Austin, Texas (Syndicate Project)—In his bid to become speaker of the United States House of Representatives, Kevin McCarthy apparently agreed to a request, voiceover by Republican Congressman Ralph Norman of South Carolina, that he is committed to “shutting down the government rather than raising the debt ceiling.”
There is solid bipartisan agreement on what this means. Crisis loomed. For Republican extremists, the impending crisis is their chance to remake America. For Democrats (and some mainstream Republican survivors), the threat of disaster justifies a politically dangerous vote to raise the cap. For the media—left side, correctand center—It’s a drama, stupid.
AP: The US will soon disburse its debt, prepare for a political struggle
What is crisis? Paul Van de Water of the Center for Budget and Policy Priorities put it this way:
“If the government cannot borrow, then it will need to adopt drastic and massive spending cuts, which will have devastating consequences for the entire economy. Some households, businesses, and nonprofits won’t be able to pay their bills while they wait for payments that the government legally owes them. Aid cuts will strain state and local government budgets. Such a large drop in spending would plunge the country into recession and raise unemployment.…Moreover, the government’s inability to pay all its bills would shake financial markets across the world. Around the world. It would raise serious doubts about the country’s creditworthiness, distrust lenders, raise questions about the dollar’s position as a reserve currency, and increase federal borrowing costs.”
Van de Water is nonpartisan. He wants Congress to completely abolish the debt ceiling. Failing that, he urged a clean vote to increase it. I agree with him, but that’s not going to happen. That said, his arguments need to be challenged on their merits. It’s time to drop the hype and look at the facts.
Look at the truth
First, the failure to raise the debt ceiling does not affect any regulatory obligations on spending. Yes, the debt ceiling is written into law. But so do Social Security, Medicare, Medicaid, interest payments, and any other form of mandatory or appropriate spending. The US Treasury is subject to the law. Debt ceiling or not, it cannot legally default on any obligation.
Second, the Treasury Department has no legal authority to pick out Social Security payments or interest or anything else to cut, and – as far as I know – they cannot stop the payments. that if you want. The Treasury makes millions of payments every day. The last time I checked (during Barack Obama’s presidency), the software needed to stop them was never licensed and doesn’t exist. As far as I know, it still doesn’t exist. Why it? Social Security has never missed a payment.
Third, if the Treasury somehow delays paying some bills, most businesses, governments and households will move on – knowing full well that the cuts will be short-lived. . If needed, most can take out a short-term loan – that’s what banks and credit cards do. Life is not over, and in most cases, it hardly slows down.
Fourth, the Treasury does not need to issue debt to spend. Like all governments, it spends by writing checks. It did not raise money first by issuing bonds. Instead, it issues bonds to provide private investors with a safe-earning asset in exchange for the cash it has just generated by writing checks. If it decides to stop issuing bonds (because of the debt ceiling), that is a problem for private investors, not for the government, despite what top government officials say. can say.
No global financial crisis
Nor will there be a global financial crisis even if the Treasury Department manages to stop paying interest on federal debt. The debt will still exist; interest will still accrue. Anyone who wants to exchange debt for cash can do so on the open market. No new debt is issued, the price of the old debt (“default” or not) may increaseyield interest
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down (like happened during the “debt ceiling crisis” in 2011 although downgrade from Standard & Poor’s). Why? Because people will know that soon they will be paid in full. Yes, the stock market
SPX,
may take a dive. So what? It has been doing that for months now.
In the end, this is a real magic trick. Secretary of the Treasury Janet L. Yellen is fully empowered issue a platinum coin in whatever denomination she decides. This authorization law is promulgate in 1997 by a Republican Congress. Yellen could order the US Mint to issue a trillion dollar coin, with which the Treasury Department could buy back a trillion dollars in Treasury debt held by the Federal Reserve. Since a coin is not debt, debt will fall below the ceiling with the pen of an accountant. There will be no economic consequences; The world outside the Federal Reserve and the Treasury will not be affected. Whose face will appear on the coin? McCarthy comes to mind.
In short, the debt ceiling is not a crisis, but a farce. This farce has been played out over and over again since the law was enacted in 1917, when the United States was entering World War I and public debt was piling up. But farce can lead to tragedy. If the Democrats were trapped by themselves Fearthey may rush to nihilists’ request the enactment of spending cuts in exchange for an increase in the debt ceiling. This has happened before. As journalist Ryan Grim remind us:
“The last time Republicans won a debt ceiling confrontation, Biden was vice president and the Obama administration agreed to a so-called release. They also agreed to form the Biden Committee, which had been trying to strike a Big Deal with the then House of Representatives. Eric Cantor. The Grand Bargain has been a fever dream in Washington for years, and will include some combination of tax increases and decreases on Social Security, Medicare, and other social spending, and the idea is that it won’t. popular, but if the parties get it together, the voters have no one to take it out.
We are preparing to prevent a fake crisis by creating a real crisis—for retirees, for sick people, for law enforcement, for the economy, and (of course) for all those obnoxious regulators that have yet to be destroyed. That danger is real. Debt ceiling? It was just a ruse and a trap.
James K. Galbraith, chair of government/business relations at the Lyndon B. Johnson School of Public Affairs at the University of Texas at Austin, is the former executive director of the congressional Joint Economic Committee.
This commentary has been published with permission of Syndicate Project — Debt ceiling is a red herring
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