The Federal Debt Limit "Crisis"
Part 1 of a Series
What's Coming Up in This Substack Blog
Over the next several weeks I'm going to write a series of posts on this Substack blog that will attempt to prepare us for the hue and cry of the federal debt limit "crisis" projected for June of this year.
A couple of months ago, Washington politicians and the news media were all in a tizzy anticipating this "crisis." Since then, media attention has shifted to the failures of several banks, the indictment of Donald Trump and other matters. As I will describe, the federal debt limit "crisis" is likely to come back to center stage in a few months, dominate media attention, and leave most Americans shaking their heads at the inability of our political leaders to get anything done.
My blog posts won't have much affect on whether anything gets done, so you will probably still be shaking your head after reading those posts. But perhaps these posts will enable you to shake your head in a more informed way.
By now you will have noticed that whenever I've used the term "crisis," I've put it in air-quotes, indicating that I'm using the term somewhat ironically, suggesting that what is described in the media as a "crisis" is either not a crisis at all or is a crisis of quite a different character from the way it is commonly characterized. I'll also be putting air-quotes around other terms the media and politicians use which hide reality more than they reveal it.
Remind Me: What Is This Debt Limit "Crisis" All About?
It's about the U.S. Constitution, federal statutory laws (those other than the Constitution) and political power struggles. All that gets attention in the media. In the course of this series of blogposts, however, we will see that there is another, deeper level largely undiscussed in the media or in Washington, D.C.
Per Article 1, Section 8 of the U.S. Constitution, Congress is authorized to create (coin) money, spend money on the defense and general welfare of the nation, borrow money on the credit of the United States and pay back those debts. The federal government can spend money only upon Congress's authorization of that spending and appropriation of funds.
What if, in a given period of time, the amount of spending authorized by Congress exceeds that brought in by taxes also authorized by Congress? Is that legal? Yes. Is that constitutional? Yes. What happens in that case? Congress authorizes borrowing or, put more formally, issuance of debt instruments such as U.S. Treasury notes and bonds.
Up until 1917, Congress directly authorized each such debt instrument. "To provide more flexibility to finance the United States' involvement in World War I, Congress modified the method by which it authorized debt ... [establishing] an aggregate limit, or 'ceiling,' on the total amount of new bonds that could be issued." (Wikipedia) According to the U.S. Government Accountability Office, "The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred." (Emphasis added.)
Increasing the federal debt limit is a separate Congressional process from either the authorization and appropriation of particular funds. It's also separate from the the overall federal budget process. This separation of concerns has meant that, since the 1950s, the periodic need to increase the debt limit has become a political football in which elements of the U.S. Congress can, in effect, re-negotiate legislation already passed into law. While we've come to associate these debt-limit battles with Republican opposition to Democratic presidents (Newt Gingrich versus Bill Clinton; John Boehner and Mitch McConnell versus Barack Obama; Kevin McCarthy versus Joe Biden), it is interesting to note that, according to Wikipedia, the first such debt-ceiling "crisis" occurred in 1953-54 when Republican Dwight Eisenhower was president and both houses of Congress were also controlled by Republicans.
The Republicans leading the U.S. House of Representatives currently claim that they will vote to increase the debt limit only if the Democratic-led Senate and the Biden administration agree to spending cuts in as yet unspecified federal programs. Should the debt limit not be raised, the U.S. may fail to make payments on its debt (self-induced, hence voluntary, default) and a shutdown of federal programs like Social Security or Medicare may ensue. The Biden administration has stated that it refuses to negotiate such spending cuts, and even the Republican minority leader in the Senate, Mitch McConnell, appears to have little appetite for refusing to increase the debt limit. It should be noted that, as an alternative to raising the debt limit by a specified amount, Congress could also suspend the operation of that limit for a specified period of time and has often done so in the past.
Three Ingredients Needed for a Federal Debt Limit "Crisis"
The recipe for a federal debt limit "crisis" therefore takes three ingredients:
Constitutional provisions, including those cited above and others.
Statutory provisions: the variety of laws passed since 1917.
Conflicting political objectives on the part of the White House and the two houses of Congress.
In this series of Substack blog posts I will mostly avoid discussing the first two ingredients. Moreover, I will also mostly avoid opining on the immediate political motivations of Biden, McCarthy, and others. You'll be able to get that close-up focus elsewhere.
What I want to focus on are the underlying assumptions largely shared by both Democrats and Republicans in Washington -- and shared by the mainstream news media as well. To be able to discuss those assumptions properly, we have to zoom out before zooming back in. We have to look at the U.S. political economy as a whole -- and to understand that we have understand what any sovereign government does and the relationship of sovereign governments to money. That's what we'll be covering in the next two posts in this series.
Stay tuned, and be sure to pose questions in the Comments.