[Remember: The US Treasury is obligated to make payments. The rest
is optics.]
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THE DEBT CEILING DRAMA IS ALL STAGECRAFT  
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James K. Galbraith for The Nation
May 11, 2023
The Nation
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_ Remember: The US Treasury is obligated to make payments. The rest
is optics. _

Treasury Secretary Janet Yellen has no legal discretion to stop
payments. , Alex Wong / Getty

 

As if the planet weren’t burning or on the cusp of nuclear war, the
White House, the Treasury, Congress, and the press have fired up
another round of Washington’s favorite parlor game—Debt
Disaster!™ Over at _Vox_, Dylan Matthews has explained
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half-hidden politics. Both sides need a win, he reasons. Neither has
the votes. So the search is on for an outcome both can live with.
President Biden’s nonnegotiable demand is for a clean increase in
the debt ceiling. House Speaker Kevin McCarthy’s demand is for big
cuts in federal spending—to which Biden has no principled objection.
These goals are not incompatible, which means that both will be met.
The rest is stagecraft, timing, optics, and spin.

With a recession looming, a year of spending cuts—to health care,
food stamps, unemployment insurance, aid to states and cities—is
just the ticket to deliver the Senate back to Mitch McConnell and the
presidency to Donald Trump. McCarthy knows this. Does Biden? Probably.
But with his approval ratings
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better than Gerald Ford’s or Jimmy Carter’s, perhaps some key
players on his team are less focused on the election than on preening
for their next job.

Matthews might be right here, but he falters on some other issues, as
set forth in these pages
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in January. To restate a few key points: First, as a matter of law,
the US Treasury is obligated to make payments. The debt ceiling does
not override this obligation. Treasury Secretary Janet Yellen has no
legal discretion to stop payments or to pick and choose which to make
and which to defer. If payments stop going out, she will be breaking
the law—and her oath of office. For that, she could
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should be impeached.

The debt ceiling is also a law. It orders the Treasury not to stop
making payments, but to stop issuing securities past the $31.4
trillion limit. Yellen might also be impeached for ignoring that limit
and issuing more securities anyway, which would violate the
Constitution, while her continuing to make payments would not. But no
jury in America would ever convict, most certainly not the US Senate.

Breaching the ceiling is also unnecessary. The trillion-dollar
platinum coin 
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solve the problem—with no additional borrowing and no breach of the
debt limit. Otherwise, would the Federal Reserve honor US Treasury
checks if no securities were issued and there were insufficient funds
in the Treasury General Account? Would the checks bounce?

Possibly! If they did, the bounced checks would be returned to the
banks, which would know perfectly well that the issuer is the
sovereign US government. Would they refuse to credit the checks? I
doubt it. Those checks-in-limbo would be assets, like any other—and
excellent collateral for short-term loans.

But suppose the bankers, perhaps following some regulation, did refuse
to credit Treasury checks that, because of the debt ceiling, were
temporarily failing to clear. And suppose this went on for more than a
few days. The consequence would be a wave of real defaults—of debt
defaults in the private sector. Not the public sector! But business
loans, mortgages, and car and student loans would go unpaid. Who,
initially, would be hit by that? Obviously, the banks. Even without a
federal debt ceiling mash-up, the US banking sector is not exactly
rock-solid right now. Except for a few headline cases, bankers would
have to be even more suicidal than usual to refuse to credit those
“bad” checks.

Long story short: Biden and Yellen are playing up the debt drama not
because we face some financial Armageddon, but to make an empty
victory at the last minute seem like a big deal. When it happens,
everyone involved will heave a big sigh of relief. Debt Disaster!™
will be packed up and put back on the shelf, until the impressionable
grandchildren come to visit again.

For the economy, what matters is what they give away to McCarthy, in
the budget and appropriations processes, to get their little success.
For the election, what matters is how deep the cuts are, who
suffers—and how those affected react at the polls. That’s the
poisoned apple in another children’s story. Just a few bites now
could put the Democrats to sleep for 2024—and erase what remains of
the Biden agenda.

James K. Galbraith
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Lloyd M. Bentsen Jr. Chair in Government/Business Relations at the
Lyndon B. Johnson School of Public Affairs, the University of Texas at
Austin. He is a former executive director of the Joint Economic
Committee in the US Congress.

The Nation [[link removed]] Founded by
abolitionists in 1865, _The Nation_ has chronicled the breadth and
depth of political and cultural life, from the debut of the telegraph
to the rise of Twitter, serving as a critical, independent, and
progressive voice in American journalism.

_Please support  progressive journalism. Get a digital subscription
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Nation for just $24.95! __ _  

* National debt
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* Constitution
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* laws
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* Joe Biden
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* Debt Ceiling
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* Federal Budget
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* budget cuts
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* elections
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