A few days ago, I received an automated
text from my bank. For some reason, the bank’s algorithm flagged a valid charge
on my debit card as potentially questionable; the text asked me to verify the
purchase.
اضافة اعلان
In a rational world, raising a federal debt
limit would be regarded as the equivalent of typing “1” in response to that
text — acknowledging a purchase that you have already made.
No, the US raising its debt limit does not
give the president free rein to spend whatever he wants. It simply allows the
government to honor its promises, which include everything from paying interest
on its debt to sending checks to Social Security recipients. These promises,
duly authorized by congress, exceed the expected amount of taxes and other
revenue, so they must be met, in part, through borrowing; but that’s normal
operating procedure, and financial markets are happy to lend us the money.
Unfortunately, a quirk in the US budget
process requires congress, having enacted budget legislation, to vote again to
authorize the Treasury to raise the funds needed to follow the law. And
Republicans — who had no problem with large-scale borrowing when Donald Trump
was in the White House — are now getting ready to weaponize that quirk.
US debt plays a special role in world markets, which treat federal obligations as the ultimate safe asset, collateral for many transactions…
Biding time
We officially hit the debt limit this week,
but accounting maneuvers can postpone a crisis for several months. But what
happens when those maneuvers are exhausted? The operations of the US government
will be disrupted — Republicans’ claims they have a way to “prioritize”
payments, honoring some promises but not others, in ways that limit the damage
are almost surely nonsense. Even if, say, interest payments can be maintained,
we would leave everyone, from investors to vendors, wondering whether America
can be trusted to pay its bills.
Furthermore, US debt plays a special role
in world markets, which treat federal obligations as the ultimate safe asset,
collateral for many transactions. If investors lose confidence that the US
Treasury will honor its promises, there could be a global financial meltdown
(which almost happened in March 2020, when markets, rattled by COVID-19, made a
rush for cash).
A debt crisis, then, would be bad and
possibly catastrophic. So, should Democrats give in to Republican demands?
No. A party that barely controls one house
of congress should not get to impose deeply unpopular policies on the nation as
a whole.
The constitution says that the validity of public debt “shall not be questioned”, which might be construed as a reason to ignore the debt ceiling rather than default on payments
And it is not even clear that the Biden
administration could surrender if it wanted to. The current crop of House
Republicans makes the Tea Party, which (alas) used the debt limit to blackmail
President Barack Obama, look reasonable. Today’s GOP does not even seem to have
a coherent set of demands; a significant number of caucus members may well want
a crisis, preferring to “watch the world burn” under a Democratic
administration.
A vote or a financial loophole?
What, then, are the alternatives? I see
three major possible routes.
First, while it remains baffling that
Democrats did not raise the debt limit while they still controlled congress,
there could yet be a legislative solution: Democrats could seek a “discharge
petition” to force a vote on raising the debt limit despite opposition from GOP
leaders. This would both take time and require support from a handful of sane
Republican House members. But it is surely worth trying.
Second, it is probably possible to use
financial engineering to bypass the debt limit. The most famous proposal calls
for minting a platinum coin with a face value of, say, $1 trillion, depositing
that coin with the Federal Reserve, and spending out of the bank account thus
created. Believe it or not, this would almost certainly be legal.
Another option would involve raising money
by issuing “premium bonds” when existing debts come due — bonds whose face
value is the same as that of the bonds they replace, so that they don’t
officially increase the debt, but offer high interest rates, so they sell for
much more than their notional value.
Since it seems that President Joe Biden cannot avoid breaking at least some laws if the debt ceiling is not raised, ignoring the debt ceiling may be the “least unconstitutional” option.
These would, of course, be financial
gimmicks. So? If it takes gimmickry to frustrate the schemes of destructive
extremists empowered by a legal quirk and, thereby, avoid financial
catastrophe, so be it.
A constitutional matter
Finally, there are a couple of what I think
of as constitutional options. The 14th Amendment to the Constitution says that
the validity of public debt “shall not be questioned”, which might be construed
as a reason to ignore the debt ceiling rather than default on payments.
Alternatively, it seems fair to say that the
White House is facing incompatible demands. Congress has, through duly enacted
legislation, specified levels of federal spending and taxes; but one house of congress
appears poised to tell the president that he cannot raise the money he needs to
obey the previous legislation. Since it seems that President Joe Biden cannot
avoid breaking at least some laws if the debt ceiling is not raised, ignoring
the debt ceiling may be the “least unconstitutional” option.
Which option should Democrats pursue? I
would say all of them. Above all, this is no time for officials to worry about
seeming silly or undignified. The Biden administration is facing the threat of
economic terrorism — that sounds extreme, but it is basically what creating an
artificial debt crisis amounts to. And it should do whatever it takes to face
down that threat.
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