Get Ready For Another Debt Ceiling Fight
The next six weeks or so will see Congress once again fighting over a self-created crisis.
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.
All you say is true – “the place to impose fiscal discipline isn’t really at the debt ceiling stage, but at the stage where Congress is authorizing the spending. ” But the problem is that we haven’t had a budget since 2009 and the budget should be where we adjust spending – this in spite of the fact that Congress is required by law to pass a budget. The real problem of course is that, with zero based budgeting, there is no penalty to not passing a budget. How do we get out of this dilemma? Its above my pay grade.
The debt ceiling shouldn’t even exist. Congress authorizes spending, and then refuses to agree to the debt such spending requires? It’s idiocy.
And for the most part, Congresscritters used to get that. They might posture a bit, but raising the debt ceiling was never an issue. Until very recently, of course.
@Murrel:
The budget you refer to is non-binding and does not authorize any spending, so passing it would not have made any difference. It’s the appropriations bills that actually authorize the spending, and those have been debated and passed over the last 3 years.
Do people really think the absence of a formal “budget document” prevents Congress from knowing what is going on?
@David M:
Apparently the idiots that watch Fox News think so.
Just.
Ignore.
The.
Republicans.
The very fact that the budget ceiling is in debate tells you it has utility.
Because we’ve enjoyed the last couple of times so much they’ve decided to make it a recurring feature.
Give me the days of smoke filled rooms.
When retirees start getting stiffed on social security checks and troops start losing their paychecks, the stuff will hit the fan.
If the Republicans want cuts make them come up with a Bill that defines the cuts. They can’t do that because while their base says they want cuts in government spending there is not really anything they want to cut because it’s the Republican base that is feeding at the public trough.
@Drew:
The very fact that madmen take hostages tells you the tactic has utility, yes. It doesn’t tell you whether that’s a good thing for society, though.
@Drew:
If you think the childish and pedantic posturing over the debt ceiling by House Republicans qualifies as “debate” then I’d say you’re a big part of the problem.
Here’s the problem with this comment: Republicans have come to the point that people would be surprised if they didn’t take this line – if they didn’t eff with the with the nation’s (and world’s) economy just because they can. And people will hate them for it more than they already do.
They see bill paying time as the appropriate venue to have the debate about spending.
Hostage taking in this manner must stop.
The only good thing that will happen between now and March 1 is that Republicans will see their reputation tarnished even more than it already is. Hopefully, the aftermath will teach them a lesson. Hopefully, they will learn that lesson and correct their behavior. Hopefully, they will figure out that trashing their nation to score political points is a very bad thing.
I want them to figure this out. We need them.
They won’t.
@de stijl:
You are right they won’t because they a terrorists – suicide bombers.
I know I just said this in another thread, but I think it bears repeating.
Most of the same House Rs who are soon going to be whining about the debt ceiling voted for the Ryan budget, even though it adds trillions in debt. H.Con.Res. 112 (“Concurrent Resolution on the Budget for Fiscal Year 2013”) calls for a total of $3,127B in deficits for the period 2013-2022. This bill was sponsored by Ryan and passed by the GOP House on 3/29/12. 96% of the Rs in the House voted for this bill. Link, link.
This is extreme shamelessness: to vote for more debt and then claim it’s wrong to add more debt.
There is a recent Matt Miller column making this point (link):
I think he’s using a different number because he’s looking at a different vote, but the basic point is the same.
@de stijl:
This is what’s most galling to me. It’s not like they’d have to wait or anything. They can have their glorious fight around the same time, as the Continuing Resolution expiration nears. Why can’t they be more typically GOP-irresponsible, like the Gingrich-era, and just shut down the gov’t — though they’re threatening that too, so I guess they really want to maximize their destructive leverage.
Is it so hard not to be a mushy enabler on this? If you believe the GOP is crazy enough to bring into question the full faith and credit of the US, no opportunity should be missed to condemn them as unfit to govern, and to pressure them into not behaving like unpatriotic saboteurs. The beltway media pushing arguments along the lines of what’s quoted above provides them just enough cover to feel the political damage will be minimal or spread about widely enough to be electorally meaningless.
If you believe they’re just recklessly bluffing, and there’s no chance they’re mad enough force a technical default, why not encourage your party to ransom/blackmail with the upcoming Continuing Resolution expiration instead? (Since even just pretending to threaten our country’s credit-worthiness, which is ultimately counterproductive to their stated goals, can make our long-term fiscal situation worse)
@Ron Beasley:
@Rob in CT:
We agree completely.
If Republicans are going to be complicit in voting for budgets and spending bills that quite clearly incrementally add to our deficit and to our overall debt, then it seems to me they, as the ones who want to hold us hostage another round of debt ceiling “discussions” should be the first to spell out exactly which “entitlement” programs they want to privatize or otherwise eliminate.
You say that becuase you really don’t know what the President mean when he says he will not negotiate it. There would not be any srutiny if the President uses his 14th amendment powers to effectively pay the bills. Republicans can huff and puff all they want. The important thing is the President will likely have the full support of the majority of Americans and the republicans will look incompetent to the masses in the process. After the media explain why taking such extraordinary actions (for the first time in history) may have been very neccessary, it will become clearer to more non-political junkies which party was being childish on the issue. This is a no win situation for conservatives – only if the president is serious about not negotiating. I don’t think conservatives are taking Obama quite that serious yet. Many of them will be surprised!
The GOP philosophy, in a nutshell: ‘the growing debt will eventually lead to economic disaster because someday we won’t be able to pay our bills. Therefore we should create an economic distaster right now by not paying our bills. Why wait to have a disaster later if we can have one right now? When it comes to disasters, sooner is always better than later.’
This is like shooting yourself in the head because you’re afraid that someday someone might shoot you in the head.