Saturday, January 21, 2023

A few debt ceiling thoughts - it's stupid, and should be ignored

I just wanted to give a few cents about the GOP thinking they can hold the debt ceiling hostage. First of all, the existence of the entire debt ceiling is stupid, as it’s a lot like putting in a lower limit on a mortgage or car loan months after the documents were signed saying you were good to pay for them.

No one would ever run business that way, especially if the person buying the car or the house were otherwise able to make the payments each month, and the bank wouldn’t ask how the person got the money as long as the check cleared.

And if you tie the US government’s hands by forcing it not to take out additional debt, then a lot of payments would stop, including bond payments (which reduces debt as they get paid off). As you’d imagine, not paying stuff leads to a lot of other people suffering economic pain. Between the lack of demand that would result and the higher interest rates that would likely be kicked in for other debt sources, that’s the economic danger. So how is the US government making its payments today if it’s already at the debt ceiling?
Yellen said in her letter that the Treasury this month anticipates suspending new investments in two government retiree funds for pensions and healthcare, as well as suspending reinvestments in the Government Securities Investment Fund, or G Fund, part of a savings plan for federal employees. The retirement investments are restored once the debt ceiling is raised.

"The use of extraordinary measures enables the government to meet its obligations for only a limited amount of time," Yellen wrote to McCarthy and other congressional leaders.
This isn’t really a short-term concern since there’s already plenty of funds to pay for the benefits current retirees, and current employees aren’t going to be pulling their 401Ks. The Feds can also refinance current debt in some ways, but by the time we get to June or so, those options run out and new debt is needed to pay those bills.

So does the GOP have any concrete plan in dealing for this? Here’s something that leaked out this week.
House Republicans are planning to move a "debt prioritization" measure by the end of March that would call on the U.S. Treasury to continue making certain payments once it reaches the debt ceiling, but details have not been finalized, a person familiar with the plan told Reuters. The proposal was first reported by the Washington Post.

The Republican plan will call on the Treasury Department to keep making interest payments on the debt, the Post reported, citing sources. It may also stipulate the Treasury should continue making payments on Social Security, Medicare and veterans benefits, and fund the military, the newspaper said.
Which means everything else that the Feds pay for (like road funding, food assistance, federal safety oversight, Medicaid, financial aid for students, and the Postal Service) would be cut by a large amount. The Biden Administration and all Dems in Congress should laugh them out of the building without debate. If there are going to be consequences for GOP recklessness, then EVERYONE gets hurt by it.

However, maybe the Biden Administration should threaten to do their own prioritization of payments. Hold up tax refunds for corporations (first) and individuals (later) until the debt limit is raised. The next 3 months are by far the largest months that the Treasury pays out for tax refunds, with nearly 60% of the amount that is refunded to everyday Americans coming at that time. It is the main reason that February and March traditionally run the largest deficits in the federal Fiscal Year.

This would require a strong PR effort by the Biden Admin and Dems in Congress, to get out ahead of this and explain that “If you want your refunds back to you sooner, tell the GOPs to grow up and raise the debt ceiling.” You can also combine this with the GOP’s stupid move to try to defund additional IRS agents that are intended to not only audit the rich and corporate, but also speed the processing of tax forms and the return of refunds to everyday Americans. Good luck to GOPs trying to explain to constituents as to why we can’t give out tax refunds.

If that’s too much of a messaging effort to make, then all Dems should tell GOPs they can try to pass an in-year budget that IDs their spending cuts, and see if it flies. Otherwise, the GOP can F___ ALL THE WAY OFF until the fiscal year ends on September 30.

And the debt ceiling? I think The Onion summed it up last decade with the former Fed Chair.

All money is relative, always has been outside of a goods-for-goods barter system. So if GOPs won’t raise this arbitrary debt amount, then MINT THE COIN and use it to pay any federal bills that taxes and debt refinancings won’t pay. Which would keep our economy going, and won’t really change things any more than what has already been signed into law.

When it comes to this attempted GOP hostage-taking on the debt, especially given that the GOP House is already disliked and Dems hold both the Senate and the White House, there’s a simple strategy to follow.

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