“The Debt Ceiling Matters”: House Republicans Are Threatening To Unambiguously Violate The Constitution
The word we keep hearing is “catastrophe.”
“A U.S. Default Seen as Catastrophe, Dwarfing Lehman’s Fall,” screams the headline in Bloomberg Businessweek. “A default would be unprecedented and has the potential to be catastrophic,” says a Treasury Department report issued on Thursday — two weeks before the government is expected to begin running out of cash.
But what does “catastrophic” actually mean in this context? In the summer of 2011, when Republicans refused to raise the debt ceiling unless President Obama caved to their extortionist demands, the same word was bandied about. It scared the political class enough that they kicked the can and avoided a default.
This time around, the need to raise the debt ceiling doesn’t seem to be generating nearly the same concern. Indeed, Tea Party Republicans seem to be almost rooting for the government to default, as if that would somehow bring about the smaller government they so yearn for.
But this is incredibly wrongheaded. A failure to raise the debt ceiling, should it come to that, would likely inflict a different kind of pain than sequestration or even a shutdown of the federal government. It won’t make the government smaller. But it does have the potential to diminish the value of one of America’s greatest assets — the backing of its debt — while throwing the world economy into chaos.
The first point worth making is that the 14th Amendment to the Constitution, which declares that “the validity of the public debt of the United States . . . shall not be questioned,” was added precisely to avoid what is happening now: a faction of Congress using the debt ceiling as a bargaining chip. That basic truth, as Fortune’s Roger Parloff noted in a recent blog post, “ought to weigh very heavily in the minds — and on the consciences — of the House Republican faction that is now unambiguously violating its letter and spirit.”
The second point worth making is that U.S. government debt is the only risk-free asset in the world. That debt undergirds the entire world financial system — precisely because the whole world has such faith in it. There is always demand for U.S. government debt. Almost every other asset you can think of is in some way measured against it. A default would destabilize the market for Treasuries. And that, in turn, would likely destabilize every other asset.
The stock market would fall. Interest rates would rise — meaning, for instance, mortgages would become more expensive just as the housing market is starting to revive. Treasuries themselves would likely have to pay higher interest to investors, which would create a rather sad irony: a default would exacerbate the country’s long-term debt (the very problem the Republicans claim to care about).
Let’s move to the havoc a destabilized Treasury debt would have on the banking system. “The plumbing of the global financial system depends on Treasuries,” says Karen Petrou, a banking expert at Federal Financial Analytics. Remember what happened to Lehman Brothers? As the market lost faith in the company’s ability to meet its obligations, Lehman lost access to the “repo” market, which is the way banks are funded on a short-term basis. Treasuries make up a great deal of the collateral in the repo market. If a default were to cause the repo market to freeze, the entire banking system would find itself in crisis. Meanwhile — more shades of Lehman Brothers — the ratings agencies would likely downgrade Treasuries, forcing money market funds to start dumping government debt.
Painful choices would have to be made. Right now, the Treasury Department says it does not have the authority to pick and choose which creditors to pay. But, in the event of a default, it is hard to imagine that the government wouldn’t make some tough decisions about who should get paid in the short term — and who would have to wait. And, though this would infuriate millions of Americans, bondholders in China would likely get their money ahead of, say, Social Security recipients.
“From a purely cost-benefit analysis,” says Mark Zandi of Moody’s Analytics, “not paying bondholders would wind up costing the U.S. much more than not paying Social Security recipients” — because if bondholders lost faith in Treasuries, it would cost the government billions more in interest payments each year.
During the 2011 debt-ceiling crisis, consumer confidence dropped by 22 percent. When consumer confidence falls, people are less willing to spend and businesses are less willing to hire. That’s how recessions — or depressions — begin, and that may be the most important consequence of all.
For as long as anyone can remember, the ability of the United States government to pay its bills on time has given the rest of world tremendous confidence. At the same time, to have the one asset everyone in the world trusts has given America great advantages.
Why on earth would we ever risk that? Why?
By: Joe Nocera, Op-Ed Columnist, The New York Times, October 8, 2013
“Confidence Masking Ignorance”: Rand Paul Has A Debt-Ceiling Plan
By now, you’ve probably seen the amazing bit Jimmy Kimmel aired this week, in which he sent out a correspondent to ask folks which they like better: the Affordable Care Act or Obamacare. All kinds of people offered spirited opinions on the matter, arguing on behalf of one policy or the other, completely unaware that the two measures are exactly the same thing.
It was funny to watch folks express opinions on a subject they know so little about, though it was also easy to feel kind of bad for people who were made to look foolish on national television. After all, these were just regular Americans, not public officials whose job it is to understand the nuances and details of public policy.
When they say strange things on national television, it’s harder to feel charitable.
Sen. Rand Paul (R-Ky.) argued Wednesday that there’s no need to raise the debt ceiling because the U.S. can pay the interest on its debt with existing revenue.
“What’s going on is, interestingly, the Democrats are scaring people saying we might not pay [interest on the debt] because Republicans don’t want to raise the debt ceiling,” Paul said on CNN. “If you don’t raise the debt ceiling that means you won’t have a balanced budget, it doesn’t mean you wouldn’t pay your bills.”
Paul argued that the House has passed a bill, the Full Faith and Credit law, that mandates payments on debt interest, Social Security, Medicare and soldier’s salaries go out first. He said that if the debt ceiling is breached, other government function wouldn’t get financed, but that no default would occur.
This is, for lack of a better word, bonkers. Ezra talked with Rachel about this last night, explaining, “The way to think about Rand Paul’s plan is, imagine I said to you that unless you give me what I want, I’m going to burn down the studio. You said to me, ‘That sounds like a very bad idea if you burn the studio, nobody will have a studio.’ And I said, ‘No, no, I’ve got a plan. While it’s burning down, I will run in and grab all the things of value amidst the chaos, so that will all be fine.’ That’s basically the theory that he’s come up with here.”
The United States has a series of obligations and debts. For Paul, default is apparently an impossibility — the government will continue to collect a certain amount of revenue, which we can use to pay creditors. Once they’re paid, we can see if there’s money left for Social Security recipients and the military. If we still have a few bucks lying around, we can ignore some obligations and pay the others. Problem solved!
The world would abandon its confidence in the United States, many legal obligations would have to be ignored, and our full faith and credit would become a global punch-line, but isn’t Paul’s wacky idea easier than simply authorizing the Treasury to simply pay for the stuff we already bought?
Why would Rand Paul — a U.S. senator, mind you — say all this stuff out loud and on purpose? Because he thinks he’s saying things that entirely sensible.
This comes up all the time with the junior senator from Kentucky. In August, Paul spoke about the philosophic nature of “rights,” though his opinions on the subject were largely gibberish. The senator says he cares deeply about minority rights, which he struggles to grasp. Paul talks about drone policy, which he flubs badly. He’s expressed a great interest in the Federal Reserve, which he doesn’t understand in the slightest. Paul claims to hate Obamacare, but he fails to appreciate what the policy is and what it does. He says he’s deeply concerned about the deficit, but doesn’t know what the deficit is.
Obviously, no one is an expert in everything, but the key here is that Rand Paul, like the folks in the Jimmy Kimmel video, have strong opinions about subjects he claims to care deeply about, but about which he seems hopelessly confused.
The senator speaks with great confidence about these issues, as if he’s given them a great deal of thought, but the confidence masks a degree of ignorance that Paul seems blissfully unaware of.
By: Steve Benen, The Maddow Blog, October 4, 2013
“Let’s Impeach Congress”: Failure To Pay Debt Is ‘Unconstitutional’
In what has become an annoying and unnecessary annual ritual, Congressional Republicans and the White House have staked out their political ground as we approach this year’s Season of the Witch—the time when any remaining shred of reason in government is retired in favor of political posturing over the debt ceiling.
Appearing this morning on ABC’s “This Week”, Obama made clear that he has no interest whatsoever in cooperating with Speaker John Boehner’s demand for budget cuts in trade for House GOPers permitting the government to pay the debts it has already incurred.
Speaking in an interview with George Stephanopoulos, the President stated:
“Never in history have we used just making sure that the U.S. government is paying its bills as a lever to radically cut government at the kind of scale that they’re talking about,” he said. “It’s never happened before. There’ve been negotiations around the corners, because nobody had ever presumed that you’d actually threaten the United States to default.”
Speaker Boehner would beg to differ, noting earlier this week—
“For decades, the White House, the Congress have used the debt limit to find bipartisan solutions on the deficit and the debt,” Boehner said. “So President Obama is going to have to deal with this as well.”
While there may be a small element of truth in Boehner’s words regarding the use of the annual debt ceiling as a tool to manage deficit and debt in previous days, that doesn’t mean that many participants in either the Congress or the Administration, prior to 2011, have ever viewed such an effort as a legitimate means of negotiating the annual budget nor perceived the threat of default as something to be followed through upon.
Nor does it mean that prior occupants of the White House ever found the threat of default to be a particularly useful exercise.
Indeed, were we to go back to President Ronald Wilson Reagan’s perspective on such an action, we find that The Gipper didn’t much care for the approach—
“Unfortunately, Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veteran’s benefits. Interest rates would skyrocket, instability would occur in the financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility—two things that set us apart from much of the world.”
Despite these words offered up by Ronald Reagan—the golden calf worshipped by true-believing Republicans everywhere—the Congressional Republicans appear to, once again, hope that the American public will forget—or simply fail to grasp—that it was Congress who authorized the very expenditures that now require a raise in the debt ceiling if these bills are to be paid.
Obama also offered one more, rather tantalizing thought in his Stephanopoulos interview when he noted that Congress’ constant efforts to use the the debt ceiling as leverage “changes the constitutional structure of this government entirely.”
Could the President be telegraphing that he may now be willing to use Section 4 of the 14th Amendment to raise the debt ceiling without Congress in the event of an unfortunate vote—something that Obama has previously been unwilling to do?
The fact that Congress, including House Republicans, authorized these expenditures is of no consequence to those who seek to reap what they perceive as the political benefits of agreeing to spend on items that the public wants and then shift the blame onto the White House every year when it comes time to pay for Congress’ actions.
And while Boehner takes liberties with history in an effort to make himself look tough—a rather comical effort given that exactly nobody believes that the Speaker is in control of much of anything these days—what is genuinely scary is the fact that it is Speaker Boehner who passes for “reasonable’ among today’s House Republicans.
Increasingly, the House of Representatives is under the control of the extremists who are pushing hard to both default on the debt and shut down the entire government if Obama refuses to cave to their desire to defund the President’s landmark legislation, Obamacare.
Still worse, these extremists continue to hold a grudge over the previous failures to shut down the government and default on our obligations at debt ceiling time and are just itching to make it happen this year.
While I would truly enjoy the opportunity to egg these people on in the firm belief that a government shut-down at the hands of Republican extremists could be just the thing to rid ourselves of this scourge once and for all, I admit that some restraint is required when considering who would be left to suffer the consequences.
What would a government shutdown mean to Americans?
As it happens, we’ve had some experience with this so let’s take a look at what happened when the House Republicans shut down the government in 1995-96:
- More than 400,000 veterans saw their disability benefits and pension claims delayed.
- Educational benefits were delayed for 170,000 veterans
- Instead of providing benefits to veterans, a number of VA hospitals were forced to set up food banks for their employees who were going without pay checks.
- Approximately $3 billion in U.S. exports couldn’t leave the country because the Commerce Department couldn’t issue export licenses.
- For the first time in the federal unemployment program’s 60-year history, six states ran out of federal funds to pay unemployment benefits.
- Processing and deportation of illegal immigrants stopped, and employers were unable to verify job applicants’ immigration status.
- 10,000 new Medicare applications and 212,000 Social Security requests were delayed.
- Tens of thousands of Americans could not purchase a home because the Federal Housing Administration was unable to insure single family home loans.
- EPA’s enforcement activities were stopped and toxic waste clean-up at more than 600 sites slowed or came to a halt.
- 95% of workplace safety activities were halted.
- The Department of Interior stopped inspecting oil and gas well on public lands.
- 760,000 American workers were either furloughed or worked without pay.
- 200,000 U.S. applications for passports went unprocessed.
It stretches the imagination to understand how anyone could view such an action as helpful at a time when the American economy is struggling to recover and when recent wars have left so many veterans in need of the benefits that would stop flowing as a result of a shut-down.
Thus, while the idea of “teaching Obama a lesson” or doing something drastic to get the national debt under control may appeal to many, my suggestion would be that you familiarize yourself with who will directly suffer as a result of your grand plans. If trashing the economy, denying veterans their benefits and slowing down social security payments to your parents works for you, knock yourself out.
If not, you might consider letting your representatives know that you are not in favor of such a ridiculous effort to resolve our problems.
By: Rick Ungar, Op-Ed Contributor, Forbes, September 15, 2013
“Last Phase Of The Kabuki Dance”: John Boehner’s Phony New Ransom Demand That He’s Been Saving
Boxed in by his caucus’ demand to defund Obamacare on one side, and a steeled White House on the other, House Speaker John Boehner seems ready to throw in the towel and enter the last phase of the Kabuki dance he’s staged for the benefit of his insolent Republican base.
Of course, he won’t say this, and his recent comments at a fundraiser in Idaho appear on their face to be a doubling down, but, when read correctly, they actually suggest the opposite. “I’ve made it clear that we’re not going to increase the debt limit without cuts and reforms [to mandatory entitlement spending] that are greater than the increase in the debt limit,” he said yesterday.
This entitlement demand is mostly new. While we got hints that Boehner might put Social Security and Medicare on the table back in early July, we’ve hardly heard a peep about it since. Instead, Republicans have been focused defunding Obamacare.
As Josh Barro writes, insisting on entitlement cuts is often Boehner’s last move before capitulation, because he knows it’s a ransom demand that will never be paid. He did it in December, when spokesperson Michael Steel used almost the exact same words: “Any debt limit increase would require cuts and reforms of a greater amount.” (The next month, the House voted overwhelmingly to bypass the debt ceiling and got none of those cuts.) And Boehner did it 2011. That time, he won the overall battle, but he still didn’t get any entitlement cuts.
Cutting the safety net is anathema to Democrats, and in the unlikely scenario that they’d do it, they certainly aren’t going to rush it through in the perhaps 15 legislative work days Congress has before it hits the October debt ceiling deadline. Boehner knows this.
And he’s done nothing to suggest he’s serious about entitlement cuts. There was a brief, peculiar moment this spring when the White House not only was willing to talk social safety net reform, but actually put cuts to Social Security in their budget. And Democratic congressional leaders suggested they’d deliver enough votes to pass something. What did Boehner do? He rejected the proposal out of hand, sight unseen, and called it ”no way to lead and move the country forward.” (That was basically the White House’s expectation all along, they claimed when liberals threatened mutiny.)
If Boehner’s entitlement demand was an empty threat in 2011 and 2012, and he didn’t take up his best chance at it in 2013, then it has to be even more of a bluff today as the landscape has titled decidedly against Republicans, MSNBC’s Suzy Khim notes. The deficit is falling fast and a clear majority of Americans opposed to defunding Obamacare, according to a new Kaiser poll out today, so the White House holds most of the cards. Both they and Boehner know that a government shutdown or default will be worse for Republicans than for Democrats, so this time the president is refusing to negotiate with the hostage takers.
So now, all that’s left is for Boehner to somehow bring his base along. He doesn’t necessarily need their votes, but he needs to drop the pitchforks for moment. Brian Beutler previews how it may go down:
Boehner introduces legislation that both increases (or extends) the debt limit and includes some goodies for conservatives that make the bill a non-starter with Senate Democrats and the President (maybe a year-long delay of the individual mandate — let your imaginations run wild); that bill fails on the House floor; everyone panics; faced with no better option, Boehner breaks the Hastert rule, puts a tidy, Senate-passed debt limit bill on the floor, and we all dress up as Speaker Pelosi for Halloween.
Of course, Beutler notes, plenty of things could go wrong. For instance, Boehner could decide that he’ll refuse to break the Hastert rule (meaning he won’t put anything on the floor that isn’t supported by a majority of Republicans) under any circumstance.
He’s done that when it comes to immigration reform, where he could pass a bill tomorrow if he were willing to use Democratic votes. He knows that every time he breaks Hastert, he enrages the Republican base a little bit more, so it’s possible that he’s been saving it up for this moment, which he must have known would come.
By: Alex Seitz-Wald, The Plum Line, The Washington Post, August 28, 2013
“Are These People On Drugs”: House GOP Apparently Wants To Be Even More Unpopular Than It Already Is
With the July 4 holiday behind them, House members might be expected to take up work on the immigration reform bill passed by the Senate. But they won’t. They’re looking at piecemeal reforms that will be heavier on border enforcement than the Senate bill – which doubled the number of border control agents, after the border control budget already doubled in size in the last decade — and even nuttier ideas.
Instead the House GOP is apparently making big plans for another debt ceiling hostage-taking, and this time they’ve got a strategy to demand big budget cuts from President Obama and the Democrats. According to the National Journal, House leaders are working on a “menu” of budget-slashing offers to Obama in exchange for lifting the debt ceiling for a short, medium or long period of time. Their template is Rep. Paul Ryan’s budget – the budget so unjust and biased against the poor that the U.S. Conference of Catholic Bishops took time out from restricting women’s rights to criticize the Ryan plan.
House members reluctantly voted to raise the debt ceiling in January promising to come back with a strengthened hand on behalf of budget cuts next time around (which will probably be the end of this year). So House Speaker John Boehner is reportedly meeting with Ryan and other conservatives like Louisiana Rep. Steve Scalise, who boasted about their talks to the National Journal. The key points:
For a long-term deal, one that gives Treasury borrowing authority for three-and-a-half years, Obama would have to agree to premium support. The plan to privatize Medicare, perhaps the most controversial aspect of the Ryan budget, is the holy grail for conservatives who say major deficit-reduction can only be achieved by making this type of cut to mandatory spending. “If the president wants to go big, there’s a big idea,” said Rep. Steve Scalise, chairman of the Republican Study Committee.
For a medium-sized increase in the debt-limit, Republicans want Obama to agree to cut spending in the SNAP food stamp program, block-grant Medicaid, or tinker with chained CPI.
For a smaller increase, there is talk of means-testing Social Security, for example, or ending certain agricultural subsidies.
…Even at the smallest end of the spectrum — another months-long extension of debt-limit — there is talk of pushing back the eligibility age for Social Security by an equal number of months.
Are these people on drugs? These are wildly unpopular ideas that have no chance of passing the Senate. (“Republicans are eager to look like they are giving the White House plenty of options, convinced that it is in their interest to appear engaged and flexible at the negotiating table,” the NJ’s Tim Alberta reports, apparently unironically.) Unfortunately, the president himself has come out behind the chained CPI, but given the enormousness of House GOP demands and delusion, he’s unlikely to get much for that concession. So one cheer for House GOP delusion.
Scalise seems to be the main source for the National Journal story, and you can imagine other members wincing at his clueless bluster. Not surprisingly, Scalise starred in another story today about the Obama team’s belief it will see some congressional movement on both immigration reform and the economy this summer. Not so fast, Scalise told the Washington Post: “We’re going to continue to be very aggressive in serving as a check and balance against the Obama administration. That’s what the country said in November. We’re very far apart.”
It’s interesting to note that Paul Ryan is key to these debt-ceiling strategy talks, according to the National Journal, when he’s also supposed to be key to comprehensive immigration reform. To his credit, Ryan has come out for something along the lines of the Senate bill, but the question is whether he’ll expend any political capital getting other members to join him. So far, he hasn’t. It looks like another round of debt-ceiling hostage taking is a higher priority for him.
Ironically, the fact that the deficit is falling faster than at any time since World War II is helping drive the House GOP’s extremism – they have to go for big, slashing cuts, because the deficit is already shrinking. Here’s hoping the extremism of the House GOP’s opening salvo will remind the Obama administration not to waste its time on another attempt at a “grand bargain” on deficit reduction.
By: Joan Walsh, Editor at Large, Salon, July 8, 2013
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