Is it “Infrastructure Week” or “America Is Doomed Week”? Or perhaps as the classic saying goes, “¿Por qué no los dos?”
Actually, it doesn’t have to be both. But in order to resolve the perpetually unnecessary debt ceiling crisis, and in order to begin to solve the crisis of Americans’ lack of confidence in our own governance, Congressional Democrats must follow through on their promise to “Build Back Better” in a way that convinces more Americans to give American democracy another chance.
WARNING: Though this may seem like a fairly “stale” and “boring” economic column, we do address some darker subject matters later in this story. This has honestly been one of the most depressing writing experiences in my life, so obviously reader discretion is advised.
Remember our good old frenemy, the debt ceiling? It’s back.
Back in August 2019, we did a comprehensive rundown of the debt ceiling – why it exists, how it became a political football, and why such an arbitrary boundary on the federal government’s borrowing power does not actually solve any of America’s fiscal problems. Long story short: Congress already authorized appropriations and tax cuts that are now being covered by the ongoing borrowing that some political pundits love to label as “the big, bad national debt”. If Congress fails to raise, re-suspend, or abolish the debt ceiling within the next 18 days, this inaction will not magically “balance the budget”. Rather, this will amount to the government refusing to pay its credit card bill after using that very credit card for a laundry list of purchases.
Even though much of the “business community” who normally align with Republicans are calling for Congress to resolve the debt ceiling and do so soon, but so far Congressional Republican leaders have dug in their heels and dared Democrats to handle this completely on their own. Again, keep in mind that the national debt is covering the tax cuts and spending that Republicans eagerly backed during Donald Trump’s presidency. To use another personal finance analogy, this amounts to Republicans picking out everything they want to buy, then demanding that Democrats pay the bill at checkout.
Yet with all that being said, we’re now in the checkout line, and we’re going to have to pay this bill one way or another. Democrats now control Congress and the White House, so they’re anything but powerless here. So what are their options, and what might they have to do in order to avoid a debt default?
When Democrats give Republicans an arsenal of nuclear warheads for governmental sabotage, why are Democrats surprised when Republicans launch their nuclear attack?
As we’ve been hinting at all year, the U.S. Senate’s filibuster rules function as the federal government’s most devastating legislative roadblock. This latest and greatest debt ceiling showdown provides yet another example of such. All Senate Minority Leader Mitch McConnell (R-Kentucky) had to do was to deny unanimous consent in order to block Majority Leader Chuck Schumer’s (D-New York) attempt to advance a simple majority floor vote to suspend the debt ceiling. If Senate Democrats truly want to deny McConnell and his fellow Republicans any more opportunities to take America’s economy hostage, all they need to do is change the filibuster rules.
But since Senate Democrats still don’t have a consensus on filibuster reform, there’s renewed talk of good old reconciliation rules. Keep in mind that we specifically warned about this on August 9: “[Senator Bernie] Sanders [I-Vermont] and Schumer also declined to include a raise or further suspension of the debt ceiling in this reconciliation package. This essentially sets up a very risky and high-stakes war over the basic functionality of the federal government that will either result in Republicans agreeing to a debt ceiling resolution as a part of a continuing resolution to keep the federal government up and running, or a combination government shutdown/debt crisis that could escalate into a far-reaching economic catastrophe.”
While Democrats can potentially go back to the drawing board and redo the reconciliation package with a debt ceiling solution included, it’s unclear whether they can meet Treasury Secretary Janet Yellen’s October 18 deadline, as Schumer and House Speaker Nancy Pelosi (D-California) will have to schedule a new round of votes for a new set of reconciliation instructions. In addition, Schumer will have to contend with Senate Parliamentarian Elizabeth MacDonough yet again over how she interprets Congress’ reconciliation rules.
But wait, can’t Joe Biden go it alone? Maybe… But are Democrats willing to bet it all on Brett Kavanaugh and Amy Coney Barrett?
From 2011 to 2013 Democratic Party insiders, constitutional law scholars, and leading economists examined the growing conundrum of Republican intransigence to then President Barack Obama’s desire to preside over a fully functional government, and how Obama could potentially overcome Republican intransigence over the debt ceiling on his own. Now that Obama’s former running mate faces the same problem, these “creative debt ceiling solutions” have a new lease on life.
Perhaps the most viral and meme-worthy option is the “trillion dollar coin”. It goes like this: The president already has constitutional authority to direct the U.S. Mint to issue coins, and there is no official legal limit on the value of such coins. Why shouldn’t President Joe Biden release a “special commemorative coin”, set the value at about $28.5 trillion, deposit it at the Federal Reserve, retire the national debt, and keep the government fully open all in one fell swoop?
Here’s the other prominent option that’s less “sexy” yet far more straightforward: The Fourteenth Amendment to the U.S. Constitution plainly states, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” Since the debt ceiling statute essentially functions as Congress questioning the validity of the United States’ public debt, why can’t Biden simply declare that he will keep the federal government open and fully functional because the debt ceiling statute is inherently unconstitutional?
On one hand, a plain reading of the law suggests that Biden can legitimately claim authority to resolve the debt ceiling standoff all on his own. On the other hand, the increasingly partisan Republican-appointed majority at the U.S. Supreme Court have already indicated their willingness to challenge and deny Biden’s authority. At the very least, Biden will enter uncharted and judicially risky territory if he opts for either executive action to unilaterally fix the debt ceiling, and this likely explains Biden’s hesitancy to take any unilateral executive action on the debt ceiling. But if Congress can’t resolve this soon, Biden may have to just take the risk and dare Justices Brett Kavanaugh and Amy Coney Barrett to throw America and possibly the rest of the world into the worst economic crisis since the Great Depression.
Come on, will national debt default be that big of a deal? Oh, yes it will. Here’s how, and here’s why.
During their 2011-2013 debt ceiling showdowns against then President Barack Obama, Republicans began to entertain the concept that breaching the debt ceiling won’t be all that bad after all. They even began to release proposals to “cut spending” and “pay creditors first” as a way to rationalize their refusal to fix the debt ceiling. Though they failed to take it that far, they did succeed in forcing through fiscal austerity programs that inhibited America’s ability to recover from the 2008-2009 Great Recession.
As we explained earlier, the failure to resolve the debt ceiling won’t amount to some “brave act of fiscal responsibility” where Republicans magically “wean America off this dangerous credit card debt!” Rather, we’re talking about America potentially refusing to pay our credit card bills after using these credit cards to purchase everything from our groceries to our furniture.
We know what happens when we don’t pay our bills. Our credit scores drop. Our belongings fall prey to “the repo man”. We run into lawsuits. If the creditors win the lawsuits, our wages and other earnings are garnished, and the judge might even allow the creditors to access our bank accounts. Long story short: It’s not pretty.
As the Brookings Institution’s Wendy Edelberg and Louise Sheiner detailed earlier this week, America faces far more severe consequences if we fall into sovereign default. The government will likely have to prioritize Treasury bond interest payments, meaning that Social Security payments, Medicare provider payments, contractor payments, federal worker salaries and benefits, COVID-19 relief program appropriations, and all other federal government obligations will be delayed. This will likely cause a cascade of calamities: Retirees and Americans with disabilities losing their income and health care, federal workers losing their income, state and local governments losing access to critical federal funding, and all affected parties in turn facing severe financial hardship. And on top of all that, investors will likely have a harder time justifying any further investment in U.S. Treasury securities. Basically, it’s the classic recipe for economic ruin.
Haven’t we seen this before? Да у нас есть.
On this day in 1998, #Russia experienced sovereign default, which caused a massive economic crisis. It was part of the Emerging Markets crises of 1997-99, but managed to reset the Russian #economy, kickstarting growth of the following years.https://t.co/k3FC4RO36A pic.twitter.com/zHVt0wNYpC
— Alex Kokcharov (@AlexKokcharov) August 17, 2021
Though the U.S. government has never before entered into sovereign default, this is far from a new phenomenon. Argentina and Greece provide two prominent examples of sovereign default that contributed to prolonged economic hardship, but let’s focus some more on perhaps the most notorious example of what happens when the reckless pursuit of raw power and “easy money” goes too far.
Following the December 1991 Collapse of the Soviet Union, a network of western economists pushed the new Russian government to pursue a dramatic “shock therapy” program of deregulation and privatization en masse and all at once. While the scenes of major American and European corporations opening for business in Russia suggested a “new day for globalization and the worldwide free market!”, behind the scenes this fostered an alarming amount of inequity and corruption as a few well-connected individuals scooped up Russian assets and became “the new oligarchs” at the expense of the vast majority of Russians who suddenly lost their jobs, lost their pensions, lost their health care, and lost any semblance of financial security.
What should have been Russia’s transition to democracy instead became Russia’s transition from one form of anti-democratic authoritarianism into another. Then Russian President Boris Yeltsin came into power on the promise of turning Russia away from Soviet-era oppression, but Yeltsin quickly began to concentrate his own power after local councils and some members of the Duma organized against Yeltsin’s agenda. Yeltsin turned to then U.S. President Bill Clinton for help with Yeltsin’s own 1996 reelection campaign, and he ultimately relied on a team of American political operatives and more covert U.S. meddling in order to stay in power.
Even as Yeltsin clung onto power, his “shock therapy” economic austerity program proved fatal when the 1997 Southeast Asian Currency Crisis launched a worldwide domino effect that hit Russia particularly hard in 1998 due to their overdependence on fossil fuel exports, the overvalued ruble and overall “irrational exuberance” in Russian equity markets, and the lack of sufficient financial system oversight and regulation. Russia officially defaulted on its national debt on August 17, 1998. On December 31, 1999, Boris Yeltsin abruptly announced his resignation as president, then revealed his hand-picked successor: Vladimir Putin. As we’ve all witnessed for the past 21 years, Putin killed Russia’s nascent democracy, established himself as the king of the oligarchs, and has repeatedly pointed to the many sins and shortcomings of the Yeltsin years as ridiculous excuses for his brutally fraudulent “managed democracy”.
In summary, this s–t is serious. America doesn’t have much time left to get our act together. If Democrats can’t prove their ability to govern this country out of this otherwise farcical manufactured crisis, our very real and very dangerous democracy crisis will only worsen.
.@SarahKendzior: “Republicans are creating a narrative of failure for Biden as a pretext for some potential surprise wins in 2022, but the mechanism by which they plan to ‘win’ is voter suppression.”
Listen to more of this @gaslitnation episode here: https://t.co/IHgNpKvMkt pic.twitter.com/53d58zcNRa
— GaslitNation (@gaslitnation) September 29, 2021
We have already experienced how Vladimir Putin, his network of allied oligarchs, domestic fascist militia networks, and their allied far-right politicians have taken full advantage of America’s broken economy and broken political system to weaken public resolve to protect our own democracy – even to the point where we struggle to protect ourselves and each other from the increasingly preventable COVID-19 disease. We have already witnessed how Donald Trump and his far-right allies utilized these crises in their effort to establish a Putin-esque “managed democracy” here in America. Though their efforts ultimately failed once Congress reconvened after the January 6 Attack, a sovereign default may very well provide the American Fascists another prime opportunity to topple our democracy once and for all.
Congress’ ongoing fight over infrastructure, “Build Back Better”, government funding, and the debt ceiling ultimately boils down to something far more important than national media pundits’ favorite “Democrats in Disarray hot takes”. If President Joe Biden and Congressional Democratic leaders fail to keep their promise to “Build Back Better”, this will only add to Americans’ growing doubts of their commitment to “protect democracy”. If Americans continue to needlessly suffer financial hardship, they will have a hard time believing that “America is back!” If Americans continue to notice alarming inaction on obvious existential crises like climate change, they will only continue to lose confidence in our government’s ability to solve much of anything.
.@AndreaChalupa: “Our system where Republican plants in the Democratic Party hold veto power over the majority of Americans cannot hold. It’s nonsensical, destroying lives, and making us less safe.”
Listen to more of this @gaslitnation episode here: https://t.co/IHgNpKvMkt pic.twitter.com/hfvBMgSBZR
— GaslitNation (@gaslitnation) September 29, 2021
In summary, this is a far more serious crisis of democratic governance than the pundits’ chatter of “$3.5 trillion price tag”, “trillion dollar coins”, and “debt ceiling drama” might lead us to believe. In the next two to three weeks, we will find out one way or another how committed our democratically elected leaders truly are to saving American Democracy. They can take a hard look at the antiquated rules that prevent them from doing their jobs and actually start to fix the problems at the root of this crisis, or they can continue to gamble on legislative gimmickry as our future teeters on the edge. American voters made their choice last fall, and the politicians they chose must now choose whether or not to respect their choice and protect their future.
If you or someone you know is facing a major life crisis and struggling with thoughts of suicide, help is available. The National Suicide Prevention Lifeline is always there at 1-800-273-8255 (TALK). So is the Crisis Text Line, where you can start a conversation with a volunteer counselor by texting “START” to 741741. For LGBTQ+ youth in need of immediate help, the Trevor Project has a 24/7 hotline at 1-866-488-7386 and a text option (text “START” to 678678) available.