Crashing against the Debt Ceiling

John Tenniel, “Alice’s Adventures in Wonderland”

Tuesday

I can’t believe that we are careening towards yet another debt ceiling crisis. We even have someone in the Cabinet who doesn’t recognize it as a big deal. At present, America and its budget are like Alice trapped in a small house.

Edward Kleinbard, former chief of staff of the Congressional Joint Committee on Taxation, describes the situation in a New York Times column:

Sometime in October, the United States is likely to default on its obligation to pay its bills as they come due, having failed to raise the federal debt ceiling. This will cost the Treasury tens of billions of dollars every year for decades to come in higher interest charges and probably trigger a severe recession.

The debt ceiling is politically imposed, and the decision not to raise it, and therefore to choose to default, is also political. It’s something America has avoided in the past. This time, though, will be different.

What’s different this time, Kleinbard says, is now we don’t have a responsible president, a Bush or an Obama, dealing with GOP extremists:

First, the administration is confounded by inexperience, incompetence and infighting. Treasury Secretary Steven Mnuchin has little expertise in congressional stage management, but he understands the gravity of the situation and has lobbied for a clean debt ceiling bill — one without conditions or unnecessary amendments.

But that puts him in tension with his White House colleague Mick Mulvaney, the director of the Office of Management and Budget and a founding member of the Freedom Caucus, who has intimated that breaching the debt ceiling would not be that consequential, and who has argued that the must-pass legislation should be used to advance the hard right’s agenda. Without a firm signal from the White House that the debt ceiling should not be held hostage to political agendas, it will be hard to get Congress to do the right thing.

Let’s remember that this is a self-inflicted wound. It’s not as though America can’t pay its debts. All Congress needs to do is raise the ceiling, as it has (with one accidental exception) ever since it mandated that there be such votes. Kleinbard explains what will happen if it doesn’t:

All valid claims against the United States are backed by the credit of the United States, full stop; the Constitution does not contemplate that some claims are more senior than others. The deliberate nonpayment of billions of dollars of uncontested claims every month thus constitutes default, even if the Treasury is paying some of its other debts. The resulting class-action lawsuits will enrich generations of lawyers.

Once the unthinkable happens, no future constraints on congressional irresponsibility with regard to the national debt will remain. Prioritization will constitute the intentional subordination, not just of one claim to another, but of all claims to the pettiness of congressional politics. As a result, the once unassailable credit of the United States will become a perennial hostage to politics, and in response the debt markets will demand much higher interest rates.

In the scene from Wonderland I have in mind, a miniaturized Alice has entered the house of the White Rabbit and drunk from a bottle, hoping it will make her larger. She gets what she wishes for:

‘I know something interesting is sure to happen,’ she said to herself, ‘whenever I eat or drink anything; so I’ll just see what this bottle does. I do hope it’ll make me grow large again, for really I’m quite tired of being such a tiny little thing!’

It did so indeed, and much sooner than she had expected: before she had drunk half the bottle, she found her head pressing against the ceiling, and had to stoop to save her neck from being broken. She hastily put down the bottle, saying to herself ‘That’s quite enough—I hope I shan’t grow any more—As it is, I can’t get out at the door—I do wish I hadn’t drunk quite so much!’

Alas! it was too late to wish that! She went on growing, and growing, and very soon had to kneel down on the floor: in another minute there was not even room for this, and she tried the effect of lying down with one elbow against the door, and the other arm curled round her head. Still she went on growing, and, as a last resource, she put one arm out of the window, and one foot up the chimney, and said to herself ‘Now I can do no more, whatever happens. What will become of me?’

For a while, the White Rabbit and various other animals cluster around confused–somewhat like the White House and the Republican Freedom Caucus–as they struggle what to make of Alice’s large arm protruding from the house:

There was a long silence after this, and Alice could only hear whispers now and then; such as, ‘Sure, I don’t like it, yer honour, at all, at all!’ ‘Do as I tell you, you coward!’ and at last she spread out her hand again, and made another snatch in the air. This time there were two little shrieks, and more sounds of broken glass. ‘What a number of cucumber-frames there must be!’ thought Alice. ‘I wonder what they’ll do next! As for pulling me out of the window, I only wish they could! I’m sure I don’t want to stay in here any longer!’

At one point they send in a lizard named Bill, who proves to be as ineffective as the amendments that GOP members are attaching to any attempts to raise the ceiling. (“The Rabbit Sends in a Little Bill,” Carroll puns in the chapter title.)

Fortunately, there proves to be a simple solution: small cakes that will make Alice smaller.

So she swallowed one of the cakes, and was delighted to find that she began shrinking directly. As soon as she was small enough to get through the door, she ran out of the house, and found quite a crowd of little animals and birds waiting outside.

In our case, we can’t shrink Alice but we can enlarge the house. The point is, there is an easy solution.  Unfortunately, as New York Times columnist Paul Krugman observes,

To see default by a basically solvent government as more than a mere glitch, you’d have to believe that we have an unbridgeable partisan divide, with one party largely dominated by extremists, and with a president who is ignorant, incompetent, and vindictive.

Oh, wait.

Pray that the GOP comes to its senses. Send in the cakes.

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