Yes, the Debt Ceiling Matters

There is an effort on to pretend the debt ceiling is no big deal. We won’t default, they say, because Obama can simply re-direct spending to make sure our debts get paid. Why, hitting the debt ceiling could be a good thing, forcing the government to live within its means and balancing the budget in one fell stroke.

There are multiple problems with this line of thought, the primary one being that this would be an awfully big gamble. If the ceiling-deniers are wrong, the result will be economic chaos. A huge amount of the global economy rest on the idea that US debt is reliable. If that pillar is tumbled, it could be chaos. Sure, it might not be the disaster some fear. But do you really want to pull that trigger to see if the chamber is empty?

Second, it’s not clear that Obama has the Constitutional authority to balance the budget like this. Spending, as you know, originates in the House. And under laws passed by the House, most spending continues to go on even in the case of a shutdown. To prioritize debt, Obama would have to break the law and possibly violate the Constitution by essentially writing his own budget. Even if that passed Constitutional muster — do you want to give Barack Obama unfettered control of the national purse? It thought we didn’t like executive overreach.

Third, prioritizing our spending to allow for debt may not be logistically possible. Our government pays its bills — millions per day — through an automated system.

The Treasury Department maintains that it has no ability to pick and choose which bills to pay if it’s short of cash. According to the agency’s inspector general, its computer systems are designed to “make each payment in the order it comes due.” Full stop.

Under this view, if Congress fails to lift the debt ceiling, the U.S. government will only have money to cover about 65 percent of its bills. Some payments will simply fail to clear. Perhaps a payment to a defense contractor comes up short. Maybe a Social Security check bounces. Maybe an interest payment to bondholders fails.

For people who say our government is too big, the GOP seems to be kind of clueless about just how big it is and how much money flows into and out of its coffers. Two years ago, Obama noted that, with a debt ceiling breach, he couldn’t guarantee that Social Security checks would be paid. He was accused of trying to scare seniors, but what he said was correct: if any check comes in when the federal coffers are registering zero, it will not be paid. If anything, Plumer understates the problem. Both federal revenue and expenditures are highly variable depending on the time of year. Even if the budget were perfectly balanced over a fiscal year, we would run a debt in some months and a surplus in others. Under a no-more-debt scenario, this would make federal payments erratic at best.

The response to this has been to say, basically, the a default would be such a catastrophic thing that the Treasury would find a way to avoid it. I simply can not buy into that appeal to magic: problems have to be solved, not thrown out there in the hopes that a solution will magically present itself within the next week. This was the same thing they said about the sequester: it was such a bad way to cut spending that Congress would certainly find a better way to cut spending.

But aside from that, do you trust this Administration to not default in this situation? Right now, their healthcare exchanges are a debacle. And that’s with less than a million visitors a day and years to prepare. Do you really trust this Administration to carefully sort and prioritize the millions of bills our government pays every day and not fuck it up? On a week’s notice, you expect this? This isn’t a challenge on Survivor; this is our full faith and credit.

I recently had a debate about what Obama should do if we hit the debt ceiling. We came to the conclusion that he would be in a position where he would violate the Constitution either way: either by refusing to spend money Congress has authorized or by taking out debt Congress has not authorized (even with the shutdown, the government is obligated under law to continue a great deal of spending; Congress would have to pass a raft of laws to stop that spending). My opinion was, in that situation, that Obama should just issue debt. Congress’s spending authority is well-established Constitutional law. A President does not have the legal authority to refuse to spend money they have authorized or to make statutory alterations to programs. Congress’s authority to limit the debt, however, has never been challenged in the courts and some legal scholars believe the debt ceiling violates the 14th Amendment (although there is a lot of disagreement on this.

If your choice is between two Constitutional crises — and no doubt the Republicans starting impeachment proceedings either way — should you take the one with less fiscal uncertainty and more legal uncertainty?

Comments are closed.

  1. Seattle Outcast

    A huge amount of the global economy rest on the idea MYTH that US debt is reliable.

    FTFY….

    Perhaps it’s time to pop that bubble of assumption now – I mean, Obama obviously had every intention of destroying our economy for decades, might as well get it over with…

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  2. West Virginia Rebel

    Well, the Chinese seem to be worried enough that they’re reminding Obama of how much we owe them…I’ll just wait for the nukes to start flying.

    The debt ceiling sounds like the government’s idea of a very flexible line of credit. And I’m pretty sure that some in the GOP are aware of just how much money the government spends; they only get upset when they’re not getting their share of pork (farm subsidies, anyone?)

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  3. AlexInCT

    Actually I hope they can not raise it and we end up getting a 6% interest rate. Once government has to spend about 80% of the tax revenue servicing debt, I guarantee you people will wake up to the reality that we can not keep spending like we are right now. The left of course will try to raise taxes, on everyone, and that will guarantee they will cripple the economy. It might then finally end the whole idea we can fleece others to buy votes, and do so permanently.

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  4. InsipiD

    “To prioritize debt, Obama would have to break the law and possibly violate the Constitution by essentially writing his own budget.”

    So, remind me again how this is any different from Obama reality?

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  5. Mook

    Two years ago, Obama noted that, with a debt ceiling breach, he couldn’t guarantee that Social Security checks would be paid. He was accused of trying to scare seniors, but what he said was correct: if any check comes in when the federal coffers are registering zero, it will not be paid.

    The problem with asserting that Obama was NOT engaged in scare tactics, he clearly was/is, is that the coffers would not be “empty” as the US govt. has $2.7 Trillion in tax revenues coming in this year. There IS money, lots of it, coming into the Treasury. Obama is definitely engaging in scare tactics threatening Social Security payments while fully funding food stamps and welfare checks. It’s all about priorities in what he chooses to fund and what he doesn’t. As Obama has already demonstrated by spending additional $$ we don’t have to close open air monuments and closing Amber Alerts while keeping other worthless govt. bullshit open, he is as reckless and malicious as he can be.. going out of his way at extra expense to maximize the pain for others for his own selfish political benefit.

    We came to the conclusion that he would be in a position where he would violate the Constitution either way: either by refusing to spend money Congress has authorized or by taking out debt Congress has not authorized

    I’ve noticed that dipshit Cramer has been on a harangue lately, repeatedly calling for Obama to invoke the 14th Amendment as a fig leaf to circumvent Congress. I imagine other liberals are doing the same.. Yet these same hypocrites were screaming in fits over the “Imperial President” Bush who was a piker in comparison to our current Tyrant-in-Chief. Watch Obama attempt to shred the Constitution again while the left cheers his “courage”

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  6. Hal_10000 *

    There’s a difference between an imperial President rewriting laws because he doesn’t like what Congress gave him and a President deciding which of two constitutional crises he is going to precipitate.

    And really, don’t give me this imperial presidency bullshit when you are calling for an imperial presidency. You have said that Obama should prioritize different spending if we hit the debt limit. What is that but an imperial presidency? Do you even hear yourself sometimes?

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  7. Mook

    And really, don’t give me this imperial presidency bullshit when you are calling for an imperial presidency. You have said that Obama should prioritize different spending if we hit the debt limit. What is that but an imperial presidency? Do you even hear yourself sometimes?

    In the event of a debt ceiling crisis, would not the President’s Treasury Secretary then prioritize which payments to make? By definition, a debt crisis would require subjective prioritization in payments since money is coming in, but not enough to cover ALL federal government obligations. Did you not realize that Hal?

    Haven’t you seen how Obama is prioritizing spending now during this “shutdown”? Open air monuments closed, while Michelle Obama’s “Let’s move” website still on. Prioritization of spending, much of which is subjective, is EXACTLY what is happening right now.

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  8. Hal_10000 *

    Haven’t you seen how Obama is prioritizing spending now during this “shutdown”? Open air monuments closed, while Michelle Obama’s “Let’s move” website still on. Prioritization of spending, much of which is subjective, is EXACTLY what is happening right now.

    And you are calling for even more of the same.

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  9. Section8

    There’s a difference between an imperial President rewriting laws because he doesn’t like what Congress gave him and a President deciding which of two constitutional crises he is going to precipitate.

    Which one? The one that decided on his own to delay the employee mandate? The one Congress gave him?

    How about one that orders park rangers to harass people? Yeah there you go, go out of your way to make it as difficult as possible to hopefully gain political advantage.

    The current bill from the house is simple.

    No subsidy for Congress, and why not?
    And delay the individual mandate for one year, and why not? It was just fine for Obama to go out on his own and give a break to business.

    These are simple requests, and you talk about how you think entitlements should be tacked now? LOL

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  10. Hal_10000 *

    Which one? The one that decided on his own to delay the employee mandate? The one Congress gave him?

    How about one that orders park rangers to harass people? Yeah there you go, go out of your way to make it as difficult as possible to hopefully gain political advantage.

    I have criticized those actions. Which is why I don’t want him given absolute discretionary power over the budget.

    No subsidy for Congress, and why not?
    And delay the individual mandate for one year, and why not? It was just fine for Obama to go out on his own and give a break to business.

    I don’t disagree with those proposals. But again, in a compromise, both sides get something they want. What do they offer Obama in exchange?

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  11. Section8

    I don’t disagree with those proposals. But again, in a compromise, both sides get something they want. What do they offer Obama in exchange?

    It will be Obama’s way of compromising for delaying the employee mandate. Where was the negotiation there or the outrage? Or he can come clean and just put it back. But as we know only the GOP holds the country hostage and does what it wants. The other guy gets a pass at the end of the day.

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  12. Dave D

    I’m betting this level of borrowing (generational and approaching insane levels of GDP) combined with the current level of largesse doled out to garner votes was not even in the realm or possibility for the future of this country to the founding fathers.

    What effect did removing the gold standard on our currency have on this ability to borrow?

    Did they even envision borrowing money they didn’t have as a viable way to run a government?

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  13. hist_ed

    “Did they even envision borrowing money they didn’t have as a viable way to run a government?”

    Yes. But generally only in war time. We borrowed to finance the Revolution.

    (Yes yes I know, not nearly as much as we do now).

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