Will the Debt Ceiling Cave in This Time?

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Speaker 1: Hey, everyone. Just a note at the top that we’ve got a couple of unbleached curse words in this episode. So you’ve been warned. If I could wave a magic wand and you would never have to hear the words debt ceiling again, would you be interested in that?

Speaker 2: Yeah, absolutely.

Speaker 1: Jordan Weissmann covers the economy over at Semafor.

Speaker 2: I mean, obviously there’s risk This is some sort of monkeys poor situation where I get rid of the debt ceiling. But then, like I everyone else around me has like a pig face or something. And I’m the only one with that, like some tight twilight zone situation. But yes, I would risk that to get rid of the debt ceiling at this point. Absolutely.

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Speaker 1: I mean, it’s funny. I just sense this weariness among anyone who has to bring it up.

Speaker 3: All right. But we are going to begin with the debt ceiling. That’s showdown in Washington. This is something that could have a major impact on your money and global markets. And here’s what’s going on.

Speaker 1: Everyone’s just like, yeah, this again.

Speaker 3: It’s got Macfarlane is on Capitol Hill is following it for us. Scott the more people learn about this, it seems like the more they.

Speaker 2: Want to shake their head. Yeah, that. Yeah, absolutely. Like, it’s like every time this comes up, it’s a combination of panic and ennui.

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Speaker 1: This moment of panic and ennui was sparked by a letter from Treasury Secretary Janet Yellen. She was informing Congress that as of last week, the U.S. has bumped up against its $31 trillion debt limit. That means Treasury is now taking what she calls extraordinary measures to continue paying its bills. That’s where the panic comes in.

Speaker 2: Eventually, we’re going to run out of cash and, you know, and the day we run out of cash is what’s called the date. Right.

Speaker 1: The date. Oh, that sounds so dramatic.

Speaker 2: Yeah, the well, the next day it really is dramatic, right? Because that’s that’s when everything is real good, in fact. Right. Like this wouldn’t be. I would say it’s like that’s when everything goes to hell.

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Speaker 1: But then there’s that ennui because we’ve hit the debt ceiling before in 2021, in 2013, in 2011.

Speaker 2: It has happened so many times, but it’s been a while since it’s unfolded with a brand new Republican Congress where, you know, hard line fiscal conservatives suddenly control a critical number of votes. And that is what is sort of adding to this sense that maybe catastrophe actually might unfold this time, that this time might be different.

Speaker 1: I guess what you’re telling me is, like, we may not want to talk about the debt ceiling, but we’re going to have to talk about it.

Speaker 2: We’re going to have to talk about it.

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Speaker 1: Today on the show, the looming fight over the debt ceiling again. I’m Mary Harris. You’re listening to what next? Stick around.

Speaker 1: Each time we get caught up in another debt ceiling debate, it’s easy to forget that it does not have to be this way. The U.S. is essentially the only country with a restrictive debt ceiling, and the policy is a holdover from an early 20th century reform. In addition to being anachronistic, the debt ceiling is also just weird because Congress allocated all this spending in the first place. Refusing to raise the debt limit is a little like Congress going to a restaurant, ordering a four course meal, and then walking out on the bill.

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Speaker 2: All the debt limit does is it says you cannot borrow anything more to pay what you already own. It doesn’t set spending or anything. It just says you can’t borrow any more money. And so it leaves the it leaves the administration in this position where it’s like, well, we have all these obligations. We have to pay Social Security, we have to pay doctors for Medicare. We have to pay our bondholders. We have to pay soldiers. How are we going to do that? Right. Like, that’s that’s it’s a nonsensical system, but we’re stuck with it. And it’s this, you know, dumb self-destruct button that every once in a while someone threatens to push.

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Speaker 1: Yeah. Let’s talk about how the debt limit became an issue in Washington so fast, because I think of it a little bit like Chekhov’s gun, like the narrative principle that if you see a gun in the first act, it gets fired in the second. And it’s either because it was just a few weeks back that Kevin McCarthy was trying to become Speaker of the House, and the debt limit kind of got trotted out as a really important element of him becoming speaker. Can you just explain that?

Speaker 2: Yeah. So when Kevin McCarthy was trying to become speaker, he had to deal with this group of approximately 20 holdouts that were from the House Freedom Caucus and were, for the most part, just hardcore conservatives and hardcore fiscal conservatives. And many of them said they didn’t want a clean debt limit increase. Right. They didn’t want McCarthy to allow a simple, you know, no strings attached debt limit hike to come to the floor and pass. And he had to say, okay, I won’t let that happen. And also, a lot of the somewhat complicated but important rules changes he gave them as concessions make it much, much harder for that to happen.

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Speaker 2: And even before that had happened, there was a sense that if you had a narrow Republican majority in Congress or in the House of Representatives where the deciding votes could be coming from the hardliners, it would be pretty difficult to pass a debt limit increase, or at least it would be a challenge. This just kind of made it more formal to use your, you know, description. The gun was taken off the mantel and put on the table.

Speaker 1: Yeah. I mean, just to be really clear, like these 20 holdouts who were refusing to vote for Kevin McCarthy, I mean, they were telling reporters things like, you know, I want to know he’s willing to shut the government down rather than raise the debt ceiling. It’s non-negotiable. They were being really, really clear on that. Like essentially they want a balanced budget in ten years, like we won’t raise the debt limit. Is it even possible to have a balanced budget in ten years time?

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Speaker 2: I mean, yeah, all kinds of things are possible, but, you know, tried to try doing that without slashing Social Security and Medicare, which if you haven’t noticed, even Donald Trump is like, do not touch those because, you know, it’s it’s political poison. So, yeah, I mean, it’s not exactly it’s not a realistic ask. And I don’t think Republicans would want to vote for any budget that would actually do that, although they might end up having to because, you know, again, these holdouts want at least like symbolic, you know, to pass some sort of symbolic budget that does.

Speaker 2: I think you’re seeing this sort of resurgence of fiscal conservatism that we all kind of remember from the Tea Party era and then that sort of disappeared under Donald Trump. It’s making a comeback. And it’s sort of strange because, you know. When the Tea Party swept into power in 2010 or 2000. Well, really, when they won in 2010 and then, you know, took over Congress in 2011 and eventually forced a debt ceiling standoff, the first major one. You know, they had all campaigned on cutting spending. Right. That had been regardless of why people really voted for them, they had at least they had really campaigned hard on dealing with Obama’s budget deficits and cutting spending and, you know, being fiscal conservatives and being prudent. That’s not what happened in these midterms.

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Speaker 2: Right. Like, Republicans kind of underperformed in general and just barely squeaked by with a win with, you know, a five seat majority. And no one was really voting for Republicans because they were making hard promises to slash Social Security. So it’s very weird that after this election, now is the time we’re seeing everyone kind of demand some sort of return to austerity on the right. There isn’t an obvious public hunger for this, but they’re taking their shot while they see it.

Speaker 1: That’s an interesting way of framing it. I hadn’t thought about it that way. It sounds a little bit like you’re saying this is like a ghost in the machine. Like this is a leftover Republican value that with the party in a bit of chaos, it’s able to express itself more.

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Speaker 2: Right. And you have what you have here are an empowered group of very frustrated fiscal conservatives who are upset that they haven’t, you know, after all these years, like, you know, after the Tea Party revolution more than a decade ago, they still haven’t been able to get the the kinds of budget cuts that they’ve wanted. And if anything, the, you know, the deficit which they see or the national debt, which they see as an existential threat wrongly, in my opinion, has gotten much worse. And so they believe they have leverage. They see a point of leverage, and they’re going to try to use it. It’s just it’s not at all clear that there’s really a mandate for this. And another huge difference, right, is that this administration, the Biden administration, just does not want to negotiate. And that is a big lesson that Democrats kind of took away from 2011.

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Speaker 1: 2011, set the standard for a debt ceiling standoff. Just like now. Republicans had reclaimed the House and there was a Democrat in the White House. Tea Party conservatives dug in demanding then President Obama agree to deficit reduction measures if he wanted them to. Okay, more government borrowing. Eventually, everyone reached a deal in exchange for increasing the debt limit. Republicans got the Budget Control Act of 2011. This legislation set up a supercommittee dedicated to cutting the deficit by $1,000,000,000,000. In the end, that supercommittee couldn’t agree on how to do that. But it was something.

Speaker 2: And the two sides took very different lessons from this. At least hardcore fiscal conservatives kind of concluded, Hey, if we really fight, then we will get what we want. We will get something. If we really take this to the precipice, the Democrats will cave. And the Democrats, their lesson was like, No, we just should not negotiate. Right.

Speaker 1: Don’t negotiate with terrorists, essentially.

Speaker 2: Yeah, exactly. Do not negotiate with terrorists. And that’s what you’re hearing in the rhetoric. Now, the Biden administration is saying we are not going to negotiate. Democratic senators like Brian Schatz are basically, you know, practically quoting the Godfather, saying, our offer to you is nothing like we would like you to pay for, you know, the gambling license that is there. That that is their approach to this right now.

Speaker 1: But here’s the thing. Can they do that this time? And I ask because it’s different now. Republicans are in charge of the House now, just barely, but they are in charge of the House. So can Democrats really refuse to negotiate with them at all?

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Speaker 2: I mean, it’s a game of chicken, right? And we’ll see. But I would say it’s getting more difficult for them to maintain that position because you are starting to see some moderate Democrats say that they, too, would like to see negotiations. Joe Manchin has said that he would like, you know, the White House and Democratic senators to negotiate some sort of debt ceiling deal. And, you know, he is kind of gestured towards maybe striking a deal where Washington would raise the debt ceiling and then create some committees to look into how to rein in entitlement spending or make sure they stay the entitlements stay solvent.

Speaker 1: Wow. It really is Groundhog Day.

Speaker 2: Yeah, it’s Groundhog Day.

Speaker 1: That’s exactly what they did in 2011.

Speaker 2: Yeah, but like in the house, you have a group of moderates who are now saying, yes, we don’t want to pass a clean debt ceiling deal either. And that that might make it harder for Biden to kind of say just, no, I’m not coming to the table. Or maybe he’ll keep playing chicken. I don’t know. Like I at this point, it’s it’s hard to tell.

Speaker 1: We’ll be back after a quick break.

Speaker 1: For now, the Treasury Department is taking extraordinary measures to make sure the government’s bills get paid. But eventually, if Congress is not able to reach a deal to raise the debt ceiling, the cash will just run out. Jordan says You want to find out what happens when it does.

Speaker 2: Everyone talks about it as financial Armageddon for a reason. It would have. You know, it’s kind of a cliche at this point that everyone just inserts as a line into their stories about this. But, you know, U.S. Treasury debt is the bedrock of the entire global financial system. Right. It’s like even more than the dollar. Arguably, it is Treasury debt. Often when you are talking about the dollar, you are really just kind of talking about Treasury debt. That is what makes the world go round. You know, if you start calling into question the, you know, whether or not Uncle Sam is going to pay creditors what they are owed, it could just set off a chain reaction that is very hard to predict and could be very, very, very ugly.

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Speaker 1: What are the worst case scenarios here?

Speaker 2: I mean.

Speaker 1: Let’s go to a dark place.

Speaker 2: Okay. So it depends it depends on how the Treasury Department decides to respond. If we really do get to dun, dun, dun the estate. I mean, one of the options for the Treasury Department is what’s called prioritization, which is what it sounds like. They would just decide that they’re going to pay some people and then not pay others until they have enough money in the account to do it.

Speaker 1: So Social Security checks go out, but like Postal Service employees don’t get paid or something.

Speaker 2: Maybe. But most importantly, bondholders would get paid. Right. Like they would prioritize bondholders above everything else and then figure out whatever money was left over. They would use that to pay the bills.

Speaker 1: Would there be like a run on the bank, like people being like, oh, I got to get out of Treasuries?

Speaker 2: If the Treasury Department did just prioritize debt payments. You probably wouldn’t have a run. But the issue with prioritization, well, one of the issues of prioritization beyond, you know, whether or not something might go wrong while you’re attempting to pull it off is just it’s not obviously legal. It’s like, you okay? Yeah. Like, why are we you know, is the Treasury Department really allowed to pay bondholders but not pay Social Security recipients? Look, that’s not like obviously.

Speaker 1: They weren’t elected.

Speaker 2: Yeah, it’s like, yeah, to do that. So. And now, if the government doesn’t prioritize, right, and it does just default, then that is a earthquake in the financial system because all of a sudden the soundness of Treasury debt really is just called into question. And you know what? I don’t think anybody really knows exactly what that looks like. You know, the Fed has tried to game that out a bit and decide like what they would do. But it’s it’s not I don’t think anyone’s really mapped the fallout of what that would be except for. Yeah, I mean, it would be real frickin bad.

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Speaker 1: The severity of the impending crisis and the total impasse in Congress has some observers throwing out absurd solutions. One idea that we’ve talked about before is that Treasury could mint $1,000,000,000,000 coin and use that to pay its bills. But Janet Yellen is not so hot on this idea. Another suggestion is that Joe Biden could invoke the 14th Amendment to nullify the debt ceiling. Again, not very likely. There is one card left to play if Congress cannot reach a deal. It’s called a discharge petition.

Speaker 2: So this is an old this is an old like old tool that you can use in the House of Representatives if there is a bill that has majority support. But House leadership won’t bring it to the floor for a vote. You can file one of these things, this discharge petition, and force a vote with it. Right. And from time to time, these have been used to varying degrees of success.

Speaker 2: And one of the most famous instances where someone tried to deploy a discharge petition was back with the Civil Rights Act of 1964. They filed one to try and force the Rules Committee, to which it kind of bottled up that bill to release it for a vote. It didn’t actually work, but it did create a lot of pressure. And eventually, you know, they they kind of relented. And obviously we got a Civil Rights Act. But the idea here is that, say, every Democrat just wanted to vote to hike the debt ceiling and you could find like five moderate Republicans who also just wanted to hike the debt ceiling. You could then file a discharge petition and just force the vote. No matter what Kevin McCarthy had promised.

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Speaker 1: And it would happen, like right away.

Speaker 2: No, that’s the problem. It takes a really long time. There are all these complex rules about how they work. Thing has to be sitting committee for 30 legislative calendar days, which, you know, several a long time, and you’d have to get started with it like now ish to get it done by early summer, I think. You know, there are just all these technical aspects of it. And one other thing on that is if a Republican crossed over and voted for one, they would take massive heat from their own party, probably. I mean, even if Kevin McCarthy secretly, in his heart of hearts, was happy about it, there would still be lots of conservative voters in the base who would be infuriated.

Speaker 1: Just because you’re helping the other team, not even because of like the base issue.

Speaker 2: Right. And so it’s just not clear how reliable an option that is, if that’s more really more realistic than the Biden administration at least trying to negotiate some sort of fig leaf deal. I don’t know. But it is it is.

Speaker 2: You are going to hear the term discharge petition often over the next few months, probably because it is one of the important procedural options that is in the background coloring this whole debate.

Speaker 1: It seems to me that both Republicans and Democrats are making a bet here that the American public is not going to blame them. If something goes wrong, they’ll blame the other guy. Do you have any bets here, like as we creep closer to this deadline where the extraordinary measures aren’t going to be doing all they can do? Are all of us going to be pointing the finger at?

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Speaker 2: My guess is the public would probably side with the Biden administration over over the GOP on this one just because, like every time there is a debt ceiling fight or a government shutdown, it tends to be the instigator who loses out in the PR in the public relations war. It never goes well. And so I kind of assume that it won’t be good for Republicans.

Speaker 2: But the problem is that the critical group of fiscal conservatives, the House Freedom Caucus types, aren’t really you know, they’re not responsible to the whole public. They are responsible to their voters. And most of them come from very, very deep red districts that will probably, you know, view this situation differently. Hmm. So I don’t think it’d be good for Republicans on the whole. But I don’t know if that I don’t know how much that’s going to influence, you know, the critical votes. On the other hand, you know, if you do have the flip side of the counterargument here is that if this is looking absolutely terrible for moderates, right. For those Republicans who are in who are in Biden districts that went red during the midterms, then that might create pressure on them to finally just go along with something like a discharge petition. That’s kind of that’s the other potential bet you could make here.

Speaker 1: If you were in the White House right now, what would you recommend doing? Well, you’ve got you know, you have a deadline. You know, you’ve got a few months here to work with. Like, what’s your move?

Speaker 2: What would I do? I think I mean, I think that at least is an open at least as an opening gambit. If you’re the White House, this, you know, saying I’m not going to negotiate is probably the correct move. I don’t think you want to give up too much too fast here. Right. Because whatever you offer now, if you start negotiating, is probably not going to be the last offer you have to make. So I don’t think the Biden administration is handling this wrong right now. And. Should they negotiate at all? Hmm. I don’t know. I mean, I. I in my heart of hearts, I wouldn’t want to.

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Speaker 1: Yeah. We’ve talked about how we don’t have to have a debt ceiling. Is there any path to getting rid of it at this point? Or is is that not possible essentially because it’s become such a useful weapon for the Republicans to wield to say we won’t raise this debt ceiling unless you do X. And so there’s just no way that they’d ever give up this tool.

Speaker 2: I don’t think realistically we’re ever going to get rid of this thing. We’re not going to do it in the near future. It’s just going to linger like some kind of horrible ghost of 1917 haunting our D the House of Representatives.

Speaker 1: The ghosts of debts past. Yeah. Jordan Weissmann. I’m super grateful for you coming back on the show.

Speaker 2: Thanks for having me.

Speaker 1: Jordan Weissmann is now the Washington editor for Semafor. Go check out the daily newsletter he’s editing. It’s called Principles. On Friday, President Biden announced that he and Speaker McCarthy were going to have a little discussion about avoiding the debt ceiling calamity. So far, that invitation has not yielded any results. All right. That’s the show. What next is produced by Elena Schwartz, Carmel Delshad, and Madeline Ducharme. We are getting a ton of support right now from Anna Phillips, Jared Downing, and Laura Spencer. We are led by Alicia montgomery with a little assist from Susan MATTHEWS. Ben Richmond is the senior director of podcast operations here at Slate. And I’m Mary Harris. Go track me down on Twitter. Say hello. I’m at Mary’s desk. All right. Talk to you tomorrow.