Get the Debt Ceiling Reporting Right

James Fallows:

1) Raising the debt ceiling does not authorize one single penny in additional public spending.

2) For Congress to “decide whether” to raise the debt ceiling, for programs and tax rates it has already voted into law, makes exactly as much sense as it would for a family to “decide whether” to pay a credit-card bill for goods it has already bought.

Raising the debt ceiling is not a “concession” by Republicans. Congress must pay the bills for Congress’s spending. There is nothing to negotiate about.

Comments

  1. GDub says:

    Although I like James Fallows, there is something echoing disingenuously within the post. I also feel woefully underequipped to engage on the issue, because most reporting is so painfully dull.

    Why would the government default if it continued to pay interest on its loans from tax revenue, which nearly every person believes to be fully possible?

    • Jon Geeting says:

      Maybe you feel underequipped to engage because the Republican position is just dead wrong.

      • GDub says:

        I’m certainly not a Republican. I’m just asking for a clearer definition of what is being discussed. My understanding of “default” is not being able to make payments on accrued debts. I’m not sure that’s how the term is being used here.

        I fully understand that not paying benefits, furloughing people, and introducing general uncertainty into the system is less than desirable and has second and third order effects that are even worse.

    • Rich says:

      They can spend up to the exact last penny that they’ve collected at that point in revenues, and not a penny more after if they hit the limit. Of course, even the House has already appropriated more than that. This means that they could pay the interest, in theory, however statutes in place probably dictate we’d shut down, then end up over anyway by mandate.

  2. John says:

    GDub, Jon – like the good little puppet he is – ignored your very important point. There will only be a default on US Treasury obligations if Treasury and Obama order it to happen.

    General tax receipts are more than sufficient to service debt and there will never be a default on US debt obligations.

    Shutting down the US Government is not a default.

    • Jon Geeting says:

      Not paying your creditors is a default. Doesn’t matter if that’s bondholders or Social Security beneficiaries or veterans hospitals.

      • GDub says:

        How is a social security beneficiary, legally, a creditor? I know it sounds like a dumb question, but this seems to be the crux of the matter.

        Fallows seems to be lumping together not paying creditors for loans already given (default) with not authorizing borrowing for lending that would enable spending authorized by law. These seem to be two separate situations (though, of course, bad for both).

        Does that mean that the Treasury Department, by deciding what bills to pay, does indeed have a role to play in the default decision?

        • Jon Geeting says:

          Treasury is legally required to appropriate the money it owes beneficiaries. The spending isn’t “authorized” by law, it’s required by law. Treasury isn’t legally allowed to spend a penny less than Congress has required. Not issuing these payments that they are legally required to make is a default. For this reason, there is no practical difference between Social Security beneficiaries and bondholders. Treasury does not have the authority to decide what bills to pay. Not paying any of the bills is illegal all the way down, and the markets will treat it as such.

          • John says:

            That’s not true, Treasury has the authority to decide. The GAO opined on this back in the 1980s.

          • Jon Geeting says:

            False.

          • GDub says:

            The vaunted Council on Foreign Relations doesn’t agree with you. http://www.cfr.org/international-finance/us-debt-ceiling-costs-consequences/p24751#p5. The Congress could just say it hadn’t gotten around to sending the checks yet.

            “default…the point at which the government fails to meet principal or interest payments on the national debt.” Tellingly, most of the more hysterical stuff tends to be from the Treasury Department itself.

            None of this is to say it wouldn’t be bad. But California didn’t go into “default” when it paid people with pieces of paper and IOUs. It did get hammered in some other significant ways. In that vein, why not just say that–”it would be really bad” instead of making stuff up.

          • Jon Geeting says:

            I’m not making anything up. Failure to pay any of the federal government’s obligations is certainly a kind of default, and would have the same effect. The reason it’s not a good idea to miss a bond payment is that our borrowing costs would spike. The markets would treat a failure to pay Social Security beneficiaries on time exactly the same way. A country that is creditworthy pays all of its obligations on time.

          • Jon Geeting says:

            The question I would ask is why you’re okay with going up to the default line? Why is Treasury the bad guy for warning about the consequences of not raising the debt ceiling, and not the Republicans who are holding the nation’s credit rating hostage?

          • John says:

            Nice try Junior. Treasury doesn’t like it, but that doesn’t make it illegal.

            http://blogs.reuters.com/felix-salmon/2011/07/29/can-treasury-prioritize-bond-payments/

          • Jon Geeting says:

            CRS report is far from clear on the legality question. Also, it’s not obvious they could even do this if they wanted to. The day-to-day revenue take might not be enough to cover interest payments, since tax receipts are lumpy. Even a Treasury Secretary determined not to miss an interest payment could fail if not enough tax revenue comes in that day. This is the worst idea ever.

    • Jon Geeting says:

      There will only be a default if Republicans don’t raise the debt ceiling. Full stop. Obama’s got nothing to do with it.

  3. Jack Contado says:

    we just need to hang on until Obamacare kicks in….deficits vanish! It must be true! Obama said so!

  4. GDub says:

    I acknowledge that bad things could happen, and I don’t think its a good idea to play chicken with the budget (though it is interesting how often this has happened, and been forgotten, in the past). I am happy that the Treasury Department is offering its advice on what might happen–a good move.

    However, I seem to remember that a rating agency downgraded the US for its political stalemate. In theory, this could have raised our borrowing costs (didn’t seem to) within the “market”. What if people had been more believing–would political

    Best to stick to precise definitions– and default has a particular legal and financial meaning. “Default” doesn’t mean ‘bad’ or something that causes borrowing interest rates to rise. It means failure to pay back a loan as promised. Using a word in an Alice in Wonderland kind of way confuses the issue and leads to greater public skepticism.

  5. GDub says:

    Sorry–meant “However, I seem to remember that a rating agency downgraded the US for its political stalemate. In theory, this could have raised our borrowing costs (didn’t seem to) within the “market”. What if people had been more believing–would political rhetoric have caused the US to “default” if we had higher interest rates?

    • Jon Geeting says:

      We got downgraded because Republicans weaponized the debt ceiling.The correct response is to get rid of the statutory debt ceiling altogether.

      • John says:

        From the S&P Report:

        “We lowered our long-term rating on the U.S. because we believe that the prolonged controversy over raising the statutory debt ceiling and the related fiscal policy debate indicate that further near-term progress containing the growth in public spending, especially on entitlements, or on reaching an agreement on raising revenues is less likely than we previously assumed and will remain a contentious and fitful process. We also believe that the fiscal consolidation plan that Congress and the Administration agreed to this week falls short of the amount that we believe is necessary to stabilize the general government debt burden by the middle of the decade.

        Our lowering of the rating was prompted by our view on the rising public debt burden and our perception of greater policymaking uncertainty, consistent with our criteria. Nevertheless, we view the U.S. federal government’s other economic, external, and monetary credit attributes, which form the basis for the sovereign rating, as broadly unchanged.”

        If you read it all, you’ll see it was not just the debt ceiling.

        Feel free to correct yourself.

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