Once again, the US finds itself in the situation of having to raise the debt ceiling. In the past, sometimes it’s been controversial and other times it was not. This time, the Republicans are saying that they won’t vote to raise it. At this point, I have no reason to doubt their word.
AIUI, if the debt ceiling isn’t raised, the US will default on some of its obligations. Apparently this has never happened before and I believe that it’s actually unconstitutional but I don’t know what the enforcement action would be. If the markets are any gauge, they don’t seem (currently) to be too concerned as they continue to climb to new highs.
So, do you think that someone will find a compromise or are we headed into the abyss?
I think we’re heading for a government shutdown of about 5 days. Eventually McConnell’s corporate masters will call him on the carpet and he’ll back down. Funny how this only happens when Democrats are in the White House.
It has been controversial when there’s a Democrat in the White House, and not when there’s a Republican in the White House. That’s because the Democrats care about the well-being of the country and the Republicans care about damaging Democratic presidents.
I think the Republicans are trying to get the Democrats to use one of their “don’t need 60 votes” bills on the debt ceiling, so they can’t use it on the $3.5 trillion reconciliation package, right?
Anyway, I’m going to say, no, the US won’t default. Even the Republicans don’t want that kind of damage to the US.
The debt ceiling would appear to be unconstitutional. The fourth clause of the XIVth amendment says, in part, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
So if the government just goes on paying the bills and selling bonds, how can it be stopped? Who would have standing to sue anyway? And if they did, why wouldn’t any court simply declare the debt limit law unconstitutional?
Is there any other country with such a bizarre law?
It is a result of the constitutionally defined separation of powers–and no, the debt ceiling is not unconstitutional.
Article I, Section 8, 2nd clause of the U.S. Constitution reads that one of the enumerated powers of the U.S. Congress is to:
The executive is vested with no innate constitutional authority to issue new debt separate from Congress.
The debt limit is actually an expansion of executive power. Historically it did not exist. Before its existence, every penny of borrowing done by the government had to be specifically approved tranches of specifically allocated bonds and such.
For example say the Federal government wanted to build a canal, they’d issue XYZ Canal Bonds at 20 year maturity paying % or what have you. This would have to be tediously done for every penny in the red the government had to operate. However aside from the Civil War, up until WWI it mostly worked fine because the Federal government didn’t do that much, and the debt outstanding tended to stay fairly fixed. There were problems with the system, but it mostly worked (during the Civil War a compliant Congress just issued a whole fuck ton of war bonds.)
In the build up to WWI the Wilson Administration and his treasury secretary basically made the argument that the way U.S. debt was structured and how issuance was handled was too laborious and procedurally difficult to handle the needs of a modern state. So what they came up with was basically the idea that Congress would no longer actually approve most individual issuances of debt for XYZ thing, instead they’d just allocate a basket of pre-approved debt, say $500m, and it could be used for whatever Congress appropriates it for later. This actually smooths things over because it’s a lot simpler with how treasury bonds are issued and how Congress operates, to just have that pre-approved debt that the Treasury Secretary can issue as needed.
Note that it wasn’t a huge hit to Congressional powder–the executive is still not allowed to spend money without congressional approval, so everything is still appropriated and budgeted by congress. But it adds a lot of flexibility for them to not have to issue new series of treasury bonds for every new spending. Note that they still issue individual bond series from time to time (they did it repeatedly during the World Wars, they did it after the 2009 Recession with the Build America Bonds and etc.)
Another thing the debt ceiling functionally allowed for was operating cushion for the Secretary of the Treasury, who could “cycle through” outstanding debt. Before the existence of the debt ceiling for example, all the different existing series of bonds were kind of locked in place with little flexibility. With the debt ceiling the Treasury Secretary can do things like use his pre-approved borrowing authority to say, retire some old series bonds and issue new ones, sometimes to the government’s advantage. That would’ve required special legislation previously. Now that power at Treasury is part of how they routinely do business.
Now in a sense the weird quirk is that we do have part of our constitution that says the validity of the U.S. debt should not be questioned (understood to mean it must always be paid back), and we also have an appropriations and budgeting process that is separated from debt issuance, which means we can appropriate and budget spending that we haven’t approved debt issuance to cover. Which means when we run up against that limitation, the President is put into a position where he can violate the Constitution by not funding things Congress has ordered him to fund to make coupon payments on the debt, or he can violate the constitution by letting the debt default and still trying to follow Congress’s appropriations mandate.
It isn’t great, but it doesn’t make any aspect of it intrinsically unconstitutional, just poorly designed for the times we live in.
One point raised about that is that the U.S. needs perpetual borrowing and spending because the dollar is used as a global reserve currency.
That means what it can sell is generally too expensive for many countries and what it can buy from many countries is cheap. That ultimately means chronic trade deficits and increased borrowing needed to cover increased spending to ensure economic growth.
That implies that it can’t default as long as many countries rely on the dollar as a reserve currency. But when more don’t…
A shutdown doesn’t necessarily avert the debt crisis though; it’s an issue of whether we actually pay for goods and services our government’s already promised to pay for, which in turn will determine the creditworthiness of the USD. Last time we actually tiptoed into those waters, our credit rating went down from AAA to AA+, which was enough to call off the game of political chicken. Republicans in 2021 live in a more radicalized political ecosystem.
Republicans are not intimidated by corporate America’s threats to cut off political contributions, either. Remember how some of the corporate big wigs vowed to stay away from the GOP after January 6? Some have found out that’s not an easy promise to live up to, particularly when the Democrats are proposing legislation they really don’t like. On the other hand, and more significantly though, Republicans rely increasingly on highly partisan congressional maps and in the senate, Republicans rely increasingly on the same vote suppression that helps Republican governors win their statewide elections.
The conventional wisdom is that the Republicans will fold, but I think it’ll be the Senate Dems that ultimately cave in. The question is, why? Why can’t they see that they have the votes to get this massive budget passed and be done with? Why not force it through reconciliation? Good questions, all of them. I suspect that what it comes down to is that some centrist Democrats have ties to corporate America that are stronger than we realize - that and the fact that some centrist Democrats don’t want to be facing attack ads depicting them as voting in line with “the squad” and “socialist Bernie sanders.” Manchin and Sinema want to at least come back and say, “Hey, we passed a big stimulus for you guys, and we prevented crazy Bernie and crazy AOC from turning us into a socialist country.”
That brings it back to House Dems, who are insistent that the rich pay for increased social spending and fight inequities in the system – which I agree with, by the way. I’m with House Dems on this 100% for once. But unfortunately, I’m not Joe Manchin. So there’s no way this bill can pass with a $3.5T and I’m not sure it can pass even at half price.
What’s likely to happen is that, eventually, all sides agree that there’s not going to be a deal. We might brush up against the debt-ceiling deadline and markets might get woozy for a day or two before all sides acknowledge that, as bad as no stimulus is, defaulting on US debt would be an order of magnitude worse.
I saw a more optimistic appraisal of the situation yesterday on Politico, something about a framework so there’s always the chance my pessimism could be wrong here. But when I read more deeply, it seems that only a handful of Dems were in on the meeting and most Democrats - including Bernie Sanders and Ron Wyden or Pete Defazio (?) hadn’t even been aware of what was discussed. It seems more like Pelosi and Schumer were hoping that more “pay fors” would be a deal starter and were just trying to put a brave face on the situation.
I don’t believe that debt ceiling increases have to be passed as their own bill, so I believe they could just amend it into the existing bill, assuming that raising the debt ceiling is something the Parliamentarian says can be accomplished that way.
Heck, I wonder if they could use it to just automatically raise the debt ceiling as needed for greater expenditures. Most of America is tired of the debt ceiling fight.
I agree with this. But, my understanding is that there are only so many times that the majority can use reconciliation, maybe once more this session, so McConnell is trying to get the Democrats to use reconciliation to pass the increase to the debt ceiling, so they can’t use it to pass the larger bill.
Raising the debt limit is certainly a valid use of reconciliation. They would need to amend the previously-passed budget resolution (which sets the outlines for reconciliation) to include it. Due to budget rules, they would have to raise it to a certain dollar amount rather than postponing it to a certain date. And it would not be an “either or” – Democrats could include both a debt limit increase and everything else they’re negotiating over on reconciliation in the same package.
McConnell’s goal here isn’t to use a debt limit increase to forestall the larger reconciliation package, but rather to keep Republican fingerprints off the debt limit increase so they can run ads next year that, “Senator Liberal voted to add $10 trillion dollars of debt to your children’s future. Candidate Conservative opposes burdening the next generation with massive tax increases.”
Actually, we both seem to be wrong about this. Congress is apparently not restricted to one reconciliation bill a year. The rule is actually that you only get one bill per subject that is allowed under reconciliation. Those three subjects are spending, revenues, and the debt limit. The first two are hard to separate out, so, as a practical matter, they must be combined. But this is not the case for the debt ceiling. So they could pass a plain debt ceiling increase with no riders, and then still pass the other bill.
At least, that’s what I read from this (claimed) non-partisan research and policy institute (which was used as a source on Wikipedia):
But, they already passed one reconciliation bill this year, right?
ETA: I could be wrong about all of this, and @flurb has another explanation (mainly, that Republican voters might fall for that bullshit line, forgetting about the Trump tax cuts and all other spending that Republicans have already approved).
On Monday, the White House again ruled out minting the coin to resolve the debt-ceiling stand-off in Congress. Politico first reported that the Biden administration had rejected the measure.
“There is only one viable option to deal with the debt limit: Congress needs to increase or suspend it, as it has done approximately 80 times, including three times during the last Administration,” White House spokesperson Mike Gwin said in a statement to Insider.
As @BigT notes, technically they’re allowed up to three – one each on spending, revenues and debt. But it’s devilishly difficult to separate out those three so usually they only pass one. Also, it’s three reconciliation bills per fiscal year. The last reconciliation was for the current fiscal year that ends October 1. What they’re debating now is for the next fiscal year.
For those playing along at home, it might be helpful to clarify that there are three things going on right now that are being conflated but are really separate from a budgetary perspective:
By October 1, Congress must pass a continuing resolution to appropriate funds for federal agencies whose budgets will expire with the end of the current fiscal year. If they do not, non-essential federal services will be shut down and federal employees furloughed (or forced to work without pay if deemed “essential”). It would be subject to filibuster (requiring 60 votes to invoke cloture) in the Senate.
By some time in October, Congress will need to pass a statutory debt limit increase to allow the Treasury to borrow funds sufficient to meet all existing obligations. The exact timing varies and can be forestalled a bit by accounting maneuvers. If they do not, the government would be unable to meet all its obligations and would have to prioritize what income they do have among things like making bond payments, funding the military and sending checks to Social Security recipient. It would also likely send the markets into turmoil. This could be done as a standalone measure (subject to filibuster) or through reconciliation.
Congress may (they are not required to) pass a budget reconciliation measure that would make adjustments to revenues and expenditures over a ten year window. This is what Democrats are squabbling over right now even outside of the debt limit issue. Reconciliation bills cannot be filibustered, but they’re also subject to lots of procedural requirements that can make it a slow and clumsy way to pass policy.