US Debt Ceiling

[Farm Boy]

They do tend to start grouping Others as unthinking or unreasonable savages.

 

[Quintillus]

So we're... two days and some hours closer to default than we were at the last post.

I was tempted to create a poll asking whether forumgoers expect the U.S. to default.

I would say there is at least a double-digit chance the U.S. defaults. I have more faith in my own credit worthiness than the U.S. government right now. Maybe not with $1 trillion. But with amounts I might conceivably be loaned versus the prospects of the U.S. continuing to make payments on what it has already borrowed.

I would not be surprised by, in rough order of likelihood:

- A short-term status quo extension. Yellen tells McCarthy, "we are going to default tomorrow" and he blinks and gives a 2-month extension, or something of that sort, at the 11th hour.
- A minor compromise and a longer-term extension. Maybe the current White House proposal of, "spending stays flat for the next 2 years". The financial world is likely to increasingly pressure Republicans to take their gains rather than continue brinkmanship over the next week.
- Biden invoking the 14th Amendment, or asking Yellen to mint the trillion-dollar coin, or other creative measures such as consol bonds, which were last issued in 1930. Biden is clearly hesitant to resort to this but if we get to the "default tomorrow" point and McCarthy doesn't blink, I'd have to imagine Biden would pull those levers before defaulting.
- An actual default

I don't see any scenario in which Democrats substantially agree to McCarthy's proposal with its draconian cuts. That would be political suicide, likely much more so than an actual default would be.

Some variant of the second scenario - minor compromise - seems the most likely over the long term. I'd argue that McCarthy's best option is to take it now. If there's one thing Wall Street doesn't like, it's things that are extremely risky with low potential upside. If he does the short-term-status-quo extension, is he really going to be able to get a better deal later? I'd argue debt ceiling fatigue on Wall Street would instead create more pressure to cave and be done with the brinkmanship.

Of course McCarthy might value his own Speakership above all else and continue his brinkmanship until it's too late. I find it a little hard to believe that there wouldn't be five House Republicans who would vote to continue funding the government if they really believed McCarthy was giving up on negotiations and letting the country default though. Does every single House Republican really want to go down that route? But it's only a little hard to believe, hence that double-digit chance.

 

[Lexicus]

I don't see any scenario in which Democrats substantially agree to McCarthy's proposal with its draconian cuts. That would be political suicide, likely much more so than an actual default would be.

I'm not sure it would be political suicide, but as usual Lincoln gives insight into the question:

Either way, if we surrender, it is the end of us, and of the government. They will repeat the experiment upon us ad libitum. A year will not pass, till we shall have to take Cuba as a condition upon which they will stay in the Union.

All future Republican Congresses will know the debt ceiling is their key to extort whatever they want from the rest of the government and "a year will not pass, until we shall have to abolish medicare and medicaid and privatize social security as a condition upon which they will avoid default."

Of course McCarthy might value his own Speakership above all else and continue his brinkmanship until it's too late. I find it a little hard to believe that there wouldn't be five House Republicans who would vote to continue funding the government if they really believed McCarthy was giving up on negotiations and letting the country default though.

I think this gets at the crux of the matter on the R side; McCarthy may be unable to sell anything but a total capitulation by Biden to the most extreme members of his own caucus. They will not regard this as a warning that they don't have the votes to do everything they want; their inclination will be more to replace McCarthy with someone who can "get it done" (there is an analogy to be made with the Brexiters in Britain, probably). McCarthy must know this, and I find it quite plausible that he cares more about being Speaker than about avoiding default.

 

[Farm Boy]

How much power do you think the speaker actually has? His advantage is what, 4? Take out MTG and Gaetz and Santos and you're at 1.

 

[Samson]

How much power do you think the speaker actually has? His advantage is what, 4? Take out MTG and Gaetz and Santos and you're at 1.

A lot more power than if he loses the job.

 

[Farm Boy]

I am only speculating on his ability to get this passed at all no matter what you think he wants.

 

[Lexicus]

How much power do you think the speaker actually has? His advantage is what, 4? Take out MTG and Gaetz and Santos and you're at 1.

I don't think he has much.

I am only speculating on his ability to get this passed at all no matter what you think he wants.

Get what passed? What is "this"?

 

[GoodEnoughForMe]

I increasingly think we will default for 24-48 hours, which would permanently alter how the world views the US dollar and cause stocks to tumble enough that someone will blink. I don’t know who. But the GOP has called in their most recent cuts for a complete defunding of the vaccine research fund, which is 100% a nonstarter. We’re on the cusp of a universal flu vaccine and some specific cancer vaccines in part because of it.

 

[Farm Boy]

I don't think he has much.



Get what passed? What is "this"?

A debt ceiling bill of any format.

Legislative inertia may have to come from the Senate Minority Leader clearing the filibuster.

 

[Lexicus]

A debt ceiling bill of any format.

Legislative inertia may have to come from the Senate Minority Leader clearing the filibuster.

Well the pertinent question there would be whether the Ds can then advance a bill that could get the support of the handful of Rs needed to pass it. I'm also not sure how that might work procedurally - I don't remember the procedure for overriding the Speaker to put something to a floor vote, as I assume McCarthy would want to simply bury any D bill rather than voting on it.

 

[Farm Boy]

Oh, by legislative enertia I mean pretty much full public shaming. An object at rest...

I don't expect it.

 

[Hygro]

Lexicus, I fear you are overestimating the string pulling ability of the GOP donors or "capitalist overlords". I think there's a real bottom up energy in the Republican Party that has grown "tremendously" in the past 14 years and especially 6. There's a real democratic, younger energy propelling the Republicans, it's just coming from the most unusual bracket of know-nothings. They understand that they cannot capitulate to party leaders and their handlers if they want to stay relevant or have any power, and they're really about it. The members of the GOP not only have a history of falling into lockstep, but they intuit how to all put on a shared act for powerful effect, and that second thing makes it seem like the old mechanisms for them falling into lockstep are in effect when it's the latter.

I don't have much confidence in the speaker's ability let alone the "masters" that created and unleashed this beast.

 

[GoodEnoughForMe]

It’s a classic case of the “sensible” country club Republicans (they were never actually sensible, but, ya know) who “plugged their nose” to support the Trump wing somehow, here in 2023, still being surprised the leopard is looking to eat their face.

 

[Ajidica]

It’s a classic case of the “sensible” country club Republicans (they were never actually sensible, but, ya know) who “plugged their nose” to support the Trump wing somehow, here in 2023, still being surprised the leopard is looking to eat their face.

"Who would have though this rabid raccoon in the nursery might turn out to be a problem?"

 

[EnglishEdward]

I doubt that a deal will be done in time to prevent the US government exceeding its budget deficit limit.

While that might cause excitement in the derivatives market and a momentary dip in the real market, I doubt that it will be that great.

What it might start to lead to is a slow long term decline in bonds and stocks and other inflated asset values.

 

[BvBPL]

Yes. When the program is wildly popular and you control the House of Representatives, the Senate, and the White House - if you don't fight for it, instead scrapping it at the first hint of political cover, you didn't want it in the first place. Prepare for Joy. That's how this works.

I am off the opinion that US politics would be better if people were a bit less critical of the other side and more critical of the failures of their own side. Elected Democrats should rightly be held to task by their voters for not resolving the debt issue previously and not codifying Roe and Chevron. If you're a Floridian Republican, I don't know why you wouldn't be upset at how their governor is continually pushing for ideological laws that will inevitable be overturned by the courts (with the accompanying significant cost of defending those laws). Why any Republican voted for Paxton over Bush in 2022 for Texas AG is completely beyond me given the former has been under indictment for fraud for many years. You might think Racheal Rollins's heart is in the right place, but that doesn't mean you should turn a blind eye to her errors.

Just because the other side is wrong doesn't mean you shouldn't call out the errors on your own side. If anything, you have more ability to affect change by encouraging those you agree with to govern better than condemning the other side. If your teammates keep fouling the other side, they get more free throws.

--
As to relying on Amendment XIV for the debt, that's completely insane. Not only does it circumvent the existing political process (itself insane), the declaration that one is using it does not answer how those debts would be paid. The executive cannot raise taxes on its own for this purpose. Printing more money to pay a debt after a course of high inflation would be a terrible idea. And it's just anti-democratic.

Relying on Amendment XIV would tank the bond market. Investors would rightly be concerned about receiving real returns on future bond purchases because once XIV is invoked for this purpose once, the door gets opened to it being used again and again. The potential implication for future retirees would be massive, particularly as the US has moved towards employee-driven retirement plans.

--
For advocates of using Amendment XIV, I have two questions as to the legality of such an approach.

Firstly, what gives the Executive the authority to invoke XIV for this purpose when the power to enforce XIV is explicitly given to Congress?

Secondly, Amendment XIV assures the debt of the US that is authorized by law. We have a law authorizing $314 trillion in debt. How does one reconcile increasing the debt amount as authorized by an existing law without passing another law?

 

[Lexicus]

Lexicus, I fear you are overestimating the string pulling ability of the GOP donors or "capitalist overlords". I think there's a real bottom up energy in the Republican Party that has grown "tremendously" in the past 14 years and especially 6. There's a real democratic, younger energy propelling the Republicans, it's just coming from the most unusual bracket of know-nothings. They understand that they cannot capitulate to party leaders and their handlers if they want to stay relevant or have any power, and they're really about it. The members of the GOP not only have a history of falling into lockstep, but they intuit how to all put on a shared act for powerful effect, and that second thing makes it seem like the old mechanisms for them falling into lockstep are in effect when it's the latter.

I don't have much confidence in the speaker's ability let alone the "masters" that created and unleashed this beast.

I don't disagree, but a bill doesn't need every Republican vote to pass - the uncertain factor for me here is how total McCarthy's power is to keep something off the floor. If there is a mechanism for overriding his agenda-setting power then depending on how it works the likely outcome is a moderately horsehockey deal that gets all the Dems minus the Squad and like 40 Republican votes.

 

[Birdjaguar]

Conservatives revolt as negotiators try to finish debt ceiling deal​

Although not yet made public, the emerging agreement between McCarthy and Biden is already coming under fire from the right​

Conservative lawmakers have begun mounting a campaign against the emerging deal on the debt ceiling between President Biden and House Speaker Kevin McCarthy (R-Calif.), as objections from the right threaten to undermine an agreement even before its contents are publicly released. On Thursday and Friday, in response to reports about the details of the agreement, leading conservative lawmakers and budget experts raised strong objections, arguing McCarthy had failed to extract sufficient concessions from the Biden administration in exchange for raising the debt ceiling. McCarthy pushed back in remarks to reporters on Friday, saying the criticisms were being leveled by people unaware of the substance of the deal.

With days left before the government could face a calamitous default, negotiators are closing in on an agreement that would raise the debt ceiling by two years — a key priority of the Biden administration — while also essentially freezing government spending on domestic programs and slightly increasing funding for the military and veterans affairs, three people familiar with the matter said, speaking on the condition of anonymity to reflect private deliberations. Although the deal is expected to include key GOP priorities, such as partially clawing back new funding for the Internal Revenue Service, a growing chorus of conservatives has balked at how little the deal appears to cut government spending overall — especially because it would also give up their party’s leverage on the debt ceiling until after the 2024 presidential election.

Rep. Ralph Norman (R-S.C.), a top member of the far-right House Freedom Caucus, described what he’s learned so far of the emerging deal as “watered down.” Norman urged McCarthy to hew closely to the legislation that conservatives helped craft and pass last month, which raised the debt ceiling only into next year and coupled the increase with larger spending cuts than the two parties are now discussing. “This is totally unacceptable, and it’s not what we agreed to,” Norman said.
Rep. Bob Good (R-Va.), another House conservative, complained about reports that the deal would raise the debt ceiling by more money than the bill approved by the House. Good pointed out that the emerging deal would do so “for a whole lot less in return that we need from a policy standpoint, from a fiscal standpoint.” He added: “And if that were true, that would absolutely collapse the Republican majority for this debt ceiling increase.”

Rep. Andy Harris (R-Md.), another House conservative, added of the longer debt ceiling increase: “You’ve got to add things into it, not compromise things away.” Rep. Chip Roy (R-Tex.), a key conservative leader, downplayed the idea that the deal would lead to McCarthy losing his speakership, but added of the deal: “I think it’s an exit ramp about five exits too early.”

Asked by reporters about the criticisms on Friday, McCarthy said: “I’m not concerned about anybody making any comments right now about what they think is in or not it. Whenever we come to an agreement, we’ll make sure we will first brief our entire conference.”

The extent and ferocity of the conservative revolt could prove crucial to the ongoing debt ceiling standoff, as well as McCarthy’s future. But it was not exactly yet clear how many GOP lawmakers shared the objections voiced by Norman and Good. Since the beginning of the negotiations, McCarthy has been widely assumed to be able to lose the roughly three dozen members of the far-right House Freedom Caucus and still manage to pass the debt ceiling increase and retain his position as speaker. If he loses several dozen additional House Republican lawmakers, though, both the deal — and his grip on power — could be on shaky ground. “These guys were never going to vote for it, so the question becomes how many of them you lose,” said one GOP strategist, speaking on the condition of anonymity to frankly describe internal dynamics.

Exactly when the government will run out of money isn’t certain. The Treasury Department says it could be as soon as June 1, less than a week off. Other estimates say the “X-date” might come sometime in early June, but few analysts think there’s much more than a couple of weeks to maneuver. Two prominent credit rating agencies warned that they could downgrade the U.S. government’s coveted AAA debt rating in the event of a default. When is the debt limit deadline? Early June, CBO says. Unless it’s not. Even if negotiators do reach an agreement soon, they need time to put it into action. House rules require 72 hours for lawmakers to review legislation before a vote. The Senate would also have to act. All told, passage could take days.
“We’re making progress and our goal is to make sure that we get a deal because default is unacceptable,” Deputy Treasury Secretary Wally Adeyemo told CNN on Friday. “The president has said it and the speaker has said it.”

With lawmakers in the House and Senate now back in their districts for Memorial Day weekend, the timeline became more precarious by the hour. Rep. Patrick T. McHenry (R-N.C.), one of the key GOP negotiators, told reporters on Friday that talks were “up and down.” “There is forward progress. But each time there’s forward progress, the issues that remain become more difficult and more challenging,” McHenry said. “At some point, this thing can can come together or go the other way.”

On Thursday, White House press secretary Karine Jean-Pierre said “negotiations have progressed” and that ongoing talks were moving toward a “bipartisan, reasonable budget negotiation.” “We’re fighting against Republicans’ extreme, devastating proposal that would slash — as you’ve heard me say — law enforcement, education, food assistance, all of these things are critical to American families who are just trying to make ends meet,” Jean-Pierre said. “So what the people should know, what the American people should know, is that we are not taking any hostages here. Default is not an option.”

The exact contours of a final deal remained unclear even as lawmakers on both sides of the aisle alluded to progress heading into the weekend. For weeks, negotiators had clashed over GOP demands that would significantly cut federal spending on programs such as nutrition assistance, rental aid and scientific research, which White House aides fear could spark a revolt among Democrats.

McCarthy had demanded that the government spend less money next year than it did this year on a portion of the budget covering domestic programs, while also insisting on substantial increases for the military and border security. Democrats balked at these demands, since they would lead to huge cuts to federal programs such as nutrition aid, housing assistance, education and scientific research. But negotiators appeared to reach a breakthrough this week. Repurposed money from the IRS and other federal programs will allow Democrats to mitigate the cuts to the domestic programs, while the overall amount of spending will go down — a key McCarthy demand. Spending on veterans and the military will also rise in line with the increases sought by the president’s budget, said one person familiar with the matter

At least two key issues — new work requirements, and permitting reform to spur domestic energy production — remained unresolved. On CNN, Adeyemo wouldn’t say where the negotiations were heading on whether to impose work requirements for recipients of some federal aid programs, which McCarthy has called essential to a final deal.

Graves, meanwhile, insists GOP negotiators are holding firm on work requirements. Asked Friday whether he would be willing to drop such policies from a final deal, Graves shot back: “Hell no. Hell no. Not a chance. Not happening."
McCarthy may need those changes as concessions to sell the deal to his base. A freeze on government spending could be estimated to reduce long-term deficits by more than $1 trillion, because projections would show spending lower in every successive year. But conservative budget analysts say that does not go far enough to rein in the roughly $52 trillion debt projected for the U.S. by the end of the next decade. “Kevin McCarthy is on the verge of striking a terrible deal to give away thru Biden’s term for little in the way of cuts,” Russ Vought, a conservative leader who served as Trump’s budget director, tweeted Thursday. “They are lining up Democrats to pass it. The DC cartel is reassembling.”

 

[Samson]

Conservatives revolt as negotiators try to finish debt ceiling deal​

Although not yet made public, the emerging agreement between McCarthy and Biden is already coming under fire from the right​

Conservative lawmakers have begun mounting a campaign against the emerging deal on the debt ceiling between President Biden and House Speaker Kevin McCarthy (R-Calif.), as objections from the right threaten to undermine an agreement even before its contents are publicly released. On Thursday and Friday, in response to reports about the details of the agreement, leading conservative lawmakers and budget experts raised strong objections, arguing McCarthy had failed to extract sufficient concessions from the Biden administration in exchange for raising the debt ceiling. McCarthy pushed back in remarks to reporters on Friday, saying the criticisms were being leveled by people unaware of the substance of the deal.

With days left before the government could face a calamitous default, negotiators are closing in on an agreement that would raise the debt ceiling by two years — a key priority of the Biden administration — while also essentially freezing government spending on domestic programs and slightly increasing funding for the military and veterans affairs, three people familiar with the matter said, speaking on the condition of anonymity to reflect private deliberations. Although the deal is expected to include key GOP priorities, such as partially clawing back new funding for the Internal Revenue Service, a growing chorus of conservatives has balked at how little the deal appears to cut government spending overall — especially because it would also give up their party’s leverage on the debt ceiling until after the 2024 presidential election.

So how do the numbers in the voting work out? If Biden agrees to the deal do they only need a handful of republicans because most of the dems will support it?

 

[Birdjaguar]

It will take 218 votes to pass the house. Dems have 112. If the conservatives get upset enough, they might challenge McCarthy's leadership.