Debt Ceiling Maneuvering Heats Up

The folks on Capitol Hill are back at work after their summer break, and that means that it's time for another edition of everyone's favorite high-stakes game: debt-ceiling chess. Both sides made moves on Tuesday, as they each try to checkmate the other.

Before we explain the latest, let us review the background of this issue, so everyone is on the same page. The United States' debt ceiling will celebrate its 104th birthday next Friday—undoubtedly, cake and punch will be served. It first came into being on October 1, 1917, as part of the Second Liberty Bond Act. For a number of reasons, including a desire to create the impression of scarcity, so that people would snap up the "limited" supply of war bonds, Congress imposed a limit on how much money the government could borrow to pay for World War I.

Over time, additional legislation expanded the debt limit, eventually applying it to all government spending, and not just spending on a particular war or particular federal department. Note that the limit applies to the aggregate national debt, not to the annual budget. The general goal is to impose government austerity by creating a financial "cliff" beyond which Congress will not go. Of course, Congress pretty much always rushes in where wise men fear to tread, and so the debt limit pretty much never encourages austerity. What generally happens is that the Department of the Treasury warns Congress that the debt limit is about to be reached, and then Congress just raises it for the umpteenth time. For a long time, the raising of the debt ceiling was essentially pro forma, but the hyperpartisanship of the last 20 years or so has turned it into a regularly scheduled game of chicken. Or chess, if you like our classier metaphor.

The whole thing is, if we may use a technical term, stupid. When Congress passes a budget, or any other legislation that affects the national debt, they are already approving the necessary expenditure. They shouldn't have to approve it a second time. For a period of time (1979-1995), the Gephardt Rule was in place; it established that any budget expenditure that would push the U.S. past the debt limit would automatically raise the debt limit. That very sensible workaround was eventually abolished thanks to the efforts of someone who believed he could use the debt ceiling as a tool to advance his party's agenda. We'd hate to use the blog to cast aspersions on anyone, but we'll give you a hint as to his identity: Ewtnay Ingrichgay.

And now, the U.S. is teetering on the edge of the cliff once again. The Bipartisan Budget Act of 2019 was a bit complicated, but it suspended the debt limit for a while, and set a new debt limit to take effect on August 1 of this year. The new limit is $22 trillion plus the amount of money borrowed during the suspension, which was $6.5 trillion. According to our staff mathematician, who somehow sobered up for a night, that means the current debt limit is $28.5 trillion. The current national debt is $28.8 trillion and counting as of this morning, which means that the limit has already been reached. The Treasury can do some maneuvering, such that it will be able to pay the bills for a while longer, but eventually the magic will run out. It's not entirely clear when the cliff will be reached, but it's likely going to be sometime in October, in the second half of the month. The guess from Moody's, Oct. 20, is the one that everyone is quoting, but it could be plus or minus a couple of weeks.

In the past, Congress has approached the cliff, but has never gone full lemming, marched over the edge, and allowed the U.S. to actually default on its obligations. If the U.S. did default, the effects would be devastating. The U.S. stock market would surely crash, taking most or all of the other markets in the world with it. On the infamous Black Tuesday in 1929, the U.S. stock market lost $14 billion in value. That's about $224 billion in 2021 dollars. The best estimates are that a default on the debt limit this year would cause the U.S. stock market to lose $15 trillion in value. That's roughly 67 Black Tuesdays.

A default would also make borrowing more expensive. Investors would insist on higher interest rates before buying U.S. bonds, and that would ripple across the economy, making it more expensive to get a mortgage, to buy a car, to use a credit card, etc. This would mean, ironically, that the debt ceiling would serve to make the national debt worse, not better, since the U.S. would have to pay more in interest to meet its future unfunded liabilities. It would also mean that the next round of debt-ceiling chess would arrive all the sooner.

All of this upheaval and uncertainty would also harm the economy in other ways, like decreasing consumer spending, reducing the number of jobs available, increasing defaults on private loans, and otherwise throwing a giant wrench into the works. Further, anyone who is depending on money from the U.S. government would go unpaid for days or weeks (or more; once the red line has been crossed, it gets hard to back off). That means that federal employees would go paycheck-less, defense contractors could have trouble meeting payroll, Social Security recipients would be out of luck, and so forth. People who have no money can't buy food, pay rent, buy gas, etc., so the pain would spread quickly. Back in 2011 and 2013, merely approaching the debt-ceiling cliff was enough to do all sorts of harm; it's estimated that those little chess games cost the U.S. $180 billion and 1.2 million jobs. And, of course, there was no pandemic underway back then.

Let's add two more bits of background, then we'll get to the current maneuvering. First, note that when the debt limit is reached, it is due to past spending. That is very important; these near-crises are always triggered by expenditures that were already approved long ago, and not by future spending. The second thing to know is that it's generally the same political party that forces these showdowns. That would be the party of Mr. Ewtnay Ingrichgay, and they almost always do it when the White House is controlled by a president of the other party. Say, by Arackbay Obamayay.

And that brings us to the current impasse. This makes more sense if we start on the Republican side of the aisle, with the fellow who is basically instigating all of this, namely Senate Minority Leader Mitch McConnell (R-KY). Or should we say "Itchmay Onnellmccay"? Oh well, guess the turtle's out of the bag now. What McConnell wants is for the Democrats to include a debt-ceiling increase in their reconciliation bill. The blue team cannot suspend the debt ceiling if they do it that way, all they can do is increase the ceiling by some large number. If they do it, then McConnell and his party will weaponize that to the Nth degree next year, arguing that the Democrats' spending is reckless, and that they have been compelled to dramatically increase the national debt in order to pay for their socialist legislation.

Whatever your feelings are about the reconciliation bill, what we're seeing here—as is so often the case with McConnell—is a staggering amount of dishonesty. First of all, the case that he intends to make is an outright lie—it would be previous spending that prompted the debt ceiling increase, and not future spending. That would include the nearly $8 trillion that was added to the national debt during the Trump years, thanks in no small part to the 2017 Republican tax cut.

McConnell is also conveniently neglecting to mention that the Democrats worked with him three times during the Trump presidency to avoid the debt-ceiling cliff. When reporters point this out to him, he explains that when the White House and both chambers of Congress are controlled by the same party, it's incumbent on that party to lift the ceiling without the assistance of the minority party. If that sounds an awful lot like the "Garland Rule," you've got the general idea. McConnell is again making up a "rule" that never existed before, and that he and his party did not follow when the shoe was on the other foot. He's also neglecting to mention that he and his caucus will filibuster any effort to raise the debt ceiling through any means other than the reconciliation bill.

If all of this were not enough, the government also has to be funded, or it will shut down. So, there are actually two cliffs looming. McConnell's current offer—his move in the chess game—is a straight short-term funding bill that will keep the government operating but will not raise the debt ceiling. The absence of a debt-ceiling hike is pretty much a deal-breaker in and of itself, but on top of that, McConnell has also added a provision that would send $1 billion to Israel to fund their Iron Dome missile defense system. He knows that is a non-starter for many Democrats in the House because Speaker Nancy Pelosi (D-CA) was compelled to strip an Iron Dome provision from her bill after the progressives in her caucus rebelled. In short, the Minority Leader is setting himself up to attack the Democrats for reckless spending and for hating Israel.

Pelosi and Senate Majority Leader Chuck Schumer (D-NY) have made two counteroffers. The first is a short-term spending bill that does raise the debt limit and does not fund the Iron Dome. That one passed the House yesterday with a 220-211 party-line vote. Sen. John Kennedy (R-LA) has said he will vote for the bill, and there are a handful of other Senate Republicans who have not made a commitment one way or the other. However, 44 members of the GOP conference have already said they oppose the measure. That's more than enough to sustain a filibuster, so the bill is surely dead on arrival.

The other Democratic counteroffer is a bill that will just raise the debt ceiling and will do nothing else. Schumer and Pelosi have agreed to pass this entirely with Democratic votes; they just need the Republicans not to filibuster. McConnell has refused this offer, and he's also not willing to engage in negotiations. That is to say, he's not the least bit interested in trading [X] in exchange for working out the debt ceiling issue. He either wants the Democrats to own it entirely by including the debt-ceiling increase in the reconciliation bill (which may or may not pass, of course), or he wants to bring the U.S. and world economies crashing down, all in search of sound bites for 2022 campaign ads.

McConnell certainly might blink, particularly since he depends on the support of businesses and wealthy people who will not be happy if the U.S. economy goes in the toilet. On the other hand, he might decide that he's happy to fiddle while Rome burns, thinking that he can easily pin the blame on the infrastructure bill and on the President. Remember that every time we play this little game, it's with Republicans gumming up the Senate and a Democrat in the White House. Remember also that just playing the game does harm, particularly if the cliff draws close, so McConnell might decide he's happy to create a little economic turmoil, and then to make himself look magnanimous by generously agreeing to work with the Democrats.

The Democrats might also blink. After all, they do have the trifecta, and they do tend to yield when push comes to shove. On the other hand, they might not. Their version of events is the truthful one—that this has to do with past spending, not future spending. Further, Joe Biden controls the bully pulpit, and will be in a much better position to explain things than any other officeholder. Also, Nancy Pelosi may well be in the midst of her last rodeo; with her caucus in serious danger of losing the majority anyhow, and with her self-imposed term limit nearing, she might decide she's got nothing to lose by forcing the Republicans to play with fire.

The Democrats do have one other ploy though, if they really want to play hardball. The Treasury Dept. is authorized by law to mint platinum coins. These don't count as debt and can be minted at any time and for any amount. This provision in the law was intended to allow the Treasury Dept. to make special coins for coin collectors. So legally, Joe Biden could instruct Treasury Secretary Janet Yellen to mint, say, two trillion-dollar coins. She could deposit one in the Treasury's bank account and keep one in her office to show visitors. All of a sudden, the federal debt (liabilities - assets) would drop by $1 trillion and the crisis would be pushed into the future. Would this cause inflation? Of course not. Inflation is caused by more demand than there is supply and this stunt affects neither demand nor supply. Would this stunt affect McConnell's blood pressure? We don't have a staff doctor, so we are not going out on a limb here. But the trillion-dollar coin option is perfectly legal.

And that brings us to our final observation. As a matter of political strategy, we are not impressed with how the Republicans are operating right now. Between the general tendency of the midterms to go against the party that controls the White House, and the effects of the new census, and the effects of gerrymandering, all the GOP has to do is play it safe and they will likely retake the House. They—and in particular, McConnell—might very much like to take the Senate, too, but that's a much tougher slog, and having one chamber is more than enough when it comes to the Republicans' agenda of obstructing everything Joe Biden wants to do. And yet, instead of playing it safe, McConnell & Co. are shooting for the moon, with wildly unpopular abortion laws, and playing games with the economy, and the like. If they don't retake the House, they may have only themselves to blame. (Z)

Another Biden Headache: The Border

In the 19th century, many of the men who were elected president ended up hating the job. In 1887, for example, Grover Cleveland got a visit from a prominent New York supporter and that supporter's 5-year-old son. Greeting the young man, Cleveland famously remarked: "My little man, I am making a strange wish for you. It is that you may never be president of the United States." That was during Cleveland's first term, so it raises the question of why he ran for reelection...twice. And it wasn't just the President who failed to follow that sage advice; the youngster was Franklin Delano Roosevelt.

Today, the job of president involves a lot more pomp and other fringe benefits, and a lot less time doing unpleasant chores, like personally answering the White House phone (as the presidents from Hayes through Cleveland term two were compelled to do). So, today's chief executives don't tend to hate the job as much as some of their predecessors. Still, there have got to be times for each of them where they say "What the heck did I want this job for?" And we would imagine that Joe Biden is currently having a week (a month?) like that.

The list of recent presidential headaches is long and well known, from the Afghanistan withdrawal, to pushback over AUKUS, to the ongoing pandemic, to problems with the economy, to a Supreme Court that's a real pain in the rear. This week, the debt/budget situation (see above) has moved to the forefront, potentially putting the infrastructure bills—Biden's pet project—at risk. And if this is not enough, the Southern border has turned into a mess.

As we all know, visual evidence is 100x more powerful than anything else, and so the videos and photos of border patrol agents pursuing Haitian immigrants while on horseback, which came to light this weekend, have gone viral. The White House says it is unclear how this came to pass, and every time DHS Secretary Alejandro Mayorkas talks to the press, he looks like a deer in the headlights. Anyhow, anyone and everyone is promising to "get to the bottom of this."

This is not getting quite as much attention as the border horrors of the Trump years. Maybe that's because the Biden administration is not deliberately trying to be cruel. Maybe it's because they are likely to do better now that the problem has been brought to light. Maybe it's because of media bias. Maybe it's all of these things. In any event, while this story isn't dominating news cycle after news cycle the way that Trump's children in cages did, it's still generating plenty of heat for Biden. Republicans, of course, see a chance to score political points, but Democrats are none too happy, either. Chuck Schumer has been particularly outspoken, although his shots at Biden are crafted so as to also be shots at Donald Trump.

In the end, as we note, we imagine that the administration will do "better." But there's only so much "better" available under current circumstances. This is far, far bigger than any one president or any one approach to immigration. Most countries of the Western Hemisphere are very poor, many of them—at least in part—due to American foreign policy choices. Of course a large number of those nations' citizens are going to take their chances at a new start in a much wealthier "land of opportunity," regardless of the risks or the lawbreaking that entails. And when those folks arrive by the thousands at the border of a country that has turned particularly xenophobic in the last decade, then there is going to be a lot of ugliness.

Put another way, this is one of those issues that is so challenging that the only possible hope of addressing it is some sort of broad, bipartisan approach where the whole country is working together towards a better resolution. Unfortunately, this is also one of those issues—like global warming, or the wealth gap, or police misconduct—where bipartisan consensus is nowhere to be found, and does not appear to be looming on even the distant horizon. (Z)

Biden Gets a Very Bad Poll

J. Ann Selzer is the best pollster in the biz. And yesterday, she had lousy news for Joe Biden, in case he didn't have enough of that already. Her latest poll of Iowa reveals that he's 31 points underwater with citizens of the Hawkeye State, with 31% of residents approving of how he's doing his job and 62% disapproving. That 31% approval is lower than Donald Trump's worst result in a Selzer poll (35%), and also worse than Barack Obama's low (36%), although Biden still has a bit of breathing room before he sinks to George W. Bush's low (25%).

So, what does it mean? Well, when CNN's Chris Cillizza wrote this item up, the headline was "This poll should terrify Democrats ahead of 2022." Our response to that: please. If we used emojis on this site, we'd be using an eye-roll emoji at this very moment. CNN should be embarrassed by such obvious click-bait headlines (which, in fairness to Cillizza, are probably not written by him).

No doubt, this poll is not going to warm the cockles of Biden's heart when he hears about it. He would certainly much rather be 62%/31%. But first of all, it's one poll, and even Ann Selzer makes mistakes and/or gets wonky samples. Further, the President is taking a lot of hits right now, some of them deliberately timed to happen well before the midterms. Let's see what happens when memory of some of the bad stuff fades, and is possibly replaced by approval of one or two infrastructure bills. Note also that Iowa voters aren't exactly Biden's base; he lost that state to Trump by 8 points, and his very best number in a Selzer poll is 47% approval.

Most importantly, the midterm elections are 14 months away. The next presidential election is 38 months away. Do we really need to say, at this point, that we're talking multiple lifetimes in politics? Here are Barack Obama's approval ratings over time in the (national) Gallup Poll:

As you can see, Obama jumped around quite a bit, from the high-30s to the mid-60s. Trump's remarkably stable approval ratings, which varied across only a narrow range, may have caused some people to forget how this works. We're not saying that Biden will be flying high again in a month or six months or a year, because who knows? What we are saying is that one poll of one (smallish, reddish) state taken in September 2021 tells us almost nothing about November 2022. (Z)

Trump Sues His Niece, The New York Times, and Three Times Reporters

As long as we are on the subject of presidents who get poor approval ratings, Donald Trump was back in the news yesterday, as he's decided to file a high-profile lawsuit. He's going after everyone who was involved in the New York Times' stories about his taxes, which means the paper itself, the three people who wrote those stories, and his niece Mary Trump, who provided some of the necessary documentation.

The cause of action is actually a little hard to parse. The filing accuses the defendants of having "engaged in an insidious plot" that was "motivated by a personal vendetta." It also goes after Mary Trump specifically, accusing her of violating her non-disclosure agreement. This despite the fact that the former president has already had multiple judges rule against him on that very point, since the NDA was vaguely worded and far too broad. In any event, it's not especially clear exactly what the defendants have done that justifies the $100 million in damages that Uncle Donald is asking for.

In any event, we once again point out the serious downsides that come with a lawsuit like this. The first is that, per the Streisand effect, it serves to remind everyone of the underlying dirt, namely that Donald Trump is a tax cheat. He's not disputing that with the lawsuit, he's just saying that information was not his niece's or The Times' to share. The second problem is that if the lawsuit survives a motion to dismiss, then comes the discovery phase. And there is nothing that The New York Times would love more than an opportunity to probe anything and everything they can that is related to El Donaldo. The third risk is that the former president gets popped for filing a frivolous lawsuit, and ends up having to pay a fine and/or the defendants' attorney costs.

Only Trump knows exactly what the goal is here. Mary thinks he's trying to create a distraction, though exactly what he would be distracting from is not clear. Maybe he's just doing what his id tells him to, as is so often the case, and there is no real plan or goal. Early indications, however, are that he's retained his usual quality of lawyer. Beyond a legal argument that is vague and not especially related to, you know, the law, there is a rather sizable error on the very first page of the filing, which reads: "The brazenness of the defendants' actions cannot be understated." Rachel Maddow had a jolly old time with that one. (Z)

(Back to the) Back to the Future: Reader Predictions, Part IX: The Economy

We're trying to spread these out a little to avoid burnout, but today is probably the last day this week we can run another group of these, so there you go. Here are the ones we've already run:

• Part I: Donald Trump
• Part II: Trump's Family and Supporters
• Part III: Right-wing Politicians and Media
• Part IV: The Biden Administration
• Part V: The Supreme Court
• Part VI: Congress, the Legislation
• Part VII: Congress, the People
• Part VIII: The Pandemic

And now, the economy:

• T.B. in Bay Shore, NY: The net effects of lockdowns, mask mandates, vaccines and relief bills will begin to usher in a new Roaring '20s beginning in the late spring/early summer.
  
  
• A.M. in Toronto, ON, Canada: Oil will hit $70 a barrel.
  
  
• K.K. in Salt Lake City, UT: Oil will be over $100 a barrel by the end of the year.
  
  
• D.C. in Delray Beach, FL: The Nasdaq will finish 2021 at 15,547.
  
  
• J.B. in Findlay, OH: The Dow will top 35,000 sometime this year and will end the year in the 33,500-34,500 range and the NASDAQ will top 14,500 (ending above 14,000). The U.S. unemployment rate will improve to 5% by the end of the year
  
  
• R.O. in Peaks Island, ME: Stock market will reach 40,000 points as a vaccine for HIV/AIDS is announced. An epidemic of debauchery will ensue, driving the Dow to 45,000 a week later.
  
  
• B.H. in Seattle, WA: Commercial property mortgages will create a significant financial drag, a bailout discussion in Congress will begin, and the Dow will end at 26,000.
  
  
• B.H. in Westborough, MA: Despite the enthusiasm over the end of COVID, the stock market will drop by at least 25% from Jan. 1 levels at some point in the year.
  
  
• I.K. in Olympia, WA: The current housing bubble will burst, or at least housing prices will go down significantly.
  
  
• C.M.L. in Washington, DC: No Republican in the House will vote to extend the debt ceiling in the run up to its expiration in mid-July, but default will be narrowly averted by the Senate.
  
  
• E.H. in Stevens Point, WI: Major overhauls of the tech industry are coming, though they won't be voted on until 2022.
  
  
• K.K. in Salt Lake City, UT: Congress will pass legislation attempting to regulate, or imposing monetary liability on, social media companies, based on the content they allow to be on their sites or their moderation policies. A lawsuit challenging it under the First Amendment will be filed.
  
  
• J.A. in Redwood City, CA: Consumer spending will pick up again once the pandemic wanes, but unemployment will remain stubbornly high. Many people who are currently unemployed will never return to full-time work again.

The next entry, which will probably be next Tuesday, will be on foreign affairs. (Z)

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He is not "Martha, My Dear" or a bulldog, but there was a sick dog to whom (Z) unexpectedly had to attend. The good news is that Otto seems OK now:



The bad news is that between that and the complicated first item, (Z) needs a bit more time to finish the Beatles item. It's that, or wait until 5:00 a.m. PT for this post, and readers tend to get irked when we run that late. Sorry for another delay; it'll be ready for Friday's posting.

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