WE’RE NOW EIGHT DAYS AWAY FROM ANOTHER GOP-CREATED CRISIS

As if there weren’t enough political problems to deal with, here we are eight days out from a possible Big Problem that wasn’t even on the horizon as a minor problem a week ago.

It’s the national debt limit. We hear about it every so often, and it seems to be important - the way the GOP has been playing with it the past ten years, it has certainly become important - but most of us have no clue what it really is. And that’s how the GOP manages to play fast and loose with it as they do. As my friend Lucian K. Truscott IV noted the other day, politics may well be my “first language.” So let me “wonk-out” here and clue you in.

First, some history:

Except for about a year during 1835–1836, the United States has continuously had a fluctuating public debt since the US Constitution legally went into effect on March 4, 1789. A statutorily imposed debt ceiling has been in effect since 1917, when Congress passed the Second Liberty Bond Act. Before 1917 there was no debt ceiling in force, but there were parliamentary procedural limitations on the amount of debt that could be issued by the government.

In 1939, Congress instituted the first limit on total accumulated debt over all kinds of instruments. The debt ceiling, in which an aggregate limit is applied to nearly all federal debt, was substantially established by Public Debt Acts passed in 1939 and 1941 and subsequently amended. The United States Public Debt Act of 1939 eliminated separate limits on different types of debt. The Public Debt Act of 1941 raised the aggregate debt limit on all obligations to $65 billion.

The 1941 act was passed in the expectation of U.S. involvement in World War II. President Roosevelt asked his allies in Congress to do this so that Congress would be on board as officially supporting wartime expenditures by voting on the debt limit; this was due to the previous anti-war votes on the Neutrality Act. It was also a ‘bone” thrown to the opposition Republicans, so an individual congressman could go home and tell his constituents he was still fighting the good fight against “runaway government spending” and point to his vote not to increase the national debt. For the next 70 years, there was never any thought that Congress would fail to vote for a raise in the limit, and in fact there never was; the votes were perfunctory and allowed performative opposition for those very conservative Republicans to posture with.

In 1979, the issue was so non-controversial that the “Gephardt Rule” was imposed by Speaker Gephardt, to the effect that approval of the annual budget would be deemed approval of raising the debt limit. Unfortunately, this was repealed in 1995 under the disastrous Speakership of Newt Gingrich, the first to see the inklings of what could be done to throw a monkey wrench in the works using the debt limit.

“Movement conservatives” had previously discussed the idea of taking the debt limit vote seriously and using it to force reductions in current spending, despite the fact the vote to increase the limit involves debts incurred as a result of appropriations previously made; it has no actual effect on and is not connected to current and future votes on appropriations. However, since the majority of the American public knows nothing about the operation of the debt ceiling and what it actually relates to, these activists saw they had the ability to make up their own story about what was happening and thus hold “hostage”a vote to increase the debt limit to a reduction in planned government spending. Such a threat to withhold approval of an increase, meant that of there was no vote to raise the limit, the Treasury would be forced to use extraordinary accounting measures to finance government obligations out of any incoming daily revenue, meaning important benefits (like Social Security) might not go out and interest payments to bondholders could be delayed. No administration would want to face such a situation.

Advantage was taken of what Gingrich had spotted in 1995 in 2011, when the “Tea Party Congress” was seated as a result of the 2010 election. In 2011, for the first time in the country’s history, the newly elected Republican congressional majorities threatened to trash the country’s full faith and credit by refusing to suspend the debt ceiling. This was when Mitch McConnell infamously referred to the debt ceiling as a “hostage that’s worth ransoming.”

It is relevant to point out that the debt ceiling was raised three times during the Trump years, including in the wake of a budget-busting tax cut, without a peep from any Republican Of course, Republicans are only sufficiently “worried” about public debt to consider such extreme action as blocking the increase and threatening default on U.S. debt when a Democratic administration is in the White House.

The current situation is the result of a two-year suspension of the debt ceiling enacted by Congress in 2019, which is set to expire next Saturday at midnight. This particular confrontation was arranged in April, when Republicans signaled they might return to using the standoff to extract spending cuts.

Treasury Secretary Janet Yellen has warned that the federal government could hit its borrowing limit quickly. And now - surprise surprise - McConnell is taking a very hard line on the debt ceiling, stating that if Senate Democrats want to raise the debt ceiling, they’re going to have to do it themselves because no Republicans will vote for it in the current “environment.” “I can’t imagine there will be a single Republican voting to raise the debt ceiling after what we’ve been experiencing,” McConnell said Tuesday night. “I can’t imagine a single Republican in this environment that we’re in now -- this free-for-all for taxes and spending -- to vote to raise the debt limit. I think the answer is they need to put it in the reconciliation bill.”

The shameless mendacity of McConnell - and of Republicans in the House and Senate - is really bottomless. They complain about the “enviroment” in Washington - which they created!

The problem here for Democrats is that they won’t be able to put together a reconciliation bill for weeks or even several months, and the federal government will likely reach its borrowing limit much sooner. The Treasury Department has not set a target date yet, though a new analysis from the Congressional Budget Office gives lawmakers breathing room until October or November, at which point the country would be at risk of default if it did not act.

Some Democrats believe McConnell wouldn’t be able to keep all his Republicans in line if the House were to send over a stand-alone bill to suspend the debt limit until, say, the middle of 2023 -- especially if Wall Street starts leaning on GOP lawmakers. But one should never bet against McConnell finding a way to lock up Republican votes.

Most economists think it would be disastrous if the government ever missed an interest payment on the debt, like the ones due on October 31 and November 15. The global financial markets are structured around the belief that U.S. Treasuries are the safest asset in the world. If that assumption were ever called into question, havoc could ensue. As Michael Feroli, chief economist at JP Morgan put it, “It would be like the financial market equivalent of that Hieronymus Bosch painting of hell.”

So, on top of everything else, we have this. Senator Schumer is going to make good on his threat to keep Congress in Washington next month. They cannot take a month out in the face of debt limit, voting rights, infrastructure, and the pandemic all demanding action NOW.

If they do take off, we can likely forget about anything substantial being accomplished.

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