Tuesday evening the House of Representatives voted on whether to raise the so-called “debt ceiling”. It was pure charade. No, it’s worse. It’s kabuki theater of the absurd. First off, the House Republican leadership knows it’s only for show. The reality is that Congress will vote to raise the limit later this summer. They have no choice. The whole concept of the debt ceiling is absurd and likely unconstitutional. Let’s see the news itself, this taken from ABC News:
The House of Representatives rejected an increase to the statutory debt limit in a move chastised by Democrats as “a political charade,” “political cover” and “political theatre.”
The measure, which failed by a vote of 97-318 with seven members voting present, stated that “the Congress finds that the President’s budget proposal, Budget of the United States Government, Fiscal Year 2012, necessitates an increase in the statutory debt limit of $2,406,000,000,000,” and would have raised the debt limit to $16.7 trillion.
All 236 Republicans voted against the increase – joined by 82 Democrats. 97 Democrats voted yes for a debt limit increase, while 7 Democrats voted present.
The bill required a two-thirds majority to pass.
Why was it a charade? Because the Republican leadership designed it to be a fake. This from Time mazazine’s website (bold emphasis is mine) just before the vote:
Not be a spoiler, but Tuesday evening’s House vote to increase the federal borrowing limit by $2.4 trillion without preconditional spending cuts will fail. It was designed that way by the Republican leadership: They used a procedural trick to require a 2/3 majority for passage and told every member of their caucus to vote against it. The idea, they say, was to prove to the world (and congressional Democrats) that raising the debt ceiling won’t happen without a package of accompanying spending cuts.
Mission accomplished: President Obama has been admitting as much for weeks and House Democratic Whip Steny Hoyer on Tuesday recommended that Democrats join Republicans in voting down the “clean” debt limit measure. “My advice to them would be not to play this political charade,” he said. Of course, the failed vote is the charade. Time to play spoiler again: Congress will raise the debt ceiling by the end of the summer. Tuesday’s failed vote only serves to provide political cover for members of Congress who will eventually back the incredibly unpopular increase in borrowing capacity.
Now supposedly Wall Street and the financial markets understand that Congress isn’t really serious about intentionally defaulting on U.S. bonds. The New York Times in it’s report on the vote:
“Wall Street is in on the joke,” said R. Bruce Josten, executive vice president of the U.S. Chamber of Commerce.
So the whole point is so that members of Congress can claim on the campaign trail that they voted against the debt ceiling increase when in fact they are also going to vote for it later this summer. Absurd. Pure theater. It’s all political pretend.
Beyond the politics, though, the economics is even more absurd. First, the concept of a “debt ceiling”, a law that saws the government cannot borrow more than say $x dollars is absurd. How much the government needs (or chooses) to borrow is basically already decided by legislation already passed that goes by the name “budget”. Congress voted a budget not two months ago that requires, under current rules, more borrowing. Now Republicans are claiming they don’t want to borrow the money they already committed themselves to borrow. Got that? So are you following so far? The House Republican leadership schedules a vote that it knows must fail (that’s why the special 2/3 requirement). Why? So it can tell one thing to voters on the campaign trail while letting Wall Street “in on the joke”. We have the best government Wall Street can buy.
But it’s doubly worse than just the lies they’re presenting to voters. It’s all over what should be a non-issue. Normally, I don’t like analogies between government and a household because such analogies don’t usually hold up very well. Government, unlike a household, is not inherently budget-constrained. But let’s try a simple analogy anyway. Suppose you put together a budget for your household. You project or know that you are going to earn $1000 per month. So income is $1000. Then you decide that you need to spend $1500 per month in outlays. You have no savings. You are going to have deficit of $500 per month. No problem, you have a credit card. You can borrow to finance the deficit*. Let’s suppose your credit card account has no credit limit. The bank is saying you can borrow as much as you like. In fact, the bank right now is telling you that you are such a good credit risk that you only have to pay 3% interest rates. Under this scenario there’s no problem, right? You need the extra $500, you borrow it. The credit card balance goes up. But there’s no limit to how high it can go. That would be the government’s ordinary, constitutionally-mandated budget making process.
But sometime ago Congress decided to add another wrinkle. It passed a “debt ceiling” law. Supposedly this is another law, that independent of whatever the budget says, will limit how much total debt the government can have outstanding at one time. Using our analogy, this is like the head of your household saying that they refuse to borrow more than $x on the credit card, regardless of what they previously said was their budget. So two months ago, Congress passed the budget with a deficit. It told the government to buy lots of things and not to collect very much taxes. Now Congress wants to say they won’t pay. Huh? In the private world, this is called an unnecessary, voluntary default.
Yes, that’s what this vote says. The Republican leadership has just told the world that they actually want the U.S. to default on bonds now! There’s no economic reason why we need to default. The financial markets are saying they actually want to lend money to the U.S. at record low interest rates. The financial markets have long been saying they have no fears about the ability of the U.S. to pay in the future. No matter. The House Republicans want to default just for the heck of it. Well, actually it’s not for the heck of it. They are holding the entire U.S. budget hostage, including payments to seniors, soldiers, and Medicare, because they want to change the future of Medicare and Social Security. They want to end to programs and privatize everything for the benefit of Wall Street. Such an agenda is hugely unpopular, so the Republicans can’t do it directly. Instead they have to create a fake crisis about the public debt, hold a fake vote, and threaten national insolvency to get their way in cutting Medicare and Social Security.
*The whole issue is even more absurd when we consider how my analogy breaks down. The analogy breaks down because the government doesn’t have to borrow to finance a deficit – it can just spend the money by creating new “high-powered money” which are also called bank reserves. When the government spends, it just writes a check off the Federal Reserve bank. It doesn’t have to have “money” in the checking account first. When The Fed “cashes” the check, it pays your commercial bank with “bank reserves”. Bank reserves aren’t really “money” in the public’s hands yet, but they can be thought of as “potential money”. Unlike the primitive days of a century ago, there’s no artificial limit on how much can be spent. There’s no gold standard. (that’s a good thing!).
I do believe this is all theater of the absurb. But it’s dangerous theater. I still believe that when the time comes this summer, Wall Street will call the political leaders and tell them enough’s enough, raise the limit and avoid default. A default is much too dangerous to contemplate. A default by the U.S. could bring economic disaster globally. There’s always the possibility that these folks in Washington dig in their heels and let their egos get the best of them. They don’t understand what they’re playing with, but that’s never stopped them before.
In the meantime, we’re treated to the spectacle of House Republicans claiming they would prefer the U.S. default now because they’re afraid that without big emergency spending cuts the government will end up defaulting at some point in the future. Default now to avoid default in the future. Yeah, I call that absurd.