The 2023 Debt Ceiling Crisis

[El Guapo]

It seems like we want the 1930s all over again. We can start with an economic depression after these jacked up banks implode when government bond yields go absolutely haywire.

I'm just glad that we don't have crazy fascists waiting in the wings to seize power.

[Defiant]

Regarding the budget negotiations, this seemingly paradoxical poll is worth keeping in mind.

In the federal budget standoff, the majority of U.S. adults are asking lawmakers to pull off the impossible: Cut the overall size of government, but also devote more money to the most popular and expensive programs.

Six in 10 U.S. adults say the government spends too much money. But majorities also favor more funding for infrastructure, health care and Social Security — the kind of commitments that would make efforts to shrink the government unworkable and politically risky ahead of the 2024 elections.

[Smoove_B]

I'll fully admit I've never held federal office, but telling people you're going to lower the debt ceiling by cutting food aid to children seems like a bad idea.

House Speaker Kevin McCarthy’s new debt limit negotiating proposal set to be unveiled Monday morning will include broad moves to restrict food assistance for millions of low-income Americans. His GOP colleagues in the Senate aren’t optimistic any of those measures will survive.

McCarthy’s initial list calls for expanding the age bracket for people who must meet work requirements in order to participate in the Supplemental Nutrition Food Assistance Program or SNAP, while closing what Republicans say are “loopholes” in existing restrictions, according to two people who were granted anonymity to discuss internal conversations.

Cutting spending on federal food assistance programs is a perennial Republican target, and House conservatives are eager to make it part of any agreement to raise the debt ceiling, which the country must do later this year to avoid a default crisis.

Like seriously....just stop for a second and think that a political party is genuinely proposing that people in need of food aren't nearly as deserving as they'd have you believe, so let's recover so money there. It feels like this should be political suicide, but I guess not.

[waitingtoconnect]

Tax increase for the mega wealthy might help?

House Republicans have expressed the desire to balance the federal budget over the next decade. The Committee for a Responsible Federal Budget (CRFB) estimates doing so without tax increases would require an approximate 25 percent reduction in all government spending. (Given house republicans would want to lower taxes further bigger cuts would likely be needed.) Excluding certain programs, such as Social Security, Medicare, defense, and veterans, lifts the required cuts to 85 percent.

The country is taking in tax at 17% of gdp but has outgoings at 23%. That gap is unsustainable and people need to decide.

Do you want to pay more taxes or do you want to defund federal programs.

[Kraken]

We don't pay enough taxes for the services that we want and need because the people who can pay more taxes don't need or want those services. They would rather buy politicians.

I guess farmers aren't a major Republican faction anymore? Seems to me they like generous food assistance programs.

[waitingtoconnect]

Analysis shows that you need to take money from the top 20% of earners to make a dent in the deficit not just the top 1%. Taking from big business and the 1% alone only plugs about 50-60% of the deficit.

[Isgrimnur]

That would be a good fucking start.

[malchior]

Any discussion that talks about *eliminating the deficit* is bad faith from the get go. There is no need to eliminate the deficit or "pay off" most of the debt. A nation is not a household or a business. It doesn't mean profligate spending but it also doesn't mean counterproductive cuts either.

That would be a good fucking start.

It's also enough! Cutting 50-60% of the debt gets you to about 3% GDP per year. Maybe another percentage of GDP and you're done.

[El Guapo]

I'll fully admit I've never held federal office, but telling people you're going to lower the debt ceiling by cutting food aid to children seems like a bad idea.

House Speaker Kevin McCarthy’s new debt limit negotiating proposal set to be unveiled Monday morning will include broad moves to restrict food assistance for millions of low-income Americans. His GOP colleagues in the Senate aren’t optimistic any of those measures will survive.

McCarthy’s initial list calls for expanding the age bracket for people who must meet work requirements in order to participate in the Supplemental Nutrition Food Assistance Program or SNAP, while closing what Republicans say are “loopholes” in existing restrictions, according to two people who were granted anonymity to discuss internal conversations.

Cutting spending on federal food assistance programs is a perennial Republican target, and House conservatives are eager to make it part of any agreement to raise the debt ceiling, which the country must do later this year to avoid a default crisis.

Like seriously....just stop for a second and think that a political party is genuinely proposing that people in need of food aren't nearly as deserving as they'd have you believe, so let's recover so money there. It feels like this should be political suicide, but I guess not.

You do have to bear in mind that this stuff gets paired with other GOP messaging about various lazy non-white people abusing government benefits. The overall implicit message is that they're cutting benefits from "them" who are just shirking work and relying on the government teat, while your deserving (white) kids will of course keep getting the benefits that they need.

[Smoove_B]

You do have to bear in mind that this stuff gets paired with other GOP messaging about various lazy non-white people abusing government benefits. The overall implicit message is that they're cutting benefits from "them" who are just shirking work and relying on the government teat, while your deserving (white) kids will of course keep getting the benefits that they need.

Ok, maybe there exists some magical world where after cutting the budget, federal assistance for food only goes to the "right" people. But how do you explain messaging the idea that GOP-led states are going to need to spend more money to provide diminished benefits? This is the party of alleged "fiscal responsibility"?

The state legislature, with the support of the Republican supermajority, was poised to approve some of the nation’s harshest restrictions on SNAP. They include asset tests and new eligibility guidelines. By the state’s own estimate, Iowa will need to spend nearly $18 million in administrative costs during the first three years — to take in less federal money. The bill’s backers argue the steps would save the state money long term and cut down on “SNAP fraud.”

It feels like "save the state money long term" is doing a lot of work here.

[El Guapo]

You do have to bear in mind that this stuff gets paired with other GOP messaging about various lazy non-white people abusing government benefits. The overall implicit message is that they're cutting benefits from "them" who are just shirking work and relying on the government teat, while your deserving (white) kids will of course keep getting the benefits that they need.

Ok, maybe there exists some magical world where after cutting the budget, federal assistance for food only goes to the "right" people. But how do you explain messaging the idea that GOP-led states are going to need to spend more money to provide diminished benefits? This is the party of alleged "fiscal responsibility"?

Well right, they don't actually care about fiscal responsibility nearly as much as they care about their own power and about letting rich people keep their money. When things don't add up later, they blame the Democrats and/or "Washington".

[gbasden]

You do have to bear in mind that this stuff gets paired with other GOP messaging about various lazy non-white people abusing government benefits. The overall implicit message is that they're cutting benefits from "them" who are just shirking work and relying on the government teat, while your deserving (white) kids will of course keep getting the benefits that they need.

Ok, maybe there exists some magical world where after cutting the budget, federal assistance for food only goes to the "right" people. But how do you explain messaging the idea that GOP-led states are going to need to spend more money to provide diminished benefits? This is the party of alleged "fiscal responsibility"?

Well right, they don't actually care about fiscal responsibility nearly as much as they care about their own power and about letting rich people keep their money. When things don't add up later, they blame the Democrats and/or "Washington".

You forgot about hurting black and brown people. That's important to them as well.

[Octavious]

I legit think they might drive the country off the cliff this time. And I'll hear idiots at work blaming Biden. Can't wait.

[El Guapo]

I legit think they might drive the country off the cliff this time. And I'll hear idiots at work blaming Biden. Can't wait.

I'd say the odds are 90%+ that they will, unless Biden addresses the issue via executive action (mint the coin, declare the debt limit unconstitutional or as superseded by spending bills, etc.).

[Pyperkub]

A hint of what the GOP wants:

For those unfamiliar, the ways people in Argentina navigate the day-to-day economy can sound wild. When you don’t think you can trust the bank, the currency, or anybody in charge, things can get pretty weird pretty fast.

Amid super-high inflation, people can’t bet on the value of the Argentine peso staying stable, so when they’re paid in them, they spend them fast or convert their money to American dollars — it’s unwise to keep your money in pesos for too long. The government limits how many US dollars people can buy at the official exchange rate, if they’re allotted any at all, and so they buy them at a much higher black market rate, called the “blue” dollar. It’s about double the official rate — at the moment, the official exchange rate is around 200 pesos to a dollar, while the blue rate is around 380 to one.

But, of course, without even the dollar as a backstop for the currency. Just envision how bad it would be if there were no dollars to be bought...

[malchior]

Good overview and history of what's happening here. Ornstein as an expert on Congress and a historian assembles the picture from multiple viewpoints and does a good job explaining the issues, including the radical actions of the GOP, and the media failures that are enabling it to continue.

We are nearing a crash into the debt ceiling, the most tangible threat to the full faith and credit of the United States in our lifetimes. But unless you’re paying close attention, you might not know why default is a genuine threat, nor why this crisis is really happening.

The problem is that much of the press coverage reflects neither the direness of the situation nor the reality of whose actions are actually threatening default. Most of the stories published in the mainstream media in the last few days have been about House Speaker Kevin McCarthy’s ability to get his plan through the House. The stories before that were largely about why President Joe Biden has not met with McCarthy to negotiate, or when he will hold the meeting. But to treat this as a normal political negotiation, or as one where both sides are equally at fault, is to distort reality.

Take, for example, how the story was covered last Thursday by Politico’s Playbook, a daily newsletter read widely every morning by the political and journalistic establishments. Playbook’s reporting on House Republicans’ passage of their debt ceiling plan was basically a paean to McCarthy’s adroitness in eking out a one-vote victory and speculation about the future of his speakership. There was nothing on what was in the bill—nothing about how radical and cynical it is. (More on that in a moment.)

...

...more than McCarthy’s speakership is at stake. A hard core of the House GOP extremists would be fine with a default.

For many, blowing up government would make the price of economic chaos worth it.

For others, the likelihood that a default would be blamed more on the president makes it a tempting ploy.

And—to come back to where we started—the likelihood that Biden gets blamed is enhanced when the press portrays the issue as a conventional political clash over spending. If this were genuinely about fiscal discipline, Republicans like McCarthy would not have voted three times during the Trump presidency for clean hikes in the debt ceiling—as the debt rose by a staggering $7.8 trillion.

Using the debt ceiling as a hostage is not new. But its use as a cudgel, with a core of hardline GOP lawmakers ready and willing to endure a default and a weak speaker of the House unable to stop them, is new and dangerous, and ought be reported that way. If Republicans believe that they will not face the consequences for their recklessness, we are far more likely to go over the cliff and into the first default in American history.

[Octavious]

The most crazy thing to me is that the bill they proposed is batshit insane. It's an all on assault on people with college loans. Like they want to make it even worse than it already is. There is a plan to allow people to make payments back at zero percent interest and they knifed that. The people are paying it back? What's the problem? Oh you aren't getting your juicy slice on top of the batshit crazy tuitions. Freaking state schools in NJ are 30K a year with room and board. That's supposed to be the smart option.

[Pyperkub]

It seems like we want the 1930s all over again. We can start with an economic depression after these jacked up banks implode when government bond yields go absolutely haywire.

Worse. They want to turn us into Argentina (thought I had posted this in this thread before, but apparently not):

For those unfamiliar, the ways people in Argentina navigate the day-to-day economy can sound wild. When you don’t think you can trust the bank, the currency, or anybody in charge, things can get pretty weird pretty fast.

Amid super-high inflation, people can’t bet on the value of the Argentine peso staying stable, so when they’re paid in them, they spend them fast or convert their money to American dollars — it’s unwise to keep your money in pesos for too long. The government limits how many US dollars people can buy at the official exchange rate, if they’re allotted any at all, and so they buy them at a much higher black market rate, called the “blue” dollar. It’s about double the official rate — at the moment, the official exchange rate is around 200 pesos to a dollar, while the blue rate is around 380 to one.

“The Argentine economy has taught the people here not to trust in institutions in general but also not to trust in one of the central institutions for the functioning of the economy, which is money,” said Santiago Cesteros, a research fellow at the University of Zurich and former consultant at the World Bank.

And yes, what happens if there is no US Dollar to fall back on? Argentina is probably a BEST CASE Scenario if the GOP forces a default.

[malchior]

Yeah. That's also a possibility. We have no way of knowing what'll happen because it has never happened in a modern economy at this scale. We could be looking at a push into a major, drastic decline in our standard of living which will just further stress our fault lines. We just have to hope these fucking morons don't actually go through with it or Biden does the brave thing and tries to see what happens if he attempts to take this stupid, idiotic debt limit issue off the table for good.

[Smoove_B]

We just have to hope these fucking morons don't actually go through with it

I have some bad news for you. I'm beginning to think these fucking morons want to go through with it.

[malchior]

We just have to hope these fucking morons don't actually go through with it

I have some bad news for you. I'm beginning to think these fucking morons want to go through with it.

Yeah some of them do. What I hope but only in a fantastical way is that we can still act like adults. That'd involve a minority of Republicans not involved in a doomsday cult and the Democrats to just agree to get it done. Unfortunately in the end, this comes down to McCarthy. He craves power more than he cares about the country. And a sick, messed up gamble that it'll help in the next election.

[YellowKing]

There's a lot of pessimism among Republicans about Trump's chances against Biden. Burning the country down to give any hope of a competitive edge is completely on brand for them.

[Grifman]

[LawBeefaroni]

It seems like we want the 1930s all over again. We can start with an economic depression after these jacked up banks implode when government bond yields go absolutely haywire.

Worse. They want to turn us into Argentina (thought I had posted this in this thread before, but apparently not):

For those unfamiliar, the ways people in Argentina navigate the day-to-day economy can sound wild. When you don’t think you can trust the bank, the currency, or anybody in charge, things can get pretty weird pretty fast.

Amid super-high inflation, people can’t bet on the value of the Argentine peso staying stable, so when they’re paid in them, they spend them fast or convert their money to American dollars — it’s unwise to keep your money in pesos for too long. The government limits how many US dollars people can buy at the official exchange rate, if they’re allotted any at all, and so they buy them at a much higher black market rate, called the “blue” dollar. It’s about double the official rate — at the moment, the official exchange rate is around 200 pesos to a dollar, while the blue rate is around 380 to one.

“The Argentine economy has taught the people here not to trust in institutions in general but also not to trust in one of the central institutions for the functioning of the economy, which is money,” said Santiago Cesteros, a research fellow at the University of Zurich and former consultant at the World Bank.

And yes, what happens if there is no US Dollar to fall back on? Argentina is probably a BEST CASE Scenario if the GOP forces a default.

Argentina is a good example of why the US can't and won't have runaway inflation. Nearly everyone relies on the USD. It is backed the the world's largest military budget and the highest GDP in the world. Could we experience extreme pain? Yes. But it won't look anything like Argentina and their sub-$500B GDP.

The most crazy thing to me is that the bill they proposed is batshit insane. It's an all on assault on people with college loans. Like they want to make it even worse than it already is. There is a plan to allow people to make payments back at zero percent interest and they knifed that. The people are paying it back? What's the problem? Oh you aren't getting your juicy slice on top of the batshit crazy tuitions. Freaking state schools in NJ are 30K a year with room and board. That's supposed to be the smart option.

Tuitions are high because people will pay them. People pay them because they can get cheap money to do so. Zero interest loans and/or promises of future debt forgiveness do not put downward pressure on tuitions.

That's not to say the GOP is in the right here but blind squirrel found a few nuts.

[LawBeefaroni]

Oh, an interesting thing about Argentina that ties into both items above.

I was just at dinner at a friend's house this weekend. He is from Argentina and mentioned that they have nationally funded, tuition free colleges for everyone. It's fascinating because it's rife with problems and, in my friend's estimation, has contributed to their economic and social issues. Won't go into it here because I only got snippets but one thing I did some reading about is that even with abundant free college education, the secondary education system still largely favors the wealthy, both at the publicly funded and private universities. Great ideas can have unintended consequences.

I wouldn't say my friend fled, exactly, but he left a fully furnished, whole-floor high rise condo in Buenos Aries to his housekeeper to move his family to a rental in Chicago.

[Unagi]

Sounds perfect.

[malchior]

I would prefer we find a way to permanently neuter this issue because it is a recurring fracture point that might...start a worldwide financial crisis. And we aren't stable enough anymore to bear that burden. However, Biden going on a voyage of exploration with all the unknowns and all that instability makes me nervous.

[Kraken]

The short term pain would probably be nearly equivalent to defaulting, at least until SCOTUS rules. Nobody would want to buy new US debt that might be invalidated. The long-term gain of getting rid of the debt limit would be worth brief turmoil if SCOTUS rules favorably. But that's a big IF.

I understand that the Dem minority can force a vote on a clean debt ceiling bill over the majority's objection. It would need every D vote plus a handful of R's. If Sinemanchin defects, you'd need at least half a dozen R's. And 60 votes in the Senate. Are there half a dozen responsible R reps and 11 R senators (assuming Feinstein is still dying of shingles)?

[Zarathud]

Possibly. Sinema can’t profit if her US Dollars become worthless, and neither can the GOP grifters who haven’t built their brand on chaos.

[Alefroth]

The short term pain would probably be nearly equivalent to defaulting, at least until SCOTUS rules. Nobody would want to buy new US debt that might be invalidated. The long-term gain of getting rid of the debt limit would be worth brief turmoil if SCOTUS rules favorably. But that's a big IF.

I have to assume Crowe doesn't favor default.

[Kraken]

Possibly. Sinema can’t profit if her US Dollars become worthless, and neither can the GOP grifters who haven’t built their brand on chaos.

Also, McCarthy has like a 2% chance of uniting his caucus.

[malchior]

The short term pain would probably be nearly equivalent to defaulting, at least until SCOTUS rules. Nobody would want to buy new US debt that might be invalidated. The long-term gain of getting rid of the debt limit would be worth brief turmoil if SCOTUS rules favorably. But that's a big IF.

This is the problem. Will banks take this risk? I agree it seems unlikely. Still there is some sense in it - Krugman has a thread talking through premium bonds today that'd be a interesting way to implement a debt offering. I sort of doubt it would happen though.

I understand that the Dem minority can force a vote on a clean debt ceiling bill over the majority's objection. It would need every D vote plus a handful of R's. If Sinemanchin defects, you'd need at least half a dozen R's. And 60 votes in the Senate. Are there half a dozen responsible R reps and 11 R senators (assuming Feinstein is still dying of shingles)?

Who knows. I would hate to be proven right that we were in massive decline because we can't even agree to pay our bills not because we are "broke" but because some extremists went full Michael Scott and declared bankruptcy.

[El Guapo]

The short term pain would probably be nearly equivalent to defaulting, at least until SCOTUS rules. Nobody would want to buy new US debt that might be invalidated. The long-term gain of getting rid of the debt limit would be worth brief turmoil if SCOTUS rules favorably. But that's a big IF.

I understand that the Dem minority can force a vote on a clean debt ceiling bill over the majority's objection. It would need every D vote plus a handful of R's. If Sinemanchin defects, you'd need at least half a dozen R's. And 60 votes in the Senate. Are there half a dozen responsible R reps and 11 R senators (assuming Feinstein is still dying of shingles)?

It's complicated to predict, but I strongly doubt that the short term pain would be "nearly equivalent to defaulting." These premium bonds (or U.S. debt post-coin) would definitely have higher risk as people would reasonably fear the possibility that SCOTUS would later invalidate the bonds / coin. Hence the cost of servicing U.S. debt would rise as people demanded compensation for the additional risk. But that additional risk is nowhere near the impact of the U.S. flatly refusing to pay its debts.

One question - if the Democrats can manage to somehow get a clean debt limit bill through the House, is there a procedural way to get it through the Senate without being subject to a filibuster?

[Pyperkub]

The short term pain would probably be nearly equivalent to defaulting, at least until SCOTUS rules. Nobody would want to buy new US debt that might be invalidated. The long-term gain of getting rid of the debt limit would be worth brief turmoil if SCOTUS rules favorably. But that's a big IF.

I understand that the Dem minority can force a vote on a clean debt ceiling bill over the majority's objection. It would need every D vote plus a handful of R's. If Sinemanchin defects, you'd need at least half a dozen R's. And 60 votes in the Senate. Are there half a dozen responsible R reps and 11 R senators (assuming Feinstein is still dying of shingles)?

Don't forget that Feinstein being incapacitated is impacting this math.

Sent from my SM-S908U1 using Tapatalk

[malchior]

One question - if the Democrats can manage to somehow get a clean debt limit bill through the House, is there a procedural way to get it through the Senate without being subject to a filibuster?

From what I understand? No. That being said I'm less worried there and believe McConnell would get enough non-idiots on page for it.

[El Guapo]

Also, let's not forget that Democrats agreed to a clean debt limit extension during Trump's term that pushed the debt ceiling into the first term of the next presidency. I mean, I know their leverage was limited by the fact that they're generally *not* willing to crash the global economy to prove political / partisan points, but still.

[Kraken]

(assuming Feinstein is still dying of shingles)?

Don't forget that Feinstein being incapacitated is impacting this math.

Yeah, I didn't forget. My math was off anyway because I moved Sinemanchin into the House, but the argument still works. I *think* McConnell could deliver enough R votes to void a filibuster if the House Democrats can make an end run around McCarthy and hand him a clean bill.

[malchior]

Interesting argument about a legal mechanism to prove that the debt ceiling is unconstitutional and end this stupidity.

Some commentators have raised separation-of-powers issues: Can the president simply ignore a duly enacted statute? And furthermore, will markets accept unilateral executive action if they are not sure it is valid? This uncertainty led President Obama to reject the tactic (unwisely, in my view) the last time the GOP threatened to blow up the economy.

Both questions can be addressed, because we already have a remedy in place. It involves suing Janet Yellen.

A bond is a contract between a lender and debtor. The lender provides money now in order to be paid back with interest later. Secretary Yellen’s announcement on May 1 makes one thing crystal clear: The federal government will break that debt contract, because the debt ceiling statute, by denying the necessary borrowing capacity to cover debts, forbids the Treasury from honoring its contracts.

This scenario is not speculation; it is literally the position of the law as it stands today. If nothing changes, the federal government will not honor its debts to bondholders. That means that it is time for a lawsuit against the Treasury, arguing that its refusal to pay the debt violates the Constitution.

Who would have “standing,” that is, the legal right to bring the case to court? The answer is straightforward: anyone who holds federal government debt and would therefore be owed money by the Treasury. The Court’s standing doctrine makes this clear. It insists on concrete and particularized, actual or imminent injury-in-fact, causation of the injury, and redressability by court action. All three are present here. If I hold a T-bill, and the Treasury says it will not pay me on June 1, then I have all concrete and imminent injury necessary to bring a suit. That injury is caused by the debt ceiling. And it can be redressed by finding that ceiling unconstitutional, enabling the executive to pay the government’s debts.

It’s one thing to have the president simply ignore the debt ceiling statute. The markets might get skittish because of legal uncertainty. But if a court declares the ceiling unconstitutional, that’s a different story. If anything, that would increase certainty and thus stability. With a favorable ruling, markets would know that Republican hostage-taking is over.

[Pyperkub]

Article is paywalled, but you get the gist of it:

Director of National Intelligence Avril Haines warned that China and Russia would probably seek to exploit a US government default on its debt.

It is “almost a certainty” that both countries would use such an event for propaganda purposes through “information operations,”

I'd go further, and think that both would actively try to make it worse too.

[El Guapo]

Article is paywalled, but you get the gist of it:

Director of National Intelligence Avril Haines warned that China and Russia would probably seek to exploit a US government default on its debt.

It is “almost a certainty” that both countries would use such an event for propaganda purposes through “information operations,”

I'd go further, and think that both would actively try to make it worse too.

It depends. I think that they would be tempted to, but for China in particular they'd exacerbate an already considerable risk of a global depression.