Here we go again with the debt ceiling dance

Once again, we are being told that there is a danger that the US may default if Congress does not raise the limit on the debt ceiling that allows the Treasury to borrow money to meet its obligations. The debt ceiling was formally reached last week but the Treasury is shifting money around in order to cover the shortfall. That room for financial maneuverings runs out around June.

The country has been through this before, usually when a Democrat is president and the House or the Senate is controlled by Republicans who like to use this issue to create difficulties for the president. When Trump was president, the ceiling was raised with little fuss. Of course, Trump is now urging his followers to use the debt ceiling as hostage.

On Monday, Trump, whose influence over the party was shaken somewhat by poor midterm election results for his endorsed candidates but who remains the frontrunner for the 2024 Republican nomination for president, called on House Republicans to leverage power “by simply playing tough in the upcoming debt ceiling negotiations”.

Posting on the social media network he set up, Truth Social, Trump pressed all wings of the Republican party, including those rebels who initially voted against McCarthy, to join the negotiations: “It will be a beautiful and joyous thing for the people of our country to watch.”

The debt ceiling issue is one that seems made to be exploited by grandstanding politicians. To understand it, one must realize that what is called the ‘power of the purse’ is given to the House of Representatives. What that means is that all spending bills must originate in the House. It then goes to the Senate that can make changes which then have to be reconciled with the House and the reconciled bill is then sent to the president for their signature.

The main process involves the budget for the government. Roughly speaking, the process starts with the president sending a draft budget to Congress at the beginning of each year. This document is supposed to be the starting point for 12 Appropriations Committees dealing with different area of the government to each pass an annual appropriation that authorizes spending. They are not obliged to stick to the president’s draft budget and often reject it entirely right off the bat, if the president is of the opposing party. Each committee has subcommittees that are expected to hold hearings and get testimony before arriving at funding numbers for each government agency within its purview. The subcommittees send their recommendations to their parent appropriations committee that may make changes and then sends the final figures to the House floor for passage, where it may be subject to further amendments. Once the House approves the 12 appropriation bills, they move on to the Senate that can suggest changes and the final compromise document goes to the president who signs it into law. All this should be completed by September 30 in time for the fiscal year starting October 1 so that the government agencies have the authority and funding to operate for the next year

That is the ideal. In practice, the system broke down a long time ago and almost nothing is decided on that schedule these days. Instead we have wrangling that never ends until the budget deadline is almost reached, threatening to shut down the government. Then at the last minute, some deal is cobbled together to authorize government spending, either in the form of a giant omnibus bill that folds everything in together in a massive document or in the form of a continuing resolution for a limited period that says that the previous year’s figures will continue to be operative. Because this is done at the last minute, there are no detailed hearings and most members of Congress have little idea what is in the final agreement because they have no time to read it and have to simply vote according to what their party leaders tell them to. This rushed and largely secret process can lead to abuse in which, among other things, some members can sneak in provisions that benefit some of the lobbyists who fund their campaigns.

So what is the debt ceiling and what role does it play? It arises because typically Congress passes spending bills that give out more money than its revenue bills bring in. That means that at some point during the year, there will not be enough money to pay for the things it has already authorized spending for. This means that the government has to borrow money to meet that deficit, increasing its debt. Since there is a limit known as the debt ceiling which caps the total amount that the government can borrow, at some point that ceiling is reached and the government needs to raise that ceiling in order to borrow more in order to function. Since this is money that Congress has already agreed to spend, it seems perverse not to authorize the means to spend it. And it is indeed perverse.

By not raising the debt ceiling, two things will happen. The government will suddenly come to a hold on the day that the debt ceiling is reached because at the very least it cannot pay its employees. And the government will not be able to pay the interest on its debts. i.e., it will default on its obligations, sending its credit rating into the tank and making any future borrowing much more expensive. The global financial sector views that second outcome with great alarm.

This is where the debt ceiling brinkmanship comes in. Congress roughly has two areas in which it can act. One is in the way it spends money., i.e., the budget process. The other is in trying to pass laws that have an impact on social policy, say banning same-sex marriage or abortion. The latter moves will likely not pass the current Senate and even if they do, will get vetoed by the president. Changing the status quo is hard with a divided government. They could try to achieve their goals by using the budget process to cut out at least the things they do not like that require government spending bills but those are politically awkward decisions since much of that spending is popular with the public.

Since the organized budget process has broken down, some members of Congress try to use the debt ceiling to achieve their goals via the back door by threatening to not raise it unless cuts are made in those programs that are popular but that they do not like. They have portrayed raising the debt ceiling as a massive evil that threatens to bankrupt the country in order to get the public to go along with their demands and not blame them for cuts in spending that that they previously authorized.

So what will happen this time? The debt ceiling bogeyman is a bogus argument and the debt ceiling hostage takers know it. That is why the holdouts usually cave at the last minute because the cost of the US government defaulting on its debts is massive. But there are fears that the current debt ceiling extremists in Congress are far more rigid in their hatred of government than their predecessors and more likely to get close to the brink if not actually go over it. They are less beholden to the big business interests that usually rein them in at the last minute because business hates this kind of uncertainty. These extremists are more interested in pleasing the rightwing media, and their base supporters do not seem to fully realize how bad shutting down the government and defaulting on its debt would be. They seem to think that it would be a lark to burn the whole thing down, just like the mobs who seemed to think that creating a riot and invading the Capitol building in an effort to overturn an election seemed to think it was a good idea. They take their cue from Trump that holding the debt ceiling hostage “will be a beautiful and joyous thing for the people of our country to watch.” For them, it is just a game of chicken.


  1. moarscienceplz says

    I once had some neighbors whose strategy for voting on the many propositions we Californians are asked to vote on was to vote ‘no’ on anything that cost money, no matter what the issues were. Also, their solution to the traffic problem on our many eight lane freeways was to double deck the freeways. Guess which party they always voted for.
    BTW, they were blatant racists, too.

  2. JM says

    Biden and the Democrats are also harder in their position then in the past. I see two reasons for this. First, Biden and the Democrats know that this has hurt the Republicans politically when it runs too close to the edge or slightly beyond. Second, Biden and the Democrats know that what the Republican extremists want is simply out of the question. The Republicans want to cut Social Security and other basic social safety net stuff and they want the Democrats to sign off on it so they don’t take all of the blame.
    There is also some chance Biden wants to push the issue. Several commentators and lawyers have pointed out that Biden may be able to blow up the debt ceiling if pushed against the wall. The expenditures are things Congress has already approved. The debt ceiling doesn’t cancel the budget, it tries to cap the whole thing. This puts the President in a situation where he has two sets of laws to follow that contradict each other. Set one says spend money on this and set two says spend no more money. The US Constitution specifies that US debt is to be maintained so facing this contradiction the President can argue that the debt ceiling is unconstitutional when it tries to have the government default.

  3. says

    Since ignoring the laws appears to be the order of the day, why doesn’t Biden just order the DoT to keep printing money? Drill, baby, drill!

    If I recall, the whole “debt ceiling depth charge” issue was created by Newt Gingrich -- a fake deficit hawk if there ever was one. I’d love to see a group of progressives refuse to sign on to a budget unless there are substantial cuts to the DoD budget, but, ha, like that is going to happen.

  4. Tethys says

    Proving that the GOP is incapable of learning from its mistakes, and is currently in the act of cutting off its nose to spite its face.

    Sadly enough voters were equally mindless, and voted for the candidates who promised to investigate Hunter Biden’s penis, between lying about their various criminal activities in Brazil, and whether they had ever done a drag show.

  5. says

    It’s worse than that. If you know anything about Modern Monetary Theory (MMT), then you know that the whole deficit thing is wrong-headed, let alone the BS about a supposed “debt ceiling”.

  6. says

    Yup and what’s worse is that -- except for the exceptionally ignorant -- everyone in congress knows it or has someone who can explain it to them in small words. It’s all a power dance, nothing to do with public policy.

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