Idiocracy
I hate the debt ceiling. It is one of the dumbest structural features of the US government. It gives US politicians the ability to screw up the entire economy by not agreeing to pay for the spending and taxation they’ve already agreed to. If congress wanted more fiscal responsibility, at any time, they could pass new spending cuts or tax increases. If the market thinks our government is spending too much money, it will let us know (as the market let Great Britain know this summer). Normal processes require some amount of agreement across both houses of congress and generally the Presidency. However, the debt ceiling changes that dynamic and allows either house of congress, or the President, to play political chicken and hold a gun to the head of the entire nation by saying: “I won’t increase the debt ceiling unless…”
If the debt ceiling is hit and not fixed promptly, our government shuts down, bondholders are not paid on time, and then really bad things come into play – like paying military salaries on time.
Is it abundantly clear that the debt ceiling could cause catastrophe? Yes.
Are our politicians being responsible and raising or eliminating the debt ceiling? Hell no.
Congress debating the proper size of the government is their job. Debating that, while having a balanced rule that if congress doesn’t agree on a specific deal, it can cause a massive recession and blow up the global financial system? That’s idiotic.
Agreed Upon Disaster
Hitting the debt ceiling and failing to pay government salaries and government bonds would be a disaster. This is agreed upon by all mainstream economists, as well as liberal and conservative news outlets:
-The Wall Street Journal’s broad discussion portends bonds, soldiers and pensions not being paid on time
-Fox Business Reporting that JP Morgan had to convene a War Room: –leftwing
-vox.com says it would be a likely recession and a global financial crisis
-CNBC says it would be domestic economic catastrophe paired with foreign policy crisis
To get this many different parts of the political spectrum and punditry to agree on something requires it to be supremely clear. Unfortunately, that the Debt Ceiling would trigger a complete disaster is viewed as an opportunity by some politicians.
Unilateral Fixes
The debt ceiling has some possible technical fixes. The two major ideas are:
US Treasury Secretary Yellen claimed she is not willing to mint the coin, and an attempt to use the 14th amendment to ignore the debt ceiling would incur a legal challenge (as would minting the coin).
Should the current brinkmanship game risk US default, I expect either of those possibilities may be attempted, regardless of prior rhetoric. Neither action changes the roles of our branches of government and both actions are WAY better than economic catastrophe.
The Biggest Players and the Recent Past
The most recent fight over the debt ceiling was in 2011. Barack Obama attempted to ramp up pressure and then negotiate with the newly elected ‘tea party’ Republicans. The results were very messy; our government wound up in a shutdown and sequestration. As the crisis got worse and the US debt rating started getting downgraded, the democrats and republicans came to agreement on a debt ceiling increase. Being one of the longest serving politicians in our nation, Biden was not a fan of negotiating on the debt in the first place, and took the lesson that negotiations were long term futile. On the other side of the aisle – Speaker of the House, Kevin McCarthy, has a very narrow margin to hold his position and requires the support of far-right hardliners. If McCarthy is seen to be ‘negotiating’ at this point, he could easily lose his position and there is nothing politicians like more than power: As the LA times says: “That’s not negotiating; it’s a holdup.”
How Does it Resolve
Hopefully our politicians discover they are not, in fact, warring middle schoolers but seasoned adults. The best solution would be to eradicate the debt ceiling. I expect that if no deal is reached, the Biden administration will attempt to legally circumvent the debt ceiling. However, all of this is speculation and nothing is a sure thing.
Once the US credit rating started downgrading in 2011, the calls from business to the politicians of America were taken very seriously last time. Hopefully it will have the same effect this time; however, again, this is speculation.
Hope is not a plan. Eradicating the debt ceiling from existence is the best course of action, but the chances of that occurring are less than 0. US budgetary issues of taxes and spending should be solved via the normal political channels and negotiations, without having the ability for one party to blackmail the US economy. It remains an open question if our current politicians can act like adults.
Thank you for reading.
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Edits by @J_prettybuds