Column: A debt limit fight--again?
You almost can set your watch by the recurrence of the federal debt limit showdown in Washington, and you certainly can paper your walls with the letters that have gone from the Treasury Department to Congress warning of dire consequences from failing to raise it.
Here it is again. Treasury Secretary Jacob Lew sent a letter Thursday to House Speaker John Boehner (R-Ohio), warning that under the existing limit, federal government coffers effectively will run dry Nov. 5. That’s several weeks earlier than the previous estimate. “There is no way to predict the catastrophic damage that default would have on our economy and global financial markets,” Lew wrote.
Lew’s tone should sound familiar. He employed it in March, when he advised Boehner that “protecting the full faith and credit of the United States is the responsibility of Congress.... The creditworthiness of the United States is not a bargaining chip.”
And it was employed by then-Treasury Secretary Tim Geithner in January 2011: “Failure to raise the limit would precipitate a default by the United States. Default would effectively impose a significant and long-lasting tax on all Americans and all American businesses and could lead to the loss of millions of American jobs.”
Since the impasse last March over an $18.1-trillion limit, Treasury has been using “extraordinary” accounting measures to extend the government’s borrowing authority and maximize its cash. Those measures will run out their string on Nov. 5, Lew said.
Nothing about the debt limit has changed since then--indeed, almost nothing has changed since Geithner’s plea in 2011, when resolving the impasse involved enactment of the budget sequester, which has hamstrung the U.S. economy for almost four years now.
Since the issues haven’t changed it’s proper to revisit my list of five salient points about the debt limit, and why the whole concept is childish. This piece appeared in 2013, which shows how the debt limit fight is one of those plus ca change... deals.
Here are the five points, in summary:
1. There’s no real reason even to have a debt limit. The debt limit came into being in 1917 as a way to give Treasury more latitude to issue debt, not less. Before then, Congress had to vote on every proposed bond issuance, which it considered a pain in the neck. So it chose instead to give the Treasury blanket, though not unlimited, authority to float bonds.
Obviously, the debt limit doesn’t stop Congress from enacting any spending bills it wishes. Congress routinely passes measures that it knows, by simple math, will require more borrowing. The debt limit became a fiscal pitfall only after 2010 when talk of holding it hostage for political ends became commonplace.
Raising the debt limit does nothing to increase spending; it merely authorizes borrowing for debts already incurred by Congress. If the lawmakers don’t want to increase spending, they already have a way to do so — by not enacting spending bills.
2. The consequences of reaching the limit are dire. I wrote in 2013 that “it’s fashionable in some quarters to pooh-pooh the aftermath of a debt-limit breach ... but no sane person could advocate trying to find out just for the jollies.”
As listed by Lew in 2013, the consequences of ruining the U.S. government’s unblemished history of always paying its debts include an instant increase in the government’s borrowing costs, and a plunge in the value of government securities held by individuals, pension funds and other countries. Government issuance of Social Security checks, Medicare reimbursements to doctors and hospitals, paychecks to military families and vendors would be halted or cut.
Even the steps needed to defer a breach can be costly. When the nation hit the debt limit for three months in 2003, the government staved off default through the early redemption of bonds owned by a civil service retirement fund. That cost the fund and its beneficiaries more than $1 billion in lost interest, the Government Accountability Office determined.
3. In 2013, social insurance programs were on the bargaining table, and could be again. If behind-the-scenes negotiating takes place, the fate of the Social Security disability program could hang in the balance. Congress will have to take some measure to stave off the exhaustion of the disability trust fund next year, and steps to cut benefits for all Social Security recipients could be the result.
4. Past debt-limit deals involved trickery; will this one too? Because Democrats and Republicans are so far apart on fiscal policy, the only way to stave off a debt-limit breach since 2011 has been through sleight of hand.
The original magic trick was the sequester. Enacted to resolve the 2011 debt-limit standoff, this arrangement called for draconian, across-the-board budget cuts starting this year unless Congress worked out more refined measures in the interim. Congress failed, and the result has been the systematic impoverishment of a host of government programs, with the damage largely visited on moderate-income and low-income Americans.
The next debt-limit fight was resolved by the “Williamsburg Accord,” named after the Virginia retreat where the GOP cooked it up. The accord raised the debt limit for three months in return for an agreement by Senate Democrats to enact a budget with totally illusory fiscal controls. But it kept the sequester in place. Then came last March, and the fiscal gamesmanship that has kept the government operating ever since.
5. Even if the debt limit is raised, U.S. fiscal policymaking is a mess. The lesson of the post-World War II economy is that the surest way to cut the government’s debt burden is through economic growth. In 1947, gross federal debt swelled by war expenditures reached a record 121.7% of gross domestic product. Ten years later, the ratio had been cut in half and by 1974 in half again, to 33.6%. In that time frame, the size of the U.S. economy had nearly tripled.
Yet fiscal policy both in Congress and the White House continues to be aimed at measures that will suppress growth. Despite evidence that relentless austerity budgeting in Europe prolonged the recession there, deficit scolds still complain about even the inadequate spending by the U.S.
The U.S. economy is growing, but jobs development is still lagging, as was shown by the latest disappointing job figures issued Friday. the time is long past for Congress and the White House to get together on fiscal policies that really spur growth. That means public investment, not cheeseparing. And it requires an end to constant bickering over the pointless debt limit.
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