CORRECTION: Debt Ceiling

Josh Barro corrects me, and brings new information that I had long forgotten to the table...

I had written: “Why is the Treasury Secretary’s breaking the law requiring to act as a fiduciary a smaller deal than the Treasury Secretary’s issuing securities above the debt ceiling? Why is one of these an ironclad rule and the other only a “guideline”, as Captain Barbossa says in Pirates of the Caribbean?”

Josh Barro has the answer. He writes:

Redemption of the securities in the G-fund during a "debt issuance suspension period" is authorized by legislation passed in 1986, following the debt ceiling crisis of 1985, in which then-Treasury Secretary James Baker had raided the Social Security Trust Fund in order to avoid missing interest payments on the debt.

There was a GAO report following the 1985 crisis saying essentially that what Baker did was probably illegal, but understandable under the circumstances. The 1986 law was intended to make matters more orderly, saying how the funds could be raided and how they needed to be made whole once the crisis was over -- and, crucially, saying that the Social Security Trust Fund may not be raided, which is why that's not included in extraordinary measures.

So the items Rubin picked off the menu in 1995 were driven by the 1986 law; they weren't arbitrary. The Bipartisan Policy Center has a useful history of the debt limit; you can see this in the entry for 1986….

I do think people are not focusing enough on the 1985 precedent -- what Baker did was wacky and of dubious legality but it was way better than defaulting. Indeed, it went sufficiently smoothly that nobody even remembers it…