5 June is the new deadline --will the Freedom Caucus demand even less freedom.
Two years of spending caps, additional work requirements for food stamps and cuts to I.R.S. funding are among the components in the deal.
The full legislative text of Speaker Kevin McCarthy’s agreement in principle with President Biden to suspend the nation’s borrowing limit revealed new and important details about the deal, which House lawmakers are expected to vote on this week.
The centerpiece of the agreement remains a two-year suspension of the debt ceiling, which caps the total amount of money the government is allowed to borrow. Suspending that cap, which is now set at $31.4 trillion, would allow the government to keep borrowing money and pay its bills on time — as long as Congress passes the agreement before June 5, when Treasury has said the United States will run out of cash.
In exchange for suspending the limit, Republicans demanded a range of policy concessions from Mr. Biden. Chief among them are limits on the growth of federal discretionary spending over the next two years. Mr. Biden also agreed to some new work requirements for certain recipients of food stamps and the Temporary Aid for Needy Families program.
Both sides agreed to modest efforts meant to accelerate the permitting of some energy projects — and, in a surprise move, a fast track to construction for a new natural gas pipeline from West Virginia to Virginia that has been championed by Republican lawmakers and a key centrist Democrat.
only the most bearish of bears, the most cynical of cynics believe that the extremists in DC want us to go into default.
Meanwhile, all 213 Democrats have signed on to the discharge petition that would force a clean debt ceiling hike onto the floor. That’s unity. But to succeed, they must find five Republicans willing to join them; the maneuver requires a simple majority of House members. That means at least five Republicans have to be willing to put people like Melissa Fields ahead of people like Chip Roy. That should be an easy call, but they’re Republicans, after all.
There are 16 House Republicans who represent districts won by President Biden in 2020, which could easily flip to Democrats if a debt ceiling fiasco leads voters to blame the GOP.
The answer might be allowing a “free vote” on lifting the debt ceiling, effectively permitting moderate Republicans to switch sides and ensure the bill’s passage. It might not be a great outcome for the speaker and it could place him in direct confrontation with the party’s hardline wing, but it appears one of his few options left.
From the Biden administration side, on the other hand, more attractive fallbacks exist. They may not be perfect or first resort, but it nevertheless feels like Biden holds more cards than McCarthy.
- For one, the Treasury could appeal to the 14th Amendment to the U.S. Constitution (which reads, “validity of the public debt, authorized by law…shall not be questioned”) and simply borrow to meet its debt obligations, leaving the matter of whether the constitution is on its side to protracted court battles. At the very least, that tactic could buy time.
- Another gambit would be for the Treasury to issue premium bonds (those sold above par value), which wouldn’t add to the debt ceiling.
- Lastly, the U.S. Treasury, under the constitution, could mint a platinum coin of any denomination and sell it to the Federal Reserve, raising sufficient funds to meet its obligations.
Let’s cure this schizophrenia now. President Biden, Leader Charles Schumer (D-N.Y.), Minority Leader Hakeem Jeffries (D-N.Y.) and all reasonable Republicans should kindly call the MAGA conservatives’ bluff. Simply ignore the 1917 vintage debt ceiling, which is now null and void, and abide by the 1974 budget law. You will be vindicating our Constitution and preserving our constitutional republic in so doing.
To begin, this is not a classical prisoner’s dilemma, where cooperation is preferred, but incentives not to cooperate yield a classic “lose-lose” (in other words, suboptimal) result. That is a good thing, as the (dis)incentives point to cooperation, not self-interested defeat.
If one thinks of the possible outcomes:
First, each side cooperates to reach a negotiated settlement.
Second, one side negotiates in good faith, but the other does not.
Or third, neither side negotiates in good faith, then the debt-ceiling negotiations are not akin to a prisoner’s dilemma because the negative payoffs (the losses) associated with not cooperating are potentially so large for both sides as to make cooperation the most likely outcome.
As for the economic and financial costs, they are very difficult to ascertain. Credit risk premiums on U.S. Treasuries are highly probable and might only decay slowly, adding to the debt servicing costs borne by taxpayers. Financial markets could suffer devastating setbacks, raising uncertainty across the economy, quite possibly inducing a recession.
May 2, 2023, Letters from an American, Prof. Heather Cox-Richardson.
...The fourth section of the Fourteenth Amendment reads: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”
This statement was a response to a very specific threat.
During the Civil War, the U.S. Treasury issued more than $2.5 billion in bonds to pay for the war effort. To make those bonds attractive to investors, Congress had made most of them payable in gold, along with their interest. That gold backing made them highly valuable in an economy plagued by inflation...
National taxes funded the bonds, which meant that workers whose salary was paid in the depreciating greenbacks paid taxes to the government, which in turn paid interest to bondholders in rock-solid gold. After the war, workers noted that inflation meant their real wages had fallen during the war, while war contracts had poured money into the pockets of industrialists.
Bonds were about far more than just money. When the war broke out, the Treasury had turned to bankers to underwrite the war. But the bankers were notably reluctant to bet against the cotton-rich South and refused to provide the amount of help necessary. To keep the government afloat, Treasury officers had been forced to turn to ordinary Americans, who for four years had shouldered the financial burden of supporting their government.
Undermining the value of U.S. bonds was an attack not just on the value of investments, but on the nation itself. When Republican lawmakers wrote the Fourteenth Amendment in 1866, they recognized that a refusal to meet the nation’s financial obligations would dismantle the government, and they defended the sanctity of the commitments the government had made. When voters ratified that amendment in 1868, they added to the Constitution, our fundamental law, the principle that the obligations of the country “shall not be questioned.”