Debt Ceiling: Mint the Coin!

Democrats want Congress to raise the debt ceiling without conditions. Republicans in the House want numerous concessions. At present, it looks like both sides are on a collision course.

The Democrats on this issue are right. It should not require an act of Congress to allow the government to borrow the funds it needs to pay its obligations. As stated in Forbes:

Remember the U.S. is essentially the only country requiring a separate vote on raising the debt ceiling. Most governments assume if spending is legally authorized then the necessary funds must be made available, either through taxes or borrowing.

Yes, borrow it or raise taxes. Nobody, particularly Republicans are arguing to raise taxes.

See Link: The Trillion Dollar Coin

It does not need Congressional approval. Congress can work in a bipartisan manner, to cut spending. But not use the debt ceiling as some kind of bargaining chip. The consequences are too devastating in case of a standoff.

The second option which I like is for the Treasury to create a special-purpose entity to issue new securities (more like promissory notes) that can pay for expenditures. These entities have been used by the states, so in a way, they have been “road tested.”

I would have preferred Representative Elizabeth Warren’s recommendation to get rid of the debt ceiling. That makes perfect sense. Countries take incredible measures to avoid default on their debt, while we apparently intentionally crash our economy, while we have the ability to borrow the money.

See VOX Link: Our debt ceiling crisis could hit as early as June. Here’s how Biden can sidestep it.

The VOX article suggest in Option #3 that the president declares he must spend the money for the programs approved by Congress, and to do so, he is forced to borrow the money, since only Congress can raise taxes. So, in essence to obey one law, he must break another one. And of course, this is asking for a court battle and the 14th amendment will be pulled into the fight. . And absolutely calls for impeachment of Biden. Avoiding default by doing something about half of the US will consider illegal, is not a very good solution.

There is a second option, which I don’t see much chance in success. It is the discharge petition, which means Democrats have to find 5 moderate Republicans in the House to sign off on the no-strings attached ceiling limit increase, then get a discharge petition approved so they can bring it to the floor of the House.

Wall Street Journal: House Lawmakers Discuss Discharge Petition to Force Debt-Ceiling Vote

The last option would be to do everything the Republican want, which will assure Joe Biden or any other Democrat will have no chance of winning in 2024. Deep cuts in Medicare or Social Security will be blamed on Biden.

So, almost by default, the big coin option wins. The special purpose entity will buy time. The best option has to wait until Democrats control the House and the Senate, and the debt ceiling is eliminated for good.

Stay tuned,

Dave

Debt Ceiling Solution

There should be a convention of wordsmithers on the debt ceiling. Raising the debt ceiling sounds like rewarding someone for bad behavior. Suspending the debt ceiling sounds much better, but it’ ‘s really a game of kick the can down the road. Then there is Minority Leader of the House, Kevin McCarthy simple, direct, and completely wrong statement:

“we have paid for everything the Trump administration spent.”

“But it wasn’t paid for,” says Marc Goldwein, senior vice president for the nonpartisan Committee for a Responsible Federal Budget (CRFB) . The Trump administration spent more money than they were taking in. So Trump like every other president for the last 20 years ran a deficit and three times the debt ceiling was increased.

Link: Fact-checking partisan claims on government spending under Trump

Senator Elizabeth Warren has got the right solution. Abolish the debt ceiling. She said the following:

“Me? I’d get rid of the debt ceiling altogether. It serves no function except to create leverage for people who are willing to blow up the economy,” she added.

The GAO estimated that the delay in raising the debt ceiling during the debt ceiling crisis of 2011 raised borrowing costs for the government by $1.3 billion in fiscal year 2011 and noted that the delay would also raise costs in later years.[45] The Bipartisan Policy Center extended the GAO’s estimates and found that the delay raised borrowing costs by $18.9 billion over ten years.[46]

That’s the consequences of a delay. Defaulting on our obligations would be much worse.

Link: Warren calls for removing debt ceiling during lame-duck Congress

I think the best argument to get rid of it, is that it is redundant. Congress already controls the budget and taxation. Also, borrowing to cover shortfalls, really does make economic sense. The Covid-19 Relief Act kept our economy going, when people could not work, particularly in the hospitality area. Trying to pay for this with increased taxes would make no sense.

Link: Wikipedia, US Debt Ceiling

So, what Senator Warren is proposing, makes complete sense and would benefit Americans from cliff hanging partisan battles in Congress. What other country has a legislature that tries to crash the economy unless he does what they want?

Stay tuned,

Dave

Holding the US Economy hostage for political gain

Of course, I’m assuming the Republicans take control of at least the House, and next year refuse to increase the debt ceiling unless their demands are satisfied. It appears this will be cuts in Medicare and Medicaid, making sure that Biden will be a one term president. It will be how to hurt Biden or any other Democrat candidate in the future.

It is the reason I voted for only those in the Democratic Party in the mid-term election. We have never defaulted on our debt, and it will be terrible if that happens.

It is the definition of brinkmanship:

“the art or practice of pursuing a dangerous policy to the limits of safety before stopping, especially in politics.”

The debt ceiling doesn’t limit government spending. It is permission to borrow the money necessary to pay for its committed expenditures.

Link: https://www.reuters.com/world/us/us-congress-could-be-bruising-debt-ceiling-fight-after-midterms-2022-10-10/

Stay tuned,

Dave

What happens if the Republicans win in the mid-term elections

They will pursue a very different agenda. Of course, all efforts to legalize abortion will end. Jan 6 committee will be disbanded. Funding for green energy, I believe, will disappear.

But, none of this I believe is as terrible as another showdown on raising the debt ceiling limit. I’ve written about this in a number of blogs. It is not about controlling how much Congress can spend. It is all about allowing the White House to borrow money it needs so it can pay for its obligations. If the government does not pay its bills, then the government is in default.

Default has extreme consequences. The cost for the US to borrow money will soar. The stock market will plummet. And businesses will fail. And it is all unnecessary, because the debt ceiling does not limit spending.

I’ve got at least 5 blogs on this topic.

I’ve decided to vote straight Democratic in the mid-term elections. Too many radical Republicans out there and I am definitely afraid they could tank the economy just to do battle with the Democrats.

Stay tuned,

Dave

Check out previous posts on this topic by adding Debt Ceiling to the search box.

Debt Crisis – What’s not True

“The past debt ceiling paid for everything in the Trump administration, plus seven months of this Biden administration.”

— House Minority Leader Kevin McCarthy (R-Calif.), in an interview on Fox News, Sept. 21

The Washington Post call McCarthy’s statement “highly misleading.” Debt accumulates when the government spends more than it takes in. However, the cause of this debt can occur much earlier, when the legislature authorizes spending and changes to tax laws.

So, Trump’s 2017 tax cuts for the wealthy and business owners have contributed to increased debt since the debt ceiling was suspended in 2019. The CARES act, was a 2.2 trillion dollar program, signed into law by President Trump in response to the economic fallout of the COVID-19 pandemic in the United States. Democrats and Republicans supported the suspension or increases in the debt ceiling three times under President Trump.

Republicans and Kevin McCarthy are real hypocrites, because the debt ceiling must be increased as a result of spending bills and tax cuts they supported during the Trump administration.

Republican refused to approve increases or suspension of the debt ceiling in 2011, 2013, 2014 and 2015 while Obama was president until we were at the brink of exhausting all extraordinary measures to keep from defaulting on our debt. Then suddenly raising the debt ceiling was ok, under the Trump administration.

The US credit rating fell after the 2011 debt ceiling crisis, which increases the interest we pay on our debt obligations, even though in the end, the debt ceiling was raised.

Honestly, the debt ceiling should not exist. Per Wikipedia: In January 2013, a survey of 38 highly regarded economists found that 84% agreed that, since Congress already approves spending and taxation, “a separate debt ceiling that has to be increased periodically creates unneeded uncertainty and can potentially lead to worse fiscal outcomes.” Only one member of the panel, Luigi Zingales, disagreed with the statement. Rating agency Moody’s has stated that “the debt limit creates a high level of uncertainty”and that the government should change “its framework for managing government debt to lessen or eliminate that uncertainty”.

Stay tuned,

Dave

Links:

Washington Post, White House rules out concessions over debt ceiling while GOP refuses to help avert crisis

Washington Post: McCarthy’s misleading claim that 2019 debt-ceiling hike paid for all of Trump’s policies

Congress Must Suspend or Raise the Debt Limit

Wikipedia: Debt Ceiling

Wikipedia: History of Debt Ceiling

Politifact Kevin McCarthy’s Honesty

Mostly “Pants on Fire” or “False” statements.

Debt Ceiling Crisis 2021

It’s one of the most reckless, one of the most irresponsible votes I’ve seen taken in the Senate, and it should send a signal to every family, small business, market watcher, about who in this chamber is in favor of endangering the economic stability of our country,” said Schumer on the Senate floor, following the vote.

Schumer is right. A procedural vote in the Senate failed by a vote of 50 to 48. It solved two critical problems: (1) Extension of short term funding for the government and (2) Raising the debt ceiling limit. We’ve experienced the consequences of a lack of funding, as we’ve had partial shutdowns in the past. It is bad, but nothing in comparison to a failure to raise the debt ceiling. That is catastrophic.

My credit card has a limit. The debt ceiling is NOT analogous to the credit card limit. The reason is, the debt ceiling does not limit government’s ability to spend money. Congress separately authorizes the expenditure of money. The debt ceiling allows government to borrow more money it needs to pay for ALREADY approved expenses including pay for the military salaries and social security.

From the Washington Post, “Treasury Secretary Janet L. Yellen said earlier this week that such a default would be unprecedented in U.S. history. Moody’s “best estimate” is that this date is Oct. 20, although Treasury has not given a more precise day.

At that point, Treasury officials would face excruciating choices, such as whether to fail to pay $20 billion owed to seniors on Social Security, or to fail to pay bondholders of U.S. debt — a decision that could undermine faith in U.S. credit and permanently drive federal borrowing costs higher.

Failure to raise the debt limit would have catastrophic impacts on global financial markets. Interest rates would spike as investors demand a higher rate of return for the risk of taking on U.S. debt given uncertainty about repayment. An increase in interest rates would ripple through the economy, raising costs not only for taxpayers but also for consumers and other borrowers. The value of the U.S. dollar would also decline long term as investors questioned the security of purchasing U.S. treasuries. The cost of auto and home loans would rise.”

I’ve written on this topic before. I suggested instead of calling it an increase in the debt ceiling, just refer to it as allowing the government to pay it’s bills when they come due.

Every single recent president has required Congress to increase the debt limit (see links). A new twist is simply to suspend the debt limit temporarily, allowing Republicans a way out of actually voting for a debt increase. It is a way to kick the can down the road.

It is estimated that the 2011 debt ceiling crisis cost the government 18.9 billion dollars in increase interest and credit downgrade which followed, resulted in the Dow Industrial Average dropping 2,000 points.

Yes, all Presidents including Reagan, Bush I, Clinton, Bush II, Obama and Trump, who proudly proclaim they were more fiscally responsible than Democrats (Bush GW was famous for “Read my lips, no new taxes”) all needed the debt ceiling raised to keep borrowing money. In fact, the one president who had to go to Congress the most, was Reagan.

My credit card has a payment date, and failure to make a minimum payment on that date, will affect my credit. That is the appropriate analogy. Failure to make payment of money the country owes on time will affect the faith and credit in the US government, something that can not be risked.

The political deadlocks on raising the debt ceiling are occurring more frequently, and it is very scary situation. I have no problem with Republicans who state that we should spend less on various programs, but this is all about money we have to pay. Full stop.

Moody’s Analytic report concludes, “The U.S. and global economies, which still have a long way to go to recover from the recession caused by the pandemic, will descend back into recession. In times past, lawmakers have taken strident warnings like these to heart, and acted. Let us hope they do so again. Soon.”

Put simply, we are making great progress recovering from the pandemic, despite some distractions from anti-vaxxers and it is a lousy time to shoot ourselves in the foot. It is pretty simple. We have no time for grandstanding or brinkmanship.

Stay tuned,

Dave

Links:

History of Debt Limit Crises

U.S. default this fall would cost 6 million jobs, wipe out $15 trillion in wealth, study says

Senate Republicans block bill to avert government shutdown and extend debt limit

Debt Ceiling Approval Issue: Unbelievable

I wrote on August 9, 2017 that the debt ceiling approval was not headline news, but in two weeks it would be.  Boy did I nail it!

Congress must act fast to increase the debt ceiling limit.   After September 29, 2017, the US will start to default on its debt obligations if they fail to act.  Congress goes back in session on September 5, 2017  after Labor Day.   Secretary Treasurer Mnuchin  has call the debt ceiling limit “ridiculous”  and I agree with him 100%.

Unfortunately,  commentators in the media constantly confuse the issues of budget approval (non-approval results in a shutdown of non-essential gov’t services)  and debt ceiling approval (non-approval lowers credit rating of the US with long term harm to our economy).  They fail to mention that the ceiling does not restrict spending, only the government’s authority to pay its bills for approved expenditures.  Perhaps it should be called,  “Pay your bills on time approval” to get popular support.

Trump’s recent tweets were down right scary,  chastising McConnell for not slipping into the recently passed Veteran Affairs budget  bill, the debt ceiling approval.   The VA bill was controversial because it allowed veterans to seek medical care outside of the VA hospitals (Choice Program).  The problem with any free health system is it gets abused.  It has been documented that non-veterans were also getting free medical care.    But, the Choice options to the VA medical system were put in the budget bill, so it would get approval.   So, the VA bill was already dirty in a way and it was the reason why the bill didn’t pass until VA funds were nearly gone.

Adding to this bill an approval for the debt ceiling was a horrible precedent, as it says either you approve the VA Choice program or the country will be in sovereign default.  I call that super ridiculous-  but it is exactly what Trump tweeted.

Treasury Secretary Mnuchin calls for a clean debt ceiling increase,  just as the former Treasury Secretary Jack Lew did before him.    Clean means clean.  It means that Trump’s administration request  for increased funding for the border wall, or anything else, including infrastructure spending must be passed on the merits of requests, and not a political deal.

There are just 12 working days between Sep 5 and 29, 2017.   The exact same arguments used by President Obama, in pleading with Republicans in Congress to pass a clean approval,  are being made by the Secretary of the Treasury.   But this time,  he is pleading with his own party and most likely will need the Democrats to get the job done.

There are Republican groups pushing for a dirty bill and to tie the ceiling approval to spending cuts or other things on the Trump neoconservative  agenda.   This is the same horrible idea that Obama had to deal with.   I particularly like the idea analogy of a President Trump putting a gun to his head, and declaring “You pass this bill with border security and debt ceiling in it, or I’ll pull the trigger.”

If President Trump really wants to go on the attack,  he can propose elimination of the debt ceiling altogether.    I certainly would support this.

Stay tuned,.

Dave