I don't usually say this, but I really wish the executive branch would just rip this responsibility out of Congress' hands. I'm not an expert but my understanding is there are at least theoretically Constitutional ways - that would surely go to court of course.
I'm just so sick of Republicans being unserious about the debt ceiling and causing this FUD over and over again.
I’m not sure that’s it’s clear. If the Congress passes a budget, does it create debt? Or is the debt created only when the Treasury issues a bond to pay for it?
Let’s say that Biden directs the Treasury to ignore the debt ceiling law, citing the 14th amendment. Who has standing to file a lawsuit to challenge him? Who is directly harmed? You and I aren’t allowed to sue the EPA to force them to do anything about climate change, because our harms are generalized. We need to prove we’re directly harmed.
Ok, but let’s say that someone is allowed to sue. It works its way through the court system and Biden loses. Does that mean we have to claw back all the payments the federal government made?
Interesting thought. It raises a bunch of other questions though. In what other circumstance would a derivatives trader say “I would have profited but for your (possibly illegal) actions”? And are we seeing such lawsuits?
Not sure if the following cases offer precedents. Obviously, the Federal Govt enjoys additional legal powers, but these cases offer the circumstances where a party sued their derivatives trader (the opposite of the questions you raise).
Procter & Gamble v. Bankers Trust [1]
P&G sued BT for losses incurred in derivatives contracts that should not have been sold by BT. This article [2] provides some more detail:
> In another high-profile case, Procter & Gamble Co. is suing Bankers Trust, its derivatives dealer, blaming it for a loss of dollars 195 million on two interest-rate contracts the company claims it should not have been sold.
> Procter & Gamble recently upped the stakes dramatically, claiming triple damages under U.S. civil racketeering legislation. In a related development, a shareholder has sued Procter & Gamble for financial irresponsibility.
The outcome of the case is that Bankers Trust settled with P&G as per this article [3].
The same article [2] also mentions the Orange County bankruptcy where OC sued its derivatives broker. At the time, this was one of the largest financial failures.
> Orange County is suing both its main derivatives broker, Merrill Lynch, and the accounting firm Peat Marwick
Merrill Lynch paid OC $437 M to settle as per this article [4].
> 14th amendment makes it pretty clear as far as I can tell that America may not default.
Right, but even if that means the executive can take some action that otherwise would be prohibited if the Congress passes taxing and spending bills but also passes a debt limit inconsistent with the net result, that doesn’t mean that the executive can take any action in his discretion. While, say, the Biden Administration might agree that the 14th Amendment would, ultimately, allow the government to pay its debts, they probably don’t want to take the risk that the courts would determine that that means that the executive must unilaterally cut appropriated spending to minimize any overage in the debt limit, and return within it as soon as practical while paying debt service. (Both because they wouldn’t prefer spending cuts to ignoring the debt limit, and because politically they don’t want to be on the hook for the impacts of spending cuts they don’t want to make.)
Conversely, while Republicans might like that outcome, they wouldn’t like court finding that, indeed, the executive can choose to just ignore the debt limit in the case of that kind of conflict.
So no one actually wants to get the position of having the courts resolve this, especially since US courts don’t give advisory rulings, so the only way to get it before the courts is to get into a situation where the court ruling is going to be atomic bomb for one side or the other on the issue.
Following the debt limit rule is clearly more illegal than following the budget. With following the debt limit, the president would essentially get sole discretion as to what programs to fund or cut. That would essentially take all power away from congress.
Congress passed the budgets that got the debt, the president can’t pick and choose what to fund as some run around of all the laws and separation of power we have.
> Following the debt limit rule is clearly more illegal than following the budget.
Not sure where you get that. While there is case law suggesting that budget spending is generally mandatory with certain exceptions, the Constitution itself does not expressly dictate that – it prohibits spending non-appropriated funds, but does not explicitly prohibit refusing to spend appropriated funds. You could make a textual argument that spending funds in violation of laws passed by Congress is “more illegal” than not spending funds directed in those laws.
> With following the debt limit, the president would essentially get sole discretion as to what programs to fund or cut.
I can see why that might be undesirable from a particular set of values, but I don’t see that that makes it “clearly illegal” in the only sense that matters, which is, “indisputably what the Supreme Court would rule should a dispute come to it.”
> That would essentially take all power away from congress.
No, because Congress could always pass a debt limit increase (even over a Presidential veto) that eliminated the conflict and took that power away from the President.
> Congress passed the budgets that got the debt, the president can’t pick and choose what to fund as some run around of all the laws and separation of power we have.
By the same token, Congress passed the debt limit, and the President can’t pick and choose what limits to ignore as some end run around all the laws and separation of power we have.
A gentle walk through the first couple pages of your post history suggests you have very strong opinions about American government and that this is just bait to cause a ruckus
Someone help me understand, as a non American. I'm in finance by trade so I understand the mechanics here. When the budget is passed by congress, it is known that the debt limit will be exceeded - this is fairly trivial to model. So why not include the commensurate debt ceiling increase as part of the budget bill?
Because this is a bullshit game of politics. The politicians come up with absurd ways of log jamming the system. They all want to use any tool as a weapon to get their way.
> So why not include the commensurate debt ceiling increase as part of the budget bill?
This would be equivalent to just eliminating the debt ceiling, and that (either directly or in the effectively-equivaent form you have suggested) is the obviously the correct thing to do. However, it reduces the number of opportunities for hostage taking brinksmanship by a party that lacks a trifecta but controls at least one house of Congress, so it is difficult to pass while there is a party that (1) is currently in that state, or (2) sees itself as likely to be in that state and wanting to preserve the possibility of using that tactic in the near future.
Republicans are following the Two Santas strategy. The democratic Santa is increased social spending. The Republican Santa is cutting taxes during their administration. The debt ceiling is used to force the next administration to pay for them, either by raising taxes or cutting spending.
Congress passes a budget of X. Congress passes an issue of Treasuries of Y.
If X is greater than Y then the remainder will turn up as negative capital at the Fed. By accounting identity.
The Fed has no legal authority to refuse a payment order from Treasury. The Fed just needs to account for the order and wait until Congress sorts itself out.
In other words there is no such thing as an empty chest and if Biden had any sense he would order the Fed to pay and then take it to court if the Fed refused.
Courts are used to interpreting conflicting instructions from Congress and the constitution.
Except for the fact that if the Fed is taken to court for dishonoring a paymrnt order, the impact on the confidence of the dollar as a reserve currency and the psyche of all dollar bond-holders' faith in the redemption value of their bonds will drop.
It is difficult to predict the impact of this. But it is more than likely to be severe financial collapse.
If dollar payments to settle intl trade is interrupted, the consumption growth of goods and services in the US will stop and begin falling. The trading partners have been servicing this consumption growth for several decades only because of the relative safety of the dollar. Hoping that would continue regardless of the degradation of the safety of the dollar is wishful thinking.
Thinking that this won't impact the purchasing power of the dollar has no basis in logic.
There is no basis in logic for what you are saying. The disaster doesn’t happen because even Treasuries beyond their payment date are discountable. Even more so at the lender of last resort.
You are talking about the Fed refusing to do its job. How long do you think the people in charge of the Fed will stay in charge in that situation?
The Fed is not God. It is the agent of the Treasury and it does what Treasury tells it to do - just as Bernanke said when he testified to Congress.
This whole debt ceiling debacle is a symptom not the problem. Government spending far exceeds tax revenue. The fiscal deficit gap needs to be smaller or either: (1) the debt burden will ballon (2) protracted high inflation.
We run trillion dollar deficits… me and my kids will be burdened with this debt!
At the same time we hand out tremendous benefits to the elderly through SS. We should be spending more on children than the elderly.
Why is it only a problem when one party is in charge and ignored when the other party is in power?
I agree that it’s a problem. I’m just pointing out why nothing is being done. What you see here is 100% political theater and wheeling and dealing. Meanwhile the debt goes up continuously under both Democrats and Republicans.
Few members of either party are actually serious about cutting spending, especially when they get into power and cuts might be to their pet projects. There’s also a culture of using pork spending to almost literally buy votes. It’s been entrenched in the US systems for generations.
Total tax revenues in 2022 were $2.69T. Medicare and social security were $2.14T. National defense was $0.776T. The three absolutely-cannot-cut categories alone are more than revenue! Of course nobody is serious about balancing the budget.
I do believe something similar to that. Not that it's completely unrelated, but that the rate of inflation is related to the use of monetary policy controls as a whole, not just currency issuance and wages. The traditional economic dogma about inflation and spending is wrong.
I think the long term goal should be to reduce the power of the executive. The desire by people to bypass congress via tue courts or executive, is short sighted and extremely damaging to our democracy.
Instead I’d rather changes that incentivize congress to act. Say a law that would automatically increase the debt limit as long as a budget or continuing resolution in force. And a second law that said that to the extent a budget is not passed that the 1/4 of the respective house or Senate’s membership of the party in control gets automatically term limited out in the next election cycle.
I think the actual long-term goal should be a government which reflects the will of the governed.
There are a lot of mechanisms that prevent the will of the people from being expressed at the federal level right now, but the two-party system, first past the post, and Citizens United are probably the big three.
The increasing power of the executive and the courts have come about almost entirely because the legislature has abdicated its power and responsibility. One of our two political parties is heavily invested in preventing action at the federal level, and the other two branches have stepped in to fill that power vacuum. This is sort of necessary, in that it keeps our country from grinding to a halt, but it also consolidates power to fewer, and in many cases unaccountable, people.
When you talk to folks in politics around the periphery of Congress and the white house and you bring up major systemic change, in my experience they shake their head and say, "let me stop you there."
There is only 1 issue they care about. They all say it is the root, the basis for any and all other change.
Campaign finance reform. When you are campaigning and fundraising full time you cannot and will not do your job as a legislator. I have heard this over and over and over.
I'm pretty sure I agree with this. Money in politics isn't the only issue we need to solve, but it is likely the most important. As long as politicians are beholden to people who can afford to fund their campaigns, the will of the people will always be a secondary consideration.
I've been flummoxed by the legislature's abdication of power for awhile now too, but your post brought a disturbing idea into my head. What if this abdication actually _is_ the will of the people? From my limited exposure it seems that the only people who communicate with their legislators are the most polarized constituents who would demand obstruction.
I don't think people want the legislature to cede its power to the other branches, but I do think the other branches are easier to understand. When the President issues an executive order, or a court issues a ruling, there are one, three, or nine people. It conforms more to what people think of as "rulership," and it allows for "easy" "victories" that route around the long and clumsy process of legislation.
But you do point out a significant problem, regarding polarized constituents. More than just communication, it's usually the most polarized members of a party who take part in the primaries. This has the effect of dragging politics towards the extremes, rather than the center, and makes cooperation between parties essentially impossible.
Removing first past the post, through ranked choice or some other mathematically superior method of handling elections, would do a lot to correct that.
I wish I could find it - but there was a great study that’s probability 20-30years old that basically said legislators did an excellent job of representing their constituents interests - but that voters were not rational (they wanted it cheap, fast, and good, but we’re not willing to pick two) and hence the disconnect
We can’t do this without also fixing the filibuster. As it stands, almost nothing can be passed with legislation, even if you have a significant majority.
As much as I hate to say it -- I really think there is no room for the white house to negotiate on this. The reality is, appeasing the terroristic political element here only perpetuates a deeply corrupted "budgeting" process -- one that is entirely political and not remotely related to any form of rational governance. The long term effects of continuing to gift the terrorists in this way (like those that manifested under Obama as decades long sequestration) are ultimately worse than the incredibly dumb and incredibly avoidable consequences that will come from a default.
After the negative consequences of default manifest -- the one thing we can know with certainty is that there will be a powerful consensus around not allowing this effect to manifest again. The damage of the idiocy will ultimately be worth it to avoid continuing this tragic hostage taking drama forever...
The move here is to steal yourself that you _will_ allow default and say "the united states does not negotiate with terrorists" -- and admit absolutely no discussions about anything other than resolving the debt limit without any strings attached.
46 comments
[ 3.2 ms ] story [ 97.5 ms ] threadI'm just so sick of Republicans being unserious about the debt ceiling and causing this FUD over and over again.
It’s a plainly ridiculous exercise that threatens the world and empowers right wing psychopaths.
It says nothing about default, it’s talking about disputing the debt. Disputing debt is different than not having the money to pay it.
Let’s say that Biden directs the Treasury to ignore the debt ceiling law, citing the 14th amendment. Who has standing to file a lawsuit to challenge him? Who is directly harmed? You and I aren’t allowed to sue the EPA to force them to do anything about climate change, because our harms are generalized. We need to prove we’re directly harmed.
Ok, but let’s say that someone is allowed to sue. It works its way through the court system and Biden loses. Does that mean we have to claw back all the payments the federal government made?
Procter & Gamble v. Bankers Trust [1]
P&G sued BT for losses incurred in derivatives contracts that should not have been sold by BT. This article [2] provides some more detail:
> In another high-profile case, Procter & Gamble Co. is suing Bankers Trust, its derivatives dealer, blaming it for a loss of dollars 195 million on two interest-rate contracts the company claims it should not have been sold.
> Procter & Gamble recently upped the stakes dramatically, claiming triple damages under U.S. civil racketeering legislation. In a related development, a shareholder has sued Procter & Gamble for financial irresponsibility.
The outcome of the case is that Bankers Trust settled with P&G as per this article [3].
The same article [2] also mentions the Orange County bankruptcy where OC sued its derivatives broker. At the time, this was one of the largest financial failures.
> Orange County is suing both its main derivatives broker, Merrill Lynch, and the accounting firm Peat Marwick
Merrill Lynch paid OC $437 M to settle as per this article [4].
[1]: https://casetext.com/case/procter-gamble-v-bankers-trust/cas...
[2]: https://www.nytimes.com/1996/01/13/your-money/IHT-moneyloser...
[3]: https://www.nytimes.com/1996/05/10/business/bankers-trust-se...
[4]: https://www.nytimes.com/1998/06/03/business/ending-suit-merr...
Right, but even if that means the executive can take some action that otherwise would be prohibited if the Congress passes taxing and spending bills but also passes a debt limit inconsistent with the net result, that doesn’t mean that the executive can take any action in his discretion. While, say, the Biden Administration might agree that the 14th Amendment would, ultimately, allow the government to pay its debts, they probably don’t want to take the risk that the courts would determine that that means that the executive must unilaterally cut appropriated spending to minimize any overage in the debt limit, and return within it as soon as practical while paying debt service. (Both because they wouldn’t prefer spending cuts to ignoring the debt limit, and because politically they don’t want to be on the hook for the impacts of spending cuts they don’t want to make.)
Conversely, while Republicans might like that outcome, they wouldn’t like court finding that, indeed, the executive can choose to just ignore the debt limit in the case of that kind of conflict.
So no one actually wants to get the position of having the courts resolve this, especially since US courts don’t give advisory rulings, so the only way to get it before the courts is to get into a situation where the court ruling is going to be atomic bomb for one side or the other on the issue.
Congress passed the budgets that got the debt, the president can’t pick and choose what to fund as some run around of all the laws and separation of power we have.
Not sure where you get that. While there is case law suggesting that budget spending is generally mandatory with certain exceptions, the Constitution itself does not expressly dictate that – it prohibits spending non-appropriated funds, but does not explicitly prohibit refusing to spend appropriated funds. You could make a textual argument that spending funds in violation of laws passed by Congress is “more illegal” than not spending funds directed in those laws.
> With following the debt limit, the president would essentially get sole discretion as to what programs to fund or cut.
I can see why that might be undesirable from a particular set of values, but I don’t see that that makes it “clearly illegal” in the only sense that matters, which is, “indisputably what the Supreme Court would rule should a dispute come to it.”
> That would essentially take all power away from congress.
No, because Congress could always pass a debt limit increase (even over a Presidential veto) that eliminated the conflict and took that power away from the President.
> Congress passed the budgets that got the debt, the president can’t pick and choose what to fund as some run around of all the laws and separation of power we have.
By the same token, Congress passed the debt limit, and the President can’t pick and choose what limits to ignore as some end run around all the laws and separation of power we have.
https://www.reuters.com/world/us/amid-us-debt-ceiling-stando...
Not a Democrat or a Republican.
Basically looks like another exercise of legislating for the hell of it, rather than making lives better for Americans.
Correction: legislating for the rich
Laws that favor very wealthy people pass through congress like a faint breeze on a daily basis (when congress is in session).
+ Legislating for the elderly.
The federal debt may be ~$30 trillion but the funding shortfall for Medicare and SS is ~$100 trillion. Something needs to change.
Average people don't matter in America.
This would be equivalent to just eliminating the debt ceiling, and that (either directly or in the effectively-equivaent form you have suggested) is the obviously the correct thing to do. However, it reduces the number of opportunities for hostage taking brinksmanship by a party that lacks a trifecta but controls at least one house of Congress, so it is difficult to pass while there is a party that (1) is currently in that state, or (2) sees itself as likely to be in that state and wanting to preserve the possibility of using that tactic in the near future.
https://en.m.wikipedia.org/wiki/Jude_Wanniski#:~:text=The%20...
If X is greater than Y then the remainder will turn up as negative capital at the Fed. By accounting identity.
The Fed has no legal authority to refuse a payment order from Treasury. The Fed just needs to account for the order and wait until Congress sorts itself out.
In other words there is no such thing as an empty chest and if Biden had any sense he would order the Fed to pay and then take it to court if the Fed refused.
Courts are used to interpreting conflicting instructions from Congress and the constitution.
Neutralise the weapon once and for all.
It is difficult to predict the impact of this. But it is more than likely to be severe financial collapse.
But given that 'abroad' is currently sending the US stuff in return for mere promises, where else are you expecting them to send their stuff?
It's a scare story. In reality, the players have nowhere else to go.
Just as they didn't when Nixon ended Bretton Woods.
If dollar payments to settle intl trade is interrupted, the consumption growth of goods and services in the US will stop and begin falling. The trading partners have been servicing this consumption growth for several decades only because of the relative safety of the dollar. Hoping that would continue regardless of the degradation of the safety of the dollar is wishful thinking.
Thinking that this won't impact the purchasing power of the dollar has no basis in logic.
You are talking about the Fed refusing to do its job. How long do you think the people in charge of the Fed will stay in charge in that situation?
The Fed is not God. It is the agent of the Treasury and it does what Treasury tells it to do - just as Bernanke said when he testified to Congress.
We run trillion dollar deficits… me and my kids will be burdened with this debt!
At the same time we hand out tremendous benefits to the elderly through SS. We should be spending more on children than the elderly.
I agree that it’s a problem. I’m just pointing out why nothing is being done. What you see here is 100% political theater and wheeling and dealing. Meanwhile the debt goes up continuously under both Democrats and Republicans.
Few members of either party are actually serious about cutting spending, especially when they get into power and cuts might be to their pet projects. There’s also a culture of using pork spending to almost literally buy votes. It’s been entrenched in the US systems for generations.
Your children aren't the ones paying for it. Numbers changing in a computer system is what pays for it.
Printing Money (expanding money supply) creates inflation now as supply cannot match demand.
Instead I’d rather changes that incentivize congress to act. Say a law that would automatically increase the debt limit as long as a budget or continuing resolution in force. And a second law that said that to the extent a budget is not passed that the 1/4 of the respective house or Senate’s membership of the party in control gets automatically term limited out in the next election cycle.
There are a lot of mechanisms that prevent the will of the people from being expressed at the federal level right now, but the two-party system, first past the post, and Citizens United are probably the big three.
The increasing power of the executive and the courts have come about almost entirely because the legislature has abdicated its power and responsibility. One of our two political parties is heavily invested in preventing action at the federal level, and the other two branches have stepped in to fill that power vacuum. This is sort of necessary, in that it keeps our country from grinding to a halt, but it also consolidates power to fewer, and in many cases unaccountable, people.
There are, unfortunately, no easy solutions here.
There is only 1 issue they care about. They all say it is the root, the basis for any and all other change.
Campaign finance reform. When you are campaigning and fundraising full time you cannot and will not do your job as a legislator. I have heard this over and over and over.
"What if we..." Campaign finance reform. "But isn't..." Campaign finance reform. "How about..." Campaign finance reform.
But you do point out a significant problem, regarding polarized constituents. More than just communication, it's usually the most polarized members of a party who take part in the primaries. This has the effect of dragging politics towards the extremes, rather than the center, and makes cooperation between parties essentially impossible.
Removing first past the post, through ranked choice or some other mathematically superior method of handling elections, would do a lot to correct that.
After the negative consequences of default manifest -- the one thing we can know with certainty is that there will be a powerful consensus around not allowing this effect to manifest again. The damage of the idiocy will ultimately be worth it to avoid continuing this tragic hostage taking drama forever...
The move here is to steal yourself that you _will_ allow default and say "the united states does not negotiate with terrorists" -- and admit absolutely no discussions about anything other than resolving the debt limit without any strings attached.