Matt Y on the Debt Ceiling

October 9th, 2013 at 4:29 pm

Here’s a useful collection of reasons from Matt Yglesias why debt prioritization won’t work, ranging from it’s illegal to it’s impossible.

For those of you lucky enough not to know what I’m referring to, some Republicans are arguing that failing to raise the debt ceiling is no big deal, because the Treasury will have enough cash flow to pay its (our) creditors–everyone else, from contractors to Medicare docs to retirees on Social Security can just suck it up for awhile.  It’s only a default, they say, if you stiff your creditors.

Matt disagrees, and so do I.  Not paying your bills is analogous to defaulting, and as he points out, it’s likely that there will days when the cash flow<interest or principal payments.

But I’m not sure he’s right about this part:

Stepping back a little, I’d also note that House Republicans can’t have it both ways here. Either the debt ceiling is a major leverage point to extract concessions from the president, or else it’s no big deal. If it’s no big deal, there’s no leverage. If there’s leverage, then it’s because failing to raise the debt ceiling would be very damaging.

I get the logic, but I fear the way they think about this is a) it’s really is no big deal, but b) the President mistakenly thinks it is.  Thus, we have massive leverage over that poor, economically misguided dude.

Remember, many of these folks live in thick information bubbles, where “facts” are what they say they are.  Kinda makes them a bit tough to work with.

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9 comments in reply to "Matt Y on the Debt Ceiling"

  1. Scott Monje says:

    Personally, I think the Republicans (or at least the more reasonable ones) are bluffing. As typical in Schelling’s Chicken Game, their strategy is to threaten mutual disaster if the other side doesn’t yield. To make that work, you have to convince the other side that you would be willing to allow the mutual disaster to happen, hence the assertions that it’s not such a big deal. They blew that when Boehner, presumably to reassure the stock markets, admitted in private that they can’t allow the country to default, which of course did not remain private for very long. Now they are trying to rebuild their bargaining leverage by working overtime to convince people that they’re not very bright. For some it comes easier than for others.

    At least, that’s what I hope is happening.


  2. ElizabethB says:

    Working Americans have been paying extra into SS since the eighties to help cover our retirement. That surplus has been put into special Treasuries so those of us who have retired are also creditors of the US who also deserve to be paid. Seems to me the implication is that our government should pay foreigners who are owed but not its own citizens. Bizarre.


  3. purple says:

    The government slowdown is going bite if it goes on for months. And the debt ceiling makes the slowdown seem tolerable in comparison, making an extended slowdown more likely.

    Obama really needs to resist Social Security cuts and means testing. Turning SSecurity into a welfare program will destroy it in the long term. As for the age limits, frankly you can’t work at most jobs past 60 – let alone 70. Not only because of the physical demands, but because they will show you door.

    Are people in power really thinking this through ? It’s an ugly thing to see homeless old people but that is exactly the framework that is being put in place. It’s certainly not indicative of any sort of world power.


  4. mitakeet says:

    In my opinion something that is forgotten by many is that to the ultra right-wing shutting down the government and triggering default _is_ the goal, not a means to an end. Since I happen to be related to several of them, I have an insight into their state of mind and they attach a higher price to government functioning as usual with our current debt level then the chaos that will happen when their goals are met. They either fail to understand basic economics or simply don’t care and are entirely committed to the idea that the government that governs best, governs least. I know they haven’t thought through their goals because they routinely mix into their discussions a strong military and police force, property laws, civil society, etc. and (this is where their bubble comes in), they don’t see losing any of their favorite parts of our society when the govt comes crashing down and the world’s economy implodes because the US defaults on its obligations. These people are not bluffing with the default and they are quite happy that the govt is shut down (another sign of their unclear thinking: no more jobs or SS checks, but if they were rational to begin with we wouldn’t be having any of these discussions). These people are the ones that are driving the Tea Party and have their hands around the throats of the moderate Repubs with their primary threat. Unless our society marginalizes them by taking back our primary process this will go on and on and on and on…


    • readerOfTeaLeaves says:

      I’m related to some, as well. Wonderful people when in small settings. They are not following currency shenanigans, nor international politics; they don’t hold passports. They don’t own patents/intellectual property, but they value owning real property. In my experience, they value ‘fairness’ and ‘hard work’. Increasingly, they have come to utterly despise government; particularly federal government.

      They have been hammered by the economics (and tax laws) of the past 30 years; their sense of economic and political injustice has been exacerbated by The Meltdown of 2008, followed by the accommodation of TBTF banks, and the failure to hold anyone accountable. And given the obscene, post-Meltdown bankster bonuses and hedge fund billions — followed by what appears to be ‘reckless money printing’ by the Fed — their sense of grievance has morphed into a deep contempt and distrust of government. That money being printed ‘recklessly’ all appears to be going to ‘investors’, which is code for ‘elites’.

      Given this context, why would these people believe ‘the Ivy League elites’ in DC, who claim that default is a problem?! (I’m not being snarky here.)

      From what I see, the Political Class has zero credibility left with these folks. After all, it was the Political Class that used taxpayer money to bail out banks — then never prosecuted the TBTF Banksters. The Political Class continue to enrich themselves via the Revolving Door, as lobbyists [and conservative judges] continue their control over a political system that is deeply corrupted by money, cynicism, and greed,

      I could make a case that the Tea Party appeals to these folks because it claims to be a vehicle for ‘accountability’ that they have not found by any other means.

      Meanwhile, DC and Wall Street elites offer up the same old bromides: abstractions about GDP, international bondholders, etc, etc. These same elites offshore money, charge usurious rates, loot pensions, destroy companies, and never take responsibility for the problems they create.

      What I hear in my media/news check-ins is that the Tea Party and default conflict represents “a ‘war’ within the GOP”. I suspect that is wildly understating the situation.

      This a crisis of legitimacy — the Political Class (including Boehner) has little credibility, which makes things extremely unpredictable.

      I emphatically disagree with the Tea Party tactics, and believe them to be blindly destructive and tragically nihilistic.

      But I believe that we are glimpsing profound angst over a political/economic system that has been absent of any moral requirements to *community*: the old Adam Smith/neoliberal/Reaganesque claims that ‘the greatest good for the greatest number’ will always and everywhere produce a moral society have failed, and this recognition is now playing out in an ugly fashion.

      Notably, the TBTF bailouts were never about making society more vibrant, nor healthier. They were always about ‘honoring contracts’ or some other legalistic jargon — despite the sordid fact that most of that debt originated in speculative behavior.

      What we are seeing now, IMVHO, are chickens coming home to roost from the consequences of anti-social, business-school driven, accounting-fraud-enabled economic claims of the past three decades.

      I am appalled by the potential destructiveness of the Tea Partiers, and view them as short-sighted. But I can’t condemn them; as a symptom of illegitimacy, they are informative. I sincerely wish they were more astute and productive, but that seems to optimistic.

      We certainly live in interesting times.


    • Perplexed says:

      -“They either fail to understand basic economics or simply don’t care and are entirely committed to the idea that the government that governs best, governs least.”

      Those who know a little about history understand that this ideology is the foundation of Anarchism. It is incompatible with Democracy and the two cannot “coexist,” its really one or the other. Even when faced with the dire consequences of the success of Anarchism, people that don’t understand it are “confused” and “baffled” about what is happening. Support of anarchism is support for undermining and abolishing democracy. Good thing we eliminated educational requirements for people to understand history so we can keep re-learning the same lessons the hard way.

      http://jaredbernsteinblog.com/how-did-fiscal-policy-get-turned-upside-down/#comment-1565499

      http://dwardmac.pitzer.edu/Anarchist_Archives/bakunin/stateless.html


  5. Perplexed says:

    I remember reading a while back about a legal doctrine called Judicial Estoppel that supposedly prevented a party from taking two opposing positions in legal matters. It certainly seems like passing laws and agreeing to fund them, and then refusing to do what’s needed to fund them is taking two opposing positions. What do the lawyers say about all of this? What options does Obama have to break this stalemate in the event Congress fails to act?


    • urban legend says:

      The President needs to consider the following proposition carefully: a law that forces the executive branch to violate other laws, especially when it serves no identifiable substantive purpose, is not a constitutional law. Therefore, it is null and void, and it is the duty of the President to say so and act accordingly — thereby taking all the leverage out of threats not to raise the debt ceiling once and for all and forever.


  6. Dave says:

    I think one take on this indicates a corporate takeover of government, because the idea that bills dont’t necessarily have to be paid on time is one out of the playbook of corporations. Many of them use bill paying timelines as a negotiating tactic, and it is just business as usual for many of them to pay late.


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