Jesus Christ, not the goddam debt ceiling again! I can’t stand it. I cannot. Of all the structural stupidities of the American system of government, and folks, the American system of government is composed of nothing but structural stupidities, it’s all, every bit of it, unbearably stupid, there’s nothing quite so offensively moronic, and potentially catastrophic, as the dance that goes on around borrowing the money that the Federal Government has already decided to spend.
Here’s how it works in a sensible democracy, like, say, Canada. The governing party proposes a budget, which includes both spending and taxes. Routinely, the spending exceeds the revenue projected from taxation, so the government borrows the rest, by selling debt instruments, which we call Canada Treasury Bonds (the Americans equivalents are generally referred to as “T-Bills”). Now, if the opposition thinks the government is proposing to spend and borrow too much, or is spending on the wrong things, and it has the votes in the legislature to do something about it, it can thwart the passage of the budget bill. In our system this is a deemed vote of non-confidence in the government, and triggers a federal election, so it won’t be done lightly, even if the balance of power in Parliament makes it possible. The opposition has to consider the angles carefully, and this imposes discipline.
There. That’s it. That’s how it works here, and the process is essentially similar in almost all the world’s liberal democracies.
Not in America, though! Nope! In America, what they do is decide to spend the money, commit themselves to huge deficits, start shovelling billions upon trillions out the door with all the gusto of sailors on shore leave, and only then decide whether they’re allowed to borrow what’s going to be needed to pay off the credit card. That’s because the American system has foisted upon itself a legal limit on how much debt the nation is allowed to carry, known as the “debt ceiling”, which, technically, stands apart from the budget process. This must once have sounded reasonable to somebody, but is of course nuts, because with every year, and each successive budget, it becomes necessary to separately raise the legal debt limit. This requires a vote in both chambers of Congress, which in turn brings the arcane and ridiculous anti-majoritarian rules of the U.S. Senate into play, at which point, as the King of Cartoons used to say on PeeWee’s Playhouse:
Bear with me. Now comes the part when I struggle with how much to even try to explain about this. It’s deadly dull. As dull as it is important, and not just for Americans, as I’ll try to make clear.
O.K., first, as touched on above, the debt ceiling hijinks must be distinguished from the U.S. appropriations process. Appropriations occur via the passage of budgets, which is a separate and often very rocky thing, fraught with its own potential for a certain sort of calamity: government shut-down (ask yourself, who but the Americans could have a government that shuts itself down when the squabbling politicians can’t act responsibly?). This occurs when no agreement on funding can be reached, regardless of the headroom available in the authorized debt. Repeated failures over the past four decades or so to legislatively resolve budget impasses and authorize appropriations have caused numerous such shut-downs, which once tended to last only for brief intervals of 12-24 hours before things got sorted out, but over the years have become progressively more dire; the first really serious shuttering of government functions occurred during the Clinton administration, courtesy of Newt Gingrich, and the most recent was between December 2018 and January 2019, when Donald threw a tantrum over funding for his farcical border wall, and refused to sign the budget bill until he got his way (which he didn’t, in the end). When the appropriations tap is shut off, federal employees are furloughed, government offices are shut down, government employees don’t get their paycheques, it starts to get dicey with Social Security and Medicaid, and so on, but these things are temporary, and while economically harmful and generally god-awful, shut-downs aren’t global economic extinction-level events.
Refusing to raise the debt ceiling is something wholly different, by an order of magnitude. When it comes time to authorize a new limit to borrowing, the appropriations have already been made, the spending is ongoing, and the issue becomes whether the Treasury is allowed to raise the money necessary for the Federal Government to meet its obligations. To oversimplify, it becomes a question of whether Uncle Sam’s cheques are going to start bouncing, including, God save us, the ones that pay interest and principal upon maturity to the existing holders of U.S. Treasury Bills. A failure to raise the debt ceiling thus risks default on sovereign debt, the stuff of tin-pot dictatorships and Third World economic basket cases, and when something like that occurs with the world economy’s most essential player it can pull down the whole house of cards. Therefore the very last thing anybody with a scintilla of good sense, indeed basic human decency, should ever contemplate messing with is the full faith and credit of the U.S. Treasury. America’s T-Bills are the world’s most important financial instrument, the solidity of which is tied up not only with the future ability of the U.S. government to fund its operations at a decent cost, but global economic stability, the status of the U.S. Dollar as the World Reserve Currency, and much, much, more. The truth is, nobody’s really sure just how hideous the consequences would be, because the global economic system has never before had to absorb the sort of body blow that U.S. default would deliver, but this headline from the Washington Post should give you a flavour for what’s anticipated:
That might not be the half of it. One of the main reasons that the U.S. Government can happily carry, without even breaking a sweat, its ballpark $U.S. 28 trillion in outstanding debt, and rising – which is more than their annual GDP, putting them at a greater than 1:1 debt-to-GDP ratio of about 130%, as I write this – is that they pay damned-near nothing in interest on their T-Bills. Look:
Most people don’t appreciate just how important this is. It may suit politicians to bray about deficits and debt as if they pose some sort of existential threat, but as it stands the U.S. government has no trouble at all servicing what it owes. Yes, the debt exceeds GDP, but the burden of making the payments by no means forces them to flirt with insolvency, or even to make painful budget compromises. Quite the opposite! Even 30 Year bonds pay only about 2%, which is lower than inflation, meaning, in effect, that T-Bills are tantamount to free money. In economic terms, their buyers are paying the U.S. Treasury for the privilege of holding them, and they do this because T-Bills are, by a country mile, the world’s safest investment. It’s where you put your money when you absolutely, positively, cannot afford to lose any of it under any circumstances, and for that level of safety you’ll take a bit of a haircut. The sheer power and dependability of U.S. T-Bills, and of the mighty U.S. dollars in which they’re denominated, thus grant safe harbour to foreign governments, facilitate international monetary flows and the stability of transactions, and allow America to raise money at will, virtually as much as it wants, any time it wants, at minimal expense. No exaggeration: the full faith and credit of the U.S. Treasury underpins the entire global economic system, the stability of which quite possibly goes to Hell in a handcart if brinksmanship in Congress precipitates any sort of default, whatever its scope and duration. Meanwhile the blow to U.S. finances, if they have to start paying market interest on T-Bills that aren’t so solid any more, could be anything from painful to crippling. If you want a recent example of how that works, look at what’s happened to the shaky economies of the European Union in recent years, Greece, Spain, and the rest.
You might therefore expect, given the stakes, that nobody, not even the worst, most craven, most irredeemably cynical buttplug in the entire GOP – which is to say, not even Mitch McConnell – would dream of playing such reckless games, and risk economic armageddon by screwing around with the debt ceiling. Well, actually, at this point I very much doubt you’d expect that, and of course you shouldn’t, because that’s just exactly what he’s doing. He’s pledged that there will be no Republican votes this time around to raise the borrowing limit, and has used the filibuster (#*@X&%) to kill a Democratic bill that would have done so as part of the ordinary functioning of the Senate. Yes, dear reader, it’s the f-ing filibuster again, which lands us, I’m very sad to say, back amid the endlessly mucky and soul-destroying minutiae of the Senate rules, and such fascinations as what can and cannot be passed by simple majority, and the distinction between abolishing the debt limit outright, massaging it so that it always matches projected spending, suspending it, or merely raising it, as well as which of these can be effected through the budget reconciliation process, which requires only the 51 votes the Democrats can currently muster on their own. You’re not up for that, I know. Nobody’s up for that. I’ve done a deep dive into all of this for my own benefit, but you know what? I’m not even going there. Not here. Not in this space. It would make my prior column on the intricacies of the filibuster seem scintillating by comparison, I mean, God save us, it’s sooooooo borrrrrrring. I can’t even articulate how boring it is. Tell you what, if you happen to have a stucco ceiling, go count the bumps, and that’ll be less tedious.
Yet so much turns on it.
What I think I can tell you, without inducing coma, is that Mitch is going to force the Dems to solve this on their own, cackling all the way, because he knows that the self-sabotaging dum-dums are tied up in internal squabbling over the current budget reconciliation process. For various reasons, Senate Majority Leader Chuck Schumer would rather not deal with the debt ceiling within the next reconciliation bill, which ties in with the opposition of Kyrsten Sinema and Joe Manchin to Biden’s signature 3.5 trillion “Build Back Better” agenda, about which I could say more, but it’s all inside-the-beltway horse-shit politics which nobody wants to hear about, and which, I’d wager, are baffling even to most members of the Senate. Suffice to say, Schumer would prefer a bi-partisan bill, particularly one that suspends the limit, rather than raises it to a new fixed amount. Naturally, that’s not gonna happen, which leaves the typically hapless donkeys, yet again, to take hostages by putting the gun to their own heads, even as they pretend, for now, that they won’t do anything without Mitch’s help. Reluctant to knuckle under yet again to Mitch’s legislative blackmail, they’re pursuing their only other option, which is to play chicken with the entire global economy, as if McConnell is going to be the one to swerve first (just to be clear, he won’t be)**. Sure, everyone believes at this point that the Dems will, as usual, cave at the last minute, but there’s always that risk of miscalculation, and of consequences that don’t bear thinking about.
This bears emphasis: if these stupid bastards in the U.S. Senate don’t get their act together, some morning next month you could wake up and find that your own financial future has just been dealt a grievous setback. You, reader. Personally. You have a real stake in this, and here’s the only frigging thing you can do about it:
Moreover, if we dodge the bullet this time, there’s always next year, and the year after that. Hey, you want to hear something really stupid? There’s any number of ways the Democrats could break this log jam if they could only muster the courage, and even prevent the whole sorry business from ever happening again, which you can read about here:
…and one of them, get this, is to have Biden order the Treasury to mint a platinum coin worth several trillion dollars (yes, by law it would have to be platinum, not silver or gold), then have somebody march it on over to the Federal Reserve, presumably in a little velvet poke, and make a deposit. I don’t know how, exactly, maybe there’s actually a teller’s counter over there with a federal employee waiting patiently like the Maytag Man, but anyway, according to some legal scholars, minting a coin could do the trick, though of course there are arguments both ways, and there’d be litigation, yada yada yada, but still – it might actually be a solution! That’s how the economy works, you see. It’s all abstractions. All smoke and mirrors. Push comes to shove, maybe Joe can simply conjure trillions out of thin air.
I bet that’s what Mitch would do, if he ever had the chance.
**Update, October 6: I was wrong! Mitch did swerve first, sort of, agreeing to kick the can down the road until December, when, presumably, the game can begin anew.