Yves here. Because Republicans are ever and always bad guys, at least if you are a Democrat, commentators are IMHO being far too generous to the Biden Administration on the current debt ceiling impasse. Biden simply postured that he wasn’t going to negotiate, which wasn’t credible unless he made clear he was willing to use a heretofore novel escape route, namely the 14th Amendment or minting a $1 trillion platinum coin. There similarly has been no effort to delegitimate the debt ceiling by at least discussing how it is flatly at odds with the Constitution.
Perhaps the worst actor here is Janet Yellen, who has merely been warning when she thinks her ability to spend will hit the debt ceiling limit, and as far as I can tell, has exercised zero leadership.
Of course, one could just as easily conclude that Democrats are more interested in fighting than winning.
By Jake Johnson. Originally published at Common Dreams
Sen. Bernie Sanders and 10 other senators on Thursday ramped up their calls for President Joe Biden to strongly consider invoking his 14th Amendment authority to avert a debt default as the GOP continues to demand steep federal spending cuts and attacks on critical aid programs.
“It is unfortunate that Republicans in the House of Representatives and Senate are not acting in good faith. Instead, Republicans have made it clear that they are prepared to hold our entire economy hostage unless you accede to their demands to reduce the deficit on the backs of working families,” the 11 lawmakers wrote in a new letter to Biden. “That is simply unacceptable.”
The letter and a flurry of urgent statements from progressive lawmakerscame amid continued uncertainty over whether the White House and Republican negotiators would be able to reach a deal to raise the debt ceiling before the June 1 “X-date”—the day the federal government could no longer be able to pay its bills.
Progressives have vocally condemned the GOP’s push for new work requirements for recipients of federal aid and deep austerity in the form of spending caps, which would devastate key programs and services and hamstring the government’s ability to respond to economic turmoil.
During a press conference on Thursday following the release of the new letter, Sanders (I-Vt.) slammed Republicans for pursuing “savage cuts” to “the needs of working families, the elderly, the children, the sick, and the poor” in exchange for any agreement to raise the debt ceiling and prevent a default.
“If the right-wing Republicans force a default, it will mean the loss of millions of American jobs, interest rates on mortgages and credit cards will soar, and Americans will lose trillions of dollars in household wealth,” Sanders warned.
But the senator added that “as disastrous as it would be to default on our debt, it would be equally disastrous to pass the outrageous Republican proposals,” which he noted would kick millions off nutrition assistance, Medicaid, and other key programs.
Republicans have demanded a 1% cap on overall federal spending growth over the next decade—which would amount to real cuts to spending, given that growth would be unable to keep up with inflation.
Sens. John Fetterman (D-Pa.), who has said he could not support a debt ceiling deal that harms vulnerable people, argued in a statement Thursday that Biden “needs to consider using the 14th Amendment if necessary.”
“The entire GOP debt ceiling negotiation is a sad charade, and it’s exactly what’s wrong with Washington. We’re playing with fire and the livelihoods of millions just for the GOP to try and turn the screws on hungry Americans,” Fetterman said. “This is the whole reason why the 14th Amendment exists, and we need to be prepared to use it. We cannot let these reckless Republicans hold the economy hostage.”
Biden said earlier this month that he has been “considering” invoking the 14th Amendment but added that he doesn’t believe it “solves our problem now.”
The 14th Amendment states that “the public debt of the United States… shall not be questioned,” and some constitutional law experts contend—given that debt payments are for spending already approved by Congress—that it provides a legal basis for Biden to end the current standoff without congressional action.
The 11 senators who signed onto the new letter agreed, writing that “using this authority would allow the United States to continue to pay its bills on time, without delay, preventing a global economic catastrophe.”
“The choice we face is clear,” the lawmakers argued. “We cannot reach a budget agreement that increases the suffering of millions of Americans who are already living in desperation. At a time of massive wealth and income inequality, we must ask billionaires and large corporations who are doing phenomenally well to start paying their fair share of taxes.”
“Republicans’ unwillingness to consider one penny in new revenue from the wealthy and large corporations, along with their diminishment of the disastrous consequences of default, have made it seemingly impossible to enact a bipartisan budget deal at this time,” they added.
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Aside from the technical details related to government funding and finance, the whole thing signals government dysfunction. The all powerful hegemon can’t even manage its own affairs.
I’d also ask: if Biden uses the 14th amendment can we start talking about the US as an autocracy?
I do not think that following and upholding the 14th amendment is anything close to an autocracy – it more acts to prevent an oligarchy or monarchism from using the old world tricks to gain supremacy.
It appears that both the Dems and the Repubs view the constitution as some sort of obstacle for their own parties dominance… thus the want not to go to it.
Why does the 14th amendment require congress to borrow more money? ‘Not questioning the validity’ of the debt just means continuing to make payments on debts already incurred – however painful that may be. Seems like plain English.
Isn’t there a side proposal of minting a trillion dollar coin. Assuming you don’t want to issue more debt, the treasury can just do that.
It’s no surprise Congress is reluctant to go that route as doing so would show just how much of a charade the whole debt show is
It is always argued that the $trillion coin deposit would be challenged in court. That is where the 14th amendment would be decisive, because any judge ruling against the coin would by that very act be forcing the government to default and thereby violating the 14th amendment’s prohibition against any “questioning” of the public debt.
If Biden is going to try the 14th Amendment and trillion-dollar coin, he’d better do it well before June 1 so the whole concept can be tested in court and markets before the US reaches the default deadline.
The debt show is a charade. It has always been a charade.It does not matter who the extortionist side is. It is always posturing. Neither party has any real concern for fiscal sanity. Each runs up debt when it is their turn. Each does the opposite when in the minority. were it not such a delicious political tool, it would have been abolished long ago. Abolish it now and stop this infantile game. But then congress has an abundance of infants, adolescents, ninnys, and fools.
The debt is unpayable. There is no interest in paying it and as long as the dollar is the reserve currency for the world, the US must run. deficits to keep the casino in cash.
Declare a state of exception. Do as you please in the White House. Seems that is the case anyway.
I believe that the Congress has not passed a budget for several years now. They simply use the so called continuing resolution each year. Both parties are only interested in pleasing their donors rather than doing anything for the people.
Biden is trying use this issue because he’s running for re-election.
Thanks, Bruno.
Wouldn’t a $trillion dollar platinum coin (at current market prices) weigh 31,250,000 tons of platinum? Is there a big asteroid on the way?
It only has to be a troy ounce, so we’re looking @ $999,999,999,864.00 worth of potential seignorage, which means in essence it’s a $2 Trillion Coin.
Or in Canadian parlance, a troonie
Kindly, it’s a fundamental error that goes back to the beginnings of money in the US.
Adam Smith wrote about something funny going on in the colonies – they were printing paper money that was not backed by silver. How could it maintain its value? It was a puzzle.
The answer is understood today. The only thing that sets the value of money is the government’s acceptance of it to pay taxes.
The ultimate consequence of Republicans railing against taxes and eliminating them at every opportunity will be the collapse of the monetary system and a return to feudal barter.
I don’t think the GOP has a clue about the danger of the fire they’re playing with.
Congress voted already for an annual Federal Budget that exceeds the current debt limit.
We (US) observe the fiction that bonds have to be created and sold for the Federal Government to spend: Congress could amend this and allow the spending of fiat without issue and sale of bonds, but this would require re-working relations between the Fed and Treasury along with Congress behaving like a responsible actor, so, too much to ask.
Yellen is promising to play along with what you propose, which will in short order shut the government down. Shutting the government down will starve the overall economy of a significant portion of its immediate cash flows and precipitate a financial crisis in short order. This is but one of several vectors along which the “hegemon” seems determined to self destruct.
Even this article doesn’t do full justice.
You will have heard that all ‘money’ is debt – a $20 note ‘indebts’ the government to you. The so-called national debt is, by definition, the national money-supply. There is nothing to ‘pay back’. If you took a $20 note back to the FED, all they’d give you to redeem the ‘debt’ would be two tens.
What’s at issue here is Treasury notes (legally, the word ‘note’ means debt) – time denominated money, ie, you have to wait until the term date, unlike cash, which you can ‘cash in’ at any time.
There are three kinds of money – cash, Treasuries and coins. Only Treasuries have been ‘limited’ by Congress, interestingly in an arcane WW1 act that was passed to help the government spend, not restrict it. There is no limit on how much cash the FED can create or the size of coin the Mint can produce – hence the notion of minting a one trillion dollar coin and depositing it at the FED. End of showdown.
Why Treasuries matter is because they underlie our financial system – they act as a zero-risk foundation for the trillions of dollars of esoteric wheeling and dealing on Wall St. – as well as world trade. I suspect no one really knows what will happen if Treasury interest payments stop and zero-risk backstops become high-risk. Let me just say that no country prepared to play this card can expect the world to accept its currency as a global standard.
In summary, ‘Mint The Coin’.
Too late. The US is a superficial, public relations “democracy”
“The US is an oligarchy with unlimited political bribery” (Jimmy Carter 2015)
https://www.rollingstone.com/politics/politics-news/jimmy-carter-u-s-is-an-oligarchy-with-unlimited-political-bribery-63262/
Sure. Autocratic Biden Saves Nation From Default is a headline I want to see.
Autocratic or pusillanimous or foolish or Socratic: Makes no difference. Same old Biden.
I still think that taxing wealthy and large corporations is over broad – taxation needs to be directed at the corporations (FIRE sector) that impose large overheads on the economy and do no actual productive work – they just asset price inflate and impose leveraged debt upon prey corporations to extract money or privatize the commons
Good luck finding personal incomes over $1/2m that aren’t bootstrapped to financial or real estate holdings. Equally rare are corporations that don’t do stock buybacks, offer payment plans to customers, “diversify” and so on.
There are such things as too much money and too much leverage, even in large scale industrial sectors where massive capital is a legit requirement. Narrow tax targets beget complexity and amount to broad loopholes. Just tax the rich at rich rates, and tax the filthy rich at filthy rates. Anyone under ~100K/year, don’t tax at all.
>Just tax the rich at rich rates, and tax the filthy rich at filthy rates
This line of thinking is destined to fail. The super rich have gamed the tax system so they do not have income. We need to attack loopholes first. Then worry about what the rates are
If the US can freeze Russian, Venezuelan, and afghan reserves at will, why not the assets of the rich, for your definition of rich. And, tax havens are only havens by consent. Since we have a “rules based order”, make a rule that cuts the foundation from under all the various means of hiding assets Or, change the tax code. If the rich can game the system so can the government, if it has the will to do so.
Back to MMT. Governments that create the currency do NOT need to tax or borrow in order to spend. By definition!
The purpose of taxes is NOT to finance spending but to syphon spent money out of the economy so the government can keep on spending.
In an ideal economy, governments would spend on public priorities – roads, bridges, health care, education, whatever – it would circulate from person to person and corporation to corporation, being taxed back and eliminated at each step so the overall process could continue. If certain entities (the wealthy) divert the money into their own pockets, they also divert the power of the state.
This is the essential struggle between public and private. No one wants full state control. On the other hand, if anyone wants a comparison that shows the benefits of public sector spending, just look to China – gleaming cities with working mass-transit systems, high speed rail, new airports – a vast public sphere that improves life for everyone.
Far too many Americans seem to see public sector spending as a cost rather than an investment. And McCarthy is doubling down – making America great again by reducing government spending. What’s happening is the opposite – America’s slide into shabby impoverishment.
When my small UK company lost a crucial contract we made the hard decision to let some staff go, downsize our office, and we principals took significant salary cuts. (We latter also made personal loans to keep things afloat.)
Why the USA government with all its waste and bloat (the “defense” department of course the worst example here) can’t find a way to cut at least 5% of the budget whilst raising the debt limit is beyond me. I don’t know the details of the proposed Republican cuts but they certainly aren’t 5%.
The salaries paid to some of these paperpushers are ridiculous, BTW.
Pavel, you and your company did not have a legal printing press to print money but the US Government does.
The defense budget is only ever allowed to go up in US politics.
Close all or almost all of the overseas bases. Cut the budget 10% in the coming year and continue doing so until the fat is squeezed out. Demand that the so-called contractors produce worthwhile products for the services. Right now they are a joke. Russia is doing just fine against US/NATO in Ukraine. Wonder weapon after wonder weapon after wonder weapon has been countered and destroyed. I see no end to that scenario. How come the Russians can produce stuff that actually does what it is designed to do more quickly and as a far smaller cost? Our MIC is making money hand over fist while producing “weapons systems that are over complicated, fiddly, and obsolete from the get go, which are then pushed on other nations at vast expense. It is a disgraceful situation in which the entire DC Bubble and Echo Chamber is complicit.
They can’t find a way to cut 5 percent because of lobbyists. The owners/CEOs of a private company do not get to that position because of the ability to make outside interests happy. If anything it’s the exact opposite – making other industries/competitors unhappy means a CEO is probably doing a good job
Of course there’s tons of waste spending going to the already rich through the Pentagon, oil subsidies and all kinds of tax breaks and loopholes.
But both parties agree all that spending is good. The point here is to eliminate spending for people who actually need it, to apply the whip of hunger to get the destitute to drive down the wages of the merely poor.
We can always afford wars and gifts for the Donor Class.
Then by Bernie’s own definition 2 minutes in, Reagan wasn’t ‘an extreme right-wing Republican’.
At this point, do we really believe that the US is a democracy? (depending on definition)
Do we really believe the US respects the Rule of Law?
If so, can someone provide evidence to support such beliefs?
I’m sick and tired of the phony kabuki theater: the crooks in Warshiton do this bipartisan contrived drama as an excuse to cut budgets. But they have trillions for Mass Murder Inc., nuclear force “modernization”, more money for UkroNazis, Apartheid Israel etc.
The kelptocracy want to steal what is left of SS and Medicare. Like the Roman Empire, the US just loots and pillages other countries, and its own citizens.
What a wonderful “democracy” we have.
We concur, Jonny James. “Kabuki Theater” sums it up perfectly.
What makes this “Kabuki Theater” so tragic is best observed in listening to common citizens who actually think there are “good guys” vs. “bad guys:” Dems vs Republicans. Or vice versa.
We pay very little attention to that Show, because the real drama, tragi-comedy is –tracking what the Oligarchs are up to. And what they are up to is destruction of societies via theft and debt servitude.
Thank you, well said Rubicon. It’s not easy living in the imperial homeland to witness the slow collapse. That’s why more US denizens are moving out, if they can (including Yves Smith).
Sorry, my comment was a general one, not intended as a reply to you.
My reply: Reagan was right-wing at the time, but now he would be considered a moderate.
Compared to the Clinton regimes and after: Richard Nixon was a “progressive” he signed the EPA and proposed a universal health care system.
Yves has — as always — provided a succinct distillation of the chronic problem. Democrats always claim to be “fighting” for something, usually in faux stern pronouncements that follow their carefully orchestrated loss to the evil, power-mad GOP, promising to redouble their efforts to regain the lost advantage they squandered, provided, of course, that adequate donations are provided.
Neither party is intent on governing, only on cashing in.
You’d think the Biden White House would have a calendar of, you know, important dates on it, such as this, so that it could maybe, you know, prepare? What a joke. Conveniently, there is no little time to actually litigate out use of the 14th Amendment anyway, so Biden will with great regret not be able to go that route, and thus will ultimately negotiate disastrous cuts clearly liberal Democrats wanted to inflict anyway.
This the the party that whacked improved social benefits, like for SNAP and expanded Medicaid, rather than work to extend these benefits. The largest increase in poverty in recent history, as a result.
I doubt much Biden cares about cuts; It’s probably a matter of looking weak. And by not preparing for this moment, ha ha, Biden is weak. His administration is listless and a joke. They refuse to play the few cards that they do have, and failed to prepare in advance to have more. Malicious or incompetent? You decide.
Given Biden’s four decade record of being the most ideologically committed austerian amongst American politicians, so much so that his D-team colleagues begged Obama to remove him from Obama’s Cat Food Commission because he was one-upping Republicans in cutting the Federal budget, why does anyone believe that he opposes cutting Federal expenditures?
In 1995 Biden proposed the ‘Balanced Budget Amendment’ requiring that the accounting fiction of the Federal Budget be used to force austerity through legislative means.
https://m.dailykos.com/stories/2019/4/29/1853988/-Some-of-the-Worst-Parts-of-the-Obama-Era-were-Joe-Biden-s-influence
Bingo.
Here’s how I put it in a comment in one of the inumerous yahoo articles on this topic
Remember that scene in Blazing Saddles where the sheriff points a gun at his head exclaiming “help me, help me” to get out of a sticky situation? We’re witnessing similar theater. The theater isn’t meant for the armed citizens (the GOP) – they know their gun to the head of the nation isn’t going to have its trigger pulled. But for the rest of the towns people (the voters), so that we think it will be pulled. Biden is acting every bit the hostage and if he could would take out his own gun and point it at his head if it would make the theater performance more authentic.
Just need somebody else to jump in and ask, “won’t somebody help that poor man?” to put a cap on the performance.
The scene I’m referring to: https://youtu.be/tTNJUjsNKVk?t=116
Final quote from that scene, “Oh Baby … you are so talented. And they are so dumb!” That’s what Biden will be saying to himself if he gets a deal. Not about the GOP being dumb – they know the score. But about his own constituency being dumb. And here we think Biden is getting too old …
I wish I could say, “I knew Sheriff Bart and, Joe, you are no Sheriff Bart.” Ain’t no one going to hep him. The show must go on and run to its final scene. Two choices: The usual thrilling last minute reprieve with handshakes and smiles all around (That is so hackneyed.) or default and Katie bar the door.
Too bad we don’t have a functioning media to explain to the public what a farce the debt-ceiling “crisis” is and what hypocrites the Republicans are for using it as a hammer to cut beneficial spending (the DoD is always excempt from their cost-cutting proposals. And yes, the Democrats play along, always caving in after performative hand-wringing). I remember during Dubya’s reign–except for his first year in office, when he had the Clinton surplus to give away–for the remaining 7 years he requested and received from the Republican congress without a peep raises in the debt ceiling. And then, of course, as soon as Obama took office, is was back to OMG, the national debt! We have to cut programs! Kabuki indeed.
Why is the debt limit ‘flatly at odds with the constitution’? It is simply congress refusing to borrow more. That said, I think it is pretty stupid.
Well, Congress is setting the budget, and they are setting the tax rates. If they all agree to spend $100 billion dollars next year and they agree to a tax system estimated to raise $95 billion, it seems a little disingenuous for the same folks to turn around and cry, “We never agreed to any of this.” If you commit to a budget that doesn’t add up, you’re in debt, unless you’ve got some secret reserves to draw down on for a while.
Biden seems to informed by his reptilian brain, for better and worse. Like he seems to instinctively shy away from nuclear war with Russia, which is at least more rational than his Neo-con handlers.. Apparently, his experience with debt ceiling negotiations under Obama were traumatic enough to initially flat out refuse to negotiate. The Democrats snuck in their pork ASAP, using Covid slush funds. https://www.statesman.com/story/news/politics/politifact/2022/12/15/kevin-brady-biden-teamsters-bailout-private-pension-politifact/69729204007/
That was a $36 billion bailout without ANY concessions or reform elements, which have been a major component of prior pension bailouts.
So my (non-lawyer) read of 14th amendment section 4 is that public debts and pension payments have priority over everything else (and also that so southern civil war related debts are repudiated):
Here’s some analysis:
I also looked up “public debt” and that means bonds, not money owed to government programs .
:
So I don’t really see how the 14th amendment can help Biden. In fact, I could see future presidents use this to slow or stop extra spending not covered be revenue with the legal theory being that incurring ever increasing debt with no hope of actually ever being repaid is the real thing “calling debt into question”.
I wonder if the Treasury will actually have enough cash in June to prioritize treasury principal and interest.
I did my first ChatGPT query on this topic and it says that about $1.2T is due in June with $100B due on June 1st:
So, the Treasury would need at least $100B on hand on June 1st and I believe it has only something like $68B today and that’s running down.
I’ve read lots of articles saying that on average, the treasury will have enough income per month to prioritize debt payments. That’s fine, but it assumes that they’ve stopped making some other payments. Of course, that’s not happening yet.
I also wonder how easy it will be to roll over $1T of debt in June if this drama continues. What’s the chance of failed auctions or much higher rates?
I wonder if by playing chicken with the GOP, the Biden administration has already broken the 14th Amendment, because it’s not clear how they’re going to cover the June debt payments (calling them into question). Seems like they should have saved some of their extraordinary measures for rolling over treasuries in June.
I wonder how this would work operationally:
* Would new debt need to be issued simultaneously with paying off the principal for the maturing debt to avoid breaching the limit.
* Could the Treasury issue new debt exceeding the limit, pay off the maturing debt and then hope for enough revenue to reduce the debt back under the limit a few days or weeks later (and call it good).
Steve Keen explains it in simple terms here.
The government does not need revenue, nor does it need to issue bonds (debt) except to comply with unnecessary laws, or as one way to control interest rates.
Yes, the government chooses the interest rate. If a bond auction ‘failed’ the Fed would buy them, but that will never happen. If the government stopped issuing bonds you would hear the howls from Wall Street on Sunset Boulevard.
I’m also not a lawyer, but the text of the 14th Amendment seems pretty clear: Congress cannot void US debt. Therefore, paying the debt must be done. However, this doesn’t mean that a) a debt ceiling is unconstitutional (maybe there’s something else in the Constitution, but I don’t recall reading anything making a debt ceiling unconstitutional) or that b) the President can essentially determine government spending on his own (which I think is pretty clearly unconstitutional) by eliminating the debt ceiling, thus forcing the CURRENT Congress to spend money it doesn’t want to.
It therefore seems clear that either the Dems and Biden compromise with the House (and therefore cut spending) or they don’t, which results in the same thing, but in a more chaotic fashion.
The President is not determining government spending on his own. That spending was authorized by Congress.
And the President is not allowed to just not spend the money. Congress passed the Impoundment Act as a reaction to Nixon’s excesses.
Given 14th is a Civil War amendment, does using it create optics that US is now in a state of civil war between Dem & GOP? I know technically not but is there a risk the the narrative spins out of control & whole debt ceiling impasse starts going down a (more) dangerous road?
Oh. And liberal Democrats could have re repealed this nonsense when they had Congress during the return of FDR Biden presidency, too. It’s hard to argue they care about cuts. This is air cover.
And these cuts guarantee a depression. We’re already hosed on interest rate increases and COVID work shortages.
Happy trails! This makes Trump look competent.
I agree. The Dems had control of the WH, Senate, and House prior to Jan of this year. They managed to pass a lot of spending during 2 years of control. Why didn’t they increase the debt ceiling then? I suspect the answer is something to the effect of being accused of spending too much AND raising the debt ceiling to do it.
Soooo… What’s a poor money manager or institution to do when the dollar collapses
and they need a safe place to store their money? The default choice would be the EURO
IMHO, by default. Or just as a slim possibility, the Canadian dollar.
Ditch the American ‘loonies’ for Canadian ones!