StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



May 19, 2013: A Day Of Extreme Federal Budget Shame

20 May 2013
Posted by Stan Collender

Sunday, May 19, 2013, was one of the saddest and most notorious moments in the sordid history of the federal budget.

Let's start from the beginning.

It's December 2012 and House Republicans are facing a number of politically very difficult and unpalatable choices because taxes will go up automatically on January 1, the sequester will go into effect on January 2 and the by-now- commonplace-but-still-called "extraordinary" measures the Treasury has been using for several months to deal with the problems caused by not raising the debt ceiling are about to be exhausted.

The tax problem was dealt with by agreeing to a smaller increase than was set to happen under current law and then blaming the White House for it. The sequester was postponed until March 1 when both the GOP and the administration thought that the threat of cuts to domestic and military programs, respectively, would cause the other to back down.

But it was the unique and disgraceful way the debt ceiling was handled that deserves the scorn.

In theory, with more exotic options like the trillion dollar coin and 14th amendment rejected by the White House, the only two choices facing Congress at that moment were to vote to increase the debt ceiling so the federal government could borrow the cash it needed to keep operating, or not to raise the borrowing limit and force Washington to default on some of its obligations. It was a very clear pass/fail, true/false, black/white choice.

This presented the House GOP with two very difficult choices. Voting against the debt ceiling hike was becoming increasing untenable as Wall Street and corporate America made it clear that was not an appropriate alternative from a financial perspective. But voting for the debt ceiling increase was a total nonstarter for the tea party wing of the GOP, which since it first came to prominence in 2010 had made debt ceiling votes one of its biggest political litmus tests.

The GOP's solution to this dilemma was disgraceful. Instead of taking a political bullet and voting either for or against the debt ceiling, it came up with a scheme that allowed them to do neither. Rather than actually increase the debt ceiling and incur the wrath of their base, House Republicans brought a bill to the floor that required the federal debt ceiling to be iGNORED, that is, the Treasury could borrow whatever amounts it needed to cover its cash needs without any restrictions.

Then on May 19, without an additional vote and, therefore, with no member of the House or Senate having to go on record, the official federal debt ceiling would be raised to the amount the government had actually borrowed over the previous four-plus months. At that point, with the debt ceiling reached, the Treasury again would start to impose the so-called extraordinary measures and the countdown to the next debt ceiling crisis would begin.

At best, the federal debt ceiling is an anachronism, a vestigial organ of the federal budget process that should be eliminated. The actual borrowing needs are determined when legislation is enacted that changes either the amount the government spends or raises in revenues. Increases in the debt ceiling should be part of those bills rather than separate decisions and no member of Congress should be able to vote for a tax cut or spending increase unless he or she agrees at the same time to raise the debt ceiling to accommodate that choice.

But unless and until members of Congress and the White House have to face their constituents for agreeing to eliminate the debt ceiling, they should not be able to allow it to be ignored without taking responsibility for their actions.

The ultimate irony here is that congressional Republicans have been complaining about Senate Democrats not producing a budget between 2009 and 2012. That's certainly true; Senate Democrats found the votes in favor of a congressional budget resolution with high deficits very politically difficult and decided that the better course of action was to ignore the requirement.

But now the same people on Capital Hill who relentlessly have castigated Democrats for ignoring their budget resolution responsibilities are the ones that authored the completely analogous procedure for the federal debt ceiling.

 

That makes May 19, 2013, one of the most egregious abrogations of legislative responsibility in U.S. history.

What Am I Missing about the U S Constitution?

"The ultimate irony here is that congressional Republicans have been complaining about Senate Democrats not producing a budget between 2009 and 2012."

Article I, Section 7:

"All Bills for raising Revenue shall originate in the House of Representatives; but the Senate may propose or concur with Amendments as on other Bills."

May is not must, is it?


A budget resolution isn't a revenue bill

 Come on, Ken. You know that budget resolutions don't raise revenues and aren't covered by Article 1 Section 7.


Oh No He Di 'ent

Today in "Economist are NOT Totally Clueless"?


Imagine if there were a balanced budget amendment, as well.

The GOP could selectively ignore either the debt ceiling, or the balanced budget, so all we'd get for the trouble would be an even more disfunctional form of gridlock.

Onward! Elections in 18 months!


hurray Charlie!

You said a mouthful there. Makes me laugh.

Better than crying . . . sigh.


Voting against the debt

Voting against the debt ceiling hike was becoming increasing untenable. I loved reading this write up. Please keep up writing on good topics


Marc Cobe

Well written article, I am impressed by the author's style. Goes well brevity and meaning. Always enjoy reading these articles helps a lot to learn in the field of finance.


MORE DEBT OR MORE DEBT?

Aloha! First some history. In 1917 the Second Liberty Bond Act instituted a debt limit, but was limited to bonds. In 1939 the first debt limit was imposed on all debt instruments. Then in 1979 we had the Gephart Rule that deemed the debt ceiling was raised when a budget was passed and that rule was repealed in 1995. Here we are today and we have a two party system, the same system that was in existence in 1917, although with changed values both politically and monetarily, and the debt limit has gone from around $25BIL in 1917 to the current amount near $17TRIL.

I totally agree that what happened on May 19th was a sham, but the sham has been ongoing for much longer. We are now just measuring higher degrees of "shamness"!! Call it corruption if you want.

The last go round Obama mentioned eliminating the debt ceiling. Of course given the history and its poor record maybe that isn't such a bad idea as I only wish I had such a "ceiling" on my Visa credit limit. What has been gained? I think the debt limit is just a symptom of a much larger cancer. I do not believe the current monetary system is workable. What is it based on? Faith and credit? Debt? The human condition? Who doesn't spend when they are given a blank check? It seems only human to make the blank check out to the maximum ... $999,999,999,999,999,999,999!!! Where does it all end? Both political parties want to retain power and in the end that is all these budgets and the debates are based on. Where would the US FED and both parties(essentially monopolies) be without reserve currency status?




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