A debt ceiling update, and a question

      24 Comments on A debt ceiling update, and a question

The “debate” between Democrats and the Anti-Arithmetic Right over whether or not the nation should be economically ruined now seemingly boils down to three options:

1) John Boehner’s utterly disastrous plan, which I hereby dub the Omnibus Kick-The-Can-Down-The-Road Act of 2011, to pass a short-term debt ceiling increase, then re-run this entire charade in the middle of an election year, when it will surely be much easier to put aside naked partisanship and reach a mutually acceptable bipartisan deal (!?!?!) … really, we should call this the “Make Obama Veto A Debt Ceiling Bill So He Can’t Blame Us For The Crisis We Caused” plan, since that’s all it’s intended to accomplish;

2) Harry’s Reid’s plan to cut $2.7 trillion in spending without any revenue increases, which is such a complete capitulation to the Republicans’ core demand that it will undoubtedly be rejected by hardline Republicans and Tea Partiers, who wouldn’t know a favorable deal if it smacked them in the face and dumped tea on them while waving a Gadsden flag and reading aloud the collected works of Ayn Rand;

3) Default. Or technical default. Or “semi-default.” Or whatever you want to call it if the United States government is unable to make payments required by law — probably not including debt interest or principal, though that can’t be guaranteed because it depends in part on how the markets react, which cannot be confidently predicted because this is a completely unprecedented circumstance brought about by fuzzy math and right-wing nutters — and is forced to operate on a daily (not monthly! not yearly!) cashflow basis and shut down 40+ percent of its operations instantly, including a wide variety of services that everyone regards as essential.

Regarding option #3, it’s not clear that next Tuesday, August 2, is the actual date on which this would happen, as we’ve been hearing for months. That was Treasury’s estimate back in May of when the money would run out, but we may have an extra week or so:

In a note published Friday, the Barclays Interest Rates Research team wrote that “the date on which the Treasury will run out of cash to pay its obligations might not be August 2; it might be around August 10 instead.”

Why the change? The note explains that previous projections showed the Treasury running out of money on the morning of Wednesday, August 3. On that day, it was predicted, the Treasury would need to spend $32 billion, including $22 billion in Social Security payments — and it was only projected to have $30 billion at its disposal.

That projection was made on July 13. But since then, the researchers say, the Treasury has taken in about $14 billion more than expected, and paid out about $1 billion less than expected. Hence, the deadline date might actually be August 10, a week later than previously believed.

Other reports suggest August 9 might be the “real” deadline. Either way, August 2 is Treasury’s story, and it’s sticking to it, presumably for the rather obvious reason that if you tell Congress that it has an additional week to dither, delay, grandstand, posture and bloviate, Congress will proceed to dither, delay, grandstand, posture and bloviate for an additional week. I imagine Treasury will announce this “extra week” at the moment it becomes clear Congress is going to miss the August 2 deadline, and not a second sooner.

Anyway, I have a question, and it’s an honest one — I’m not trying to make a rhetorical, partisan point here; I really don’t know the answer to this. But it’s been perplexing me for a while now. The debt ceiling is a federal law saying Treasury can’t borrow more than X amount. But there are also lots of other federal laws saying Treasury must spend money on various things — paying prison guards, funding air traffic control systems, sending out Social Security checks, etc. If the money runs out, and Treasury can’t borrow any more money because of the debt ceiling, then it can’t do some of the spending required by law. So, if the debt ceiling isn’t raised, Treasury will be required (by arithmetic) to violate federal law, one way or another. Why does everyone assume that Treasury would necessarily violate the various federal laws requiring it to spend money? Why is that any more justifiable than violating the debt ceiling law? They’re all federal laws, presumably of equal weight, right? Mind you, I’m not talking about the 14th Amendment argument, which I believe is bunk. Rather, I’m merely talking about conflicts among federal statutes. It’s not like there’s 40+ percent of federal spending that Treasury can just discretionarily choose, without violating the law, to stop overnight. (Or is there?!?) I’m not advocating one course of action or another, I’m just saying I don’t understand why the debt ceiling is presumed to take priority over the countless other federal laws that I imagine Treasury would necessarily violate by failing to make required payments (of various sorts; I’m not just talking about debt interest payments, I’m talking about everything Treasury does, all of it pursuant to laws passed by Congress). What am I missing here?

P.S. For the record, among the three options listed above, my order of preference is: #2, then #3, then #1. Yeah — it’s a close call, but ultimately, I’d rather risk the consequences of a brief semi-default (and hope those consequences finally set the Republicans straight before things get too bad) than go through this nightmare again next spring. Partly because I suspect the market consequences of such a punt would be pretty bad in and of themselves. And partly because, at some point, you have to stop giving ever more power to economic hostage-takers. They cannot be allowed to pull this stunt again so soon, and certainly not in the midst of a presidential election, when everyone will have more motive than ever to be intransigent and inflexible. Really, it’s insane that anybody is even proposing such a ridiculous option. But then again, this whole situation is insane, so I guess I shouldn’t be surprised.

24 thoughts on “A debt ceiling update, and a question

  1. gahrie

    No mention at all of President Obama blowing up the talks with Boehner by demanding an extra $400 billion dollars of additional revenue at the last minute?

    When the Democrats were shoving Obamacare down America’s throat, and were giving trillions in new spending to their base over the objections of the Republicans and the American people with their supermajority, we were told that elections have consequences, and to shut up and bend over.

    Well the election of 2010 was a clear repudiation of uncontrolled spending and the expansion of government. The Republicans and especially the Tea Party candidates explicitly ran on a pledge to rein in government spending and shrink the government. How come that election isn’t supposed to have consequences?

  2. gahrie

    And partly because, at some point, you have to stop giving ever more power to economic hostage-takers.

    Will someone please explain to me why the Democratic Senate and President bear no responsibility? All they have done until Sunday when Sen. Reid finally put a proposal on the table is tell the Republicans “No” when the Republicans offered a plan.

    They cannot be allowed to pull this stunt again so soon, and certainly not in the midst of a presidential election,

    Why the hell not?!? If Brendan’s sanctimonious attacks on the Republicans are true, the American people will throw the Republicans out. What are you afraid of? Our system is designed to solve problems like this by elections.

  3. gahrie

    There’s a saying that’s floated around for a few years — I wish I could properly attribute it — that states, roughly, “those on the Right think the Left is wrong, while those on the Left think the Right is evil.”

  4. dcl

    Brendan, there are also a couple of things I don’t understand:

    1) Why is the debt and deficit only a worry to the Republicans when they are not in power / the one’s deciding how the money is spent?

    2) Why isn’t the fact that a significant portion of this problem is either directly or indirectly related to the fiscally irresponsibility of the Bush Administration which decided to take the unprecedented step of engaging in two wars while cutting taxes even noticed?

    2b) Given the above, why such an aversion to tax increases, given they are at one of their lowest levels ever?

    3 (2c)) Why are the Republicans prioritizing welfare for the rich and demanding cuts in welfare programs for people that actually need them?

    Which brings me to this clip. Yes sorry for the mental whiplash.

    I think it’s an interesting but poorly supported thesis. Point 3 does seem highly plausible, given war is almost literally setting money on fire. I’m more inclined than I was before to believe there is some veracity to the first two points, but if anyone has anything that does a better job fleshing out the thesis presented, I would rather like to read it.

    Of course the primary thing I think FDR accomplished at this point was averting a revolution of either the communist or fascist type. Both of which were serious possibilities at the time. But at least with the way things are going in the current crisis, I’m inclined to believe there might well have been a better way to accomplish that. Then again, perhaps not.

    But given the above thesis, it would seem that bailing out the banks etc. in the wake of the credit crunch would be the exact wrong thing to do, but which the Bush treasury etc. demanded? In fact, near as I can tell the only person that had a sane perspective on the banking disaster was the head of the FDIC. (I’ll even concede the subsequent auto bailout was a bit daft. Basically throwing money at the wrong problem). I haven’t finished it yet, but this article on FDIC chair Sheila Bair seems rather enlightening, and it also seems like she was arguing in the right direction and got ignored.

    Given all of this I’m not sure what the prescription for the way forward is. But the nonsense over the debt ceiling, I am certain, is not it. If nothing else the argument has increased uncertainty to the point that job creation has stalled and is beginning to backslide. The markets are intensely uneasy, and the amount of money invested in gold at this point is frightfully high. Investment in gold like this signals two things, fear, and an economy that is going to start to run dry on circulating capital.

  5. dcl

    G. the last I checked the Democrats weren’t making demands to do something that we have no choice but to do.

  6. gahrie

    1) Why is the debt and deficit only a worry to the Republicans when they are not in power / the one’s deciding how the money is spent?

    Many of us have attacked the Bush administration for its spending. However, comparing the Bush spending to the Obama spending is like comparing a garden hose to the Mississippi. You might as well ask “Why is Obama only against raising the debt ceiling when the Republicans are in charge?”

    Why isn’t the fact that a significant portion of this problem is either directly or indirectly related to the fiscally irresponsibility of the Bush Administration which decided to take the unprecedented step of engaging in two wars while cutting taxes even noticed?

    Do I have to quote myself again? Bush and the Republican Congress ran a deficit of $500 billion a year. Bush and the Democratic Congress ran a deficit of $1 trillion a year. Obama and the Democratic Congress ran a deficit of $1.75 trillion a year.

    Investment in gold like this signals two things, fear, and an economy that is going to start to run dry on circulating capital.

    As to the fear part..the price of gold when President Obama took office was $927 an ounce and silver was $12.56 an ounce. Today gold is $1,640 an ounce and silver is $40 an ounce. It is the policies of President Obama and the Democratic Congress that have generated that fear. as to circulating capital…that was what caused the recession oin the first place. people and companies are unwilling to spend money in this climate, because they have no idea what crackpot regulations, programs or taxes the Democrats will propose next. Neither the price of gold or the lack of currency circulation have anything to do with the Republicans demanding fiscal responsibility.

  7. gahrie

    G. the last I checked the Democrats weren’t making demands to do something that we have no choice but to do.

    This time.

  8. gahrie

    Given the above, why such an aversion to tax increases, given they are at one of their lowest levels ever?

    The problem is not the amount of money the government takes in, the problem is the trillions in new spending that President Obama and the Democratic Congress rammed through in the two years they had absolute control of Congress.

  9. gahrie

    President Obama and the Democrats did their damnedest last weekend to spook the financial markets and made all sorts of dire predictions about “Black Monday” because the Republicans failed to agree to their vague proposals

    Well it is 2:00 P.M. Eastern time and .and the Dow Jones is down less than a half a percent, and the NASDAQ and S & P are down less than a quarter of a percent.

    What happened to the panic?

  10. dcl

    G. @ 6. I think your calculations are somewhat unfair to Obama, that said, he is not blameless, as I thought I made clear. Bush played a shell game with the cost of the war. That coupled with the banking catastrophe tanked revenue for Obama. That coupled with the bailouts spiked the debt / deficit. But that doesn’t change the fact that Bush completely dismantled the path to fiscal responsibility that Clinton put us on. And the fear in the market leading to the massive rise in value for precious metals is due directly to the extreme danger posed to the bond markets by the present game of political chicken.

    Yes, okay, everyone plays political games, and I agree with Brendan, the behavior is distractive and at this point inexcusable.

  11. Alasdair

    gahrie #9 – Brendan *already* did it, so that the rest of us would not have to – so we didn’t …

    (grin)

  12. gahrie

    G. @ 6. I think your calculations are somewhat unfair to Obama,

    How? They are the actual numbers…how can facts be unfair?

    that Bush completely dismantled the path to fiscal responsibility that Clinton put us on

    Assuming this is true..it would be the path that President Clinton and the Republican Congress put us on….

    And the fear in the market leading to the massive rise in value for precious metals is due directly to the extreme danger posed to the bond markets by the present game of political chicken.

    Bullshit. The vast majority of the rise in the price of commodities occurred under President Obama and the democratic Congress, and had nothing to do with the current debt ceiling “crisis”.

  13. Alasdair

    dcl #10 – you have a couple of misconceptions that you may not realise you have …

    Bush’s “shell game” aside, the final budget deficit calculation for each of the Bush years has been calculated … and those *are* the Bush year deficits … if anything, gahrie was not fair to the Obama administration, which, as the most open and transparent and honest administration EVAH! (just ask them !), was well on the way to deficits approaching $2 *trillion* … no mere $500 Billion deficits for The One at Whose Arrival the seas stopped rising …

    The other obvious misconception ism that Clinton put us on “the path to fiscal responsibility” … while a lot of it did happen *during* Clinton, it happened due *to* the GOP Congress … Clinton went along with it; he didn’t initiate it … if you want to see Clinton initiatives, look at 1993-1994 – those Clinton initiatives were so effective that they got the GOP put back in control of the House of Representatives for the first time in what was it ? 40 years ?

  14. Alasdair

    gahrie #12 – there you go again, gahrie … trying to confuse folk with actual verifiable facts ! One would think that you were expecting them to actually verifiy what they are told !

  15. dcl

    The problem is, when you look at the skyrocketing deficit there are two sides to the equation, revenue and spending. The primary way Obama increased short term spending was to continue the various stimulus plans Bush put through with a few of his own. And at the same time revenue dropped of the edge of a cliff because of the economic meltdown. So part of the fault is Obama’s, as I think I’ve been clear about, but part of it is not even though it happened on his watch. When you have a number of large hopefully one time expenditures coupled with a large drop in revenue you get a massive increase in the deficit.

    Al, given that with a Republican congress and Republican President the surplus Clinton set us up for evaporated faster than you can say strategerey we shall have to agree to disagree on who was fiscally responsible during the Clinton administration.

  16. AMLTrojan

    FYI the president already told Reid his plan was unacceptable, so what’s going to be now, Brendan?

    As for cutting spending with no agreement yet on tax revenues, why should liberals be concerned about that? See here:

    An all-cuts deal sounds bad, but it contains some real advantages. It clearly positions Obama in the center, and assuages centrist fears that he’s a big government liberal (fears I don’t share, but the political power of which I concede.) It makes a large step toward medium-term fiscal correction without taking the choices off the table. Having taken a large step, voters in 2012 will decide the next one — higher taxes on the rich, or deep cuts to Medicare and Medicaid? That’s a good set-up for Obama.

    And here:

    [P]olicies can’t be implemented by pressing a button, or saying “Let’s do what [Brendan] says.” Deals must be honored over time, and parties rightfully distrust each other. Opponents of illegal immigration, for instance, don’t trust “comprehensive” reformers to follow through on the border-enforcement part of the deal once they have their amnesty (they didn’t after 1986). So sequencing becomes important. Do the “enforcement” parts first, to gain the trust of the restrictionists. Then, after a few years, amnesty is possible. Try to do it all at once and it doesn’t happen, as we’ve seen.

    Same with the deficit, no? Opponents of bloated government don’t trust politicians to make cuts if extra revenues are in the offing. Neither, sensibly, do many voters. But if you make dramatic cuts, demonstrate you’ve sweated out the fat–and there’s still a deficit, you’ve got a shot at getting a tax increase through. Cuts First!…

    In any case. it’s inane to argue that every step on the road to deficit reduction has to be a balance of cuts and tax increases. That’s like saying you can’t take a piss unless you’re taking a drink.

    Given Sen. Reid’s proposal, I think it is clear that Rep. Boehner has this battle won — unless Obama kills it, in which case we’re probably headed to a partial government shut down (I don’t see how that’s even a semi-default, but whatever), and that’s a briar patch the GOP shouldn’t mind being thrown into.

  17. AMLTrojan

    dcl @ #15, you have a very peculiar reading of history. The Bush “stimulus” was quite small and he only proposed what the Democrats would accept (payroll tax cut). As for TARP, the key players at the table pushing that through were the Bush Administration and the Democratic majorities in Congress (including Sen. Barack Obama); the minority GOP was fundamentally opposed. Finally, the Obama stimulus absolutely dwarfed the Bush stimulus, and as predicted, the spending has more or less been baselined and increased (i.e. it was not a temporary bump or spike in spending, it was a permanent increase).

  18. Brendan Loy Post author

    FYI the president already told Reid his plan was unacceptable, so what’s [it] going to be now, Brendan?

    Huh?

    …headed to a partial government shut down (I don’t see how that’s even a semi-default, but whatever), and that’s a briar patch the GOP shouldn’t mind being thrown into.

    “Semi-default” was your term, but whatever. More importantly, you’re ignoring the arithmetic again. If we’re going to make debt payments and Social Security payments — both of which conservatives contend we not only can make, but must make, and any suggestion to the contrary by Obama is cynical and dishonest — and if we’re also going to fund Medicare and Medicaid payments and active duty military payroll, then there’s no money left for anything else. So we’re talking about a complete government shutdown — no prisons, no air traffic control, no border control, no nuclear arsenal monitoring, no FEMA, no embassies, no electricity or food for our troops abroad, no nothing — not just a “partial” one.

    If, on the other hand, we intend to keep essential government services going, then something’s gotta give: either debt payments or promised SS/Medicare/Medicaid benefits. None of which would be threatened in a normal “shutdown.” Them’s the facts.

    We can have semantic debates about the term “default” until the cows home home, but this is clearly a helluva lot more than a “partial government shutdown.” AND, it’s completely disorderly to boot, and totally within the discretion of the Executive Branch as to what payments get made and what don’t. Which should be terrifying to any actual conservative. It’s certainly terrifying to me. You hate the government “picking winners and losers,” and you think Obama is a corrupt socialist, but you’re okay with the Obama Administration arbitrarily deciding which 40+ percent of the government’s expenditures should be suspended, and which shouldn’t? Seriously?

  19. Brendan Loy Post author

    By the way, I had already read both of the pieces you linked re: “cutting spending with no agreement yet on tax revenues,” and I think they are reasonable perspectives. You’ll note my #1 preference at this point is the Reid plan, which does just that.

  20. David K.

    “No mention at all of President Obama blowing up the talks with Boehner by demanding an extra $400 billion dollars of additional revenue at the last minute?”

    Citation needed.

    “When the Democrats were shoving Obamacare down America’s throat, and were giving trillions in new spending to their base over the objections of the Republicans and the American people with their supermajority, we were told that elections have consequences, and to shut up and bend over.”

    Shoving Obamacare down our throats? Really? You say something like that and expect to be taken remotely seriously as anything but a right wing hack? A majority of American’s APPROVED of Obamacare or thought it didn’t go far enough! Further, elections have consequences, funny how you use that line but ignore the fact that Obama’s health reform was a key part of the platform he was elected on. Finally, um, trillions? No, health care reform hasn’t cost trillions, again the CBO has said it will SAVE money because costs we would have had elsewhere without health care reform will go down. Unless you can provide evidence of this supposed trilliions of dollars that health care reform has cost us, your argument is baseless.

    You know what HAS cost us trillions of dollrs? The Iraq and Afghanistan wars and the Bush era tax cuts. Just over 3 trillion actually. Even if we exclude Afghanistan, that was at least a justifiable war, that only cuts out half a trillion. Iraq has been by far the more expensive fiasco at nearly $800 billion (and untold lives lost and families harmed).

    “Well the election of 2010 was a clear repudiation of uncontrolled spending and the expansion of government. The Republicans and especially the Tea Party candidates explicitly ran on a pledge to rein in government spending and shrink the government. How come that election isn’t supposed to have consequences?”

    I’m sorry, i forgot the part where the Tea party won the majority of seats in both houses. And again you can’t claim on one hand that Obama was completely unjustifed in his policies and then claim that the Tea Party idiots are completely justified in theirs using the same “elections have consequences” line.

    Absolutely they have consequences, but like most things in the real world, its not an all or nothing sort of deal. The nation didn’t elect the Tea Party in 2010, a few people in a few districts elected a few politicians, who have taken it upon themselves to drive the rest of us off an economic cliff. Now there are three groups to blame here.

    1) The Tea Party idiots who don’t understand basic math and economics
    2) The GOP establishment for not standing up to the extreme right
    3) The Democrats for not standing up to both 1 and 2.

    Absolutely spending needs to be addressed. So do revenues aka taxes. But the debt ceiling should not be used as a politcal tool for either issue because it needs to be raised period, else the economy is going to take it on the chin and WE the real people, the ones who have to live with the consequences will suffer.

  21. gahrie

    “No mention at all of President Obama blowing up the talks with Boehner by demanding an extra $400 billion dollars of additional revenue at the last minute?”
    I find it pretty funny that you are asking more for a citation, since I use them more than most on this site…and you almost never do. However:

    http://pajamasmedia.com/tatler/2011/07/25/gop-sources-yes-obama-nixed-debt-deal/

    By the way..you never used a single citation to back up any of your assertions.

  22. AMLTrojan

    Brendan @ #18, apologies on the Sen. Reid plan, I skimmed too fast on this post and mixed up my facts.

    As for the arithmetic, I’ve already covered that. You have to take Social Security out of the equation — those costs are not subject to the debt limit thanks to the Trust Fund and the laws in place about when and how to redeem those bonds. That means we’re facing a roughly 28% cut to spending versus a 44% cut — i.e. going back to 2007 outlays — still significant, but not Armageddon.

    AND, it’s completely disorderly to boot, and totally within the discretion of the Executive Branch as to what payments get made and what don’t. Which should be terrifying to any actual conservative. It’s certainly terrifying to me. You hate the government “picking winners and losers,” and you think Obama is a corrupt socialist, but you’re okay with the Obama Administration arbitrarily deciding which 40+ percent of the government’s expenditures should be suspended, and which shouldn’t? Seriously?

    Certainly I’d prefer, say, Ron Paul to be in charge of which spigots to turn off, but actually no, I do not tremble at the thought of Obama having to pick short-term winners and losers whatsoever. Politically a lot of the choices will end up off the table: he can’t shut down DOJ, DOD, or State; TSA and FAA will have to keep up and running to some degree; and so on. What’s left is a Who’s Who list of departments and agencies that probably should be slashed or eliminated anyway (Dept of Energy, Dept of Labor, Dept of Energy, EPA, and so forth). The fact that Obama will wear a frown instead of a smile while wielding the sword doesn’t keep me from sleeping at night. Happy slashing, Mr. President!

  23. AMLTrojan

    A majority of American’s APPROVED of Obamacare or thought it didn’t go far enough!

    Dumb, incorrect, easily refutable statement of the day.

    No, health care reform hasn’t cost trillions, again the CBO has said it will SAVE money because costs we would have had elsewhere without health care reform will go down. Unless you can provide evidence of this supposed trilliions of dollars that health care reform has cost us, your argument is baseless.

    Check and Mate.

    Sadly, the rest of your argument is just as weak in its logic as it is in its factual basis.

  24. Casey

    Some simple financial engineering thoughts on debt ceiling:

    1. The Fed holds $1.6 trillion worth of US government debt. In a very real sense, this means the US government holds debt that it owes itself. Perhaps the Fed and the Treasury can just arrange to cancel this debt — it’s a wash anyways. That would create some debt ceiling room.

    2. From what I have read, the debt ceiling itself is linked to the face amount of debt outstanding. It is possible to issue debt with no face value, only coupon payments. This would raise funds without counting against the debt ceiling. Though Congress would probably seek to thwart this (if it hasn’t done so already in some way I don’t know about).

    There may be some impediments to either option I don’t know about. But if I can think of workarounds like this, I’m sure that Bernanke and Geithner have thought about them. And probably other stuff as well. At any rate, I think it’s better to manipulate accounting figures than to hurt people by stopping payments.

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