--:-- Sean Rameswaram: Everywhere you go in Washington, D.C. these days, you hear people talking about it. Shut up! You hear it at the bus stop. The debt ceiling. You hear it at the barbershop. The debt ceiling. You hear it at the grocery store. The debt ceiling. You hear it on the street corners. The debt ceiling. But what is it? Why do we have it? Why do we have to fight about it every so often? Why is our government built this way? Could we have built it better like? What would the fine people of Washington, D.C. be talking about if we had? We're going to break out the shovels and dig into these questions on this edition of Today Explained.
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--:-- Sean Rameswaram: Today Explained, Sean Ramasuram here with Andrew Prokop from Vox in our DC studio. Andrew, why is everyone in this town talking about the debt ceiling right now?
--:-- Andrew Prokop: Because today is the day that we hit the debt ceiling. And is that cataclysmic or are we going to be okay? It's okay for now. Basically, every time we hit the debt ceiling, which is the legally mandated limit in how much debt the U.S. government can issue to pay its bills, the Treasury Secretary can kick the can down the road a little bit more by using what's known as extraordinary measures to keep things going, fiddling with the books a little bit so that technically we don't have to breach the debt ceiling fully until a few months from now.
--:-- Andrew Prokop: By June, could this be a much more perilous situation? Yeah, so that's the real deadline. And in the biggest debt ceiling showdowns in the past, that's the true date when it's believed there will be some sort of crisis, default economic pain if measures aren't taken to raise the U.S. debt ceiling before then.
--:-- Andrew Prokop: Remind me how this has gone in the past. We have some examples to point to, yes? So generally there's a bit of a staring contest, game of chicken, treating it like a political football, whatever kind of metaphor you want to use for this. As the parties in Congress stare each other down, arguing about what to do over this.
--:-- Andrew Prokop: And in recent decades, this has mainly been the subject of political posturing. But political aftershocks echoed in Washington and around the country today after Republicans scored resounding victories in the midterm elections. After the Republicans took the House of Representatives during Barack Obama's first midterms. So this is 2011. It was the Tea Party wave. They all came in. They wanted to cut government spending. And they had the idea that they could essentially take the debt ceiling hostage.
--:-- Andrew Prokop: In the House, 87 freshman Republicans got elected only after pledging to slash the budget by $100 billion. This was a must-pass bill that everyone agreed there would be economic calamity if it wasn't passed, if the debt ceiling wasn't raised. So the House Republicans decided to say, hey, guess what? We're not going to raise it unless you, President Obama and Senate Democrats, agree to dramatically cut government spending.
--:-- Andrew Prokop: Speaker Boehner seized his moment in the spotlight tonight to sum up the GOP approach with a pithy statement he later tweeted. The solution to this crisis is not complicated. If you're spending more money than you're taking in, you need to spend less of it.
--:-- Andrew Prokop: The 2011 crisis was the closest we ever came to the brink. So how did Obama, the Republicans, the Democrats finally come to some consensus? Well, they cut a deal. I want to announce that the leaders of both parties in both chambers have reached an agreement that will reduce the deficit and avoid default. President Obama at that time wanted to be seen as a spending cutter. He wanted to change the perception of him as a big spender before his re-election. He was sort of following President Bill Clinton's example from the 1990s. So he came to the table.
--:-- Andrew Prokop: The parties tried to make out a grand bargain on how to raise taxes and cut spending. But in the end, that didn't come together. So they created a much cruder method. They agreed to form another committee, a super committee, to look at spending cuts and the budget deficit. And then if the super committee could not reach a deal, which it didn't, then what was known as the sequester would kick in. These were big automatic spending cuts to both defense and non-defense spending.
--:-- Andrew Prokop: The Sequestration Act would slice $54 billion from defense and an equal amount from domestic programs from Head Start to the Border Patrol next year, with more to follow. So those sequestration spending cuts did kick in. Nobody really liked them and they went into effect for some time and eventually they were rolled back.
--:-- Andrew Prokop: And that was our last big debt ceiling showdown. So how did we get back here in 2023? So even though the Republican Party in general has become less focused on cutting spending there's still a faction within the party that cares about that a great deal, supported by donors, interest groups, and controlling a certain block of seats.
--:-- Andrew Prokop: And the broad mainstream of the party is also sympathetic to the idea that the federal government is spending too much and that we should do something about that. So when Kevin McCarthy was trying to win some of those last Republican holdout votes to get named Speaker of the House, he agreed that he would allow no clean debt ceiling increase, that basically they were going to do 2011 again. They were going to demand spending cuts in exchange for raising the debt ceiling.
--:-- Andrew Prokop: And so is it the same Republicans who held up McCarthy's speakership who are now going to hold up this debt ceiling situation? Well, now it's Kevin McCarthy who's going to hold it up. I don't know if you have any children, but if you had a child and you gave them a credit card and they kept raising it and they hit the limit, so you just raised it again, clean increase, and again and again, would you just keep doing that or would you change the behavior?
--:-- Andrew Prokop: We're six months away. Why wouldn't we sit down now and change this behavior? He agreed to a strategy that he's hoping to unite the Republican Party behind, that they are going to demand concessions from the White House and Senate Democrats. And that basically saying, we're not going to raise the debt ceiling unless you agree to some of the spending cuts we want.
--:-- Andrew Prokop: Huh. And do we have any idea how the White House is going to play it? Well, the White House has said they're not going to negotiate. The word from the White House is that they don't want to set a precedent where basically any time you vote to raise the debt ceiling that you somehow get some kind of a prize, a cookie, as one Democrat put it.
--:-- Andrew Prokop: They're suggesting that they believe that President Obama made a mistake by agreeing to deal over this. They are going to hold firm. President Biden seems less interested in rebranding himself as a spending cutter as compared to President Obama. He doesn't seem to think that that issue is politically potent enough to help his reelection, at least at this point.
--:-- Andrew Prokop: So right now, there is a bit of a standoff. So what are you going to be watching for in the next few months as this plays out? Both sides' positions are incompatible at this point. The White House says they won't negotiate on the debt ceiling. House Republicans say they won't raise the debt ceiling unless the White House agrees to cut spending.
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--:-- Sean Rameswaram: Today Explained, we are back with the program, but Andrew Prokop is gone. Here to replace him is his colleague from the Vox newsroom, Dylan Matthews, who I'm told has been thinking and writing about the debt ceiling for a long time.
--:-- Dylan Matthews: Yeah, my first debt ceiling fight was 2011, and I was an intern and still in college. And so I've been doing this my entire professional life, and it seems like it will never end. You've cut your teeth on the debt ceiling.
--:-- Dylan Matthews: So forgive me for starting with such a basic question, but I have to ask for our listeners, why does the United States have a debt ceiling at all? We're clearly very good at spending profligate amounts of money. Why do we need a limit?
--:-- Dylan Matthews: Well, we have a limit because we decided to enter World War I in 1917. Aha. Before 1917, Congress was very sort of micromanagery about the debt. If there was a big project like the Panama Canal or a railroad that the government was subsidizing or something, they would issue bonds specifically for that project.
--:-- Dylan Matthews: And sometimes they would have a little more flexibility if it was a war, if it was a Spanish War the Treasury was allowed to issue bonds a little more loosely But usually like Congress would set the interest rate They would say how much debt could be issued at all They would set the length of the bonds, like, very much, like, in the details.
--:-- Dylan Matthews: And once we got into World War I, it's a massive war that, and quite famously, a world war of immense, immense scale. And so they couldn't really predict how much they were going to spend. And so in the Second Liberty Bond Act of 1917, they gave the Treasury the authority to issue bonds of the amount they saw fit, but subject to a limit.
--:-- Dylan Matthews: We men in Congress will give President Wilson what he needs to fight the Great War, but there must be some kind of limit. They didn't want to give up total control. They wanted to have some cap on what the Treasury could do with that power. And that's where the debt ceiling came from?
--:-- Dylan Matthews: That's the origin point. And initially, we had like different sealings for different kinds of debt. I think it took until literally the 1980s for there to be an actual like separate law about this. Until then, we were just amending the Second Liberty Bond Act of 1917.
--:-- Dylan Matthews: But yeah, the statutory limit on this comes from World War I. Okay, so this comes from World War I, which is, as I recall, about a century ago. Sure. Do we still need it? Why is it stuck around?
--:-- Dylan Matthews: No one needs the debt ceiling. I want to be very clear about this. I have not met like a single expert who thinks it's a good idea that the U.S. has a debt ceiling. Huh. People like Rohit Kumar, who was deputy chief of staff to Mitch McConnell and deeply involved in all the Obama era debt ceiling negotiations, he thinks we should get rid of it.
--:-- Dylan Matthews: Almost every other country like us has nothing like this. Canada doesn't have it. UK doesn't have it. France doesn't have it. Germany doesn't have it. Japan doesn't have it. Australia doesn't have it. New Zealand doesn't have it. The only other country that has something like this is Denmark. And theirs is fake. Theirs is set at 2 trillion Danish kroner. Their outstanding debt is 438 billion kroner. They're just not going to hit it.
--:-- Dylan Matthews: Is it here to stay then? Are we ever going to just get rid of this thing? I sincerely hope at some point the debt ceiling is abolished or de facto abolished. I think it looks bad optically to be like, I'm getting rid of this restriction on how much debt we have. Debt sounds bad.
--:-- Dylan Matthews: That is a vote that is easy to use in an attack ad. I think the most elegant way out long term is Johnny Armuth, who used to be chair of the House Budget Committee, had a bill that would let the Treasury Secretary set the debt ceiling. And so we would still have a debt ceiling, but the administration would be in charge of what it was.
--:-- Dylan Matthews: And so it wouldn't be up to Congress. You wouldn't have these periodic crises. But Congress would need to agree to that change. Right. That's a bill they would need to pass. And they would, in doing that, be giving up leverage going forward. And I think a lot of them are loathe to do that.
--:-- Dylan Matthews: In the meantime, how do we avoid a fight that drags on for months and potentially causes economic harm in this country? So I think there are two rough paths for Biden here. One is to do what Obama did and negotiate, to work out some package of concessions in exchange for Republicans agreeing to raise the debt ceiling.
--:-- Dylan Matthews: The other path is to try to use his powers as president to get around the debt ceiling. That is trickier, but also holds the promise of preventing more crises like this in the future. And what does that road look like? Well, there are a few forks in that road. We can take them one by one.
--:-- Dylan Matthews: Okay. So first is the 14th Amendment option. The 14th Amendment is probably most famous for guaranteeing equal protection, for applying the Bill of Rights to the states. But there is a provision in there that the integrity of the debt shall not be challenged.
--:-- Dylan Matthews: And if you look back at what John Bingham, who was the Ohio congressman who wrote the 14th Amendment, was saying, he was coming out of the Civil War and he wanted to prevent U.S. default. And so there have been people arguing that under the 14th Amendment and under the original understanding of it when it was written, measures that could lead the U.S. to default are unconstitutional.
--:-- Dylan Matthews: Probably the most famous people to have embraced this were Bill Clinton and Nancy Pelosi back in 2011. In fact, if I were president, I would use the 14th Amendment, which says that the debt of the United States will always be paid. You would just go ahead and do it. You wouldn't wait for Congress.
--:-- Dylan Matthews: I would just go do it, right. There's some constitutional law scholars who have embraced this as well. Obama demurred, and I think one reason he demurred, which applies to everything we're going to talk about here, Just anything that makes this a fight in the courts puts a question mark on U.S. debt.
--:-- Dylan Matthews: And maybe the markets are less certain that they'll be paid back because people are suing the president over his authority to do this. But that's one option. Invoke the 14th Amendment, one option that Biden has here.
--:-- Dylan Matthews: Come on. Come on, folks. But there are others. Yes. So the other declare I'm going to ignore the debt ceiling option is it doesn't have a snappy name. You can maybe call it the least illegal option. That's kind of snappy. A little bit.
--:-- Dylan Matthews: So these professors Michael Dorff and Neil Buchanan developed this idea. Congress passed a bunch of laws saying what the tax code should be in the U.S. and raising a certain amount of money. Congress also passed a lot of laws saying what they wanted to spend money on. And then they passed a third law saying that you can't have debt above a certain amount.
--:-- Dylan Matthews: And Dorf and Buchanan's argument is that these three laws contradict each other. You can obey two of them at a time, but not all three. And their argument is that the least illegal thing for him to do is to ignore the debt ceiling.
--:-- Dylan Matthews: My view is that if that were to arise, the president's least unconstitutional option, The sort of least bad option would actually be to violate the debt ceiling statute. Like the 14th Amendment option, I think this makes a lot of legal sense. It will go to the courts. And I have no idea what the Supreme Court would say about it But it has an elegance to it
--:-- Dylan Matthews: And I think it like if not as a matter of law as a matter of principle right Like Congress has passed three laws that are contradictory Come on. Come on, folks. Fair.
--:-- Dylan Matthews: So it seems kind of unlikely, but another option would be ignoring the debt ceiling altogether. I don't know about likely, but here are a couple more and see if they strike your fancy. Um, one is that you could set up new bodies to issue things that look like debt but aren't.
--:-- Dylan Matthews: Huh. So this is something Steve Schwartz at Duke has proposed. And it sounds zany and fake, but this is actually how a lot of U.S. state governments work. Most states have balanced budget amendments that prohibit them from taking out debt.
--:-- Dylan Matthews: And so they create these special purpose entities, and then those entities issue debt, and then that debt pays for stuff. And it's kind of scummy, but it works. And it lets them avoid their balanced budget requirements.
--:-- Dylan Matthews: And so the argument is that this could in turn allow the federal government to ignore the debt ceiling is by issuing debt by another name. Perhaps even more than the other options, this is a totally new debt instrument.
--:-- Dylan Matthews: And it's unclear what the markets would value it at, if they would treat it the same way as regular debt. And so there might be some economic ripple effects from that. And there would be a court battle, but I don't think of the same octane as just ignoring the debt ceiling would create.
--:-- Dylan Matthews: Come on, come on, come on. And then the last one, are we going to talk about minting the coin? Minting the coin. Minting the coin, very divisive in today's Explained editorial meetings. Is it really? Oh, man. Totally.
--:-- Dylan Matthews: It's the coolest thing that's ever happened in American fiscal policy. The idea, which originated in a blog comment by a user under the name of Beowulf, who's actually a lawyer named Carlos Mucha. Wow. Who I interviewed a little while ago.
--:-- Dylan Matthews: So Carlos noticed that Congress had passed a law in 1997 that allows the Treasury Secretary to mint platinum coins of any denomination. This was written by then Delaware Congressman Mike Castle. When I called Mike Castle about this, he was like, yeah, we wanted to sell some platinum coins to collectors in Japan, make a little bit of money.
--:-- Dylan Matthews: It was about the collector market in Japan. This was just for small denominations, smaller denominations than some of the money that's being talked about now. Carlos's idea is to use this law and have Janet Yellen mint a, say, trillion dollar coin.
--:-- Dylan Matthews: I hope it's Nick Cage's face on the back of it. I'm going to steal it. I'm going to steal the Declaration of Independence. I feel like the other way is to put Trump's face on it. And then it's like, oh, you don't like this, Republicans? Really? You're going to fight us on this? It's way better than an NFT.
--:-- Dylan Matthews: Oh, way, way better. I'm doing my first official collection of Donald J. Trump digital trading cards. Or to use the technical term, nifties. And so Janet Yellen, she mints a trillion dollar coin. She has this coin. It's worth a trillion dollars.
--:-- Dylan Matthews: She goes to the Federal Reserve, which she used to run. The Federal Reserve owns trillions and trillions of dollars of U.S. government debt because it buys it up when it wants to lower interest rates on it to help the overall economy. Bought up a ton in 2008 and 2020 and hasn't unloaded them all yet.
--:-- Dylan Matthews: So she goes and she says, I would like a trillion dollars worth of bonds. I think Jay Powell would be like, yeah, this is dumb. I'll take your money. I'll give you these loans. And then you use that debt to pay for the government.
--:-- Dylan Matthews: Come on. Come on. Come on. Come on. Come on. It sounds like a remarkable idea. It sounds like the kind of thing that a guy who calls himself Beowulf in his spare time would come up with.
--:-- Dylan Matthews: Which of these could plausibly happen in our reality in summer, fall, who knows, 2023? While I think the coin is cool as hell, it is so zany that I have a kind of hard time believing Biden will go for it.
--:-- Dylan Matthews: My preferred of these is the least illegal option that the 14th Amendment argument makes sense. But usually we don't let presidents just say that they think stuff is unconstitutional and then ignore it.
--:-- Dylan Matthews: The special purpose debt is interesting, but I worry a lot that it would be at much higher interest rates and that would cause a market freak out. Saying you're going to ignore this law, I think it's like, it strikes me as like an appropriate use of the president's authority of your job is to execute the laws.
--:-- Dylan Matthews: These are the laws before you. They contradict each other. So you make a clear statement about which of the laws you're going to follow, given that you can't follow all of them. And as you mentioned earlier, there is a way out of this.
--:-- Dylan Matthews: We could just get rid of this debt ceiling that we instituted around the First World War. And that seems unlikely to happen in this Congress and maybe even future ones, which means that every X amount of years when it's politically expedient, we can expect to see a fight like this.
--:-- Dylan Matthews: I think, unfortunately, that's right. Maybe I'm being too cynical, and hopefully one day Congress will get its act together. Maybe at the end of December, when it's a lame duck period and no one's paying attention, just get rid of this dumb, dumb law.
--:-- Sean Rameswaram: Dylan Matthews, before him, Andrew Prokop. They both write for Vox. Read them and weep at vox.com. Our show today was produced by Miles Bryan, fact-checked by Laura Bullard, mixed by Paul Robert Mounsey, and edited by Matthew Collette.
--:-- Sean Rameswaram: He's the one who hates the trillion-dollar coin on our team. He hates it so much he asked me to tell you how much he hates it. He never asks me to tell you anything. That's how much he hates it. It's Today Explained.
