The requirement to raise the debt ceiling is not a negotiable issue. Setting a precedent that the most extreme members of Congress can hold hostage the financial stability and credibility of the U.S. and even the global economy is not a tactic that can be allowed. Those are two bedrock statements that are to be center stage in the weeks and months to come as one of the most dysfunctional House majorities in our lifetimes takes the reins of power in Washington.
Let us put the facts upfront about this issue. The debt limit caps the total amount of allowable outstanding U.S. federal debt. As Treasury Secretary Janet Yellen told Congress Friday, “the Treasury Department would begin taking “extraordinary measures” in order to avoid a potentially catastrophic default but urged Congress to take further action to raise or suspend the borrowing limit.” In other words, Congress, and that clearly means House Republicans, need to be adults and either raise or suspend the debt limit or the Federal government will lack the cash to pay all its obligations. That has never happened before.
The bottom line that remains is the Treasury Department issues bonds to fund spending approved by the president and Congress beyond what is covered by federal revenue. But when we reach the debt limit, the Treasury is no longer authorized to issue new bonds. At that point, Treasury must take “extraordinary measures” until the president signs a bill for a new debt limit increase. Why we have every reason to be deeply concerned, and the markets will echo that angst, is that raising the debt limit has no direct impact on the size of the national debt. It has no impact either on more spending or freezing or restricting spending. The only thing that increasing the debt limit does is pay expenses previously authorized by presidents and Congress.
What are front and center is the Republican desire to get something for their vote on the ceiling. Instead of just doing their job, the conservatives want to be bought off for their votes. In the rhetoric of the weeks to come we need to be mindful of what conservatives are battling, namely, themselves. The facts about the growth in government, the red ink, and who carries more responsibility for its creation must be borne by Republicans, as data and facts prove. Steve Rattner proves the point in another of his powerful graphs.
Republicans like to blame Democrats for all this borrowing. But the facts show otherwise. Five of the six presidents who incurred the most debt relative to the size of the economy in the past 60 years were Republicans. While Donald Trump faced the need to counteract Covid effects, his tax cuts and spending increases also played a major part. And Barack Obama had to deal with the financial crisis. But the fact remains that of the 57 percentage point increase in the debt to GDP ratio since 1960, 52 percentage points – all but five percentage points – were incurred with a Republican in the White House. (Note that Republicans and Democrats held the White House for roughly equivalent periods over these decades.)
The point needs to be made the rhetorical steam from the current crowd of conservatives in the House must be put into context. The GOP agreed to raise the debt ceiling three times when Donald Trump served his one term in office. I admit to feeling somewhat guilty for writing this paragraph as it runs counter to my main point in this post. That being a bi-partisan vote of the Congress has no role other than to increase the ceiling. While the GOP was correct with their votes in the Trump years, however, it is the hypocrisy now that must be understood.
A fanciful and truly dangerous provision is being bounced about by the far right wing in Congress that would split portions of our federal budget into sections that would then be addressed by a debt ceiling increase. Conservatives would, under such a plan instruct the Treasury Department to prioritize debt service payments, Social Security, Medicare, veterans benefits, and military funding. Everything from meat inspectors to the FAA, federal housing authority, and a very long list of other vital parts of federal programming would not be covered.
Economists are stunned at the ability of House Republicans to play so close to the edge of the economic cliff. With as much composure as can be placed on those learned ones, who clearly want to scream at the severely under-educated in Congress, economists press the point that debt prioritization would not sidestep the economic consequences of failing to raise the debt ceiling. While partisans will ramp this effort up ever higher it needs to be noted what true conservatives are saying about the debt ceiling increase.
Raising the debt ceiling should be – and often has been – a routine matter. It does not authorize any new spending. Rather, it gives the executive branch the borrowing capacity it needs to honor existing spending commitments. It is Congress that decides on spending levels and tax rates, and when it sets federal spending higher than federal revenue, it implicitly determines the size of the budget deficit. Raising the debt ceiling merely allows for the borrowing that is needed to meet the obligations that Congress itself has created.
“The Dow would plunge by thousands of points per day, and the credibility of the US — its trustworthiness as a country that pays its debts on time — would be substantially eroded. After a day or two of this chaos, a clean bill to increase the debt ceiling would pass both houses of Congress with overwhelming bipartisan support. Republicans would have accomplished nothing.”
Adding to this chaos that is simmering and soon to grow with intensity is the chasm developing in the GOP House caucus. As noted this past week, the Wall Street Journal reported the cutting frenzy in the GOP has pitted “Republicans who want to protect military spending against those who see such expenditures as fair game in any negotiations alongside cuts to domestic programs.” Before they start attacking the nation’s creditworthiness they should first decide what they stand for as a political party.
When it comes to the debt limit issue there has never been any doubt as to where I stand. It would still be the soundest move to pursue a deal that would permanently remove the requirement that Congress repeatedly raise the debt ceiling. That would be good news for the nation.