The "debt ceiling" problem is not a real problem constraining Treasury operations; it is only if the Biden administration pretends that it is a constraint and hence a problem that it becomes one.
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.
The better interpretation of the borrowing clause -- one that implements Ziggy's point about avoiding constitutional issues -- is that a spending bill implicitly authorizes all necessary borrowing. That solves the twin problems raised by (1) 14th A clause 4 (validity of US debt can't be "called into question") and (2) the Impoundment Control Act and Train v NY (the president lacks the power to refuse to spend money authorized by Congress).
Mark, your interpretation of the borrowing clause seems very much in line with at least the spirit, if not the exact details, of the Gephardt Rule (House Rule XXVIII) that was overturned by the new Republican majority earlier this year. That rule instructed the Clerk of the House to automatically engross and send to the Senate a Joint Resolution suspending the debt limit upon passage of a concurrent resolution on the budget. Of course, even with that rule, the House could, as it did several times, adopt special rules overriding the Gephardt Rule. And, the Senate was not required to approve, with or without amendments, the House's proposed Joint Resolution. It sometimes didn't.
Can someone tell me if, and where, US federal law explicitly states that the federal government must borrow when revenues are insufficient to cover expenditures?
Certainly, when we had a commodity-backed currency (gold/silver), it would have often been necessary to borrow. But, many folk, like those in the MMT crowd, now argue that for a country with its own fiat currency, borrowing is only one of many tools for managing inflation; borrowing isn't strictly necessary.
In the absence of some explicit legal requirement to borrow to cover deficits, could the US Executive simply cover all debt payments and other expenses authorized by Congress? (Some call this "printing money," but the creation of new paper currency is constrained by law. I'm talking just about spending money, not printing it.)
If it is legal to spend without borrowing, then why does anyone even discuss obvious "tricks" like the Trillion Dollar Coin? Sure, it is a fun idea, but what would the coin allow that couldn't be more simply achieved by spending without borrowing?
Since the Fed controls the "money printing" process, the rest of the government is constrained:
* the government writes a check
* the recipient deposits the check
* the bank into which the recipient deposits the check presents the check to the Fed for clearing
* the Fed then debits the Treasury's Fed balance by the amount of the check and credits the bank's Fed balance by the amount of the check
* the question is: what happens if the Fed's debiting the Treasury's Fed balance by the amount of the check would drive the Treasury's balance below zero. The belief is that the Fed would then refuse to credit the bank's Fed balance by the amount of the check, and tell the bank that the Treasury still owes it the money—that the bank has thus constructively borrowed from the Treasury, but in a way that does not engage the "full faith and credit" of the U.S. government. The bank then has an uncollected debt. It does not have a liquid negotiable bond.
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.
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.
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.
The debt ceiling is already a "trick." It's a budgeting loophole that avoids Presidential veto. We're already in make-believe territory, it would be absurd not to treat it as absurd already.
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.
I wonder how much additional deficit can be managed and still stay within the parameters. I believe the Fed returns excess interest back to the government after expenses. Essentially it’s another branch of government.
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.
The better interpretation of the borrowing clause -- one that implements Ziggy's point about avoiding constitutional issues -- is that a spending bill implicitly authorizes all necessary borrowing. That solves the twin problems raised by (1) 14th A clause 4 (validity of US debt can't be "called into question") and (2) the Impoundment Control Act and Train v NY (the president lacks the power to refuse to spend money authorized by Congress).
Mark, your interpretation of the borrowing clause seems very much in line with at least the spirit, if not the exact details, of the Gephardt Rule (House Rule XXVIII) that was overturned by the new Republican majority earlier this year. That rule instructed the Clerk of the House to automatically engross and send to the Senate a Joint Resolution suspending the debt limit upon passage of a concurrent resolution on the budget. Of course, even with that rule, the House could, as it did several times, adopt special rules overriding the Gephardt Rule. And, the Senate was not required to approve, with or without amendments, the House's proposed Joint Resolution. It sometimes didn't.
House Rule XXVIII (117th Congress): https://www.govinfo.gov/content/pkg/HMAN-117/html/HMAN-117-pg1048.htm
CRS Report on Gephardt Rule (2019): https://crsreports.congress.gov/product/pdf/RL/RL31913
Can someone tell me if, and where, US federal law explicitly states that the federal government must borrow when revenues are insufficient to cover expenditures?
Certainly, when we had a commodity-backed currency (gold/silver), it would have often been necessary to borrow. But, many folk, like those in the MMT crowd, now argue that for a country with its own fiat currency, borrowing is only one of many tools for managing inflation; borrowing isn't strictly necessary.
In the absence of some explicit legal requirement to borrow to cover deficits, could the US Executive simply cover all debt payments and other expenses authorized by Congress? (Some call this "printing money," but the creation of new paper currency is constrained by law. I'm talking just about spending money, not printing it.)
If it is legal to spend without borrowing, then why does anyone even discuss obvious "tricks" like the Trillion Dollar Coin? Sure, it is a fun idea, but what would the coin allow that couldn't be more simply achieved by spending without borrowing?
Since the Fed controls the "money printing" process, the rest of the government is constrained:
* the government writes a check
* the recipient deposits the check
* the bank into which the recipient deposits the check presents the check to the Fed for clearing
* the Fed then debits the Treasury's Fed balance by the amount of the check and credits the bank's Fed balance by the amount of the check
* the question is: what happens if the Fed's debiting the Treasury's Fed balance by the amount of the check would drive the Treasury's balance below zero. The belief is that the Fed would then refuse to credit the bank's Fed balance by the amount of the check, and tell the bank that the Treasury still owes it the money—that the bank has thus constructively borrowed from the Treasury, but in a way that does not engage the "full faith and credit" of the U.S. government. The bank then has an uncollected debt. It does not have a liquid negotiable bond.
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.
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.
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.
The debt ceiling is already a "trick." It's a budgeting loophole that avoids Presidential veto. We're already in make-believe territory, it would be absurd not to treat it as absurd already.
It is absurd, but since it's been followed for so long, its no longer make-believe.
That's what they said about holding up a Supreme Court nomination until after the next election.
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.
Is Bill right? And are all ideas -- including Brad's -- on the economists' table? Does anyone know?
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?
The tradeoff would be with deficit, not the debt stock.
I wonder how much additional deficit can be managed and still stay within the parameters. I believe the Fed returns excess interest back to the government after expenses. Essentially it’s another branch of government.
There are, still, no signs that the U.S. approached its debt capacity in 2020—and the debt/GDP ratio is on the way down...
Preach it