As I noted when it passed, the resolution of the tax portion of the Fiscal Cliff problem only solved, at most, half of the problems facing the country in the year months of 2013. For one thing, the bill that Congress passed on Tuesday explicitly kicked the can on half of the issues that were coming due on the end of the year by delaying the Sequestration Cuts by two months. In addition to that, the Continuing Resolution that Congress passed to fund the government expires in early March. Both of those pale in significance, though, to the biggest battle of all, the extension of the Federal Government’s borrowing authority, which ran out at the end of 2012 but which we’ll be able to avoid at least through mid-February thanks to some creative accounting at the Treasury Department. I speak, of course, of the infamous “debt ceiling.”
Up until August 2011, raising the Federal Debt Ceiling was one of those things that Congress ended up doing reluctantly, but it still ended up doing. There were times, during the Reagan Administration and others, when battles over the Federal Budget would coincide with a need to raise the debt ceiling and Congress would only grant borrowing authority that lasted weeks at a time. In the end, though, after the budgetary matters were resolved and the debt ceiling would be raised. Most importantly, though, there never seemed to be much doubt among the opposing parties that the debt ceiling needed to be raised, and I can’t recall the financial markets ever getting in an uproar over the possibility that this might not happen as they did in the summer of 2011. That, of course, was thanks in large part to a Republican House that insisted that any increase in the debt ceiling must be accompanied by spending cuts. In addition, there were a not insignificant number of Republican Members of Congress who suggested, absurdly, that we didn’t need to raise the debt ceiling at all. In the end, of course, we raised the debt ceiling but did so in a deal that, in the end, created the very Fiscal Cliff that Congress only partly avoided earlier this week.
Now, we find ourselves back at the same point that we were in the summer of 2011. The legal borrowing authority of the Federal Government has effectively ended. The only reason we’re able to dodge the full impact of that fact lies in the temporary ability of the Treasury Department to shift payments and obligations in such a manner as to stretch out the inevitable. However, the inevitable will come. By some time in mid-February, one of two things will happen. Either the President and Congress will find some agreeable way to raise the debt ceiling or no deal will be made and we’ll actually hit the point where the United States will not have sufficient revenue on a day-to-day basis to pay the Government’s obligations. By most accepted calculations, we’ll fall short by somewhere close to $44 billion a month at that point, although the fact that we’d be hitting the deadline during Income Tax season may mean that we’ll be able to drag things out a little further. In the end, though, the outcome is inevitable. At some point, we won’t have enough money to pay the bills that Congress has authorized and vendors and contractors across the country will start to find that the once reliable payments from Uncle Sam aren’t going to be as reliable as they used to be. Even if Treasury is able to keep current on the interest payments on bonds, the economic impact of that kind of contractual default on the part of the United States should not be understated.
Unfortunately, the bad blood from the Fiscal Cliff negotiations threatens to make any resolution of the debt ceiling issue, not to mention the other fiscal issues facing the country, much less likely. On the night that the House passed the Fiscal Cliff deal, President Obama repeated something he’d said earlier, namely that he did not intend to negotiate with Congress over the question of whether or not the debt ceiling should be raised. Speaker Boehner, meanwhile, said that he intends to use the upcoming fight over the debt ceiling to force additional spending cuts, a position that has been echoed by other budget hardliners such as Senator Pat Toomey. Another Senator, John Cornyn, said the same thing in an Op-Ed published today.
Nobody likes having to raise the debt ceiling. As I noted when I first wrote about the 2011 debt ceiling showdown when it was foreseeable as early as November of the previous year, it’s a vote that lays bare the fiscal irresponsibility of the Congress. Though it is not really an appropriate metaphor, it is usually characterized by a politicians opponents as a vote to increase the credit limit on the nation’s credit card. In the end, though, it’s a vote that is absolutely necessary. For one thing, it’s simply incorrect to characterize raising the debt ceiling as permitting the Federal Government to spend more money. Under the law, the only way that the Federal Government can spend even a single penny is if Congress has authorized it. So, even if Congress authorized, say, a $3 trillion increase in the debt ceiling next month, that would not increase the spending ability of the Federal Government unless there was also a specific authorization from Congress, signed into law by the President. The only thing that the Federal Government’s borrowing authority does is to authorize the Treasury Department to pay the bills that Congress has already incurred via its own Authorization Bills. Therefore, the place to impose fiscal discipline isn’t really at the debt ceiling stage, but at the stage where Congress is authorizing the spending. If Congress didn’t authorize the spending, then it really wouldn’t matter how much borrowing authority the Federal Government had. In other words, don’t blame the debt ceiling for out of control spending, blame Congress and the people who elected it.
On some level, I am sympathetic to the idea that the need to increase the debt ceiling should be seen as a moment at which our leaders ought to sit down and deal with the fiscal issues facing the nation, both short and long term. There’s something irresponsible about continually authorizing new debt when Congress clearly doesn’t want to do anything to stop the spending, or to bring runaway costs under control. The problem, of course, is that many of the solutions to these problems aren’t very popular at the moment, especially when it comes to entitlements. That, combined with the increased polarization in Washington, makes it highly likely that any deal that is reached will be as much of a mess as the August 2011 deal, and the recently concluded Fiscal Cliff deal. That’s unlikely to change until the American people demand better.
In any event, the next six weeks or so are going to be taken up with yet another fiscal crisis entirely created by our political leaders. There will be harsh words and accusations. There may or may not be negotiations, although I suspect that in the end the President’s “no negotiations” position simply isn’t going to withstand scrutiny. The markets are likely to be spooked. There will be warnings of another downgrade in the nation’s credit rating. Perhaps when that happens, our leaders will be spooked into doing something responsible. More likely, they’ll just come up with another deal that will create another artificial crisis 18 months or so down the road. At which point we’ll be going through this all over again.
