Saturday, July 23, 2011

a few more things i don't understand about the f***king debt ceiling

I've already noted, as have many other people with brains, that the whole "debt ceiling" thing is completely ridiculous. Congress has already approved all the money the federal government spends, as well as all revenue it receives; imposing a debt ceiling on top of existing law is nothing but a cheap gimmick, Congress' way of having its cake and eating it and then shitting all over the country's credit too. If you don't want public debt to rise above $14.3 trillion (or whatever) then why the fuck did you vote to spend so much and tax so little in the first place??

Though this appears to me to be the most fundamentally inexplicable thing about the debt ceiling, there are a number of other things that don't make sense to me. Lil' help anyone?

1. Obama's been talking about Social Security and other checks that wouldn't be sent out by the gov't August 3rd if the debt ceiling isn't increased. If the Treasury has the authority to choose not to disburse statutorily guaranteed entitlement checks, then how do they choose what money the do disburse? Does Obama have some sort of authority to decide, I assume? Couldn't the government continue paying interest on existing debt as its highest priority, at least for a while, thus avoiding a default? It seems like a few weeks without Social Security and Medicare benefits would probably bring the Tea Party caucus to its senses about the debt ceiling (via angry old people), thus providing for a certain increase in the debt ceiling pretty fast, before a default. This would suck for seniors, of course, but it would be a lot better a defaulting, which everyone seems to agree would be the most catastrophic economic event since the Great Depression.
2. Aren't all the negotiations about deficits and spending cuts over the next decade essentially meaningless? I understand there's a certain amount of inertia in spending and in the tax code, but couldn't the next President (God help us if it's not the same as the current one) and Congress just pass their own budget and tax laws if they don't like the debt ceiling deal anyway? What are the Democrats and Republicans really negotiating over, other than the bargaining position each side will begin with when next year's budget is negotiated?
3. If I'm camping in the woods when the economy melts down, do I have to worry about it??


  1. Oh yeah and I forgot one--does there exist an intellectually serious case to be made for the fact that short-term deficits and the amount of debt held actually pose any threat to the economy at all? As I recall learning, and as I can best work out, government debt and deficit spending is only undesirable insofar as it raises interest rates on government debt, thus diverting capital to that debt from private investment and putting pressure on interest rates across the economy. But the only thing currently threatening to push interest rates up is Republican intransigence about the raising the debt ceiling....Does any economist anywhere even try to make a case that cutting spending now will create jobs??

  2. And why do people care what credit rating S&P gives the US government so much?? Didn't they rate all those subprime mortgage securities triple a right before the financial crisis?

  3. On #1 much seems to depend on the question no one has asked let alone answered whether U.S. Treasury must pay the bills as they come in, in order, which would imply not paying creditors whose bonds mature which implies a (partial) default; vs. U.S. Treasury i.e. Obama Administration decides. If latter I would recommend (though they're not checking in with me) that the creditors be paid and the social security recipients get chits worth their payments which later they can turn in for cash. The cash-desperate will have to sell those chits on the secondary market which would instantly develop though probably at a small discount (95 cents on the dollar?); thus Tea Party holdouts on raising the ceiling would be raising "taxes" on the most vulnerable Americans.

    #2. They are negotiating over when they have to negotiate again. Repubs want to do it again soon so they can extract more (extort more?). Dems want to wait until after Presidential and Congressional elections November 2012 when they surely hope to gain back some seats in the House. Keep in mind it is harder to change existing arrangements (e.g. health care; Bush tax cuts) once in place. Given how incapable Hill is in doing anything, everyone wants inertia on his/her (hesh's) side.

    #3. You would not have any immediate worry since you have a good insurance policy (parents) and (I hope) minimal debt with adjustable interest rate. But you would have to add marginally to your long-run worry that your job search will not yield a high return soon. which as you have pointed out might reduce your lifetime income.

    #4. You are right. No economist would argue that immediate cuts will create jobs. Some non-economists seem confused about this however. . . .

    #5. People care about credit rating because regulatory set-up that says for example that pension funds cannot have more than a small part of their portfolio in less-than-AAA securities. And I suppose that rating agencies' loss of credibility on the upside hasn't undermined their credibility on the downside. . . .and because in one of those feedback loop-style distortions because others might react to S&P downgrade on U.S. Treauries even if YOU don't put much stock in S&P you better exit your Treasuries and get out the door before the others, who like you will figure they better exit. .. .this is the fundamental market failure that applies to financial market.

    From your inhouse prof . . .

  4. thanks mom!
    one more thought and then hopefully i wont have to think about this again for a while....

    obama has repeatedly stated that he won't resort to the "constitutional option" of borrowing more money using the authority of the 14th amendment, occurred to me that this could just be a negotiating tactic, a political ploy to stake out a better position for a deal, because he WANTS a deal, after all. this idea is appealing for three main reasons
    1. it seems so obviously legal for him to invoke the 14th amendment to borrow the money...after all, what he's dealing with is a ton of laws, which, in order to faithfully execute, he MUST borrow more, and one conflicting law that says he can't borrow more. even without the 14th amendment, it would seem that, facing conflicting laws, he has the option of ignoring the one he finds more catastrophically destructive. but in addition to that there's also the 14th amendment. so his saying that he doesn't believe he has the authority to override the debt ceiling seems almost seems like a bit of tongue-in-cheek.
    2. even if he really does believe that he doesn't have said authority, who could possibly stop him from doing it anyway?
    3. would he really sit there and not prevent the country from a partial default or something chaotic like that, if a deal isn't reached? seems impossible. he really may not want it to come to that, but if it does, what choice does he have?

  5. After the fact it seems clear that he should have said he WOULD invoke the 14th amendment in order to strengthen his own hand in getting to a better deal. It would also have shown that elusive quality we are all missing: leadership. Ah well . . .another win-win opportunity of good politics cudda been good economics. . . passed up by a president that is too damn reasonable...