American Kabuki: The Debt Ceiling Kerfuffle
The nihilists of the House GOP decide crashing the global economy is OK as long as they can stick it to the Biden Administration
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Note: We have been traveling for over a month, first to Portugal to visit friends, and then out here to Albuquerque. I intend to get my writing back on a weekly schedule.
The debt ceiling? Oh, no- not that BS again.
Yes, my fellow Americans, we are once again going through a completely manufactured crisis moment courtesy of the Republican majority in the House of Representatives. I’ll get to why it is a manufactured crisis shortly, but let’s consider what this is all about. The elucidation that follows is worthy of a high school class on government… That is if such things are still being taught.
Anyway, some explanation of terms to get started:
The Deficit. This is the amount of money the Federal government is authorized to spend in a given fiscal year that is greater than the amount of revenue it will collect from taxes, fines, and other fees. In such instances- and since the government must pay for the expenditures authorized by Congress- it does so by borrowing the necessary funds in the form of various types of bonds and bills issued by the Treasury. The US has had budget deficits for much of its recent history: Combine the Bush and the Trump tax cuts that reduced revenue with the extraordinary increases in spending in the wake of the 2008 financial crisis and the Covid pandemic, and there is no surprise that the annual deficits have grown. The government has run surpluses from time to time. It may seem counter-intuitive to regard such a circumstance as detrimental, but consider it this way: When the government runs a deficit, it is putting money into the economy. Surpluses mean the government is taking money out of the economy. Deficits, if kept in check by factors such as inflation, can spur economic growth.
The National Debt: Simply put, this is the sum total of budget deficits and interest due on its bonds, minus any annual surpluses, that the government has accumulated in its 235-year history. Since the founding of the Republic, the government has always carried a debt except for one year (1835). It’s notable that 25 percent of the debt, which dates back to 1789, was accrued during the Trump administration. The combination of tax cuts and Covid-relief spending accounts for much of that.
The Debt Ceiling: The debt ceiling is not directly related to the size of either the annual budget deficit or the national debt. It is an artificial limit set by law on how much money the government is authorized to borrow to meet its legal obligations. This limit is a relic of the World War I years. Prior to 1917, each bond issue made by the Treasury was authorized by a specific act of Congress. The debt ceiling was a means to expedite the funding process, allowing the Treasury to issue debt instruments without specific Congressional approval, as long as the total debt fell under the statutory debt ceiling. Essentially, excepting interest due on its bonds, borrowing by the government simply allows it to pay for previously authorized expenditures.
The Federal Budget and the Appropriations Process: This is the sausage-making part of the budgetary process. It begins when the President presents a budget request for the upcoming fiscal year (October 1 to September 30) to Congress, usually in February. Such budgets are intrinsically policy statements and reflect the policy goals and priorities of the Administration. They are non-binding on the Congress. When “regular order” is observed, the process upon receiving the President’s budget is similar in both Houses: Budget committees set overall spending levels, from which Appropriations Committees allocate amounts to the twelve Appropriation subcommittees who in turn determine the budgets for the agencies and departments in their purview. Bills are written and voted upon in subcommittees, then passed to the Appropriations Committee before going to a floor vote of the full House. Appopriations bills may be amended and like the President’s budget, reflect the policy goals and priorities of the majority in each Chamber. Once passed, the twelve bills are signed into law by the President. This must be done before October 1. Often, if a budget is not signed by October 1, Congress will pass a stop gap bill know as a Continuing Resolution which in effect keeps the spending levels at the level of the previous budget. It is simply a way of buying time for negotiation.
I apologize just a bit for getting into the weeds, but it is important to understand the sheer size of the Federal budget means it plays a large role in the nation’s economy. It has hovered around $4 trillion, jumped to $7 trillion in the pandemic year of 2020, and is currently $6.2 trillion. Government spending affects most of us in one way or another. It is an amount that is almost 25 percent of the nation’s GDP. Even a basic understanding of the budgetary process makes plain how much more significant it is than the culture war nonsense that distracts most of us from seeing what’s going on behind the curtain.
Back to the manufactured crisis
Sometime around d June 1, the US Treasury will run out of money to pay the government’s bills. It will default on the interest and principal payments due on its bonds. This means the “full faith and credit” of the United States will have been breached, likely plunging not only this country but most of the world into recession. The US dollar is the world’s reserve currency, almost universally accepted and thus a stabilizing force on global finance and trade. Default would undermine our position as world leader and it is certain to happen if Congress does not raise the debt ceiling. Of course, in a better scenario, Congress would eliminate it completely, but that is currently a political bridge too far.
For their part, the extremists in the House GOP caucus have decided to use the imperative of raising the limit to extort spending cuts from the Administration. With a slim majority in House, they decided their best leverage is not to legislate budget policy through regular order but to use the threat of default to coerce spending cuts from the President and the Democratic majority in the Senate. It is the kind of game of fiscal chicken played by ideologues and by those supported by the plutocratic class. It is the inevitable outcome of electing people who not only do not take governance seriously but have no use for government at all.
House Republicans lack the confidence that they can pursue a serious Appropriations process. They prefer the performative politics of shouting into cameras to the tedious work of doing the people’s business.
Negotiation
President Biden cut short an Asia trip to be back in Washington to personally get involved in the negotiations with House Speaker Kevin McCarthy. Both sides seem to be moving toward a compromise, but it’s wait-and-see as the clock ticks closer to default. Both the President and the Speaker will likely face pushback on any deal from the extremes in their parties.
So, it looks as if the soap opera will continue. Too bad for the rest of us that it’s too serious to be entertaining.
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