Thursday, July 18, 2019

Eliminate The Debt Ceiling

Two days ago in WaPo, Catherine Rampell published a highly reasonable column calling for eliminating the century-old US debt ceiling, something no other nation has ever had, a position supported by a wide array of economists including such a conservative GOP stalwart as the recently deceased Martin Feldstein, a former CEA Chair for Reagan.  I have made numerous posts here on this in the past, but the issue is hot again as once again the debt ceiling is being rapidly approached.

The latest story is that the "adults in the room," Treasury Secretary Steven Mnuchin and Speaker of the House Nancy Pelosi, may be very near an agreement to raise the debt ceiling, Reportedly Pelosi has been open to eliminating the ceiling, but in the current circumstances I certainly understand why she might be wanting to secure a two year agreement to preserve funding for social safety programs crazy right wingers want to use the debt ceiling issue to trash as well as holding off any shutdowns this fall.  This is what used to be known as "good government," but in the current environment, even this apparently reasonable deal, which also has no non-economic sideshows involving abortion or whatever, may yet not pass.  Pelosi says it must be agreed to by tomorrow evening if it will get passed properly by Congress before they all go on leave and the government might run out of money in early September (corporate tax payments have been way down due to Trump tax law).  Eliminating the ceiling would avoid all this bs, but this is not the moment for that.

This is definitely a weird and unprecedented situation.  For over a century we have had this completely indefensible debt ceiling, which has been raised so many times it is not worth counting, and when the WH and Congress have been controlled by the same party, it has been no big deal, although obviously that is what we need to get rid of the damned thing.  However, historically, when there has been split partisan control the game has been the WH pushing raising the ceiling while the opposition party in Congress has made lots of complaining noises and often made demands for raising it.  The problem this time is that the major power broker of the administration, Acting Chief of Staff Mulvaney, was part of the tea party fanatics in the House who when Obama was prez tried to block raising the ceiling.  Apparently at times he and Trump have indulged in fantasies that if there is a default he could personally control which agencies get funded and which do not.  This is not true, and maybe they are figuring it out, but Mulvaney has said nothing, and Trump must pass on this.

If he messes up the deal, it will be all his fault, as his own Treasury Secretary has cut it with the Congressional leader of the opposition party in the House, with reportedly the toadish GOP-controlled Senate ready to go along.  He may or may not have figured out that triggering a shutdown did not help him, but if he thinks triggering a default will not be worse, this will be a big mistake, to put it mildly.

Barkley Rosser

3 comments:

Unknown said...

Debt ceiling will get raised > Fed will monetize debt > repeat, as we try our best to replicate Japan’s bogus economy. Will work until it doesn’t.

rosserjb@jmu.edu said...

Sorry, but calling Japan a "bogus economy" does not fly. They have the third largest economy in the world. They have a declining population and a high debt, but they own their own debt, and the interest rates on it are very low, negative in many cases. Their aggregate GDP growth rate has not been all that impressive, but given their declining population their per capita growth has been respectable for a high income nation.

I note that they continue to produce some of the highest quality versions of various important products, including automobiles. Sorry, but they are not remotely a "bogus economy."

rosserjb@jmu.edu said...

A report on Daily Kos has it that the deal agreed to over the weekend by Pelosi and Mnuchin has been agreed to by Trump. Supposedly McConnell and Kevin McCarthy are also on board. So, hopefully we have avoided a default this time. I suspect Trump is too caught up in his race problem as well as a possible war with Iran to get into a big mess on the economy front.