I think people are right to be nervous about the brinkmanship around the debt ceiling. We pretend to be about to default every couple years, then at the last possible second, we say "haha, just kidding". It's possible that one day, the "haha just kidding" part might not happen.
That said, I'm not sure that this is any more dangerous than any other kind of debt. In the past, people considered US government debt to be equal in safety to a savings account. It is definitely a little more risky than that these days. The FDIC has never said "just kidding about that insurance!"
Let’s be clear it’s not “every couple of years”. It’s “every time there is a democratic president, the republican-controlled legislative branches refuse to raise the debt ceiling”.
How many times has this ever happened in reverse?
Democrats must stop compromising with people that blatantly do not operate in good faith.
"Since 1960, Congress has raised, extended, or revised the debt limit 78 separate times, of which 49 were under Republican presidents and 29 were under Democratic presidents, according to the Department of Treasury. In each of those instances, Congress took action on the debt limit before the nation defaulted."[0]
> Democrats must stop compromising with people that blatantly do not operate in good faith.
I wouldn't want any politician (regardless of party allegiance) to agree on any spending if there is not also an agreement on how to finance such spending.
If companies or individuals were to run their own finances like politicians run government finances, they'd go bankrupt and/or land in jail pretty quickly. Why should our elected representatives (yes, all of them!) not have to worry about this stuff?
The debt ceiling "crisis" is a completely manufactured political cliff. It serves no purpose other than to be used as a wedge during political debates.
When Congress passes a bill for anything that requires spending, the time to debate that spending is before the bill is passed. Once that bill passes and is signed into law, then US government is now responsible to cover that cost.
The debate about the debt ceiling is all about one party saying that they don't want to pay for the spending that has already been debated, approved, and signed into law. This is akin to going to an expensive restaurant, ordering the food, enjoying dinner, and then when the bill arrives, saying "Oh, I won't spend that much on dinner!". That's not the way the world works. If you can't afford the food, the time to make that decision is when you are making your restaurant choice, or when you are ordering, not after the bill arrives.
> I wouldn't want any politician (regardless of party allegiance) to agree on any spending if there is not also an agreement on how to finance such spending.
In the case of the debt ceiling spats, Congress has literally already authorized the money to be spent. The debt ceiling prevents the executive branch from borrowing money to spend according to Congress's wishes. That's why everyone thinks it's weird.
> Congress has literally already authorized the money to be spent
If you were a business or a family, you'd talk about how you plan to agree to finance any serious purchase before (or at the very least in parallel ) with agreeing the purchase itself.
Congress authorizes say 10T to spend. Over the next years the president spends 7T and then the coffers run empty and says hey I need more money to do what you told me to do! And then congress raises the debt ceiling and borrows to cover that 3T.
Which of course differs from your example in that when you go to buy say a car you also agree to borrow the money (or not). Congress only makes just-in-time decisions.
I also don't think its true that as a business you'd have made that decision. Do you consult the CFO every time you use the corporate card?
Do they have to do it like that, or is that just how it's done?
How about in parallel with the budget they also discuss the debt ceiling? Get the finance in place, then agree how to spend what money they've agreed they can raise? Apologies in advance if that suggestion is completely ignorant and/or completely crazy :)
As far as I know, no other democracy does anything like this. If the legislature authorizes spending then the agency with that budget is allowed to spend it.
> if everyone involved knows the financing has a hard stop at 7T.
Well, technically they don't know there is a hard stop at 7T. Since revenue (taxes) and expenditures are very separate things it could've been at 8T or say 11T but if it was at 11T we'd have a surplus and so this conversation would've never happened.
When you pass a bill requiring the president to do something there is no requirement to justify how anything the bill will be paid for.
Similarly, you can pass a bill adjusting the tax code without explaining where the additional revenue will go to or in the case of a decrease what programs will be removed.
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Business works very similar to this as well. Divisions are given budgets to spend but those budgets aren't in lock-step with revenue.
> When you pass a bill requiring the president to do something there is no requirement to justify how anything the bill will be paid for.
It could well be that pretty much everyone outside the USA is reading that description - and indeed the rest of this thread - and thinking "sorry, but in this instance the US system is broken".
> Business works very similar to this as well. Divisions are given budgets to spend but those budgets aren't in lock-step with revenue.
Umm, if revenue falls during a financial period, would corporate budgets not be adjusted? A division claiming "you handed us the budget, we're damn well going to spend it to the last cent, up to the CFO to figure out how to finance it" isn't exactly best practice.
Congress does not make "just in time decisions" in the way you imply. If Congress passes a bill for some program, they agree in the bill what the program will and won't do and they estimate the costs of that program over the lifetime specified in the bill. The nonpartisan Congressional Budget Office (CBO) does those estimates for Congress before the bill is passed. Those budget estimates are part of the bill.
A note on how Congress works for those who are not from the US: Congress, specifically the House of Representatives, has "the power of the purse", meaning that they alone have the ability to create laws that require spending money. The Senate--the other half of Congress--must also pass those bills before they are signed into law by the President, but cannot originate them. The Senate can modify them with the approval of the House, in process known as "reconciliation".
Once a bill is signed into law, the Executive Branch, headed by the President, is required to initiate (or continue) the program defined by the law, and to direct the Treasury pay the bills for that program. Neither the President nor the Treasury has the option to just ignore the parameters of the law that has been passed.
Because the CBO estimates are just that, sometimes the spending required to run the program exceeds the estimated budget, simply because the CBO cannot foresee every circumstance (war, global pandemic, inflation, etc.) In that case, the Executive and the Treasury are still required to continue to run and pay for those programs.
When the Treasure runs out of money to pay for the programs that Congress passed, it must borrow money. The amount of money that it can borrow is defined as the "debt ceiling". Once the Treasury exceeds the Debt Ceiling, Congress must authorize more money so that the Treasury can continue to pay for all of the programs that Congress has passed into law.
When Congress says they won't raise the debt ceiling they are saying "We are not willing to let the Treasury borrow money to pay for the things we told the Executive branch that they must do." But the Executive branch didn't pass the laws, Congress did. The laws that require money to be borrowed may have been passed last year, or decades ago.
If Congress really wishes to control spending (which is what is claimed as the reason not to raise the debt ceiling), then they can do so by not passing bills that require spending more money, since they are in sole control of what the Executive branch can spend money on. Which is why the debt ceiling debate is completely artificial, and not a "just in time" function. Rather it is the current Congress basically saying that they didn't like the spending passed by either themselves or previous Congresses, and they want to retroactively change the laws, and they wish to do so without having to go through the process of actually creating the laws, debating them, and passing them--usually because the spending they really disagree with is wildly popular and would not likely survive the regular legislative process.
The reference to "every couple of years" was not to routine, non-dramatic votes. It was clearly about only "brinkmanship around the debt ceiling", which as stated only tends to happen with Republican majority in one or both parts of Congress and Democratic president.
>If companies or individuals were to run their own finances like politicians run government finances, they'd go bankrupt and/or land in jail pretty quickly.
Amazingly, the government is structured differently than your family's finances! I'm all for fiscal responsibility and would love to see the US slash it's corporate welfare budget, but the government is not a family and shouldn't be run like one.
Government spending and business/personal finance management are two completely different things. While lots of people like to equate them, they are fundamentally very different.
Looking from outside the USA: If they don't cooperate then the budget won't be approved at all, no? It's all good and well not to want to cooperate with people that don't act in good faith, but since the other party has almost half the seats in the senate and a majority in the house of reps then how do you govern at all?
The budget is already approved, the debt limit has nothing to do with it, it's just a cudgel with which one party bludgeons the other. It serves no other purpose.
I think we’re too in the weeds and too tribal with this analysis.
Outside of privacy-invading legislature (or corporate legislature), both sides of the aisle fail to agree or compromise on working for the people.
When there’s an opportunity to use leverage, it makes sense to use it. But it’s like MAD concept, they’re not going to actually let the US default. It’s not in either party’s self interest.
Switch the roles, and there are cases where democratic controlled X has halted something when there’s a republican president. It’s the nature of the game.
To say one party does this but the other is absolved of sin, I feel, is playing into the hands of blissful ignorance. I’d like to believe one side has my back, but they don’t. I can name maybe 4 senators that come off as authentic, and have a track record that shows it.
>Switch the roles, and there are cases where democratic controlled X has halted something when there’s a republican president. It’s the nature of the game. To say one party does this but the other is absolved of sin, I feel, is playing into the hands of blissful ignorance. I’d like to believe one side has my back, but they don’t. I can name maybe 4 senators that come off as authentic, and have a track record that shows it.
Can you provide some examples of Democratic controlled "X" threatening to default on the debt to achieve a policy goal?
If you're going to play "both side-ism", you should provide some examples. I can't remember Democrats doing things equivalent to holding an economic gun to America's head.
So far we've always had the backup plan of just minting a billion dollar coin. Once that option is taken away at some point this whole thing becomes a lot more serious, and I would expect an accelerated move away from US government bonds and the USD (from people outside the US). Of course actually minting that coin might also damage trust in the USD.
This was never about the U.S. not having enough money, with the USD as the currency for oil it's never going to be too hard for the U.S. to get enough USD together one way or another.
The problem is the U.S. simply being unwilling to pay interest. Which you cannot solve by printing more money.
It's about the US playing silly political games on a regular schedule. Which you can solve by minting coins, because minting coins generates income without needing approval from congress.
Wait so congress can stop lending but not minting new coins? That's just weird. Although the whole concept of a hard debt limit is weird, not saying you can't limit the amount of debt but you can't just back out of existing obligations.
The minting thing was meant for commemorative coins, which was probably though not important enough to bother congress with. But the law doesn't set a limit on the value of those coins, creating the loophole of creating ridiculously valuable commemorative coins.
I'm not sure what happens to your savings account in an US bank if US government debt is in the state of even mildest of default.
At the very minimum, you may see decades of interest wiped by devaluation of currency (a good question is "compared to what", but that's another story). FDIC becomes seriously unbacked in this case.
The point here is that the country and government don't have to actually fail here to fail paying the debts. The debt ceiling rules and the behaviour of the Republican party make it a plausible outcome that the US decides to simply not pay their debts at some point in the future.
Demographics are going to prevent paying back the debt eventually. The line will stop going up and our kids aren't going to be willing to pay for our wars.
After second world war the US economy represented a majority of the world economy. This hasn't been true anymore for a while. To have a better rating than the US-Dollar you simply need to have a lower risk of default and not be over-dependent on the US-Dollar.
The US has proven quite willing to just take assets off Russians for political reasons. Fitch probably isn't going to say it outright; but if a country has a record of saying "nah, I'm taking it back" about someone else's assets then it seems reasonable to rate them below an AAA.
Even if the US doesn't fail, it isn't really credible to claim its debt is an AAA security. For a lot of participants in the market there is an obvious risk that the US will take their money and not return it.
Unfortunately only freezing. In a more reasonable world yes they'd be taken and used for restoration (you break it you buy it), nothing political about it either. Nor does it have anything whatsoever to do with this.
I agree the assets of defence contractors, politicians who voted in favor of war and their families in the United States should all be nationalized and used to repair the smoking crater left in the middle east.
Oh you weren't talking about those war crimes? Only the one's the media tells you to be mad at? Rachel Maddow would know what is justified in war, given she was just the keynote speaker at a weapons manufacturers conference.
Imagine you are buying some coal from a dude and that dude settles with getting an IOU note from you.
Later on, you decide you no longer have to honor that IOU debt because you no longer like what that dude does with other people. You've also put that coal to a good use. A win-win for you.
If U.S. somehow fails, then it's all at large.