The US is once again going through debt ceiling brinkmanship. The first thing to note is that raising the debt ceiling is entirely the responsibility of the Congress, and has to start with the House of Representatives, The Republican speaker of the House of Representatives Kevin McCarthy, himself a hostage of the extremists in his party, has decided to do some hostage taking on his own, vowing to not raise the ceiling and throw the system into chaos unless President Biden agrees to the Republican budget proposals that would roll back some of Biden’s signature achievements as well harm the less well-to do.
Biden and the Democrats have pointed out, correctly, the raising the debt ceiling does not lead to more spending by itself but is needed to pay for spending that Congress has already authorized. They have also pointed out that Republicans were willing to raise the debt ceiling three times while Trump was president without any conditions but suddenly become budget conscious only when a Democrat is in the White House. They say that raising the debt ceiling is entirely under the control of the Republicans, no one else, and that they therefore must bear sole responsibility for any catastrophe that might ensue if the government should go into default if it is not raised.
Raymond Scheppach, who worked as deputy director of the Congressional Budget Office, is familiar with the process and the history of past standoffs, and has an essay focusing on those that occurred in 1995, 2011, and 2013. All three debt ceiling crises occurred after Republicans won control of the House of Representatives and a Democrat was president, just like now.
Since 1976, there have been 22 shutdowns of the federal government due to lack of a federal budget.
While these were very disruptive and damaged the economy and employment, they pale in comparison to the potential effects of failing to lift the debt ceiling, which could be catastrophic. It could bring down the entire international financial system. This in turn could devastate the world gross domestic product and create mass unemployment.
Fortunately, the U.S. has never experienced a default. The debt ceiling has been raised 78 times since 1917 and currently stands at US$31.4 trillion.
History indicates there are substantial risks to both parties as well as their respective leaders as the nation heads for the early June showdown. The 1995 crisis did not benefit Republicans, and some even argue it contributed to Clinton winning reelection.
In 2011, I would argue that the Republicans gained substantial budget reduction and budget reform concessions from Democrats. But lack of support for the Republican position in 2013 saw them concede.
The 2023 crisis that is unfolding is like 1995 and 2011 in that it was preceded by an election that flipped the House majority. But it differs substantially in the size of that majority. With only a four-seat majority, the risks to the Republican leadership are high.
Treasury secretary Janet Yellen has said that the government will run out of money by June 1st but others say it may do so at a later date. The reason for this vagueness is that all the revenues and expenditures of the government are recorded in one single account. All income from taxes and tariffs and the like go into that account and all expenditures like payment of interest on the debt, government salaries, operating expenses, and social security payments, etc. come out of that account. But these things are not precisely predictable. For example, there is a spike in revenues in April as people pay their taxes for the previous year. There are similar smaller spikes on June 15th, September 15th, and January 16th when estimated taxes are due. But those numbers cannot be predicted, so considerable statistical analysis has to be done based on history but there is no certainty as to what the revenues and expenditures will be on any given day.
The system is a little opaque but as best as I can make out, the daily balance sheet in the government’s current account can be seen here. It gives the balance at the start of the day, adds the income for that day, subtracts the expenditures, and that gives the balance at the end of the day. As of the end of May 11th, the balance was $143.314 billion. When the current fiscal year started on October 1, 2022, the balance in the account was $635.994 billion. (All figures are rounded to the nearest million.)
So the debt ceiling is reached when the amount in the account drops to zero. So then what happens? As the number approaches zero, the government has some limited options, none of them good. It could choose to pay just some bills and not others. But that raises all manner of problems. If you do not pay the interest on the debt, the country’s credit rating tanks. If you do not pay government salaries, the government will shut down. If you do not pay social security and other earned benefits, that will cause hardship to old people.
The government is unlikely to do that. It will meet all its obligations in full on the assumption that the debt ceiling will be raised, resulting in a fresh infusion of cash into the account.
Oggie: Mathom says
I was out to lunch today (insert joke here) with Wife and Granddaughters. Wendy’s was really backed up due to on-line takeout orders. So I stood up near the counter for a long time.
Two old men (older than even me) walked in, both wearing church t-shirts, one wearing a Trump hat — “Take America Back from the Woke Commie Nazis!” (no, not kidding, that was written under ‘Trump’) — and the one in the Trump hat was complaining that the illegal President (I assume he meant Biden) was refusing to negotiate and putting his social security and VA benefits in danger. And that is the base of the GOP.
Marcus Ranum says
As an anti-imperialist, I am aware that cratering the US economy might help rein in the war machine, and waken the labor vote. It might even result in a near revolution, like the great depression. So, my sense of history makes me think that maybe it’d be a good thing for humanity. It would probably wipe me out financially though. I’m on the fence -- maybe I should be cheering on self-destruction? Ugh.
John Morales says
Marcus, leaving aside just how good an outcome there might be from such a happening, you would most certainly not the only one who probably would wipe out financially.
Those others might not be quite so sanguine.
Morales, how can you “leave aside” the entire fucking point of the comment?!
It’s like someone said, “Even though I benefit from owning slaves, the world may be such a better place without slavery that I should support abolition”, and your response is, “leaving aside the morality of slavery, have you considered other people benefit from owning slaves?”.
What a stupid fucking response.
Do you ever fucking think before you type?
John Morales says
My devoted hatefanboi:
Very damn easily, as you have seen, since I’m addressing how this hinges on how consideration of the outcome on oneself is, um, limited in scope.
The intimation is that it’s very arguable whether the outcome would be overall beneficial
But that’s not the point of my comment, thus I implicitly acknowledge the opinion expressed but, rather than dispute it directly, I point out a corollary.
Nah. You might think it’s like that (somehow), but it ain’t.
John Morales says
More on topic, this is a video I watched a couple of months ago:
Your comment reminds me of somethnig a friend said to me some half-century ago, when we were both in our last school year and dicussing some crisis of the day:
“I don’t mind western civilization collapsing, but I don’t want anything to happen to old Fred down the road”.
It’s stuck with me, as you can tell.
On the topic of the default, The Intercept is not sanguine that Biden has any actual plan to deal with the economic terrorism of the Republicans.