Here’s the trouble: the US government shut-down is a red herring. Agreed, it’s quite a spectacular one: 800,000 people sent on unpaid leave (“furloughed” – in case you were wondering what that word means) and no more amenities and national parks (the first things to go in a cash crunch: the small touches and the fun stuff).
But the Debt Ceiling is the real crisis.
The Debt Ceiling Update To Date
The last time I wrote about the Debt Ceiling in a formal post was at the beginning of the year, when I explained how Obama could use a $1 trillion platinum coin as a possible (hypothetical) solution.
Since then: a whole lot of crisis and a negative amount of actual solution.
A general timeline of failures:
January 2013: America cruises over her Fiscal Cliff into a sequester of spending cuts. Under a fiscal cliff deal, everyone agrees to delay some of the more serious sequester cuts until March. The US Treasury writes to Congress to tell it that the debt ceiling has been reached, and “extraordinary measures” were being taken to avoid default. Paul Ryan, fresh from his vice-presidential defeat, suggests a short-term debt ceiling increase to delay default until March.
February 2013: Obama signed the “No Budget, No Pay Act”, which increased the debt ceiling to whatever-it-needed-to-be-to-meet-commitments on May 19th 2013.
March 2013: having failed to agree on a better way to cut spending, the original sequester cuts came into effect.
April 2013: wrangling.
May 2013: the Debt Ceiling was reset to $16.7 trillion. Which was basically the $16.4 trillion debt ceiling that the US Treasury had hit in January, plus the extra $300 billion it had borrowed in the interim. So the Debt Ceiling never stopped being hit, and the US Treasury began applying extraordinary measures again.
June – October 2013: more wrangling and a government shut-down.
What Are These “Extraordinary Measures”?
Let’s assume that you were in a bind, where you had just maxed out your credit card, and you’re not earning enough to cover all your monthly expenses. And while you might like to cut back on spending: the problem is not your day-to-day spending. That would be easy! No – the reason you’re in the situation is that you went out and bought (on credit) a house, a new car, a new couch, a new fridge and a new dishwasher. And you’re supporting your elderly mother with a monthly allowance.
What do you do?
Well, you’re probably hoping that the situation is only temporary (until you get a raise, or a second mortgage gets approved, or you find a new job). So you’ll probably try some of the following short-term measures:
- draw-down on any rainy-day savings
- cash in your pension
- borrow from your friends
- retrieve the capital that you’ve paid back on the house
- try to delay payments on the dishwasher
As opposed to some long-term (ie. structural) changes: like declaring bankruptcy, or selling off assets, or sending your mother back to work.
The US Treasury is no different. While waiting for Congress to raise the debt ceiling, it did some of the following:
- “disinvest” the Civil Service Retirement and Disability Fund and the Thrift Savings Plan-G Fund (the equivalent of using up your rainy day savings);
- suspend reinvestment of maturing securities in some of the Government Pension Funds, as well as delaying interest payments to these funds (the equivalent of borrowing from your friends).
The trouble is: those kinds of measures are short-term. So they’ve run out.
Specifically, they will have run out by no later than two weeks today.
Where Does It All End?
If the Debt Ceiling is not raised, then the US Treasury will have to start prioritising its bills. That’s the euphemistic phrasing.
What it actually means:
- When you reach the point where you can’t access any more money from elsewhere, you can only spend what you earn.
- It doesn’t matter if your daily income is $30 billion when your committed daily expenses can be as high as $60 billion.
- When that happens, you can’t pay everything.
- All that you have to decide is how to distribute that $30 billion (hence the prioritisation).
Which is the definition of a default.
The trouble is, the more time goes on, the more divided Congress appears. And the Americans are left with a President who does nothing but mouth platitudes and woe-to-the-Republicans.
So it’s quite possible that we might just get to see America go into default. Standard & Poors will have a field day.
Where The Bloody Hell Is An Executive Order When You Need It?
Executive Orders by the President-Elect carry with them the full force of law*. Usually because they’re seen as the President enforcing Acts that have already been passed by Congress.
*until they’re challenged and declared void/invalid by the Supreme Court, obviously. Or if they’re overturned by Congress (which would require a two-thirds majority – so that is totes unlikely).
In theory, Obama could just unilaterally raise the Debt Ceiling via Executive Order, citing the 14th Amendment or something similar as justification. As Bill Clinton suggested back in 2011*.
*That said, some of the blogosphere think that if the Supreme Court decides that he has overstepped himself, then it could be grounds for impeachment.
Or the US treasury could try the $1 trillion platinum coin loophole. That would be fun.
Either way, 72% of Americans are now #Bored with Capitol Hill, and they want to see some action. Less Charlie Brown, more Kim Kardashian.
So come on, Obams. Who cares if they impeach you? This is your last term.
It’s time for a Miley Cyrus.