As we approach the ‘debt doomsday’ which we don’t know exactly when it will come, there are negotiations going on about what the debt ceiling bill will look like. Other diaries, www.dailykos.com/… have described the state of negotiations. I for one think that it is mostly political theater.
First, let’s clear up a widely held misunderstanding of what the debt limit issue actually is and review how the spending and borrowing actually works.
When congress passes an appropriations bill, the text of the bill states that from the available funds in the treasury, the government is permitted to spend money up to the amounts listed in the bill. The bill then contains a laundry list of stuff. For example, it might provide X million dollars for the department of education to issue in grants, or it might allow the Army to spend up to Y billion dollars purchasing up to Z number of new tanks. You get the idea.
So how does money get into the treasury?
3 basic ways. Taxes, printing money, and borrowing. Taxes are paid inconsistently and vary by the day. The money supply and borrowing are each controlled by their own separate laws. The borrowing limit is the debt ceiling. It’s kind of like having a regular job (taxes), a side gig (printing money), and a line of credit. Your spouse tells you how many hours you can spend in your side gig and how much you’re allowed to draw on the line of credit. When it comes time to plan for bills for the month, you decide how many hours to work your side gig and how much to draw on the line of credit to make sure there is enough money at the end of the month to make sure it works out. If you’ve been running your budget with side gig and debt for years, and suddenly after you’ve done your planning, your spouse suddenly tells you that you’re grounded from your side gig and can’t draw any more debt, there’s simply not going to be enough money to cover everything.
Three problems condense out of this.
First is that ever since the US achieved great power status after world War 1, and certainly since the US became a superpower post world War 2, the idea that there wouldn't be enough money to pay for appropriations hasn't been a thing. There are no laws, no precedents, no guidelines and not even the tools within the government to handle such a scenario. For most of living memory, the government decides how much to spend and that much gets spent. Period.
The second problem is that federal debt is extremely popular. Popular to the point that some people will even demand access to federal debt as part of contracts. An easy example of this is millions of retirement plans. Federal employees are entitled to purchase federal debt as part of their retirement savings system. If the government can't borrow then it can't fulfill those contractual obligations. Since the current federal retirement system was created decades after the debt limit was enacted, the provisions of the later law are normally understood to supersede the older one unless there is guidance.
The third issue is one of day to day cash flow. Every day, debts and bills come due. And the government pays them. If there isn't enough money, they either print some or issue some new debt. However, on some days, the debt payments alone could exceed the available funding. The 14th amendment, with that "shall not be questioned" clause would suggest that those debts need to be paid regardless of any other laws since the constitution is superior to all laws passed by congress.
So back to what republicans are trying to pull. Republicans are more or less trying to play issue one against issue three. Republicans are of the mind that if there isn’t enough money in the treasury, the federal debt payments get serviced first. Since there is no option to not pay those debts, the government would need to manage money in the treasury so that there is enough money to 100% cover those debt obligations. With no cushion to print money or borrow to make up shortfalls in tax revenue, the government would need to manage the treasury levels very carefully, allowing money to go to federal programs only after money was secured for the next debt payment. Now, once a debt payment was made, the treasury would now have debt below the limit since the principal portion of the debt payment (which for US government debt is almost all of it) is cleared debt. However, the net effect would still be one of strangling the operation of the federal government. The democrats, champions of federal programs and the ones who would be forced to make the cuts, would be the ones to feel the political pain.
Republicans see this as a scenario with upsides for them. Republicans oppose federal programs while Democrats support them. Any disruption of the federal funding stream means a disruption to federal programs. If the Biden administration flounders, then they will incur the wrath of the harmed voters in 2024. If they mitigate the damage, then republicans have an argument to make that the spending levels can be cut without serious consequence. Thing is, if the federal government is badly strangled, spending cuts of 40% would be disastrous. en.wikipedia.org/...As best I can tell is the working republican theory is that they have the Biden administration in a bind with this hostage and can dictate their terms. The problem is that the republicans aren’t really united in what their terms actually are and ignores the reality that McCarthy is facing right now.
The default approach in hardball negotiations like this is (usually) for the House to pass a bill. The idea is that having passed a bill, they can run out the clock, adjourn, and then leave the senate and the white house to either accept the House passed bill or deal with the consequences. Normally that puts pressure on the other side to make some concessions, which leads to a compromise bill. Depending on the political leverage, sometimes that compromise is a near unanimous grand bargain, and sometimes the compromise is still a party line vote, but one party agrees to procedural concessions that move the bill through.
So, the republicans did pass a bill in the house. They passed it on a party line vote that if you believe the reporting even the republicans won’t support. www.govexec.com/… With a number of republicans on the record indicating that they want a default, it isn’t clear that McCarthy can gather a republican coalition in the house to pass anything over Democrats’ objections that could then make it through a conference committee. Heck, it isn’t clear that McCarthy could maintain enough republican votes for anything that would raise the debt ceiling.
McCarthy is in a bad position here. His only option to raise the debt ceiling is to rely on democratic votes in both the House and the Senate to pass a bill over his party hardliners’ objections. That means breaking explicit promises to some of them and facing a motion to vacate the chair. Even if Democrats suddenly accepted the republican bill with 20% across the board cuts, it would be taken by some as a betrayal, because that vote was ‘just political maneuvering’. Even worse, McCarthy knows that if a clean debt ceiling bill were to make it to the floor, it would pass by a wide, bipartisan margin.
So McCarthy is in a fight for his job with essentially no winning option. His only chance is to try to make Biden and the democrats take the political blame for whatever happens. It doesn’t matter whether it is for a debt default, or forcing Biden to champion cuts to popular programs, possibly to the point of essentially surrendering his presidency to raise the debt limit. If one side benefits primarily from shaping blame for failure onto their opponent, then they’re not negotiating in good faith.
So what is the democrats’ angle? With all of the doom and gloom, how is this diary a positive message?
Lets start with the negotiations on a grand bargain, or a compromise debt limit bill. There is a good chance that the republican hostage strategy will just fall apart. Remember how in 2011 John Boehner negotiated with president Obama over the debt limit and kept coming back to the negotiating table because he couldn’t get anything through his caucus? McCarthy’s in a similar position. If McCarthy can’t get enough republicans on board with a debt ceiling bill through the house that matches the deal, then he and his republicans are stuck holding the bag. Biden can support anything he wants, but if congress can’t get the agreement to his desk, he can’t sign anything. If the agreement is ‘bad enough’ from the republican perspective and the caucus won’t support it, not only is McCarthy in a jam as we noted before, but at that point the democrats are really driving the train. Those tracks lead towards a clean debt ceiling increase. Oh, and don’t forget that any limits on spending are only going to be relevant until the next appropriations bill negotiations come due.
The second issue is time. During budget negotiations for the past 40 some odd years, it has been completely normal for the government to pass continuing resolutions and keep negotiating. What does a continuing resolution look like for debt? It is a debt limit increase that isn’t matched by spending cuts, breaking a key promise to McCarthy’s own keepers. www.cnn.com/… Remember that point earlier about how the government running out of money just isn’t in the national consciousness and how republicans want to use that to attack democrats? Well so is asking for an extension. Democrats asking for a reprieve to extend negotiations shouldn't be controversial. But even that might be enough to break the republicans.
And then there is the issue of what happens if the treasury runs out of money.
There are a significant number of interesting arguments as to why the debt ceiling itself shouldn’t be an issue. Those reasons range from the constitution, www.politico.com/… , www.cnn.com/... the idea that the debt limit has already been repealed, www.dailykos.com/… , the argument that the debt limit conflicts with other federal laws, www.fnlondon.com/… . The bottom line is that they probably aren’t solutions based on current interpretation of the law. Numerous administrations haven’t flipped the table on the debt ceiling or appropriations bills and that makes it hard to simply declare them moot.
The way things work and the text of the laws themselves, it’s pretty clear that, just declaring the debt limit unconstitutional wouldn't work in the long term and wouldn't solve the underlying debt limit threat used by Republicans anyway. Biden has proved too competent a statesman to trip like that. So what is Biden to do? Anything he wants.
Biden could go full technocratic and advance the argument that the treasury is simply not set up to address a lack of available funds and will simply overdrawn its accounts (print phantom money) until things can be resolved. The laws of physics hold pretty solid weight against laws set up by humans. (In this case the laws of physics are represented by the software at the treasury that simply doesn't have the functions to stop payment like that) That would require congress to pass instructions to the treasury, appropriate funds for the software updates, etc. If the debt limit negotiations collapsed there is no chance that a law is going to get passed to fix things.
Biden could advance a novel legal argument to keep paying for everything. For example he could argue that because of the role government activities play in modern society, the appropriations passed by congress constitute a public debt for the purpose of the 14th amendment as a moral obligation and a debt in exchange for taxes paid in advance, as well as a debt for continuity of government services. There is a certain amount of modern precedent for such an argument, since during other government shutdowns, certain ‘essential’ government services keep going even though there is no authorization from congress. The only possible way for that to be legal is for a constitutional provision such as the 14th amendment to be controlling. Otherwise there would have to be a hard absolute stop of all government activity if there were a shutdown, life and safety notwithstanding. Since there has been a broad consensus that the government should continue to provide those services, there is a clearly implied obligation for continuity of government. Throw in the political questions doctrine en.wikipedia.org/… and questions about standing (if the house can’t pass a resolution of disapproval and the OLC claims members of congress aren’t actually harmed, etc) the courts could be snarled for a very long time before the issue is even addressed.
Biden could go full Machiavellian and work via executive order to shut down government activity in ways that would most weaken his political opponents. There’s no legal guidance to define what does and doesn’t shut down and so theoretically that would be at the absolute discretion of the executive.
Biden could also go populist/unitary executive and more or less defy congress. He could order the treasury to keep making payments, blow the debt ceiling, and provide political top-cover to the people below him. The audacious naked power move tactic is essentially the same approach as the ‘if you owe the bank 100 million dollars’ gambit. The federal government is involved in too many life-or-death activities on a daily basis that it would be very difficult for a court to untangle the mess before either an election or a deal were worked out. Delays, appeals of rulings, and gotcha issues for a judge (“Your honor, for clarification, since federal prisons aren’t on your list of prioritized spending, do we institute an immediate release of federal prisoners, or leave them to starve in their cells until this is resolved?”).
The most likely outcome is that Biden would use a clever combination of techniques and blindside republicans. I don’t think that Biden would play a game like ignoring federal retirement debt or minting a coin. Those options just buy a little time but don’t deal with the underlying problem. If the issue comes to a head, it needs to be permanently fixed. I expect that the negotiators will not reach an 11th hour deal. Here is what I expect instead.
1) Negotiations will continue. Either side may be playing rope-a-dope and running out the clock. The negotiations are a precondition for ‘seriousness’ by the media and selective leaks can be used to demoralize the opposing side. Both sides will project a positive spin on the negotiations and portray them as ‘making progress’ and ‘close’. As of 27 May there is no deal struck.
2) The first challenge point comes either Tuesday the 30th or Wednesday the 31st. If there is a deal, McCarthy needs to bring it to the floor and get it passed and then survive the fallout. If not, or if it can’t pass and will take more time to whip (beg for) the votes, then a clean debt ceiling bill needs to be passed. I am guessing there will not be a deal, and democrats plan to force a short extension to weaken McCarthy.
After that the possibilities fork. Either democrats run out the clock on McCarthy until the republicans are fractured and ineffective (providing a clean debt ceiling increase or a bill that is ignored by the appropriations bill in the fall), or the republicans shut the debt limit down and democrats turn to plan B.
Plan B is based on the need to seize and control the media narrative. Whatever Biden’s plan is, it can’t be executed until the day after the borrowing limit is reached. There needs to be a crisis so that Biden can get the media to actually listen to his address and report what he is saying. It also needs congress to fully fail so that Biden can be in the position to react to republican failings instead of breaking norms on his own.
Here is how I think that Plan B would play out: On the last day, Biden gives a press conference demanding that congress get something on his desk and reminding the country that it is congress’s obligation to act. Nothing happens. The next day dawns and the stock market starts to tank and closes. Someone notices that payments are still being made. Maybe the treasury miscounted by a day? The white house announces an address to the nation for 8PM ET. All eyes are on Biden. Taken by surprise, republicans take time to spring to San Antonio for their lawsuit. Over the next week or two, a legal standoff of filings, counter filings, amicus briefs, and appeals plays out in courts. The bills keep getting paid. At the same time, pressure for a clean debt limit increase grows, and an ugly discharge petition fight ensues. In a last ditch effort to stop a clean discharge petition, republicans move to vacate the chair. The vote on the clean debt ceiling increase passes by a wide bipartisan margin, and then the house collapses for at least a week. By July 4th, the debt ceiling is increased, McCarthy is no longer speaker, and republicans have significantly damaged their position going into 2024.