Comment by BaseballPhysics | Hacker News Reader

Comment by BaseballPhysics | Hacker News Reader

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BaseballPhysics

> The debt ceiling is about issuing new debt to fund expenditures. It has nothing to do with paying existing debts, or the 14th amendment.

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.

The US can cover debt servicing costs indefinitely without raising the debt ceiling. It would cause a lot of other cuts to essential services though, so obviously that is not a desirable outcome either. But it is incorrect to frame this as hitting the debt ceiling necessarily forcing a default.

And it's equally incorrect to claim that the debt ceiling does not, in any way, have an impact on existing debt, as was claimed by the person I was responding to.

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.

The government takes in close to $5 trillion a year [0], debt servicing is $496.5 billion [1]. So it's easily able to be covered by existing revenues.

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...

I'd suggest reading through this:

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.

“Debt” isn’t an ambiguous term that requires creative interpretation. The Magna Carta from 1215 has several provisions addressing “debt,” “interest,” “sureties,” etc.

Debt payments are a small fraction of government revenues. The executive doesn't need to borrow money to make interest payments.

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."

Interest payments accounted for 8% of the budget last year. We haven’t had a positive cash flow to paid down the debt since Clinton.

Interest payments in FY2023 will be $663 billion. Projected federal receipts will be $4,800 billion.

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