18 Comments

Congress created the debt limit during WWI (1917), as a way to make it *easier* to borrow money!

Article 1, Section 8, of the Constitution gives the exclusive power to borrow money to Congress -- not to the Executive. So, prior to the debt limit's creation, Congress was required to explicitly approve each and every individual bond offering or other borrowing. But, with the growth of the federal budget, the increased pace of borrowing, and the growing variety of borrowing methods, it became increasingly cumbersome for Congress to be so closely involved in the details of the borrowing process. So, Congress passed the debt limit as a way to authorize Treasury to borrow what it needed -- up to a limit -- without requiring additional Congressional action. (For some history see this 1954 article: https://www.jstor.org/stable/2976566) (Also, imagine if the "do-nothing" Congress we have today needed to individually authorize each borrowing by the government!)

The debt limit was raised, without controversy or resistance, even during the Depression and WWII, until 1953 when Conservative Democrat Harry Byrd, of Virginia, led an effort to successfully deny President Eisenhower's request for an increased debit limit. Without that increase, Eisenhower was forced to cut expenditures and Treasury, for the first time, employed a variety of "extraordinary measures" to avoid new borrowing. Thus, fiscal conservatives learned that the debt limit could be used not only to make borrowing and spending easier, but also to reduce it. Ever since 1953, the debt limit has been seen as a way to limit borrowing, and thus expenditures, whereas before 1953, it was more often seen as a means to enable borrowing to fund expenditures.

It is important to point out a major difference between 1953 and today. When Byrd and others fought to deny a debt limit increase, they never imagined that there was any real prospect that the government might not be able to cover its obligations. They assumed, correctly, that the President could and would ensure that the full faith and credit of the USA would be preserved by cutting spending, etc. They wouldn't have denied the increase if they actually believed that there was a realistic chance of long-term damage. Unfortunately, we have many people in Congress today who seem much more comfortable with the idea of debt default. They are fools.

Expand full comment

There is a principle of statutory interpretation called "avoidance of constitutional doubt." If Interpretation A of a statute raises no constitutional issues, and Interpretation B raises an open constitutional issue, courts go with Interpretation A, if Interpretation A is in the ballpark. It's a nifty way of invoking the 14th Amendment without actually invoking the 14th Amendment.

If it ever gets to the Supreme Court from a judge like Kacsmarek or Cannon, they'll probably consider the entire question nonjusticiable. That's a lawyer word for "too political for us to handle." But the constitutional doubt approach may be the most politically legitimate, even if it never gets to the lower courts.

Expand full comment

I've wondered about a consol bond combined with a put and call effective in .5, 1, 5, 10, or 30 years time. Walks like a bill, note, or bond, quacks like a bill, note, or bond, but isn't those things. Call it a hybrid bill-console, note-console, bond-console, or simply a hybrid.

Expand full comment

I disagree. It will be very bad if we can't raise the debt limit in an orthodox way. A machination as you suggest would be bad for the country and increase polarization.

I'd of course prefer a clean raise.

But I'd rather see some compromise than resorting to what everyone would acknowledge was a trick.

Expand full comment

What would be interesting would be if the Treasury paid bills based on this interpretation. Then, the Republicans would have to claw back all the money that was paid during this period...asking folks for the social security check back. Otherwise, it would have to identify the recipients who should give the money back or not receive it.

Expand full comment

Is there a mathematical amount of debt that can be created and still keep a 2% inflation rate, optimal employment, and low T-bill coupon rate?

Expand full comment

Preach it

Expand full comment