The GOP Clowns are Terrifying Unfunny
I usually write about national politics on Fridays, and I never have a problem identifying a topic I could write about. This week is no different – here are the topic I needed to choose from:
Rudy Guiliani’s cringe-worthy sex life has led to the revelation that he (with the connivance of TFG) sold Presidential pardons at the end of 2020. This is another crime by TFG that will be investigated when prosecutors can get around to it; GOP members of Congress have attempted in the past to cut DOJ funding in order to curtail its ability to conduct investigations. (See McCarthy’s demands for unspecified cuts in discretionary federal spending as part of his debt ceiling proposal, below. This includes the DOJ.)
TFG’s ongoing efforts to self-incriminate in the various investigations into his life of crime, because, although he has the right to remain silent, he is apparently incapable of doing so. The most immediate threats are Jack Smith’s investigation into his handling of classified documents at the end of his Presidency and Fulton County DA Fani Willis’s investigation into the 2020 “fake electors” scheme. I predict that these will both end with indictments of TFG and his associates. I do not base my prediction on my own inside knowledge; I simply read things written by smart people who have been accurate in their previous predictions.
The machinations (“shenanigans” is too frivolous a word) of the various GOP legislatures and governors around the country to make themselves as unappealing as possible to young (and other) voters through a variety of votes to approve restrictions on reproductive health, the health of LGBTQ+ residents of their jurisdictions, common sense gun reform (as news of shootings has come to merit its own sidebar in news outlets) anti-“woke” legislation (I’m waiting for someone to give me a clear definition of what “woke” means, other than a vague reference to “things I don’t approve of”), book banning, curriculum control at institutions of higher learning, and so on
The specific efforts of the governor of Florida to derail his 2024 presidential bid before he formally declares his candidacy
The weaponization of the “Select Subcommittee on the Weaponization of the Federal Government” as it launches investigations into unspecified suspicions about the Department of Justice. Rep Jordan continues to have his ass handed to him by the Dems on the subcommittee.
The much-ballyhooed “Durham Report” on the investigation of Russian ties to the 2016 Trump campaign (about which one commentator said yesterday “nothing truthful was new, and nothing new was truthful”)
Representative Marjorie Taylor Green’s obsession with impeaching every government official she doesn’t agree with, apparently confusing the power of impeachment with actual governing
And let’s not forget – the “debt ceiling” debate, which threatens to crash the world economy in the next couple of weeks.
What to do, what to do?
I’m going to write about the last topic – the “debt ceiling” – because if we don’t resolve this soon, the world economy will fall into a shit hole it won’t be able to climb out of.
So, to set the stage: if you’ve been paying attention, you already know that the debt ceiling restricts the US from accumulating debt beyond a certain point; a decision to “default” on the debt ceiling is basically a declaration of national bankruptcy. We all know that a personal declaration of bankruptcy may have the impact of temporarily easing the pressure you get from creditors to pay them what you owe them, but we also know that bankruptcy tanks your credit score and makes it very difficult to get any kind of loan going forward.
That’s what a default would do to the credit score of the United States. So who are our creditors? Here’s how that works: every year in which the US runs a deficit (spends more than it earns), we have to borrow the money from somewhere to pay our bills. The US government does this through various financial transactions, including selling government securities (bonds) to investors. People who buy these bonds do so because they trust that investing in the US is a sound financial decision; the US always pays its bills, so they can sell these bonds on the world financial market and be guaranteed to recoup their investments. The bonds are purchased by foreign governments, foreign and national banks, and a variety of investment funds (the IRAs, mutual funds, and retirement accounts that many of us rely on). If the resale value of these bonds is suddenly not as certain, then the investments will dry up.
It's useful also to understand why there is a “ceiling” on the national debt. First of all, a definition is in order. The “National Debt” is simply the accumulation of yearly budget deficits over the years. There are only two countries in the world that have a “debt ceiling” – Denmark and the United States. For Denmark, the debt ceiling is so much higher than its yearly spending that it doesn’t threaten economic disruption. So the US is the only country that has hobbled its current economic growth with an artificial limit.
It's useful to understand why the US even has a debt ceiling. The debt ceiling was created in 1917, giving the Treasury Department the authority to issue debt (in normal terms, to sell bonds to fund spending beyond its revenue) without specific congressional approval, making it easier to finance mobilization efforts in World War I. The opponents at the time worried about the growth of federal government power, and some of them actively opposed US participation in the war. To address these objections, Congress passed a “debt ceiling,” essentially saying that we’ll allow the Treasury to issue bonds only up to a certain point before asking for Congressional authorization to spend more. This device was included as a sop to the individuals who would not support the decision to let Treasury decide how to manage the nation’s finances.
It’s reasonable to ask why the US runs a deficit. After all, we say, we have to balance our books. But how many of you have taken out a mortgage to buy your house or a loan to buy your car? How about college loans for either you or your children? Do you carry a balance on your credit card? If any of this is true, you are not “balancing your books.” You are living off of your yearly deficit. As long as you can pay your monthly bills (including the interest on your various debts), you think that your finances are under control.
The financial situation of a country is different in only two ways — but both are significant. The government doesn’t know exactly how much money it’s going to have to spend each year (that depends on tax revenues, which vary). Governments can predict a range, but they can never hit it on the nose. And the government doesn’t know exactly how much money it’s going to need — emergencies like natural disasters, pandemics, and wars don’t announce themselves ahead of time and always carry unexpected expenses. Again, governments can estimate but they’ll be off. Couple that with the fact that we expect to get more from the government than we are generally willing to pay for, and it creates a double bind. Raise other people’s taxes, but not mine; cut programs other people benefit from, but not mine. Let me move to a low-tax state and then watch me complain about poor government services.
Over the years, the debt limit has been increased under both Republican and Democratic presidents, usually without fanfare. The 1980s were the decade with the biggest percentage increase in the debt and the debt limit. During the pandemic, Congress suspended the limit to meet the related financial crisis.
Again, to repeat what we all know: the debt ceiling has nothing to do with budgeting or future spending. It refers only to the US ability to pay the bills it has already incurred. The most serious challenges to efforts to raise the debt ceiling occurred when Barack Obama was president, as the GOP used the threat of default to pressure Obama to pass legislation they wanted. In 2011, they pressed so hard on this issue that the US credit rating was downgraded for the first time in history. That raised the costs for any future borrowing. In 2013, when the GOP began the same shenanigans, the Democrats refused to negotiate, and the Republicans caved.
Notably, when TFG asked Congress to raise the debt ceiling three times during his Presidency, his political opponents in Congress did not oppose the effort.
This time, House Republicans (under the leadership of Speaker-by-a-hair Kevin McCarthy) are demanding a variety of spending cuts in order to support an increase in the debt limit. To repeat, the debt limit does not relate to future spending, but only to a commitment to pay bills already incurred. Congressional “regular order” relegates debates over spending to the actual process of passing authorization and appropriations legislation; those processes are ongoing, and the failure to enact the required spending bills by the end of September can result in an actual shutdown of the United States government. But that is a different problem, and a different process, from the debt limit negotiations.
The GOP has been demanding that President negotiate over the terms of raising the debt limit, essentially holding the world economy hostage to the whims of McCarthy’s unruly House caucus. Here’s McCarthy’s dilemma: if he supports passage of a straight debt limit bill, without any spending cuts, he risks losing the Speakership. He can’t (or won’t) do that. But to hold out approval of the debt ceiling bill on the basis of requiring spending cuts puts him on the side of national bankruptcy. It’s not a good look.
I came across a Twitter thread a couple of days explaining exactly what McCarthy demands from the Biden administration in exchange for supporting increasing the debt limit. The author is Catherine Rampell @crampell, a columnist for the Washington Post and CNN commentator. You can read about her here if you want to validate her as a source. I think she looks pretty solid. https://www.washingtonpost.com/people/catherine-rampell/
What’s in this supposedly commonsense bill McCarthy is demanding in exchange for not destroying the global economy? Here’s my handy guide, for those interested in the substance of the legislation and not just political gamesmanship.
Unspecified across-the-board cuts to nondefense discretionary spending, down by one-third on average in 2024, after inflation. The cuts would then expand to roughly 59%, on average, by 2033 Does this mean WIC? Border security? Pells? FBI? No one knows.
Defund the tax police [the IRS] - make it harder for IRS to collect taxes legally owed by wealthy/corporate tax cheats, and set back the agency’s other IT upgrades. (Would also increase deficits).
Medicaid work requirements - which sound nice, but are a solution in search of a problem. See Arkansas’s disastrous experiment, which did not boost employment but did cause a lot of poor working people to lose their healthcare.
Provision to grind the entire regulatory system to a halt, by requiring Congress’s approval for all major regs. That includes deregulatory action too btw Congress can barely do the things it’s responsible for now. Like, say, paying our existing bills. [see “Impeachment Marje” above]
And here’s a separate thread by the same writer:
"Financial Armageddon" “Global margin call” “Bankruptcies that rival those in the Great Depression” These were some phrases used by former Treasury/Federal Reserve officials when asked about a US default. The likely fallout, in 7 terrifying steps:
Treasurys [bonds] get downgraded—as does virtually every other asset on earth. Treasurys are regarded as risk-free, w/ everything else benchmarked against them. realization that Treasurys are unsafe cascades through other assets, including bonds of US corporates. Even AAA-rated US corporates likely to be affected, because usually companies are not rated more highly than their sovereign (which can always tax them)
Interest rates rise for consumers, biz, government. Federal debt problems—the concern supposedly motivating default threats in Congress—also worsen. (Merely flirting with default in 2011 increased government borrowing costs by $1.3 billion that year.)
Global investors may sell dollar-denominated assets as confidence in them evaporates; the dollar might lose value in forex [foreign exchange] markets.
Stock markets plummet. Investments that are even slightly risky become less attractive to hold amid so much uncertainty.
Companies holding Treasurys suffer hits to both revenue and balance sheets. E.g. if you rely on interest payments as source of revenue, you might have cashflow problems, have trouble making payroll. Can try to borrow...but banks will be hoarding cash
Treasury-based collateral, used to back tons of other transactions, suddenly worth a LOT less. You might get a global margin call. Huge sell-offs/volatility across markets as everyone scrambles to raise funds to close out trades etc.
infrastructure underpinning large parts of the financial system (called “central counterparty clearinghouses”) could essentially get overwhelmed and go down. Here was part of my interviews where people started using phrases like "financial armageddon". [you can read this here]
In yet another thread, @crampell explains how US default threatens national security.
In short, this is a big deal. The problem in the US is that the House GOP caucus is full of fundamentally unserious folks, who understand nothing and care even less (ref Jim Jordan and Impeachment Marge, above). They are focused on power above all else, and they are blind to the consequences of their actions. The press follows their lead, irresponsibly asking the President why he is not “negotiating” with McCarthy. You don’t negotiate with a hostage taker, and you don’t try to hammer out an agreement with someone who doesn’t have the power to follow through on his promises.