Those in charge of U.S. fiscal policy are often considered to be among the coolest people in the world, so ideas like the minting of a trillion dollar platinum coin or the You may be wondering why you are hearing this. A government bond he values at $200.
Sadly the answer is simple. Toddler posers, who make up the Republican majority in the House, have threatened to block the federal debt ceiling hike. Also.
Republican brinkmanship over the debt ceiling has become an almost annual tradition. It regularly shook financial markets and issued warnings that it would trigger a federal default on Treasury bills – perhaps the final result of a long-running stalemate – that would be a threat to stability for Americans in all sectors and the global economy. will have a devastating effect on
Raging Republicans who postponed House leadership election reveal ‘clean’ debt ceiling hike — removal of borrowing limit not tied to other measures — shouldn’t even be on the agenda bottom.
— Michael Strain, American Enterprise Institute
Democrats in Congress had plenty of opportunities to remove this weapon from the Republican arsenal of mindless pyromaniacs. Most recently, during the lame duck session in late 2022 that took control of both Congress and the White House.
On Friday, Treasury Secretary Janet Yellen told House Speaker Kevin McCarthy (R-Bakersfield), as well as other congressional leaders and chairmen of key committees, that the U.S. debt could be lifted Thursday, months earlier than expected. warned that it would reach the statutory limit.
Newsletter
Get the latest from Michael Hiltzik
Commentary on economics and more by a Pulitzer Prize winner.
You may receive promotional content from the Los Angeles Times.
At that point, Yellen said the Treasury Department would begin taking “certain special measures” to avoid defaults. These include suspension of scheduled payments to the Civil Service Pension Fund.
Yellen said the funding would be complete once the political deadlock ended. But it may not be so easy.
As a result of a three-month stalemate in 2003, a federal retirement fund was permanently forced to pay $1 billion in interest because it had to sell bonds before they matured to meet its obligations to retirees. lost.
Before delving further into the consequences and possible reactions of the debt ceiling standoff, let’s see once again what the problem is.
The debt ceiling is a federal law that sets the maximum amount of debt that the Treasury Department can sell. The current cap is $31.381 trillion, set by Congress in December 2021.
Clearly, anything that Congress decides can be reversed by Congress. The debt ceiling has been raised by more than 91 congressional votes since 1960, by Democrat and Republican majorities and under Democratic and Republican presidents, without general debate.
Once the Republicans won the House majority in 2011, the debt ceiling became a political stance. Republicans usually explain that raising the debt ceiling is the same as encouraging extravagance.
Members of the Republican majority in the House have threatened to block raising the debt ceiling unless combined with spending cuts, but they continue as if blocking the ceiling is the same as stopping growth. there is of the federal budget.
Consumer confidence, along with many other economic indicators, only collapsed in August after the debt ceiling impasse worsened in early 2011. This influence continued until his 2012. The light red line is the University of Michigan Consumer Confidence Index, and the dark red line is the pro-business Conference Board Consumer Confidence Index.
that’s wrong. It’s always wrong. Politicians who make these statements are liars because they know it is a lie.
The debt ceiling only affects how the government pays for spending already approved by Congress. If a politician doesn’t want to spend money, he can simply refuse to spend it properly. they aren’t doing that.
Instead, they act like credit cardholders putting more purchases on their cards than they want to pay, so they decide to stiffen their card issuers by believing their balances are going down.
Why does the United States conduct this ridiculous exercise every nine months on average?
As I have explained many times, the debt ceiling was originally intended not to limit the Treasury Department’s ability to issue federal debt, but as a way to grant it. more Freedom to borrow.
The debt ceiling was enacted in 1917. Congress was fed up with having to vote on every proposed bond issue and was seen as a pain in the neck. Instead, it chose to give the Treasury general authority to issue bonds, subject to temporary restrictions.
In other words, the restrictions were in no way designed to prevent Congress from enacting the appropriation bills and deficit construction tax cuts it wants. Clearly, there was no such effect, as I regularly approve spending that I know of.
Every time Republicans set a debt ceiling for ransom (Democrats have never done it), some experts warn that the hostage-taking could be serious this time, while others Experts are sure everyone knows that the standoff will eventually be resolved, although it always seems that way. , why worry?
An undercurrent of complacency stems from the idea that the United States has never experienced the disastrous effects of a debt ceiling breach. This idea was most succinctly articulated by Mick Mulvaney, a financial bankrupt man appointed by Donald Trump to head the Budget. It will be the end of the world. I have yet to meet anyone who can clearly explain the negative results. “
However, the negative consequences are always apparent to those who have matured beyond playing with their toes.
Then-Treasury Secretary Timothy Geithner said so in January 2011, citing sharp increases in interest rates on state and local government borrowing, credit cards and mortgages. Retired nest eggs and erosion of home values. Stop payments to military families and civilian government employees for Social Security, Medicare, and veteran benefits. The collapse of global confidence in the dollar and U.S. Treasuries.
“Even a very short-term or limited default would have devastating economic consequences that last for decades,” Geithner told Congressional leaders.
Geithner was speaking ahead of the debt ceiling impasse that lasted through the summer of 2011 and was finally resolved in August. However, the economic impact he continued until 2012. Consumer confidence fell 22% during the confrontation, and the Standard & Poor’s 500 stock market index fell 17%. According to Treasury Department calculations, household wealth he has decreased by $2.4 trillion.
The impasse ended with the infamous blockade, forcing the government to cut spending for a decade. Remember, the quarantine was conceived to be so draconian that it led Congress and the White House to a wise budget compromise to prevent it from being invoked.
No deal was made, so the lockdown went into effect and the whole experience resembled the act of staring down a loaded shotgun barrel and pulling the trigger to see if it worked. hit the most vulnerable Americans hardest.
Thousands of low-income people in public housing have been evicted from their homes. Tens of thousands of her three-year-olds and her four-year-olds were barred from her start, perpetuating the vicious circle of poverty and undereducation these families face. Unemployment benefits have been cut by an average of 15%.
Even conservatives are nervous about the current level of posture.
Michael Strain of the American Enterprise Institute, a business think tank, wrote last week that “raising the debt ceiling will only allow the borrowing necessary to meet the mandates Congress itself has created.” “The Republican who caused the uproar that protracted the House leadership election. clarified A ‘clean’ debt ceiling increase, where the removal of the borrowing limit is not tied to other measures, should not be on the agenda.”
Strain pointed the finger at McCarthy, who managed to squeak into the House speakership by abandoning any remaining character he might have had against his own inflammatory minority.
That brings us to a possible remedy. It is to be transferred to the books of the Institutional Board.
Legal and financial experts have consistently confirmed that the procedure was legal, but Presidents Yellen and Biden have been the subject of ridicule since he was a senator and Barack Obama’s vice president. was. However, their opposition seems to be directed at the idea’s basic gimmick rather than its legality or financial viability.
Another idea is for the Treasury to offer “premium” bonds. The debt ceiling applies to the par value of outstanding debt, but technically nothing prevents the Treasury from issuing $100 Then he sells it for $200.
For the buyer, the economic effect is the same as buying two $100 bonds and collecting interest on both at the current rate. However, in terms of the debt ceiling, the Treasury will recover $200 of him, but only issue $100 of new debt.
A buyer might buy a $100 face value 1-year Treasury bond, but instead of being promised 4.66% interest (the current rate I am writing), they are being promised about 9.32% interest. , you will pay $200. But only $100 remains on the Treasury’s books as outstanding debt.
Republicans will reportedly order the Treasury to “prioritize” spending by protecting interest payments on debt and guaranteeing payments for Social Security and Medicare.
But Medicaid, school lunches, food safety inspections, and much more remain undisclosed. Again, the most needy Americans are in the Republican crosshairs.
It’s one thing to denounce the proposed relief as a gimmick, but the debt ceiling itself turned into a gimmick. We have asked before if this is any way to run the world’s leading economy. It’s time to stop running fiscal policy as a cabaret act and end the debt ceiling once and for all.
