Card-carrying Congress

One Cent's Worth
By MARC MEWSHAW  |  January 23, 2013

This year is just barely out of the crate, and already it's shaping up to be depressingly like last year. With the dust still settling from the fiscal cliff fiasco, foot soldiers on both sides of the aisle are sharpening their knives for yet another clash, this time over something called the debt ceiling. But what exactly is it?

Tax revenues don't begin to cover the cost of the US's spending programs, meaning the government has to borrow cash to make up the shortfall. But it doesn't just hit up mom when it needs a loan. Instead, it secures funds by packaging its debt into bonds known as "Treasury securities." Investors — individuals, institutions, and countries — who buy them are effectively loaning the Treasury the face value of that bond to do with as it pleases.

But there's a finite amount of bonds the government can have in circulation before it has to seek congressional approval for more. Periodically, the US hits that debt ceiling — as happened on December 31, when it reached its borrowing limit of $16.4 trillion — and Congress votes on whether or not to extend the government's line of credit.

Historically, that's just a formality, but in the summer of 2011, for the first time the debt ceiling was used as an instrument of political advantage. Cue 2013, and once again Republicans are holding the debt ceiling hostage to demands for huge spending cuts, under the guise of "deficit reduction." (The GOP's real objective? Gouge a big hole into entitlement programs and thereby shrink the government bureaucracies that administer welfare.)

The current fight is emblematic of the poisonous, ideology-driven politics of our times. In refusing to raise the debt ceiling unless the president agrees to matching spending cuts, the Republican-held Congress is denying the president the funds to pay for spending it has already mandated. Obama has compared this to dine-and-dash. Others have likened it to running up charges on a credit card and refusing to pay the bill at the end of the month.

To add to the perversity, the president will be in breach of the law if he fails to dispose of the money the way Congress has voted. In short, Congress is directing him to spend money that it's withholding, then exploiting the subsequent manufactured crisis to get its way. How's that for cynical, circular logic?

The (sort of) good news is that Treasury secretary Tim Geithner can stave off bankruptcy for another couple months using a patchwork of "extraordinary measures" (read: accounting tricks). After that, he (or his successor) may have to resort to issuing IOUs to the US's creditors — guarantees that they'll be paid eventually. That might work for a while, but eventually the US will default on its debts. In that event, payouts to Social Security beneficiaries will cease, military contractors and federal workers won't receive paychecks, and foreign creditors will get stiffed (to name a few). But that's nothing compared to the turbulence that would engulf the global economy and likely tip it back into recession.

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