Debt ceiling options

As Congress and the President continue to wrangle over raising the debt ceiling, more of us are wondering, what would happen if the debt ceiling isn’t raised? To paraphrase Sherlock Holmes, when you have eliminated the impossible, whatever remains, however improbable, must be Plan A.

Let me begin with Bruce Bartlett’s fine summary of the core issue:

The debt ceiling is a cap on the amount of securities the Treasury can issue, something it does to raise money to pay for government expenses. These expenses, and the deficit they’ve wrought, are a result of past actions by Congress to create entitlement programs, make appropriations and cut taxes. In that sense, raising the debt limit is about paying for past expenses, not controlling future ones. For Congress to refuse to let Treasury raise the cash to pay the bills that Congress itself has run up simply makes no sense.

Some observers are suggesting that the debt ceiling itself is unconstitutional. However, Laurence Tribe raises doubts about that legal theory. Perhaps a sounder legal basis for the President to simply ignore the debt ceiling has been discussed in the Washington Post:

Larry Rosenthal, a professor at Chapman University School of Law, said … a more persuasive argument is that the agreement in April to fund the government through the remainder of the 2011 fiscal year implicitly increased the debt ceiling. By passing that agreement, Congress essentially instructed Obama to spend money in the coming months. To pay for programs Congress authorized, the government will have to borrow money.

“It’s basically an order to the executive– pay this money,” Rosenthal said. Even if the debt ceiling would block him from doing so, “when two laws are in conflict, the more recent law is understood to supercede the first law.”

A separate question is whether it would be logistically feasible for the federal government to suddenly stop the payments that it is institutionally accustomed to make. Felix Salmon explains:

purely as a practical matter, it’s far from clear that it’s even possible to stop making the 3 million payments that Treasury makes automatically every day. Doing so involves a massive computer-reprogramming effort which I’m sure could not be implemented overnight– and for political reasons nobody is going to get started on such an effort until after all hope is lost for a deal in Congress.

Realistically, then, the government is likely to breach the current debt ceiling no matter what Congress agrees. A failure to lift it would be a bit like an edict to a steaming supertanker that it had to stop dead: no matter how much force of law that edict has, sheer momentum is going force many basic operations of the public fisc to continue for some period of days or weeks.

At that point– and no earlier– there would be enormous pressure on the White House to pull out the 14th Amendment and declare the debt ceiling unconstitutional, if only for practical reasons: doing so would be a lot easier than trying to reprogram the computers which are set to send out $49 billion of Social Security checks on August 3. Not to mention that no president ever wants to be the person who stiffed America’s seniors on their guaranteed monthly income: a greater failure of leadership can hardly be imagined. On the other hand, saying “enough of you bickering legislators, I’m sworn to uphold the Constitution and do what’s in the best interest of the country” is much more presidential.

There are other possible accounting steps, such as delaying payments and paying with IOU’s, that the Treasury could consider. But here’s what Treasury Secretary Timothy Geithner said in May:

our plan is for Congress to pass the debt limit. Our fallback plan is for Congress to pass the debt limit, and our fallback to the fallback plan is for Congress to pass the debt limit.

Please permit me to humbly suggest the following fallblack3 plan. I recommend that President Obama should be prepared to give the following speech on August 3:

Fellow Americans. Along with the other major developed economies, the United States faces enormous challenges in restoring economic growth and getting our citizens back to work. More than ever, Americans expect our elected representatives to work together to address these problems.

But Congress has been unable to reach agreement on even the most basic measures needed to keep the U.S. government functioning. As of today, the Treasury faces an untenable situation. The Congress has instructed us to maintain a level of expenditures on a broad range of functions. Current tax receipts are insufficient to cover those expenditures. That means that in order to carry out the fiscal plan that Congress has already passed into law, the Treasury would need to borrow additional funds. But Congress has also failed to approve authority to conduct that borrowing.

It is not clear what Congress is instructing me as president to do. Am I supposed to order Social Security payments to our retired citizens to be stopped? Congress has said no, those payments are supposed to be made. Am I supposed to stop paying the salaries for our troops risking their lives to protect us even at this moment as the politicians wrangle? Congress has said no, those payments are to be made. Am I supposed to fail to meet principal or interest payments on existing U.S. debt? The Constitution itself explicitly forbids this.

Anything I instruct the Treasury to do at this point would be in potential conflict with existing legislation, for the simple reason that existing legislation is self-contradicting. I have therefore made a decision that, until instructed otherwise by the Congress, Social Security checks will continue to be sent on time. Soldiers and their families are going to receive the funds that Congress has already authorized. And U.S. debts will always be honored. And I will make sure all this happens by authorizing the Treasury to borrow the funds necessary to implement existing legislation.

It is my hope and expectation that this will only be a temporary arrangement, until Congress can agree on spending, tax, and borrowing legislation that is not self-contradictory. I have faith that, despite our real disagreements, Republicans and Democrats can work together on a plan that is best for our country. But as long as I am President, I am not going to allow political bickering and gridlock to plunge us into even deeper problems than we already face.

Thank you for giving me the time to share this message. And may God continue to bless America.

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68 thoughts on “Debt ceiling options

  1. dwb

    I think you hit the core issue: While most legal analysts write about the constitutionality of debt ceiling itself, the core issue is that whatever the President does August 3rd, he is breaking a law – failing to spend appropriations, breaking the debt ceiling, etc.
    The President will have to assert the least messy option, fiscally, financially, and legally. The markets will likely be in turmoil, so there is not a good choice – just a lot of bad (and potentially illegal) ones. Sure, the Treasury could repo 400Bn in gold to the Fed to stretch the time, but this is only temporary. Back in 1995-1996, Congress authorized the Treasury to borrow money “that was not to be counted against the debt ceiling.” Debt that’s not debt, huh?
    Among all the options, the 14th Amendment option is the cleanest. First, the legislative history suggests that default should not be in the arsenal of ordinary political calculus (we do not negotiate with terrorists). Secondly, who’s gonna sue?
    Sure the buyers of Treasuries might demand a premium until the legal status of the bonds/notes is resolved…but that is going to happen anyway. The best you can do August 3rd is mitigate the crisis.

  2. Rajesh

    There is the Dirksen maneuver.
    Create coins with a face value of a billion dollars, with Everett Dirksen on the front. Sell them to the Federal Reserve as needed, using the seigniorage to cover Federal spending until the debt ceiling is raised.
    Once Congress raises the debt ceiling, the Treasury can issue bonds and use the proceeds to buy back (and melt down) the coins from the Federal Reserve.

  3. Ed Hanson

    Sorry Professor Hamilton;
    Wrong solution, wrong target of criticism, wrong speech.
    The speech should be a addendum to the apology tour.
    Fellow Americans. I came to office with a mandate of change. The American voter awarded both myself and my party of the Presidency and super majorities in both Houses of Congress. This was a privilege that came with responsibilities. One of those responsibilities was to produce a budget for which the government should operate and to create the means, by revenue and authorized borrowing, to pay for the expenditures. The past Congress, the 111th, in which my party had absolute majorities, refused in its final year to either produce a budget or to increase the country’s debt ceiling to pay for the continuing resolution for spending. For this I apologize for my party.
    The 112th Congress convened after a national election, which my party lost its large majority in the House which the American voter awarded to other party, and reduced my parties majority in the Senate. But still, my party again, as the leadership of the Senate has again refused to act on its responsibility to pass a budget. It has neither accepted or amend the House pass budget, nor has it produced its own version.
    The consequence of this inaction is fast approaching. The Treasury of the United States is about to reach its authorized limit to borrow new moneys to pay for government expenditures. It is an untenable position for the United States. I will not neglect my responsibility of my office and oath. It has become clear that only the House of Representatives is capable of committing to that same responsibility. Together we have been in conference and negotiations to produce a debt ceiling legislation. My position has been that the debt authorization must rise to pay for current and future expenditure of current programs. The House leadership’s position is that current and future expenditures must be greatly reduced by spending cuts. My position is that future expenditures must be paid for by higher tax rates on the very wealthy to enhance revenues. The House leadership’s position is that marginal tax rates on all persons and business must be reduced to accelerate rate growth of the economy.
    I am please to announce that a compromise has been made. The House leadership will introduce legislation to increase the debt limit. I have agreed to marginal tax rate reductions as long as some deductions and loopholes in the tax laws are are repealed such that effective tax rates remain the same. The House leadership will introduce a new budget resolution that will increase the spending levels next year, greater than the previous passed house budget, and will reflect reduction of future scheduled expenditures per our agreement.
    As with all compromises, neither party to these negotiations are happy with all the provisions. But both me as President and Mr. Boehner, the Majority leader of the House accept the fact the consequences of no agreement were dire and unacceptable. Each of us have agreed to this road map which will hold through the national election of 2012 when as always the American voter will direct the future direction of the country.
    Thank you for giving me the time to share this message. And may God continue to bless America.

  4. Richard H. Serlin

    “when two laws are in conflict, the more recent law is understood to supercede the first law.”
    What about when the first law was passed not just by the House, but also by the Senate and signed by the President. How can a rule passed only by the House prevent the execution of laws passed by the House, Senate, and President? Where does the constitution give this kind of power to a single legislative body? How could you argue this is what the Framers wanted?

  5. Richard H. Serlin

    Ok, Wikipedia explains this:
    Article I Section 8 of the United States Constitution gives the Congress the sole power to borrow money on the credit of the United States. From the founding of the United States though 1917 Congress authorized each individual debt issuance separately. In order to provide more flexibility to finance the United States’ involvement in World War I, Congress modified the method by which it authorizes debt in the Second Liberty Bond Act of 1917…
    At: http://en.wikipedia.org/wiki/United_States_public_debt#Debt_ceiling
    The passage also discusses Bratlett’s and Tribe’s arguments. Wikipedia is truly light-years beyond old-fashioned encyclopedias!
    This could be a wild ride! I left for safety months ago before the government shutdown showdown over the budget. I’ve found it really interesting that all the way through, even at this point, the market has yawned at this. When new news has come out increasing the odds of disaster, nothing, no movement in stocks. Is it that few market participants have much expertise in this kind of politics, or follow it very closely? If a savvy minority is too small they’ll only be able to influence prices very little. Their pockets are only so deep, and the more they focus their money on an inefficiency the less the diversification of their portfolios and the greater the risk, discouraging putting in further dollars.

  6. Richard H. Serlin

    Could you argue that when Congress passed $X of spending, but only $Y of taxes, they implicitly agreed to borrow X – Y dollars? So they did give their constitutionally required approval to borrow those dollars? This makes great sense to me.

  7. Tom

    Congress has been operating without a budget for two years. Massive new spending was enacted without any plan on how to pay for it. In fact the lack of budget means they had no plan on how to pay for any of the myriad government programs. Thus the claim that *this* congress passed legislation (or promises) that it is now choosing to not fund is ridiculous. This congress did not in fact pass that legislation and is now deciding it cannot be afforded. Rather, one might say that the previous congress was irresponsible in passing legislation without providing any plan (i.e. budget) to pay for it.
    Of course it is also irresponsible to ignore the catastrophic harm that a US government entails. The current brinkmanship merely highlights the danger in having separate votes on the debt ceiling and spending bills (as you have already pointed out). However I would amend that slightly, congress should be required to debate and pass a budget in order to enact baseline spending increases. Otherwise it remains discretionary, and as such, can be revoked (i.e. default sunset provision) if no budget is passed rather than necessitating an automatic increase in debt.

  8. FMT

    OK, so if its going to be difficult to actually stop making payments (as per Felix Salmon’s article) I reckon the Treasury needs to get started on this task right now by stopping payments to all elected members of Congress, and the President (and in one week, if agreement is not reached, extended to all elected officials in the US). Once the paychecks dry up to these clowns they might either (a) focus on resolving the issue or (b) quit in disgust and go find another job. Both solutions are a win.

  9. stunney

    I have a question to which perhaps someone here has an authoritative, maybe even definitive, answer: why do deficits matter?
    An additional query immediately suggests itself: Or do they?
    I’m presuming a qualifying context, namely in the USA, under current conditions.
    I’m trying to imagine some awful scenario, in which America is plunged into a terrible fate, and all because the deficit was some percentage or other of GDP, a number that got bigger every year, say.
    I can imagine a couple of variations, in one of which the deficit was funded by sales of government securities, and the other in which it wasn’t but the government wrote out, and the Fed honored, checks anyway.
    I shall award to the author of the best answer The Dick Cheney Prize for Fiscal and Political Cleverness, known popularly as a Clever Dick.
    So don those Thinking Caps, boys and girls, and get scribbling!

  10. Rob

    Awesome post. Not sure what the superscript is for, and did you mean “fallback plan?”
    {no need to post my comment}

  11. JDH

    Rob: Superscript 3 was intended to denote a number raised to the third power, that is, the cube.

  12. W.C. Varones

    How about sell off the hundreds of billions in student loans?
    That would buy some time, and the government shouldn’t be in the business of putting our youth into bankruptcy-proof debt slavery in the first place.

  13. Edgar99

    The Impoundment Control Act (see 2 U.S.C. 263 and 264)clearly specifies what the President is required to do in circumstances in which he is unable to execute budget authority. His refusal to submit to the law is apace with his lawless assault on the bankruptcy system in order to enrich union cronies, his war on domestic oil production in violation of court decisions, and his sale of Obamacare waivers for campaign cash.

  14. Tudor

    “Thus the claim that *this* congress passed legislation (or promises) that it is now choosing to not fund is ridiculous. This congress did not in fact pass that legislation and is now deciding it cannot be afforded. Rather, one might say that the previous congress was irresponsible in passing legislation without providing any plan (i.e. budget) to pay for it.”
    How does one make a distinction between *this* congress and the one that was in office three months ago in April? Is it in the asterisks?

  15. Jeffrey J. Brown

    The OECD “Thelma & Louise” Race to the Edge of the Cliff
    “Thelma and Louise” is an American movie that ends with the two main characters committing suicide by driving off the edge of a cliff. I’ve often thought that this cinematic moment is an appropriate symbol for the actions of many developed OECD countries that are in effect borrowing money to maintain or increase current consumption. The central problem with this approach is that as my frequent co-author, Samuel Foucher, and I have repeatedly discussed, the supply of global net oil exports has been flat to declining since 2005, with “Chindia” so far consuming an ever greater share of what is (net) exported globally. Chindia’s combined net oil imports, as a percentage of global net exports, rose from 11.2% in 2005 to 17.6% in 2010.
    At precisely the point in time that developed countries should be taking steps to discourage consumption, many OECD countries, especially the US, are doing the exact opposite, by effectively encouraging consumption. Therefore, the actions by many OECD countries aimed at encouraging consumption in the face of declining available global net oil exports can be seen as the OECD “Thelma & Louise” Race to the Edge of the Cliff. I suppose that the “winner” could be viewed as the first country that can no longer borrow enough money, at affordable rates, to maintain their current lifestyle. So, based on this metric, Greece would appear to be currently in the lead, with many other countries not far behind them.

  16. Rich Berger

    Dems are trying to remove debt ceiling as issue for 2012 campaign, and are trying to create panic situation to force bad actions. Republicans should continue to refuse tax increases and propose rollback to FY 2008 budget outlays except for increases in entitlements and defense (no high-speed rail BS). Republicans should insist that Dems produce a FY 11 budget. The debt ceiling should be increased such that it will have to be raised in 12 months. No long term deals until after the 2012 election – let the voters decide between alternative paths. Obama and larger and more intrusive government, or Ryan plan to rein in government.
    Oh – make the negotiations public. Dems are trying to undermine Repubs by selective leaks. If the Dems will not agree, Repubs should unilaterally hold press conferences each night to describe the day’s negotiations. Smoke ‘em out.

  17. Ricardo

    Professor,
    First, Bruce Bartlett’s summary is as ridiculous as he has become. It does not come close to touching the core issue.
    In 1941 when congress placed the payment of all government expenditures in the hands of the Treasury Department the burden of making payments on congressional commitments was not shifted to the Treasury Department. This is clear because the congress at the same time placed a limit on Treasury borrowing. A limit has remained at different amount and has been confirmed over and over by congress. So what we first have to understand is that the Treasury will not default on paying its bills. Any debts that the Treasury has incurred are easily covered through existing tax receipts. the debts that are a concern have been incurred by congress.
    Clearly any default falls directly on congress because Article I Section 8 of the Constitution gives the authority – and responsibility – of the debt to congress. Contrary to the fantasy being written about increasing the dictatorial power of the President, the 14 amendment does not change Article I Section 8. In this opinion I find myself amazingly agreeing with Professor Lawrence Tribe.
    The congress can pay its bills by either borrowing or by taxing. (Since the FED would be required to borrow to inject money into the economy inflation is not an option.) So based on the opinion expressed in your suggested speech by the President he could just as easily say :
    Anything I instruct the Treasury to do at this point would be in potential conflict with existing legislation, for the simple reason that existing legislation is self-contradicting. I have therefore made a decision that, until instructed otherwise by the Congress, Social Security checks will continue to be sent on time. Soldiers and their families are going to receive the funds that Congress has already authorized. And U.S. debts will always be honored. And I will make sure all this happens by authorizing the IRS to increase taxes on every taxpayer to provide the funds necessary to implement existing legislation.
    Professor, I am not sure you realize the dictatorial power that your suggestion places in the hands of the President. We may be facing a constitutional crisis greater than any in the history of our country, even greater than the crisis that led to the Civil Way. Giving the President such dictatorial powers fundamentally changes our government from a liberal, constitutional, democratic republic into an arbitrary third world government run by a dictator.
    If the president assumes this power God help us.

  18. ppcm

    The Cretan paradox should be listed as a new entry of the intellectual assets to be protected by the UNESCO.Epimenides rights should be protected,he is too widely copied.

  19. 2slugbaits

    Tribe’s argument is weak. First, the 14th Amendment was adopted after Article 1, Section 8, and therefore trumps it. Second, the actual historical debate surrounding the 4th clause of the 14th Amendment suggests that Congress specifically intended that it override the Article 1, Section 8 clause. Finally, even if one accepts the supremacy of the Article 1, Section 8 clause, one has to ask who would have standing to object. Only Congress as a whole would have legal standing, and it’s unlikely that Congress would vote to press its claim in the Supreme Court. If you really want to make an argument against ingnoring the debt ceiling, then I would want to make it on practical grounds, not legal objections where I think the President is on firm ground. The practical argument is that it would only solve the problem for a few weeks because Congress must pass an appropriation bill by 1 October and even if the problem is temporarily avoided on 2 August, and we can be pretty sure that the GOP wingnuts will be back for a second (or third) bite at the apple in late September. Once again we will be looking at another govt shutdown threat. Of course, that may happen even if the White House gets an agreement with the GOP on the debt ceiling. The politics of appeasement cannot be tolerated when you’re dealing with crazed fanatics. Sad to say, it might be time for Obama to pull the trigger. In Nov 2012 the country will have a stark choice. Wipe out the GOP as a political force for the next generation or wipe out the Democratic party and live with the consequences.
    Tom Congress has been operating without a budget for two years.
    Is that a Fox News fact?

  20. Joseph

    I agree with JDH. No 14th amendment argument required. Congress has given self-contradictory instructions to the President. He cannot not do both. He has to chose one or the other using his best judgement for the welfare of the country and the world economy.
    The result should be the permanent elimination of the debt limit fiction. Appropriations and taxes are the real way that debt is determined.

  21. 2slugbaits

    Article 1, section 8 enumerates the powers of Congress; but the point of section 8 is to define the national government’s power over the states. The wording of section 8 giving Congress the power to create debt was intended to allow Congress to pay off the Revolutionary War debt, as well as debts for future wars. It meant Congress did not have to depend upon the generousity of the states to pay national debts. It was never interpreted to mean that Congress had to specifically approve a debt limit. Throughout most of the federal government’s history there was no such thing as a debt ceiling; it was always assumed that lawful appropriation of funds implied Congressional consent to Treasury borrowing. Tribe is simply wrong when he suggests that clause 8 was intended to balance the Executive and the Legislative branches; clause 8 was intended to give the national government power over the states. Tribe should pay more attention to what his prize student Akhil Amar has to say about this.
    I think the situation is actually a bit more absurd than even JDH suggests. It is not at all clear that the govt will cease spending money if the debt ceiling is not raised. The Executive is still obligated under law to continue spending just as taxpayers are still required to continue paying taxes. Govt workers are still required to show up; vendors are still required to continue producing according to contract schedules; etc. The only thing that failing to raise the debt ceiling does is that Treasury is not able to pay on demand the full value of the government’s obligation.
    Those who voted for the Tea Party candidates owe everyone else a very big apology.

  22. Johannes

    There is some madness in this system.
    @Rob: Superscript > 3 are possible, the cube is not the end.

  23. Rich Berger

    Tom is correct, the last time the Dems produced a budget was in April, 2009. They elected not to provide one for Fy 11. The government was funded by continuing resolution. No sense in tipping their hand to the voters.

  24. CoRev

    Bush’s last budget
    2007- 2008- 2009- 2010- 2011- 2012- 2013
    2,730 2,931 3,107 3,091 3,171 3,222 3,399
    Obama’s Budgets
    ————3,938*3,456 3,819 3,729!3,771!
    Revenues
    2,568 2,521 2,186 2,163 2,174?2,627?3,003?
    The data is provided to show the differences in spending/economic thinking between Bush and Obama.
    We know that the Dem congress played politics late in 2010 with the 2011 budget, and none was enacted. Again this year the Dem Senate still playi9ng politics has chosen not to enact a 2012 budget. All we hear from their supporters is the republican are playing politics.
    Then we have the 2009 budget raised by Bush and again by Obama for a total of $831B. Bush implemented TARP which today appears to have been successful in sustaining the banking industry. Obama implemented Stimulus which has a completely different history, especially when measuring its ability to sustain a recovery.
    We are now discussing raising the debt ceiling, and claiming all sorts of legislative and constitutional nuances apply. That’s missing the forest for the trees.
    The only thing that seems best to apply is the use of bad political actions and even worse economic policy.
    The only thing to resolve this is the 2012 elections
    * Actual outlays
    ! Proposed
    ? Estimated
    All data from: http://www.gpoaccess.gov/usbudget/fy10/pdf/budget/summary.pdf (FY2009,FY2010 and FY2012 budget tables)

  25. AS

    Regarding budgets on this and prior posts: Can a budget be ascribed to Bush in 2007 or 2008 since the Democrats had control of both houses of Congress starting in 2007? It seems like the Democrats were the ones in control, not Bush or the Republicans.
    Regarding spending: Perhaps the Feds should just suspend salary payments to all federal workers except for defense. The Feds can slow payments to all non-essential employees and vendors, just as a business would do if in a cash bind.

  26. Joseph

    CoRev, you do realize that the phoney Bush budgets for the out years were based on the fiction that the Bush tax cuts would expire in 2010, don’t you? They were assuming revenue that they never intended to actually collect. The fact that the cuts were extended is the major cause of the current deficit, second only to the reduction in revenues due to the Bush recession itself.

  27. CoRev

    Joseph, your comment about the Bush tax cuts makes no sense. Where available I used the actual outlays. That’s why I pulled the numbers from the the three listed FYs. So, the Bush tax cuts are meaningless when comparing the Bush Obama performance.
    Furthermore, I showed the Bush proposed budget and Bush/Obama 2009 actual expenditures. 2010 is an actual expenditure, but 2011 and forward are proposed.
    Joseph, you do understand that the Bush taxes were extended just last year, so apply to the 2011 revenue? Obama proposed the 2011 budget that matters. I included the Bush projections just for consitency.

  28. 2slugbaits

    Rich Berger Don’t forget that Bush’s budget submissions were dishonest to the hilt. In every year he went back for mid-year “supplementals.” Suggest you try looking at the Bush historical OMB submissions and track them from year-to-year and see if they resemble anything more than a random walk.
    CoRev Obama implemented Stimulus which has a completely different history, especially when measuring its ability to sustain a recovery
    So you agree that the stimulus should have been larger and should have been more backloaded. Good, that’s progress.
    We are now discussing raising the debt ceiling, and claiming all sorts of legislative and constitutional nuances apply. That’s missing the forest for the trees.
    Agree. But the reason we’re discussing the trees and not the forest is because the Tea Party Republicans only want to talk about the trees. Instead of passing something like a clean debt ceiling bill the GOP whackos have decided to throw a temper tantrum. Where were the Tea Party Republicans 10 years ago when some us started worrying about the structural on-budget deficit? Nowhere to be found. Krugman is right; the GOP does not really care about the deficit, only about lowering tax rates. That’s always been true and we saw it in spades this weekend when Obama called their bluff and Cantor walked away.
    The only thing to resolve this is the 2012 elections
    Support for the GOP has plunged among older midwestern voters. Voters have buyer’s remorse in Wisconsin, Iowa and Ohio. All states that went big for the GOP in 2010 and are now very much in the “blue” column today. Do us a favor and nominate Bachmann.

  29. 2slugbaits

    AS The Feds can slow payments to all non-essential employees and vendors, just as a business would do if in a cash bind.
    It’s not clear that this is even technically feasible given that the Treasury has gone to great lengths to set up an automated disbursement system that pays on a first-come-first-served basis. It would require a lot of reprogramming and given the late date it’s probably not feasible. And prioritization would be almost impossible to keep under wraps. But if the Treasury did try to prioritize, foreign bondholders would probably be last in line because they don’t vote. Social Security checks are due to go out 3 August for those who started collecting SS prior to 1997, so we’ll see. Will retirees take an across-the-board haircut or will some retirees with low SS numbers (bias towards the east coast) get the full amount and those with higher numbers (i.e., those in red states) get no checks? Interestingly enough, Florida is last.
    http://socialsecuritynumerology.com/prefixes.php

  30. Babinich

    Joseph,

    If you want phoney try this on for size:

    Obama projects a 2.5% Fed Funds rate in budget calculations through 2020. The average Federal Funds rate since 1980: 5.7%; since 2008: 0.0%. If you use the average, 5.7%, the projected US deficit would increase by another $4.9 trillion by 2020

    Obama projects a 4.2% growth rate over next three years. If a normal growth rate of 2.5% is applied (http://www.marketwatch.com/story/analysts-cut-us-q2-growth-forecast-to-25-rate-2011-06-09?reflink=MW_news_stmp), deficits would increase by an additional $4 trillion by 2020

  31. CoRev

    2slugs said: “But if the Treasury did try to prioritize, foreign bondholders would probably be last in line because they don’t vote.” No politics in that statement of possible Dem policy.
    Earlier he made this wishful claim: “Support for the GOP has plunged among older midwestern voters. Voters have buyer’s remorse in Wisconsin, Iowa and Ohio. All states that went big for the GOP in 2010 and are now very much in the “blue” column today. ” We’ll have to see, won’t we?
    In 2slugland only republicans play politics. Oh wait, didn’t I mention earlier the Dems’ unwillingness to pass a budget for two years, solely die to politics.

  32. 2slugbaits

    CoRev We’ll have to see, won’t we?
    Here are the current poll numbers according to the latest NBC/WSJ polling:
    *** GOP losing ground with seniors? Whether it’s due to the current Medicare debate, the end of the health-care fight (in which the GOP clubbed Democrats on Medicare), or something else, Republicans are losing ground with seniors. In our combined NBC/WSJ polls for the first half of this year (so 4,800 total interviews, including 711 seniors), 44% of seniors identify themselves as Democrats, versus 35% who identify themselves as Republicans. So a nine-point spread. But in our merged NBC/WSJ polls from 2010 (12,502 interviews, including 1,931 seniors), Democrats held just a two-point edge among seniors, 42%-40%. Why is this important? Because last year — when they won control of the House and made gains in the Senate — Republicans overperformed with seniors. According to the exit polls, the GOP won the senior vote by more than 20 percentage points, 59%-38%. But in 2008, McCain beat Obama among seniors by eight points, 53%-45%. And in 2006, Democrats split the senior vote, 49%-49%.
    *** GOP losing ground in the Midwest, too: Something similar is happening in the Midwest, too. Per the merged 2011 NBC/WSJ polls, 42% of respondents in that region identify with Democrats, versus 31% who identify with Republicans. So an 11-point spread. Yet back in our 2010 merged data, the Dem edge was just four points, 41%-37%. What’s more, party identification in the other regions (Northeast, South, West) is essentially unchanged from 2010 to 2011. These shifts — among seniors and folks in the Midwest — explain why some Democrats don’t want the White House to budge an inch on Medicare and Social Security in the debt talks.
    http://firstread.msnbc.msn.com/_news/2011/07/08/7041128-first-thoughts-a-crucial-72-hours
    And what’s with this obsession about meaningless outyear budgets not being passed? Is this another Fox Fact that’s supposed to be important? Bush passed budgets, but they were meaningless.

  33. Doly

    I’m not a U.S. resident, so I find this whole debt ceiling business most confusing. Why is there a ceiling in the first place, if, as it appears, it’s been essentially meaningless until now?
    Checking on Wikipedia, I arrive at this:
    The original act that allows the U.S. to issue bonds. It was clearly meant as an emergency decision, that’s why there was a ceiling to the debt. It wasn’t meant to become the usual way of running the government:
    http://en.wikipedia.org/wiki/Second_Liberty_Bond_Act
    The last increase on the debt ceiling, hidden somewhere in the text of a bill that’s mostly about something else:
    http://thomas.loc.gov/cgi-bin/bdquery/z?d111:H.J.Res45:
    The famous 14th amendment, that happens to have been written more than half a century before the act that describes current bonds. If you want to argue that the bond act was unconstitutional because it included a debt ceiling that could potentially be breached and could question the validity of the whole thing, I think that’s a lot of a stretch:
    http://en.wikipedia.org/wiki/Fourteenth_Amendment_to_the_United_States_Constitution
    It’s clear to me that the fundamental problem is that nobody bothered for almost a century to look at how the U.S. issues bonds, and if it makes sense to still do it by extending what was originally an emergency measure, now that it’s become the accepted and normal way. And now it’s being used as a tool for negotiating the budget, which was in nobody’s minds and intentions at the time the relevant laws were passed.
    In other words, none of the supposedly relevant laws are very relevant for the situation at hand. I’m not entirely certain about what the U.S. government is allowed to do when they are in unchartered territory, but it’s my understanding that the President has rather wide powers in such a situation. Different people will have different ideas on what’s the right answer, but it looks to me like it’s really up to Obama, and he could very much pick whatever he wants from the range of suggested solutions, if Congress are unable to agree. I may be wrong, if someone can explain convincingly that he really doesn’t have that much power, please explain.

  34. beezer

    I have an idea. Pay the damn bills already and stop whining about the taxes necessary to pay the damn bills.
    You want to enact a new, Raw Deal to replace the New Deal and the Great Society, then step right up and honestly announce said plan. Then stand for office and see how much the public agrees with your idea of their future.

  35. Some Guy

    Or, how about:
    My fellow Americans, though my party held a supermajority in the House, a majority in the Senate, and the White House, since 2009, the Democratic Party has been unwilling to take the heat for passing an actual..you know…budget. I blame the Republicans.

  36. Jim A

    Well assets can be sold. The tapping of the black gold in the Strategic Petroleum Reserve was one example. Selling a few tons of actual gold from Fort Knox would be another. My suspicion that at statement that this is the intention of the Treasury as the only legal out might tend to get some action from the Tea Party wingnuts.

  37. Ricardo

    Slug,
    Since yu are os sure of yourself, please quote the specific wording of the 14th amendment that overrides Article 1 Section 8.

  38. Grapost

    LOOK WHAT BUSH DID! With No Complaints from Republicans, The Tea Party or Fox News!
    On the day President Bush took office, the national debt stood at $5.727 trillion. The latest number from the Treasury Department shows the national debt now stands at more than $9.849 trillion. That’s a 71.9 percent increase on Mr. Bush’s watch.
    September 29, 2008
    It’ll be the 7th TIME THE DEBT LIMIT has been raised during this administra­tion.

  39. David Penwell

    I recall this comment from W C Varones and I though it was great and sums up what most working people feel. This is not an exact quote but close “Not raising the debt limit is just a balanced budget amendment.” Sounds good to me. What is the big problem? Just cut spending by the amount required to pay the interest, and your done.

  40. Rich Berger

    Grapost-
    Thanks for monitoring the DailyKos so we don’t have to. Note that Bush had raised the debt by about 7.5% per year during his administration (up to your date of 9/29/2008). Obama started at 10.35 trillion is now at 14.5 trillion – that’s 14.4% per year. He’s good, really good – by the end of his term he will be up to $17.7 trillion at that rate.

  41. CoRev

    D Penwell, I dunno if WCV said it, but I know that I did.
    My strategy in case the debt ceiling is not raised has been is to fix SS so that it is pay-go for the next generation or longer. Then use the SSTF as borrowing head space to let the several budgets get adjusted to available revenues until the SSTF is exhausted. We should also pass a balanced budget amendment while that occurs.
    Using the SSTF does two things, balances the budget in a relatively short time time frame (2-3 years), and does away with a huge TF that would not be needed, but continues to grow due to interest, an accounting artifact.
    The only practical impact is that the trust fund treasuries would move from intra-governmental debt to debt held by the public. There is no change in overall debt. It also would slow the increase in debt due to interest caculated to be paid to the SSTF. It is the same thing currently being done by Treasury with the employee retirement TFs.
    Beware of anyone bringing up on/off budget numbers. What they are doing is sub-categorizing budget revenues and outlays to no practical effect. On/off budget is a political construct for hiding portions of the budget, or to make portions of the budget (Social Security) to appear safe from raiding. Didn’t work so well, did it?

  42. Moopheus

    Maybe it is time for the JP Morgan locked room. When Congress is in session, lock the room and don’t let anyone out until they have a solution. Possibly they will resort to cannabilism before they break, but that’s small price to pay, I think.

  43. Lord

    There are limits on what the President can do without Congress. He could also take that the obligation to pay remains while the time to pay will be when funds are available, but if default is chosen, defaulting on seniors and the military would be the way to pressure Congress and the response to any lawsuit attempting to thwart borrowing. Is there any law that requires the Treasury to maintain a positive balance though? Could it not simply pay without borrowing? He could also take this as the intent of Congress.

  44. David Penwell

    CoRev –
    My apologies. The idea sounds great. Cancel junior’s credit card, and all of a sudden he has to live within his means.

  45. Barkley Rosser

    Jim,
    I fully agree with you. Good suggested speech. Indeed, the debt ceiling should simply be abolished, at least de facto if it cannot be done de jure, as I called for on April 19 on EconoSpeak. It is worth reminding people that the US is the only nation in world history to have such a nominal debt ceiling, and its absurdity is becoming clearer with every passing day.

  46. CoRev

    B Rosser says: “It is worth reminding people that the US is the only nation in world history to have such a nominal debt ceiling, and its absurdity is becoming clearer with every passing day.”
    Really! Tell that to the Greeks, Portugal, Italy, Spain, Ireland, etc. They have pursued the path you appear to prefer, barely controlled spending.

  47. 2slugbaits

    Ricardo please quote the specific wording of the 14th amendment that overrides Article 1 Section 8.
    You can go read the relevant sections of the Constitution, so I won’t quote it here. But I will explain things for you. First, as I noted above, the Article 1 Section 8 enumeration was not intended as a branch of government check, but as something granting the federal government clear authority to tax and borrow, which is something that was not included in the Articles of Confederation. It was a states versus federal government issue. The 14th Amendment provision saying that the lawful debts of the US shall not be questioned was rooted in the Civil War experience. It had two purposes. First, it was seen as a way to lock in commitments in such a way that sympathetic Democrats (including Democratic President Andrew Johnson) were locked into commitments made during the War. The second reason is that Congress authorized Union commanders in the field to issue IOUs to friendly civilians under the foraging provisions granted by Congress. Those were IOUs issued by the Army in the field, not by Congress. The 14th Amendment guarantees that the US Treasury will honor those IOUs. Constitutionally it says that the Executive can issue debts provided those debts were not in violation of the anti-deficiency acts or foraging acts.

  48. 2slugbaits

    CoRev My strategy in case the debt ceiling is not raised has been is to fix SS so that it is pay-go for the next generation or longer. Then use the SSTF as borrowing head space to let the several budgets get adjusted to available revenues until the SSTF is exhausted. We should also pass a balanced budget amendment while that occurs.
    I see that you still do not understand the 1996 Rubin understanding. You completely misunderstand. Look, what Rubin did was to set up an arrangement with the SSTF such that excess FICA revenues (note…there are no excess FICA revenues today) were offered to the Treasaury in exchange for an SSTF bond. The Secretary of the Treasury then told the SS Trustees that he would be happy to take the excess revenues, but he would not issue a bond. Instead, he made a verbal and legally nonbinding promise to make things whole at some future date. That is how he created “headspace.” He simply offered a verbal promise that did not count against the debt limit. Congress said that they would just look the other way. That was the agreement. The excess FICA revenues in 1996 were large enough relative to the on-budget shortfall that he could follow this policy almost indefinitely. That is not true today.
    Beware of anyone bringing up on/off budget numbers. What they are doing is sub-categorizing budget revenues and outlays to no practical effect. On/off budget is a political construct for hiding portions of the budget, or to make portions of the budget (Social Security) to appear safe from raiding.
    This is a knee slapper. It’s the GOP that wants to raid the SSTF surplus and then when the bonds come due they want to whine about what a burden it would be on taxpayers to have redeem those bonds. The reason you have to keep an eye on both on-budget and off-budget is precisely because combining the two disguises the long run trends for the debt. It makes sense to combine the two when you’re talking about crowding out effects, but you have to separate them when it comes to looking at long term debt trends. SS is not a driver of the long run debt (as you agreed the other day), so it should not be part of the long run debt solution. Income taxes are part of the long run problem and should be part of the long run solution, as should Medicare/Medicaid and DoD spending.

  49. 2slugbaits

    CoRev Tell that to the Greeks, Portugal, Italy, Spain, Ireland, etc. They have pursued the path you appear to prefer, barely controlled spending.
    Sounds like more Fox News Fun Facts. FYI…up until the housing collapse Spain and Ireland were considered the models of fiscal austerity. Spain hit the skids because of too much incoming foreign investment and Ireland got into trouble because the Irish government unwisely decided to back up the losses of Irish banks. The only real case of fiscal recklessness was Greece. Getting the story right is important even if it doesn’t quit fit your preferred storyline.

  50. Babinich

    Slug says…

    The only real case of fiscal recklessness was Greece. Getting the story right is important even if it doesn’t quit fit your preferred storyline.

    You have no idea what you’re talking about. Did you look at Italy today?

  51. 2slugbaits

    Babinich Yes, I know what I’m talking about. Do you? Try these facts that distinguish Greece from Italy:
    •Greece, for example, has approximately 79% of government gross debt held by non-residents and has net international investment position of -82.2% of GDP. Interest payments on public debt represented nearly 40% of Greece’s already large 2009 budget deficit – and this is set to increase.
    •Italy, by contrast, does not face the same challenge. Italy’s public debt reached 115% of GDP at the end of 2009, but Italy’s net international investment position were just about -19% of GDP. So, much of Italy’s interest burden is paid to Italians, and some of it is paid back to the government as taxes. As a result, Italy’s public debt dynamics are better than those of the PIGS.
    http://www.voxeu.org/index.php?q=node/5008
    The point is that not all PIGS (or, if you prefer, PIIGS) are created equal. Some are more equal than others. Greece is the least equal. Greece is and always has been a basket case. Yes, the PIGS have their problems today, but the source of those problems does not generally fit the Fox News script. Many of them are in a pickle today because of the bad worldwide economy and not so much because of fiscal recklessness before the 2008 crash.

  52. Jake M.

    “I have an idea. Pay the damn bills already and stop whining about the taxes necessary to pay the damn bills.
    You want to enact a new, Raw Deal to replace the New Deal and the Great Society, then step right up and honestly announce said plan. Then stand for office and see how much the public agrees with your idea of their future.”
    Ain’t that the truth. If the GOPs want their blessed wars, then make their corporate contributors pay for them. If they refuse to admit that revenues are a part of budgets, then the Dems should just walk away, let the debt ceiling hit and the economy crash, and explain to the American people that oligarchs decided they didn’t want to pay another nickel on the dollar so they wrecked the economy instead.
    And if we’re going to consider selling out the few safety nets and stabilizers this society has to maintain a few tax cuts, I’d rather see the blowup- we’ll be better off in the long run. Republicans wouldn’t get elected for the next 20 years…if they didn’t get the guillotine first.
    Ask the UK, Ireland and Greece how that austerity thing’s been working out for them the last 6-12 months. Heck, look at our job slowdown since the states started jacking around with incomes and public worker jobs. It doesn’t happen in a vaccuum, boys and girls.

  53. derf namllow

    it is way overdue for Congress to be willing to compromise. it is unfortunate that they believe the President will cave-in when the Republican “no new taxes” element refuses to negotiate

  54. dwb

    Doly: Different people will have different ideas on what’s the right answer, but it looks to me like it’s really up to Obama, and he could very much pick whatever he wants from the range of suggested solutions, if Congress are unable to agree. I may be wrong, if someone can explain convincingly that he really doesn’t have that much power, please explain.
    Thats the beauty of the u.s. constitution – separation of powers. Yes, the president has the power to prioritize which laws to spend resources to enforce, and does so all the time. There are myriad examples of the executive branch “de-prioritizing” or “re-interpreting laws”. It’s up to someone to sue and ultimately the supreme court to agree or not – or congress to intervene.
    Come august 3rd, the president will likely have to pick from a menu of terrible choices, most or all of which involve breaking some law.

  55. Babinich

    Slug says:

    Many of them are in a pickle today because of the bad worldwide economy and not so much because of fiscal recklessness before the 2008 crash.

    Please; a roaring world economy can hide fiscal recklessness.

    The script is not a Fox script but a market script. Time to ditch your sycophantic tendencies & learn how to read markets.

    http://www.zerohedge.com/article/heres-why-italys-cds-are-biggest-risk-eurozone

    http://brucekrasting.blogspot.com/2011/07/italian-mia-culpa-big-time.html

    http://www.telegraph.co.uk/finance/comment/ambroseevans_pritchard/8628939/Italy-and-Spain-must-pray-for-a-miracle.html

  56. Barkley Rosser

    CoRev,
    That every nation in history except the US has operated without a nominal debt ceiling means that all the very many that have had responsible fiscal policies that did not run their economies into the ground has done so. Removing the debt ceiling does not mean that the US becomes Greece. As it is, a refusal to raise the debt ceiling without any instructions on what to do puts the administration in the impossible situation of being unable to avoid breaking the law. Get it together, man, and do not make nonsense arguments, please.

  57. CoRev

    Barkley R, what is that first sentence supposed to say? I never said removing the debt ceiling would turn us into Greece, what I said was we were on a similar path due to overspending. Your third sentence is hypothetical nonsense. No one but Dems, especially not Congress, is talking about raising the debt ceiling without any instructions.
    I think I’m very safe repeating your own words: Get it together, man, and do not make nonsense arguments, please. You replied with more nonsense than even 2slugs can slather.

  58. Barkley Rosser

    The issue is what will happen if there is no raising of the debt ceiling, which looks increasingly likely. As it is, more of the US population thinks that raising the debt ceiling is worse than defaulting, really.

  59. CoRev

    BarkleyR, no one know what will happen if we do not raise the debt ceiling. One thing is certain, the Govt will not shut down and the debt servicing, SS, payroll, medicare checks will go out. Other programs will be prioritized.
    The debt default issue is nearly all hyperbole. All that is needed is to roll over the debt, and what will be required from revenues will be any difference in interest.
    Then, if it is not raised, we will get serious about negotiating. Some cuts some revenue gains and a balanced budget amendment should be the result.

  60. aaron

    I’d be for replacing the nominal debt ceiling with a cap on financing cost as percent of GDP minus government spending, with automatic spending cuts/shutdown of certain operations when that limit is reached.
    We also need to prioritize. The fact that congress can spend so wrecklessly all year long, then stick it to use when the treasury runs out is bullshit.

  61. SHocking

    As Brad Delong has emphasized, Congressional salaries are the first thing that should be axed if the US Federal Government runs out of money due to Congressional inanity.

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