America Held Hostage

As traditionally happens in this century, a Republican controlled House of Representatives is holding the nation’s debt ceiling hostage to get concessions from a Democrat president. So far, despite the cliff hanging last minute resolutions of the past, the U.S. has never defaulted on its debts. This time it feels different. I’ll explain why below.

As I have written in this space before, it is important to remember that the debt limit is based on commitments already made by the U.S. government based on the budget and appropriations authorized by past Congresses. It is not about new spending. It is about paying for past commitments, much like using a credit card to pay for a new suit and then later having to pay the credit company for the clothes you are already wearing. The laws creating the debt ceiling can be traced to the U.S. entry into World War I and were designed to make it easier for the government to expend funds in time of war. Since 1960 the debt ceiling has been raised 78 separate times, 49 times under Republican presidents and 29 times under Democratic presidents. Indeed, it may surprise you to know that the debt ceiling was raised three times under the last administration with no muss, no fuss and in a bipartisan vote.

Why the debt ceiling is important can be complicated. Likewise, so is the impact of failing to raise it this time. In part, no one knows exactly what will happen because the U.S. has never defaulted on its obligations to pay creditors. However, most economists and financial experts believe that a default, perhaps even the threat of a default as we inch closer to the deadline, could have catastrophic consequences for the U.S. economy and to the world economy. As Catherine Rampell succinctly outlines it in an opinion piece in the Washington Post, based on interviews with leading experts on the subject, the result would be a “financial Armageddon.” Briefly, much of our and the world’s investments and financial institutions are based on the ironclad belief in U.S. Treasury bonds. The U.S. has always made good on the interest and principal payments for those bonds. They are the bedrock of the financial system because they have always been considered risk free. If U.S. bonds are deemed unreliable and they are down graded, it has a cascading effect on other assets. As a result, interest rates would rise across the board, the stock market would plummet, companies holding bonds that count on bond interest payments for revenue and investments could collapse, investors accepting bonds as collateral could call in the money owed, which without the bonds and their interest, could cause borrowers to go bankrupt and if all of that happens at the same time, the system simply would collapse.

Kind of a big deal. That summary also does not mention that Social Security, Medicare, Medicaid, military salaries, government workers salaries, etc. etc. would not be paid. Some believe that “selective” payments of certain bills over others could mitigate the impact of a full default but no one in government is sure how that would work, who decides and whether it is even legal under current laws.

That is why the MAGA Republicans are holding the debt ceiling hostage. The consequences are considered to be so dire, that surely the president must concede to their draconian demands in order to save the world. Bwaaaahahahaaa.

In theory, we have already broken through the ceiling. In practice, through the use of “special measures” Secretary of the Treasury Janet Yellen has been able to keep paying the bills. She now says that come 1 June, the special measures will no longer be able to meet the payments required.

The Republican controlled House did pass a debt ceiling increase in a bill last week. Many of the Republicans that voted for it expressed their opinion that it would never make it into law but rather that it was just a starting point for negotiations with the president. In fact, President Biden is scheduled to meet with the leaders of both parties in the House and Senate to discuss the issue tomorrow. The problem is that President Biden says he will not negotiate with terrorists. Well, I said that. He said he would not negotiate over the debt ceiling but was happy to do so for the budget and appropriations. The Speaker of the House refuses to separate the issues. Probably, because the House bill passed last week is so extreme, he knows it will not pass on its own and thus he must hold the debt ceiling hostage in order to squeeze out concessions.

Please note that President Biden put forth his budget over a month ago and the Republicans have yet to present their version of the budget, only the vague provisions in their debt ceiling bill. (A quick primer on U.S. government. The budget is the desired spending requirements and where, the Appropriations process is where the actual allocation of funds occurs and the Authorization committee allows for funds to be spent. The bills usually go through a lengthy committee process that involves detailed negotiations. That is the “regular order” that the president would like to see happen rather than the high stakes game playing out now.)

Here are some of the highlights of the bill pushed through by the MAGA Republicans in the House. The actual bill is hundreds of pages long, but here are areas that have drawn the most attention. The debt ceiling will only be extended until March of 2024. Thus if the president accedes to all of their demands, we will be in the same situation in less than a year anyway and an election year at that. They demand a 22% cut in all “non-defense discretionary spending.” They also say Social Security and Medicare are off the table. As Dana Milbank explains, that means that the areas cut will, among others, include the FBI, border security, airport security, highway construction, veterans health benefits, food stamps, national parks and a whole lot more. If they decide not to cut 22% from some programs (remember that they have not said where the cuts will come from, only that they are required), then the cuts will be more than 22% in some areas. Should this become law, it will have a devastating impact on our economy. Economists warn that the provisions of the current bill would greatly increase unemployment, significantly slow economic growth and raise the probability of a recession in the coming months.

Why would the MAGA Republicans want to do that? Two things come to mind. One, is if the economy is significantly disrupted, it increases Republican chances to retake the White House and the Congress in 2024. That’s the most charitable scenario. The second reason for playing with the economy is much more nefarious in my mind.

By definition, MAGA Republicans are ardent supporters of Trump, Trumpism and the insurrectionists on 6 January. Trump tried to overthrow the government in order to keep himself in the presidency. There is no question about that. Fake electors. Attacks on voting machine companies. Pleas to find phantom voters — “I just want 11,780 votes.” Fomenting violence against the Congress to preclude a fair and peaceful transition of power. It is all there. They are domestic terrorists. Too strong a statement? I think not. What else would we call people that supported overthrowing the duly elected government of the United States? If they supported Osama Bin Laden they would be called terrorists. He didn’t fly the planes into New York and Washington DC. Yet, clearly he was a terrorist. How is it different in this case? I cannot believe that anyone in these united states would support Trump for anything other than a long prison term. I cannot think of one good policy or decision that he made. But even if you named twenty wonderful things that he did, sorry, game over. He tried to foment a coup to overthrow the government. End of discussion. It did not work but I think he and his supporters will try again. Yet increasingly, Trump’s actions are being normalized. He has an upcoming one hour “town hall” on CNN. That is normalizing his actions and legitimizing his candidacy. To date, no other candidates have a one hour town hall scheduled. Why give him his infomercial to spread lies?

What does all of this have to do with the debt ceiling? My point is that there are MAGA Republicans willing to do anything to get rid of President Biden and bring in Trump (or some other autocrat wannabe like him). If that means tanking the world economy and throwing everything into chaos, then so be it. Terrorists use every means available to gain their desired end state.

I have absolutely no doubt that there are members of the House that would be perfectly happy to see the U.S. default on its debt. Just the price of doing business to create the conditions for an autocrat to assume power.

There are ways to stop the madness. I am not sure that there are any Republican “moderates” left in the House that could be counted upon to do the right thing. They all voted for the current mess of a bill that we have now. Yet, the Speaker only has a four vote majority. There may be five or ten Republicans willing to break ranks and join the Democrats to pass a reasonable debt ceiling bill. There are at least 18 House districts where Republicans won, but President Biden won the presidential vote handily. The Democrats already have a bill in committee that could be used to create a “discharge petition” that under certain rules, could bring a bill to the floor despite the Speaker’s objections. It requires the signed support of the majority of the House, which while a long shot, has a chance. Unfortunately, the window between proceeding with collecting the signatures and the date of default is very narrow.

Another option may be the 14th Amendment which reads in part, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” The original intent of this portion of the amendment was a reaction to Civil War debts, and it has never been used in modern times. Some legal experts believe that it gives the president authority to exceed the debt limit on his own, but should it be invoked, it will surely end up before the courts and that process could lead to a long period of uncertainty which would be nearly as disastrous to the economy.

What is certain is that no one knows exactly how this will be resolved. Current proposals include a few months extension for more negotiations, but personally, I do not see how the situation will change by then. The simplest answer is to raise the debt ceiling with a “clean” bill (no amendments or poison pills attached) and then do as the government should do — negotiate separate budget and appropriations bills.

But then when was the last time that things unfolded as they should?