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Tag Archives: Debt Limit

“Are You Gonna Get Any Better, Or Is This It?”

May 9, 2013
Joseph Minarik
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Attributed to the late Earl Weaver
Former manager, Baltimore Orioles

So the nation has addressed its mounting public debt problem by failing to take explicit action, and therefore allowing an automatic “sequester” of spending to take effect.  The sequester is a mindless across-the-board cut, reducing defense and non-defense spending alike, and the highest and the lowest public priorities equally.  And for all of the pain it will cause, it is far insufficient to solve the debt problem.  It is the proverbial basketball player who made up for his lack of size with his lack of speed.

The House and the Senate have passed budget resolutions that are trillions apart, literally and figuratively, and they cannot agree to go to conference to reconcile the two.  The House Speaker says that he has been jilted one too many times, and will not meet with the President privately.  The President has taken groups of Republican Senators out for very nice dinners, and even has picked up the check.  (Personal deficit spending?)  But those Republican Senators say that they cannot cut a deal without their Minority Leader, who so far apparently prefers to eat at home.  And there are no signs of any communication between the dining Republican Senators and their House Majority counterparts.

So in those immortal words reportedly shouted at the tips of innumerable umpires’ noses by the late Earl Weaver, “Are you gonna get any better, or is this it?”  Apparently, Weaver never reached a very positive opinion of the quality of major league umpiring, and there is precious little evidence to inspire much greater confidence in the workings of Washington these days.

On first principles, no one had great fondness for the sequester.  Republicans by and large could not abide the defense cuts, and Democrats felt the same about the domestic cuts.  But Democrats, including the President, concluded that the defense cuts could be used as bargaining leverage, and some even embraced the prospect of the sequester as the only way they could squeeze the Pentagon budget.

But the tables appear to have turned.  Enough Republicans have embraced the defense cuts to move the balance in their caucus; and apparently most if not all Republicans enjoy watching the Democrats squirm at the mechanistic reductions on the domestic side (including small cuts in entitlement programs, which are seldom mentioned but have real consequences).  It is easy to blame the White House’s management for any pain and suffering that eventuates, and if an intolerable problem emerges (like air traffic control or food inspection), the Republican House can easily pass a rifle-shot bill to fix it.  If the Democratic Senate were to refuse to move such a bill along, it would have to accept direct responsibility for the problem.  So while some people have expected the sequester to arouse broad-based opposition, that does not appear imminent, or perhaps even likely.

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That Bad Treasury Bond is Turning Up Again

April 5, 2013
Joseph Minarik
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***An abbreviated version of this blog post appeared in The Hill’s Congress Blog on April 4. This version takes a deeper dive than is possible with 750 words.***

The temporary “suspension” of the nation’s debt limit expires on May 19, 2013.  On that date, the limit will become the amount of debt already incurred (see here).  The Treasury is prohibited from “borrowing ahead” to build up a cash balance, which makes the determination of the precise amount of the limit as of that date quite complex.

But the concept is clear enough.  On May 19, the debt limit will be (approximately) what the debt actually is as of that moment.  So the Secretary of the Treasury will need immediately to revert to the use of his “extraordinary measures” – highly technical authorities granted to him by law or custom, which over the last two decades or so have become unfortunately all too ordinary – to keep the debt subject to limit below the statutory ceiling.  As always, the public is not privy to the Treasury’s own internal estimates, and the future is always uncertain; but the best analysis available suggests that the Secretary will have run out of tricks by some time in this coming August.

Therefore, with the temporary tax cut expirations resolved, with appropriations for the federal agencies finally completed for the ongoing fiscal year, and the next fiscal year not beginning until September 30, 2013 (and with that appropriations process sure to be procrastinated down to the wire), it is likely that a collision with the debt limit will be the next budget-process bottleneck that the Congress and the White House will have to traverse.

Institutional memories are short in Washington, and history often is revised before it is written.  Somehow, a decent interval after the fact, 100 percent of the players on both sides of each Washington contest believe that they won the game.  So it is likely that the lessons of August, 2011 – and of the last several debt-limit standoffs – have not been learned as they should.  Thus, it is worth taking the opportunity of the waning days of the Easter/Passover congressional break to review just why going to the brink over the nation’s debt limit is such a bad idea.

This should not be a partisan issue.  The points below would apply regardless of who is in control of the White House, the Senate, or the House of Representatives.  Today’s situation is unique in detail, as is every day in Washington; but the amount of the stakes on this issue is always the same: approximately everything we’ve got.  So both current and future Congresses and Administrations should consider the following:

A fight over the debt limit is prone to disaster.  Even though the stakes on the debt limit are monumental, Members of Congress will always be inclined to grasp any opportunity to extract concessions from a President with different views.  Still, over time, standards of behavior on this front have deteriorated.  As they push a President further and further toward the brink, Members today should consider the precedent they risk setting.

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Eternal Vigilance

January 25, 2013
Joseph Minarik
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I was fortunate enough to be invited to a breakfast with House Budget Committee Chairman Paul Ryan (R-WI) earlier this week.  You may have seen some stories on that conversation, primarily in the Wall Street Journal, whose David Wessel and Gerald F. Seib organized the event.  (A transcript is available to those with Wall Street Journal access in two parts, here and here.)  A couple of takeaways for me:

Image found here.

Some press reports, including an editorial in the Washington Post, had suggested that House Republicans had foresworn the old “Boehner Rule” – which dictated that there be $1 of spending cuts for every $1 increase in the debt limit.  The Post said that this change was highly meritorious, because there could be serious consequences if the debt limit were subject to such uncertainty.  However, Chairman Ryan made clear that the Boehner Rule is alive and well, even though it may temporarily be suspended.  Chairman Ryan saw two potential ways forward – that is, toward significant deficit reduction, in fact a balanced budget in ten years.  One would be bipartisan cooperation, which he did not rule out but saw as unlikely.  The second was the use of rolling “fiscal cliffs,” including the expiration of continuing resolutions for annual appropriations, deadlines for sequesters, and applications of the Boehner Rule for short-term increases in the debt limit.

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One Interpretation of the Debt Limit

January 14, 2013
Joseph Minarik
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An opinion column from Friday’s Wall Street Journal painted a sanguine picture of the potential collision of the United States Treasury with its statutory debt ceiling.  The column, entitled, “The Myth of Government Default,” by David B. Rivkin, Jr., and Lee A. Casey, can be found here if you have an Internet account with the Journal, but just in case I will offer the following brief excerpt:

 Contrary to White House claims, Congress’s refusal to permit new borrowing by raising the debt ceiling limit will not trigger a default on America’s outstanding public debt, with calamitous consequences for our credit rating and the world’s financial system. Section 4 of the 14th Amendment provides that “the validity of the public debt of the United States, authorized by law . . . shall not be questioned”; this prevents Congress from repudiating the federal government’s lawfully incurred debts… Should Congress fail to increase the debt ceiling as much as the president wants, the effective result would be major government spending cuts, with payments on public debt excluded.

Allow me to provide a slightly more elaborate and general summary of this argument as it circulates in the Washington ether.  Admittedly, this argument is somewhat less measured and nuanced than that presented by Rivkin and Casey.

Some believe that failure to increase the statutory debt ceiling would cause the federal government to default, which those persons contend would entail serious ill effects, this argument goes.  However, in fact, even if the debt limit is not increased, the federal government need not default, which is defined accurately as the failure to service or redeem in a timely fashion its outstanding debt instruments.  The courts have held that servicing the debt, which is mandated by the Constitution, has rightful precedence over paying other obligations, which are sanctioned by mere laws.  So the correct policy choice today is to refuse to increase the debt ceiling, and thereby to win political leverage in the debate over the budget – which can be achieved at no risk of a financial market event.

I see three major problems with this argument.

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