Congress, in the midst of a month-long August recess, faces a massive policy threat when lawmakers return to Washington next month. By the end of September, Congress must approve legislation to raise the nation’s debt ceiling — or risk an economic disaster. And if the had any sense at all, they’d do away with the entire antiquated law, so I won’t hold my breath.
But they should at least have only one priority right now, and it has nothing whatsoever to do with what has become a sham of governance under the Republican brand; the repeal of the debt ceiling statute. They have roughly twelve “working” days to do it.
Please note that I’m not talking about increasing the debt ceiling, and unless there is a rampant outbreak of clear thinking in the self-serving halls of the Republican-led government, increasing the ceiling is the most we can hope for.
Bear in mind that before Barack Obama, debt ceiling increases were a one page formality, but in 2010, a Republican Senate, led by Mitch McConnell, decided to try and make paying the bills they had already approved another method to achieve his publically stated goal as Senate Majority Leader of “making our (Republicans) top political priority over the next two should be to deny President Obama a second term.” The debt ceiling was their first target and we’ve been on the brink of disaster ever since.
The debt ceiling has been raised 74 times since March 1962, including 18 times under Ronald Reagan, eight times under Bill Clinton, seven times under George W. Bush, and five times under Barack Obama. In practice, the debt ceiling has never been reduced, even though the public debt itself may have reduced.
The one thing that they cannot do is nothing, because, as is repeated every damn time Republicans want to display antipathy for what’s left of American respectability, by distorting the context and meaning of the U.S. debt ceiling which would lead to an unparalleled economic cataclysm to the world economy, not to mention our own. The problem is that there is so much political affectation about the debt ceiling that it is just too easy for so-called populists to pretend that the debt ceiling is not a big deal.
So, let me explain what it is, what could happen, and why it matters…A LOT.
The most important point to understand is that a debt ceiling breach is very different from a government shutdown. The two problems are frequently lumped together but the stakes are violently dissimilar.
A government shutdown happens when Congress has not passed appropriations that provide the funds necessary to run the government’s operations. The next time this could happen is on October 1, at the beginning of the next fiscal year. Current law only allows the government to operate through September 30, and if Republican leaders in Congress are not able to get their sh*t together in time, there will be another government shutdown.
Shutdowns, like the last one in 2013, are not catastrophic. They are bad for everyone in many ways, and even anti-government ideologues become angry when their own votes prevent the government from operating. But because of laws allowing the government’s “essential services” (law enforcement, border patrol, issuing Social Security checks, and so on) to continue during a shutdown, they are not catastrophes.
Are they a failure of governance? Yes. Do they create pointless stress and uncertainty for federal employees and citizens? Absolutely. Are they, in essence, tantrums by a white privileged few who hold the country hostage to try to get their own ideological way? Hell yes. But in an ironic twist, they also end up wasting an incredible amount of money; a supposed anathema to the Republican brand.
A debt ceiling-related default on obligations, however, would create problems of an entirely different order of magnitude. First of all, the debt ceiling statute has nothing to do with putting a ceiling on debt. In fact, Congress has spent three of the past six years with the debt ceiling in “suspension,” because Senate Majority Leader Mitch McConnell hoodwinked the rest of the Republican majority into believing that voting to suspend and later reset the debt ceiling at a higher level was not the same thing as voting to increase the damn thing.
Beyond the abject dishonesty, the important thing to realize is that that we have lived the six years without a debt ceiling, yet debt has gone up anyway. Deficits occur when the amount that Congress spends exceeds the amount government collects in taxes in the same time period, which means that every budgetary agreement in essence contains its own inherent debt ceiling.
But the money to cover the difference isn’t directly “borrowed” from anyone. It’s simply taken from the excess in other governmental funds; like from the ridiculous Postal Service’s 75-year-into-the-future-Congressional-mandated pension fund that the geniuses imposed upon a non-profit, non-taxpayer-funded vital entity. This method is exactly how George W. Bush paid for wars in Afghanistan and Iraq without exponentially increasing the national “debt”; he instructed the Treasury Department not to record the “debt” taken from other governmental entities even though it’s against government regulations to do that. When Obama came into office, he instructed the Treasury Department to report the transactions correctly and in doing so, picked up the “debt” that GWB has been hiding for 7 years by not reporting the transactions correctly and on purpose.
The roughly 20% of the “National Debt” owed to foreign countries are merely bonds that those countries purchased from the U.S. as an investment because we have ALWAYS paid the interest on them and on time. The U.S. is NOT out there begging countries to loan us money. They’re asking us to to invest their money in our safe haven of bonds.
So, if Trump’s Treasury Secretary, Mick Mulvaney and his former Tea Party comrades start playing games with the debt ceiling again, we really will face a crisis.
Then what happens, one asks, on the day that the federal government must pay bills that exceed the amount previously approved? The debt ceiling statute says that Treasury is not allowed to access the excess in those pension funds or reserves that have been collected for future payouts. Even if that fund consists of money that isn’t due to be paid until, say, 75 years in the future. Current estimates indicate that this could happen sometime later this month or in early September, depending on the daily flows of tax revenues and expenditures.
According to the conventional wisdom, exactly one thing could happen at that point: the government would have no choice but to stiff the people to whom it owes money. The United States on that day officially become a deadbeat.
Now, understand that this is just one of the ways Trump made his money; refusing to pay the people he contracted with to do a job or service. It’s also why Trump had to resort to borrowing operating capital from the Russians; not a single bank in the United States or any of its allies would loan Donald Trump any more money because he is a notorious deadbeat. He robs his own businesses of their cash and stiffs everybody else. This is just normal operating procedure for him, but this is also why governments operate on a completely different set of economic principles and distinguishes the difference between microeconomics (individual and businesses) and macroeconomics (governmental).
The U.S. defaulting on its debt is so bad that it is specifically unconstitutional. As Michael Dorf has written over and over again, the debt ceiling law cannot be an excuse to reassign Congress’s responsibility to pay its obligations to the President. It was true when Barack Obama was president, and it is true now.
The basic issue is what Professor Dorf in his blog, “Dorf on Law” has called the “trilemma,” in which the president is faced with three unconstitutional possibilities: refusing to spend money that Congress has already promised (and which the government legally owes the recipients), collecting more in taxes than Congress has passed laws to allow, or borrowing more than Congress has authorized.
Popular, albeit ignorant, opinion is that the president must default on paying the government’s obligations, but that is simply wrong. Again, to do so is to give the president unconstitutional authority to rewrite Congress’s Constitutionally mandated decisions about spending, which is a much bigger violation of the separation of powers than borrowing in excess of the debt ceiling would be.
Even worse, failing to pay bills when they are due does not even solve the problem. If the President says, “I can’t borrow the money needed to pay you what you’re owed today,” he has two ways to end that sentence:
- “… so we’ll pay you later,” or
- “… so we won’t pay you at all.”
If it is #2, then that is an actual repudiation of a federal obligation, which is specifically unconstitutional. But if it is #1, all the president has said is, “I can’t borrow money from other people to pay you now, so I’m going to promise to pay you the money at some later date.” That is what is known as “a loan” (and an involuntary one at that), which constitutes the traditional and microeconomic meaning of debt. So federal “debt” would go up (in excess of the debt ceiling) anyway.
The president is actually constitutionally required, (unless Congress repeals, or at least increases) the debt ceiling, to respond to a trilemma by refusing to allow the country to become a deadbeat.
It would create economic and political chaos for the president to allow the country, for the first time ever to fail to pay its bills, destroying the full faith and credit of the United States. Markets would crash, bond holders would flee the dollar, you get the idea. When it comes to failing to pay your bills, if “never” becomes “well, just once,” when the credit of a superpower is involved…everything irreversibly changes.
Again, we are talking about choosing between two different forms of a catastrophe that can easily be avoided if Republicans in Congress would simply grow up and understand that the debt ceiling is not a political shuttlecock.