The US Might Be Only AA+
bloomberg.com
bloomberg.com
The A/B/C rating system might be more of a disservice than a 0-100 scale.
Calling on Biden to bypass Congress is asking him to to violate one of the foundational provisions of Article I. Section 8 makes clear that the power "to borrow Money on the credit of the United States" belongs to Congress.
Personally, I’d like to see what happens if the entire executive branch just goes on-strike, French-style.
Technically appropriations are a maximum the government can spend, not a requirement to spend that money. However, Congress does not like the idea of the present just refusing to provide all the appropriated funds to some programs, so they wrote the Impoundment Control Act of 1974, which requires the president to make all the appropriated funds available to the specified programs. Note the word available. Programs are not technically obligated to use all the money, but technically that is up to the program's head. In practice programs will almost always use as close to all of the money as they can get, since if they don't use all the funds, Congress might choose to reduce their appropriation next year.
Because the constitution seems to mandate mandates paying the debt, and leaves the amount of debt up to congress (Article I Section 8), upon hitting the debt ceiling, the president must continue to pay the debt, and must not issue more debt. But the Constitution does not require making all appropriations available so the Constitution will overrule the Impoundment Control Act of 1974, in such a scenario. Clearly if it is impossible for a president to adhere to both the constitution, and a statutory law, it is the statutory law that gives way, not the constitution itself.
So X-day should trigger a partial government shutdown, while the government continues to pay its debt, and fulfill contracts and other statutory payments, but cuts off enough other spending to stop exceeding revenue. This would be similar to what happens when congress fails to pass an appropriations bill.
There are some wrinkles, but generally, litigation over the President’s ability to decline to spend appropriated funds has indicated that it largely does. Now, if Congress had connected the debt ceiling to either a specific formula for funding reduction or a specific grant of authority to impound appropriations, that would be different, but as it is the President, assuming both are independently valid, cannot faithfully execute laws appropriating funds and the law setting the debt limit.
It clearly doesn't say anything about "bills." Section 4 says:
> The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any state shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The distinction between "debt" and "expenses" is clear and longstanding. Even in the middle ages people would be able to tell you the difference between the crown repaying borrowed money and the crown paying expenses: https://pdxscholar.library.pdx.edu/cgi/viewcontent.cgi?artic....
The debt-ceiling is what makes that whole exercise constitutional to begin with. Congress said: "okay, Treasury can borrow money, but only up to this much." If the executive disregards the debt ceiling, that would break the fiction of delegation, and the executive will have fully wrested a fundamental Congressional power away from Congress. That's the same reason why the 14th amendment cannot override the debt ceiling. Yes, the debt ceiling is a statute. But without it, Treasury has no power to issue any debt.
Hope the Republicans enjoy the civil rights violation lawsuits from everyone who suffers actual damages when their mortgage interest rates go up due to the Republican's violating the 14th Amendment so that the Republicans can benefit from that fallout. Especially now that the head of the Republican party is on the record stating that a failure to raise the debt limit will benefit the Republican's politically come election time.
This is absolutely incorrect. The debt ceiling is also about existing debt because servicing that debt is one of the government's expenditures.
Specifically:
> By hitting the limit and failing to pay interest payments to bondholders, the United States would be in default, lowering its credit rating and increasing the cost of its debt.
https://www.investopedia.com/terms/d/debt-ceiling.asp
And doing so would violate the 14th amendment which states that "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
In short, in past years Congress authorized the government to spend, and in doing so drove the issuance of government bonds. By failing to increase the debt ceiling now, Congress is effectively stopping the government from paying interest on the debt previously issued to pay for those past expenditures they authorized. In effect, they ran up the credit card and now they're stopping the executive from paying the bill.
Moreover, the executive's ability to independently trim spending absolutely has limits, and I've seen no credible claims that the executive can service debt costs "indefinitely":
https://www.crfb.org/papers/qa-everything-you-should-know-ab...
> So-called “prioritization” of payments, or making sure certain obligations among the more than 80 million that get paid per month are paid before others – such as servicing debts to bondholders before making other payments in order to avoid technical default – has been criticized as unrealistic by Treasury officials and economists.
With respect to prioritization, I'm sure Treasury officials don't want to be put in that position, but if we end up hitting the debt ceiling they will need to make it work.
[0] - https://fiscal.treasury.gov/reports-statements/financial-rep...
[1] - https://fiscal.treasury.gov/reports-statements/financial-rep...
https://bipartisanpolicy.org/explainer/prioritization/
Of note is this:
> First, under any hypothetical prioritization scenario, the federal government would be failing to meet some of its obligations. There is no legal precedent for choosing to pay certain bills before others. Immediate court battles would likely arise over the legality of paying, for example, foreign bondholders over American citizens. What would be the logical interpretation of a court ruling in favor of a legal claimant? A default on the full faith and credit of the United States?
Given that the constitution talks about "debts" without being specific about what that means, I think it's also debatable whether or not the 14th amendment applies to other types of spending obligations beyond just interest owed to bondholders.
It's also not clear to me the 14th amendment means that the federal government can't default on the debt. A fairer reading is that it means that the government can't repudiate particular bonds. E.g. Biden can't say "I'm not going to pay any bonds issued under Trump."
Congress also largely controls revenue. The overwhelming majority of revenue is taxes. There is little that the president can do to significantly change the revenue received. [1] Since congress has left a deliberate deficit, the president is left with no choice but to issue more debt to make up that shortfall. But the debt ceiling would prevent that.
The classical thinking (for some reason) is that if the debt ceiling is hit, the president will be forced not to pay the interest on the debt, since the appropriations are mandatory. This is the view that sees the debt ceiling itself as questionably constitutional, viewing the act of appropriating more than expected revenues to be authorizing the issuance of debt. Unfortunately it is also a wrong view.
The correct view is that it is the Impoundment Control Act of 1974 that is unconstitutional, and that upon hitting the debt ceiling the President is obligated to impound appropriations as needed to avoid going over the debt ceiling. The result would probably be a partial government shutdown, similar to what happens when congress fails to pass an appropriation bill.
This, of course, only works if the revenue received still exceeds the required interest payments on the debt.
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Footnote: [1] The treasury cannot even print more paper money, since that is up the federal Reserve for Federal Reserve Notes, and while U.S. Notes are technically still authorized, Congress has set a limit of $300,000,000 U.S. Notes. It could mint more coins and deposit them with fed, but manufacturing costs are appropriated funds, and it is not possible to mint enough normal coins with the appropriated amounts to make a dent. Many coins (including the penny, and the >$1 precious metal ones cost more to make then their face value). Hence why the trillion dollar coin proposal used a platinum coin, which is the only category where the Treasurer gets to pick the size design and face value.
Given that, you're correct. Faced with a choice between unconstitutionally exercising powers delegated by Congress in violation of the express terms of delegation, and violating an ordinary statute, clearly the correct course of action is to violate the statute.
Also we need to look at which presidencies inflate the debt burden, and that's more and more commonly solely one side, the same side threatening to put our country in peril. It's almost like massive tax cuts for the rich have left our country with less money to pay our bills. Weird!
Then the economy will carry on, and if the GOP sues and actually wins, it will be very clear that they were the ones who blew it up. I doubt they'd be dumb enough to carry through with that.
less than 10% of Americans even know who McCarthy is, no one will blame him
Unfortunately for the Republicans that are trying to play brinksmanship, that will make Biden look like a hero.
A huge economic disaster occurs, doesn't matter who caused it, but then Biden gets to swoop in and solve it with the flick of a pen. Cue victory lap.
Sure, the Republicans will try to tie it down and to make it seem like he caused it. Doesn't matter though, because he's the one that solves it.
As Rove said, never let a good crisis go to waste.
Democrats think that.
Republican voters are well aware that the the GOP is not actually going to let the US default.
But because Democrats seem unaware of this the GOP is using it as a good time to negotiate with little risk.
No they are arguing if we didn't spend so much we wouldn't be in this problem in the first place.
The mistake you are making is thinking that there is any chance whatsoever the GOP will actually let the US default on it's debts. There is zero chance of this.
This is simply an opportune time to negotiate, that's all. "Wait till the last minute."
Seems reasonable, who would argue that the US 2022 - a Democrat controlled budget - was fiscally austere? It also has automatic budget increases.
Senate has has a month to reject it, modify it, propose something else. They did nothing.
Not defending government debt by the way - I think it's an especially insidious form of tax that devalues the entire currency and hits the poor the hardest.
Both those things will soon become false - US economy will be eclipsed by China, and the process of de-dollarisation of world's reserves is accelerating. The fact that the US can print as many dollars as they want is one of the reasons for it.
[1] https://asia.nikkei.com/Economy/China-s-GDP-unlikely-to-surp...
Slower growth still means about 5% GDP growth per year, which is much higher than growth in developed economies.
The "demographic collapse" is a gradual decline in population over many decades, offset by vastly improved education among the younger generation entering the workforce. Just to give you an illustrative example, if three workers with 8 years of schooling retire from the workforce, and two workers with college degrees enter the workforce, is that a demographic collapse?
Yes, because, unfortunately, every economy depends on having workers willing to do occupations that don’t depend on high-level qualifications.
As China’s population ages while the pool of young workers without career aspirations shrinks, where are they going to find all the medical care-assistants, agricultural workers, and things like that? Other countries such as in the Middle East the “solution” was to import labour from India and SE Asia - I don’t believe that approach will work for China at all.
China's economy was projected to overtake and eventually eclipse the economy of the USA. China is currently staring down an existential population collapse. China's also a net importer of both energy and food.
Pointing to BRICS nations dropping the USD for trade demonstrates a fundamental misunderstanding of what BRICS is.
there is no external context for a buyer of debt to assess value outside of sovereign currencies, which are basically ALL junk for G7 nations
the other G7 nations with worse stats all have AAA...its meaningless...if you want to buy G7 debt, you MUST buy toxic waste
maybe one day Mars will issue high-quality debt backed by hard assets...until then...
Government debt is usually denominated in the currency that government issues. They can print themselves out of debt at any time. At the cost of inflation. And that currency getting devalued against the world's trading currency, the US dollar.
So if the country in question has a huge and diversified economy, this is less of an issue. And if the country in question can print more US dollars, and has never defaulted on its debt in centuries, I don't see how they would let that go.
The actual risk to an investor in US government debt of not getting paid is zero, unless their name is China and they start WW3.
Now, does this mean US government debt is a good investment? That's a different question.
Almost there. Come on, just a bit further.
That is the definition of a Black Swan. US political parties have audaciously risked the foundations of democracy for the advancement of their own political agendas. It is my forecast that the Speaker of the House's political fragility in ensuring adherence to any concurred deal, may well manifest as the Black Swan, potentially precipitating a default.
Read the comments with this in mind and see how people just have such different worldviews.
bet you 50 bucks it won't happen
EDIT: I find it humorous that people are taking offense and down-voting my comment as though I was referring to only a subset of the people in DC as clowns. We've been running a deficit annually since the early 80s (with one anomalous year in the 90s) and the fact we've not had blow-back in the credit markets is astounding. This is only possible when we enforce the petro-dollar system with the might of the US military, something the rest of the world has grown weary of. Once we lose reserve currency status our gov't debt will indeed slide to junk status and right quick.
That’s it, that’s the whole reason. The entire global trade system depends on us flattening any bad actors with the threat of force. Other players would like to edge us out, but they can’t yet.
I think the sunset on that ability is within view. The petro-dollar is key to our status as the world reserve currency and not only is oil now being sold in Rubles and Yuan but the push to eliminate fossil fuels also undermines the special status the USD enjoys.
Are any of their bonds rated "junk"?