The fight over the debt ceiling is shaping up to be the defining political struggle of our time. While it may yet end with a whimper rather than a bang, it looks increasingly like the House Republicans actually will push their refusal to increase the ceiling right up to the brink, and perhaps beyond, until we actually are up against the ceiling and can borrow no more. The results of that situation are bound to be quite serious, possibly catastrophic.
Yet despite the importance of this struggle, and despite the increasing attention it is getting from all sorts of media, this site included, key aspects of the situation are almost universally, this site included, dramatically misrepresented. In particular, the nature of the catastrophe that would result from failure to raise the ceiling is profoundly misunderstood.
I propose to demonstrate two propositions about the debt ceiling crisis beyond a reasonable doubt, arguing purely from common sense and not from any ideology.
For one thing, even if borrrowing brings us up to the ceiling, the ceiling is respected and the US therefor stops borrowing at that limit, there is simply no way that this will result in the US defaulting in any way on any of its debt. We do not face a default no matter what the House Republicans do.
Secondly, there is no way that any administration, of whatever ideological inclination, would be able to respect the debt ceiling anyway. This president will not, will not be able to even if he wanted to, honor the debt ceiling.
By starting, at least, from common sense, what I mean to do is to talk about this debt ceiling controversy in terms of the practical realities involved, what the ceiling would involve if enforced, exactly what enforcing it would require. Let’s get straight on the mechanics of what could happen when the national debt exceeds the ceiling, because everything else we think about the consequences, and the even wider question of the political and policy rights and wrongs involved, all should start from the best answers we can produce about what actually has to happen if the ceiling is reached and then breached.
Now, part of what I mean by a common sense approach to this question, is a lay approach, as opposed to a professional legal approach. I would be happy for any advice, commentary or corrections offered by constitutional lawyers to what I have to say. I certainly could be making some elementary mistakes in assumptions, and not be aware that one or another key point I imagine to be an open question, is actually settled law. But that seems unlikely. We’ve never had the US default, not since it’s been the US, so there wouldn’t seem to have been much opportunity for the law to reach a settled state in these matters. And it seems to me that this matter is unlikely to be litigated, even if it does come to a breach of the ceiling over the next few weeks. The Law and the Constitution need to be central to our thinking about this debt ceiling and its breach, but not as practiced by lawyers and judges. This really isn’t their business – it’s between and among the legislature and the executive, the conclusions to be tried in the court of public opinion, and the verdict delivered next election.
Just as I’m going to settle for an approximate, lay, understanding of the debt ceiling law, I’m going to settle for ballpark figures reported in the media for the important expenditures involved. I am going to assume that, at the current burn rate, the US meets 55% of its spending obligations from taxes and other non-borrowing revenue, and 45% from borrowing. I am going to accept the figure of slightly under 10% for the percentage of current expenditures that goes to debt service, to paying interest on the national debt.
No Default on Debt
The debt ceiling presents absolutely no bar at all to the US paying its debts to actual creditors, people and institutions it has borrowed from in the past, in our long history of deficit spending. It’s only effect, even if rigidly and religiously observed, would be to prevent the national debt, the cumulative net of that long history of annual deficits, from rising past its current ceiling of a bit over $14 trillion. If observed, the ceiling would keep the US from borrowing any more than that $14 trillion, and, since we are in a deficit spending situation, have been for years, at that point US expenditures would have to be curtailed by 45%. We would not be able to afford to make all the expenditures in the budget Congress passed a few months ago, because only 55% of that level of expenditure comes from tax revenue, and that extra 45% that makes up the difference while we are still under the ceiling, could no longer be borrowed, so would no longer be available to meet expenses.
Now, the payment of principal and interest on past borrowing is indeed part of those expenditures, so if some expenditures have to be set aside and not paid out because we can only afford to pay 55% of our obligations, yes, debt payments might theoretically be chosen to be among the expenditures not made. But that would not make any practical sense.
Paying the principal on old debt is a no-brainer. Because such payment discharges the old debt, it is the only kind of expenditure that is ceiling-neutral. Whatever principal is paid to creditors immediately lowers the national debt by exactly that amount, and so creates more headroom under the ceiling by exactly the amount spent. You therefore lose nothing by paying creditors their principal, but gain this very important advantage, that you remain a good credit risk. Because old US debt matures all the time, and we would want to roll it over, borrowing again up to the ceiling to keep the disruption of cutting 45% of US expenditures from being the even greater disruption of cutting more than 45%, we would need to get the best terms possible when we sell more of our debt. The US can borrow on excellent terms right now, under 3%, but that would worsen dramatically if the US were to ever default on the payment of principal.
The case for paying all interest owed on existing debt is almost as compelling. These debt service payments are not ceiling-neutral, as paying principal is. The money to pay debt service will have to come out of the 55% of current expenditures we can meet out of tax revenue. At 10% of expenditures, that should be doable. But if debt service is not prioritized, we have the same problem as with not paying principal. Rolling over old debt becomes rapidly more expensive, eats up more of that precious 55% than if we keep up with all of our obligations to creditors.
It’s not that paying creditors, who might often be quite undeserving, not in true need, and even unsympathetic compared to recipients of other sorts of US expenditures, should be in itself a priority. But the mechanics of the situation dictates that whatever your values, whatever recipient of government money you feel is more deserving, that you have to pay creditors first, because we do have to roll over old debt and borrow more money going forward, and stiffing creditors means we can only do that on worse and worse terms, and that there would therefore be less money to pay for whatever our values dictate are the most important ends of government.
Now, you could make the objection that we could get into trouble and be unable to always meet our obligations to creditors, because while the 10% debt service is a lot less than the 55% money available, those percentages are only a long-term average. Debt service payments out of the Treasury and revenue intake into it are not uniform from day to day or even week to week. You could have a day when there isn’t enough money coming in to pay all debt service, even if it were the top priority.
Now, we have been granting for the sake of argument the assumption that Treasury could and would engage in selective payment of some US obligations in the event of a breach in the ceiling. Such selective payment couldn’t happen; there isn’t any legal authority for it, as we shall see in more detail in the next section. But, as long as we are still granting that counterfactual for the sake of the argument, then we have to allow that Treasury will be able to selectively withhold paying off lesser priorities one day in order to always have money on hand to meet all debt service requirements every day, no matter how much day-to-day variance there is in the amounts taken in from taxes, and owed for debt service. Those variances occur on a predictable schedule, and money can be set aside to meet debt service requirements. You can’t imagine a Treasury so rigidly bound to meet all obligations to spend money that it is compelled to not leave so much as a dime in the till at the end of the business day to help cover debt service for tomorrow, but still so free to ignore obligations that it gets to stiff 45% of them.
No Default on any US Obligations
As explained in that last paragraph, the idea that the US could and would fail to meet any of its obligations just because the national debt reaches the ceiling is based on the assumption that Treasury has the legal authority to broker US spending: to decide which 55% of US spending obligations are met, and which 45% get stiffed. That simply is not the case. US spending can only be parceled out by law, and Congress has passed no law instructing Treasury who to pay and who not to pay if there isn’t enough money to pay everyone owed it by the US. I assume that this must be true, because if there were such statutory instructions on the order of payment in a national repudiation of obligations, it would be the most studied document in the US right now. This inquiring mind wants to know if his military retirement is on the 55% “pay it!” list, or the 45% “tough luck!” list, and there are hundreds of millions of other Americans with a similar keen personal interest in that question. In the absence of such instructions, Treasury would not have the authority to pick and choose what to pay, it remains legally bound to pay everyone without discrimination.
Now, most people who comment on the possible breach of the ceiling speak as if the debt ceiling law were the only statute on the books. The day the national debt hits the ceiling, this law says the US can’t sell any more debt, therefore the Treasury will be, by law, empty -- well, empty after 55% of that day’s obligations are paid -- so there simply won’t be the money to pay 45% of expenditures. But of course the debt ceiling law isn’t the only law on the books. More to the point, it’s not the only or final word on how money moves into and out of the Treasury. There is an entire legal scheme in place to govern how money is taken into and sent out of the Treasury, laws passed by Congress to implement the broad Constitutional scheme set forth in Art. I, sec 8. And the debt ceiling statute is a sort of fifth wheel in that scheme.
The ceiling law doesn’t actually even seem to do anything as long as the national debt is below the ceiling. The actual, functional limit to how much Treasury borrows in those circumstances is that it is both allowed and required by law to borrow just enough to meet all the projected spending obligations on the US entered into by law. As the debt approaches the ceiling, the law’s function is to remind Congress to give the size of the national debt the consideration required to schedule a vote to raise it again.
Now, if the reminder is ignored by Congress, and the ceiling is not raised, the ceiling statute passes from a minor irrelevance to an irrelevance that actually threatens to interfere with the workings of the overall legal scheme. Were we to make the mistake of treating what was intended to merely be a warning bell as if it were meant to force repudiation of legal obligations, if we let it have the effect of halting borrowing when that would conflict with all the laws obligating spending, the whole legal scheme collapses. Congress loses its Constitutionally-mandated control over spending, directly and immediately. Congress also, by way of increases in the cost of borrowing not factored into its calculations when it decided on taxation levels, loses its equally mandated control over taxation and borrowing. Those results could not possibly have been the intent of the ceiling law, because we have to interpret statutes as if the intent is compatible with other laws and with the Constitution. It’s not that the ceiling law is unconstitutional; it’s the more basic proposition that if you think it’s intended to blow up the whole legal scheme governing US taxation, borrowing and spending, you must be mistaken, because that’s an interpretation placing this law at odds with the other, vital elements of the legal scheme, and making the entire scheme yield results that would be unconstitutional.
The Constitutional scheme for money going into and out of the Treasury is quite simple. Money only goes into the Treasury, in the form of taxation or borrowing, via public law, and money only leaves the Treasury by way of public laws obligating spending. The idea here is to not allow the executive to have its own sources of revenue, and objects of expenditure, out of public view and public control.
To implement government according to that Constitutional scheme, Congress has over the years passed laws setting up the ever-evolving legal scheme that authorizes Treasury to take in and pay out money. It has always kept a tight rein on spending and non-borrowing intake, mostly from taxation. Treasury clearly does not have the authority to either increase taxes or decrease spending in order to resolve a mismatch between intake and outflow. It does, however, have the authority, and the duty, given it by law, to issue as much debt as is necessary to cover the mismatch between revenue inflow and spending outflow.
The only way to keep that scheme intact, when and if the national debt exceeds the debt ceiling, is to interpret the ceiling law as not applying to Treasury, to assume that it is what we always thought it was in the past, purely an internal reminder to Congress to address the entire status of US revenue, borrowing and expenditure. Congress is, of course, free to fail to take action in response to these internal controls, which is why such controls, such attempts by one Congress to control the actions of any future Congress, are useless at best, and positively damaging by promising what cannot be delivered. But there is no reason to believe that this debt ceiling law, this foolish attempt to bind future Congressional action, was intended to force the Treasury to violate all the laws that obligate spending. The only way the debt ceiling law could possibly be interpreted as intending that result, would be if this law made provision, or there was provision somewhere else in federal statutes, for Congress to retain control of spending. There would have to be a prioritization of spending in law, a law allowing Treasury to respond to a shortfall of funds by brokering spending, and dictating what spending obligations were to be honored, and which breached. In the absence of that authorization, Treasury has no alternative to responding to a shortfall of funds by using the authority granted it in law to borrow all that is needed to meet US obligations. That would also be Treasury’s duty, a duty it is not at liberty to set aside in order to observe the ceiling in the ceiling law. Only Congress, by law, can set aside a spending obligation created by law.
The 14th Amendment, and Other Workarounds
This problem does not require the 14th Amendment to be brought in to declare the ceiling law unconstitutional. The defect with interpreting the ceiling law as applying to Treasury arises from the fact that this interpretation would create an irresolvable conflict with all the statutes obligating spending. The spending laws or the ceiling law would have to thrown out if that interpretation were allowed, so that interpretation cannot be allowed unless it is the only interpretation possible. It clearly isn’t. The idea that the ceiling is only intended to trigger a vote of Congress was always the common sense, conventional wisdom about the force of this law until the Tea Party came to town.
The only place the 14th might have in this matter would be that it would prevent Congress itself from setting aside, even by law, some subset of US obligations. The 14th might be brought in to prevent some spending cuts contained in any grand bargain voted into law by Congress to resolve this false debt ceiling crisis, at least for obligations that fit into that subset of protected obligations. The delineation of what that subset of obligations might be is beyond common sense, so I won’t attempt it, but hopefully my military pension makes the cut, given that pensions promised for military service are cited specifically as being protected.
There have been other workarounds floated as possible ways to avoid the disastrous practical consequences of letting the US default on any obligation, debt or otherwise. People talk of minting a trillion dollar coin and debt seigniorage, and they talk of just having the Fed let Treasury kite billion dollar checks. While these gambits might work because this matter is unlikely to ever be litigated, I see no need for them. Their use would only weaken the common sense case for having Treasury interpret the ceiling law as simply not applying to its operations. Use of either of these workarounds would be an admission that the ceiling law does apply to Treasury, does force it to quit issuing debt beyond the ceiling. That would be an unnecessary admission and incorrect assertion.
Why is Everyone Afraid of Default?
Well, that’s the $64K question, isn’t it, if common sense tells us that Treasury cannot default, that the ceiling has no bearing on what the law dictates that Treasury must do? Why this near-universal agreement that we face Default Armageddon if the ceiling is not raised?
Of course Glen Tomkins could be wrong about the lack of default risk. He often is wrong. Just review his diaries and comments if you need convincing. But common sense is never wrong. Ignored, yes, that happens, even nearly universally ignored – but never wrong. If common sense is being ignored on any question, that is the most needful aspect of the matter to pay attention to. The World is usually not reachable with logic and sense, but it cannot be understood without understanding its departure from logic and sense. So, to understand if not to change behavior, let’s review how and why the various parties in play are managing to ignore the common sense that failure to raise the debt ceiling creates no crisis whatsoever.
The Republicans are pretending that failure to raise the debt ceiling would result in default because they need that false belief to make their threat to not raise the ceiling carry weight. Without default, the ceiling is just a water pistol aimed at the head of the economy. Go ahead, pull the trigger.
They only won control of the House last election, and divided government in the US system means caretaker government – neither party can get any big initiatives passed, because both have a veto on action, so all that either party can do is maintain existing programs. At most they get to add or subtract a bit at the margins of favored or disfavored programs, but these programs are established in law, and can only be gotten rid of, or changed in any way, by law, which requires the trifecta, both chambers plus the president.
Well, the Rs didn’t get the trifecta, but wish they had, and are unwilling to settle for a lesser result than if they had. Worse for them, they have the Tea Party to contend with, a bunch of radicals who have convinced themselves that the takeover of the House in 2010 was due to themselves and their Teahadist ideology. They promised a Second American Revolution, but can hardly deliver with just the House, as just the junior partner in a caretaker government.
The Republicans almost have to overreach, to engage in constitutional hardball to give themselves more power than they won by the normal rules. They have to invent new veto points that grant their House majority the ability to hold the nation hostage. The annual appropriations were somewhat useful for that, for hostage-taking over that fake veto point. But shutting down the government suffers from too much familiarity to the general public. It’s been done, and its transparent use then as an overreach has made people quick to see any fresh use as illegitimate aggression, as the grabbing of more power than is due that it actually is. So they didn’t get much from that hostage-taking.
The debt ceiling has the advantage of unfamiliarity. There is no pre-set narrative; the public has not been warned by prior experience to look for overreach in the use of the debt ceiling to hold the US hostage. And, on its face, the ceiling seems designed to be misunderstood, understood as something other than what it is, by people who don’t pay close and careful attention to public affairs. Most governments in this country are not allowed to operate with the deficit spending that is the standard at the federal level. Undoubtedly many people believe that raising the debt ceiling plays the same role at the federal level that voting a bond issue does at the local level. They imagine that what is being discussed is whether we create new money for Congress to spend, that Congress doesn’t get to spend money until after money is made available by taxing or borrowing new money. The Republicans don’t seem the obvious aggressors, don’t seem to be playing constitutional hardball when they threaten to block the rise in the ceiling, because many people imagine that this is new law being debated, and of course the majorities in either chamber have every right to block new legislation. They don’t understand that it is spending already passed into law, programs long established, that the House majority is seeking to end unilaterally by essentially retrospectively vetoing hundreds of laws obligating spending that were passed by both chambers and signed by the president.
Whether Obama really agrees with Republican government spending philosophy, or is acting from compulsion, or some combination, is a matter beyond the ability of common sense to answer, so I won’t attempt to resolve that question.
If Obama is making deals with Republicans who don’t really have any threat leverage in the situation, because he agrees with their philosophy, then he has the same interest as they do in preserving the fiction that breeching the ceiling means default. The discussion above applies to him.
But if Obama isn’t in cahoots with the other side, if he is actually fighting them rather than enabling them, then the Republicans still have in refusal to raise the ceiling the ability to threaten a hostage Obama values. They can’t actually cause default by refusing to raise the ceiling, but they can maneuver Obama into Kenyan Usurpation by that refusal. They can’t create a real constitutional crisis, but they can create a very troublesome fake constitutional crisis.
However necessary and lawful it would be for Treasury to act on the interpretation that the ceiling doesn’t apply to its operations, that action would still be easily portrayed as willful disregard for the law. Their noise machine would finally have some solid Kenyan Usurpation to sink its teeth into. And, unfortunately, there probably wouldn’t be any court decision forthcoming to refute that impression of lawlessness, and vindicate the administration’s position. Only Congress would possibly have standing to sue over this interpretation of the ceiling law, precisely because, unlike observing the ceiling and stiffing 45% of government obligations, there would be no injured parties if the ceiling were not observed by Treasury, except perhaps a Congress claiming that Treasury was flouting its will. However, even if they get past it being just the House without Senate concurrence, and the courts allow that the House by itself has standing, they still probably won’t be granted cert because they won’t be able to ask for any possible injunctive relief. They can’t ask the courts to order Treasury to stop issuing debt over the ceiling without also telling Treasury which 55% of obligations to pay and which 45% to stiff in the resulting shortfall. The courts can’t decide themselves which spending to require and which to repudiate, only Congress can do that. Only the full Congress can do that, by passing a law. The House alone can’t do that, just by drawing up a court pleading specifying its priorities. And if the full Congress did that, cut 45% of spending by passing a law to that effect, the need for the lawsuit would evaporate.
Now, the refusal to grant cert would be, to people who pay much attention to legal matters, probably even a more telling vindication of the administration’s position than an actual decision in its favor. But, there would be no decision with the sort of finality that the public expects. There would be no declaration that the ceiling law is unconstitutional, or otherwise invalid. The question would, in most people’s minds, remain in a sort of legal limbo. The noise machine would declare that Obama had gotten off on a technicality, that their case was right and just, but the courts simply hadn’t been allowed to hear it because of this technical cert business. The Republicans would be free to continue to maintain that ignoring the ceiling was pure, outright Kenyan Usurpation.
That line would set them up to get away with being more aggressive with the upcoming fight over the budget bills. Now, the same logic as outlined above for the ceiling, applies also to spending obligations created by statutes Congress passes, and just about any law imaginable creates the need to spend at least enforcement money. But, if that process of creating an obligation to spend money hasn’t yet gone through that last stage of the reconciliation process, whose end result are the bills that actually appropriate money, there is some wiggle room to say that the spending hasn’t been finally and unequivocally required by law. You don’t have that wiggle room, that lack of finality, for spending in the ceiling scenario, because in that case the money has already been appropriated, its spending is a clear legal requirement.
Now, as discussed above, the Republicans didn’t feel they could be too aggressive with threatening to withhold the annual appropriations bills when the CRs ran out a few months ago. However, if we were still in this legal limbo over Treasury ignoring the ceiling, they would feel less constrained about playing hardball with the appropriations bills. The optics would be a lot better for them, they would escape default blame for being the aggressor. And there is no doubt that lack of appropriations presents an actual legal problem to just continuing spending as usual, in ways that the ceiling doesn’t. But putting the two together would let the Rs use the ongoing legal limbo surrounding the ceiling, which carries no real threat, to enable more aggressive use of the threat of government shutdown, which the lack of appropriations bills actually could cause.
Even if we assume that Obama were a dedicated progressive, the threat presented by these possible R responses two or three moves ahead in the game would have acted to deter the straightforward response to the R threat to not raise the ceiling, the response of announcing that Treasury would not honor the ceiling. Why should the president take any sort of risk at all of appearing the aggressor in constitutional hardball, when it is Congress’s duty to raise the ceiling? If they want to be passive aggressive and try to foist blame on him by screwing around with the ceiling, what better response than to pay them back in kind with some return passive aggressive behavior? Pass the ceiling rise or be responsible for default!
The problem with that strategy of fighting fire with fire is that after months of branding the other side as dangerous extremists for being willing to risk default Armageddon by screwing around with raising the ceiling, the president can’t really go back now and have Treasury respond to a breech in the ceiling with business as usual. You promise Armageddon, and you have to at least deliver some fireworks when the Last Trumpet sounds.
Republic of the Passive Aggressive
The problem is certainly not confined to this fight we have seen over the debt ceiling. Whether it’s the filibuster and hold in the Senate, or the budget reconciliation process, and now the debt ceiling, we see the same pattern of once useful institutions and practices taken over and made malignant by passive aggressive behavior.
The Republicans certainly didn’t invent the passive aggressive style in American politics (not as flashy as the paranoid style, but arguably more pervasive). In the case of the budget reconciliation process, by the late Carter administration, a few D Senators and Congressmen were starting to make a habit of quietly holding up one or another of these bills to extort some minor concession or another. It had always been the practice before to simply continue spending if the bills were held up by either some such hold-up, or by simple schedule slippage in either chamber. But by late in the Carter administration, the administration got sick of putting up with that passive aggressive crap, so it had the AG at the time direct that in the future, failure of Congress to complete its reconciliation process and pass appropriations would be treated by the administration as the absence of spending authority, and the government would shut down. The idea was to out-passive-aggressive the SOBs, to get them to stop by creating very public, very dire consequences for their little racket.
Well, except that if two can play at that passive aggressive game, then so can three, or four or forty. You get a whole pseudo-movement of the passive aggressive, your contemporary Republican Party, and they’re no longer deterred from using a fake veto point to take hostages by publicity, because they’re proud of what they’re doing. They’re not lone mooks each trying to unobtrusively chisel a bit of pork; they’re a pseudo-ideology of organized mookdom, mookdom militant. And, most importantly, because Civiletti wrote that opinion for the Carter administration, and parts of that idea that the lack of signed appropriations bills means the government shuts down have actually since been put into law – we’re no longer dealing with an entirely fake veto point. We can now have a bare majority of just one chamber exert an actual veto nowhere contemplated in the Constitution, and this structural monstrosity is universally accepted. The system can no longer deal with holdups of the reconciliation process by treating them with the oblivion they deserve, they now have to be taken seriously.
Now we are adding the debt ceiling to the officially sanctioned veto armamentarium legally available to hostage takers by passing this grand bargain into law. Not only does it create a precedent (not legally binding, but inertia is all) for the legitimacy of the insane idea that the ceiling applies to Treasury, and therefore it is intended as a sort of self-destruct button on the US fisc; the bargain as currently formulated creates several specific legal veto points in the future, including an embodiment of the passive aggressive in committee form, this Super Congress. Forget about the disastrous financial consequences of cutting spending in the teeth of the Little Depression. This grand bargain is going to make the passive aggressive approach to power irresistibly attractive as the method of choice to get any future equally destructive content past the Constitutionally-mandated legislative process. You think thr process is horrible now, you ain’t seen nothing yet.
Trying to fight the passive aggressive SOBs with our own passive aggressive response does not work. It’s been one disaster after another from Benjamin Civiletti in 1981 to Obama today. They’re better at it than we are. If we let every political fight be fought as a diving contest won by diving the deepest into passive aggressive behavior, they win every time. Worse, the whole political process becomes more and more hopelessly out of touch with reality, more twisted with lies and BS.
We have already lost a lot of time and space in this fight by not being open and honest up front about the unreality of the idea that the ceiling could cause default. Saying that now means we have to admit to spreading manipulative BS on that topic earlier. There’s no clever way past the cost and difficulty of that admission, and that’s why we don’t tell easy lies to begin with, because they only seem easy at the outset before they form their tangled web.
But, hard as it would be now to come clean, it just gets harder the more the reckoning is put off. Let the lies become ingrained into the structure of how we do politics in this country, and we reach a point where the whole structure has to come down before the lies can end. We’ve probably already passed that point at which we need glasnost before we can have perestroika, but also perestroika before we can have glasnost. At any rate, it should serve as a wake-up call that our politics are so readily understood in the same terms that Gorbachev needed to describe the last days of the late unlamented Soviet Union.