Democrats pursue? I’d say all of them. Above all, this is no time for officials to worry about seeming silly or undignified. The Biden administration is facing the threat of economic terrorism — that sounds extreme, but it’s basically what creating an artificial debt crisis amounts to. And it should do whatever it takes to face down that threat.
So–what now? The Treasury department is ramping up what it calls “extraordinary measures” to avoid default, but without a resolution, the country will stop being able to pay its bills sometime around June 5th.
Even if the administration was willing to “negotiate,” Republicans cannot seem to agree on what it is they want. In yet another demonstration of their lack of discipline (and in many cases, sanity), several on the far Right are insisting on cuts to Social Security and Medicare, while others are focused on cutting the Defense budget.
And what, you might ask, about the “moderate” members of the GOP? That’s easy: there aren’t any. Bret Stephens was right-– today’s GOP consists only of reptiles and invertebrates.