The debt ceiling functions primarily to give negotiation leverage to the minority party. The problem is, if the threat of not raising the ceiling is executed on then it hurts both parties. Even the possibility that the debt ceiling will not be raised is collectively hurting us. This credit default swap is one signal of the negative impact these debt ceilings negotiations have. We really need a reform on the way the US handles debt, one that provides more predictability.
A no-nonsense solution would be to make raising the debt ceiling part of the annual budget or any bill that that has an impact on the budget. Another potential solution would be to make increases on the debt ceiling automatic based on a percentage of GDP, or over time. Another solution would be to reduce the national debt. We have options, and it almost doesn't matter what we choose because our current path is too volatile.
The most straightforward option would be to just get rid of it. It has not made any sense since the 1970s when Congress gained direct control over the budget. The actual thing that the debt ceiling does is stop the Treasury from issuing debt to pay for things Congress has already decided to pay for. It's bonkers.
Also, it's not just "the minority party". Ever single debt ceiling crisis since 1995 when the Gephart Rule was repealed has been instigated by the Republican Party.
Yep. When congress (or any government) passes bills with spending implications, following through with the associated payments should be automatic/mechanical, not relitigation of the issue. To pretend the central bank/treasury is anything but the check writer for government spending is just fiction.
Pretending that major economies are going to pay back their debt in anything close to money with similar purchasing power is also fiction. At this point, let's repeal the personal income tax (to free the people) and print currency instead of the game of loaning it into existence. The debt ceiling charade is a distraction which causes economic disruption.
Inflation would be a train wreck and the dollar could then be used as toilet paper. Most other nations would move to using other currencies since holding on the depreciating dollar would be a liability on top the liability it is already is proving to be. (sanctions happy freezing ,etc)
Taxes can control inflation the problem with MMT is they naively think democratically elected governments can raise taxes without losing government to someone who promises not to.
> The actual thing that the debt ceiling does is stop the Treasury from issuing debt to pay for things Congress has already decided to pay for. It's bonkers.
Great summary. That's why, if there's going to be something like a debt ceiling, it has to be part of the budget process, not a separate part of the debt-repayment process. You don't boycott paying your credit card bill. You stop putting more purchases on it.
Granted, the one step follows the other. But Congress is manifestly unable to backpropagate consequences by one step.
So if we're going to have a guardrail, it has to be in the right place. Yet somehow this middle way is never considered. Instead it's just "debt bad" or "debt ceiling bad". People always with the dumb binaries and false dichotomies.
"The actual thing that the debt ceiling does is stop the Treasury from issuing debt to pay for things Congress has already decided to pay for."
It's unlikely it does that. If it came to a court the judge would have to decide which of Congress's instructions take precedence or how to reconcile them. That falls into territory of implied repeal and reinterpretation of the Federal Reserve Act.
If the Democrats had any backbone, they would instruct the Fed to pay what Congress has authorised and if the Fed said 'no', take them to court to force an interpretative judgement to settle the matter. (which I call the 'empty chest' problem).
Which would almost certainly involve reading section 15(1) of the Federal Reserve Act using the same 'futurity' that the courts have used in appropriation bills.
(ie the deposits it talks about are past, present and future deposits).
That would imply a balancing amount held at the Fed, and the debt ceiling stops the Treasury refinancing that balance into bonds.
Both the spending and the debt ceiling requirements of Congress are then satisfied - and the tool is neutered.
Even more straightforward option - get rid of the debt ceiling by requiring the federal government to run a balanced budget. States are required to run a balanced sheet (with a few caveats), the feds should have to follow the same rules.
You cannot simultaneously a) be the largest reserve currency in the world, b) be the backstop for all those states that require balanced budgets and can't pay for emergencies, c) have the largest military in the world, and d) require a federal level balanced budget.
Nationstate finances are not the same thing as personal finances or corporate finances. Trying to paint them the same is misleading at best and actively harmful at worst.
Agreed, my opinion is simply that (d) should be prioritized and the others would reasonably be on the chopping block when we have to cut trillions in deficit spending.
It's worth noting that I wasn't comparing nation-state finances to personal finances at all. I was only comparing US federal finances to US state finances.
> The actual thing that the debt ceiling does is stop the Treasury from issuing debt to pay for things Congress has already decided to pay for.
Maybe we should revisit those decisions. Even individuals revisit decisions, it is insane that we don't revisit certain decisions.
Even if we agree to pay for things, is the government at peak efficiency? There is so much wastage at every level in the govt. Rather than blame Republicans, maybe ask why Democrats are against a more efficient govt (that can still be large and fund their pet programs).
> Maybe we should revisit those decisions. Even individuals revisit decisions, it is insane that we don't revisit certain decisions.
Isn't that what the annual budget process is about? Why do we need a separate process to allow for the borrowing to make the payments for the things that were individually authorized (often with renewals every so often) and then collectively authorized in the budget?
If you don't think the programs are efficient enough as it is, the collosal waste of a government shutdown should be a definite no. Those waste money in that there's extra work to prepare for closing and to reopen, that prevents people from doing the actual work they should be doing, as well as the fact that all of the government workers unable to work because of the shutdown end up getting paid anyway.
> Isn't that what the annual budget process is about? Why do we need a separate process to allow for the borrowing to make the payments for the things that were individually authorized (often with renewals every so often) and then collectively authorized in the budget?
Well, you answered your own question. There is a separate process because the budget process has been broken in a spectacular way.
> If you don't think the programs are efficient enough as it is, the collosal waste of a government shutdown should be a definite no. Those waste money in that there's extra work to prepare for closing and to reopen, that prevents people from doing the actual work they should be doing, as well as the fact that all of the government workers unable to work because of the shutdown end up getting paid anyway.
> Maybe we should revisit those decisions. Even individuals revisit decisions, it is insane that we don't revisit certain decisions.
Maybe you could revisit those decisions by passing laws that directly change them, instead of threatening to keep the decision in place and just not allocate the funds you promised for it?
Was wasting trillions of dollars also part of the original promise? No. So the original contract has already been broken.
Btw, not all spending is "promised" spending. Around 30-40% is discretionary spending. Spending that was not promised and is optional. This is on top of the massive levels of waste.
Better yet is just getting rid of it. It's unconstitutional ("full faith and credit shall not be questioned"), if the Treasury decided to ignore it nobody would have standing to sue anyway, and it's just redundant: Congress already has the power of the purse, if they want to cut spending, they can propose a budget which does this. The debt ceiling is nothing but Congress shirking its responsibility.
> The debt ceiling functions primarily to give negotiation leverage to the minority party.
Have Democrats ever actually made such a big deal out of this though? It seems like the increases were fairly painless during the Trump years when the Dems controlled the House.[0]
The reason is that at least officially, the Republican Party is in favor of small government. So if the Democrats as the minority party were to say,"Compromise with us or we won't raise the debt ceiling," the Republican Party's response would be a sarcastic, "Oh no! Don't impose drastic spending cuts! Anything but that!" Thus the Democrats have no leverage to hold back a Republican Administration's spending priorities.
Actually, if the Dems had done this in response to Trump's tax cuts, I think the Republicans would have been pretty cornered. After all, the three things you can't touch (and the GOP have promised not to this time around) are the military, Social Security, and Medicare.
> The debt ceiling functions primarily to give negotiation leverage to the m̶i̶n̶o̶r̶i̶t̶y̶ Republican party.
Fixed that.
And the Republicans only caring about it when they're in power should give you some indication of the level of commitment they have to smaller government.
A no-nonsense solution would be to make raising the debt ceiling part of the annual budget or any bill that that has an impact on the budget. Another potential solution would be to make increases on the debt ceiling automatic based on a percentage of GDP, or over time. Another solution would be to reduce the national debt. We have options, and it almost doesn't matter what we choose because our current path is too volatile.