May 25, 2023 at 11:50 a.m.
River News: Our View
Go ahead, GOP, you're not serious so raise the debt limit
Take cover!
On the one side we have Democrats, including the commander-in-chief, who wants a clean debt ceiling increase, meaning no strings attached. It's Fa-La-La land with no consequences ever.
As we may remember, when they have the presidency, the Democrats preside over kingdoms. President John F. Kennedy ruled over Camelot, and Joe Biden is no different: He reigns over Dozealot.
As such, he doesn't have many waking hours, hence the need for a clean, no negotiations position.
Then there's the Republicans. They are huffing and puffing about the need to tie an increase in the debt ceiling to future spending cuts, you know, just like they do every time there's a debt ceiling crisis, which by now has become so normalized it's no real crisis at all.
It's all so predictable that one would think there is a script for this, and there is. In fact, it is all manufactured theater, and the establishment mavens of the Republican and Democratic uni-party use it to hoodwink voters into thinking there's some real division here.
Hint: There's not.
The first thing to know is that raising the debt ceiling does not increase federal spending. The debt ceiling is a limit on the amount of money the treasury can borrow to pay its debts on obligations already authorized by Congress and the President. It's to pay the bills on money we already owe because Congress approved the spending.
So here's the script: There's a big budget tussle every year, and then big spending increases are passed, even when the Republicans are in control. Then there has to be an increase in the amount of money the government can borrow to pay for it - the ceiling is separate and not aligned with budget enactment.
Then during the debt ceiling negotiations Republicans demand future spending caps or, more accurately, cuts in the growth rate of spending, and a compromise deal is reached. Then, in the ensuing Congress, or the one after that, Republicans conveniently ignore that deal and vote for more spending, only to show up at the next debt ceiling debate demanding spending cuts.
Rinse and repeat.
So let's face it, no matter what the deal is to lift the debt ceiling, and there will be one, it has absolutely no impact on the current deficit - which always rises, no matter what - nor will it have any impact on future spending because, as we approach future budget negotiations, the spending cuts or caps promised in the deal will disappear as surely as the ocean does in a desert mirage.
The players in these fake dramas, both Democrats and Republicans, are clowns in a clown show, though they may not even realize it and think they are really doing something. There has even been a proposal for the Treasury to mint a million-dollar platinum coin and deposit it in the federal bank account. Voila! The debt ceiling dilemma goes away.
That's funny, though when you think about it the government routinely prints money to give to Democratic identity groups and corporate special interests, so why not print some and give it to itself?
So let's take a look at some of the things Republicans passed in their debt ceiling bill. It would reduce federal spending by $4.5 trillion over the next decade, but note that's still an increase in spending, meaning it's a reduction in planned spending increases over the next decade. Specifically, spending would be set at the fiscal 2022 level and increases would be limited to one percent for the next 10 years.
Of course, Congress would abolish those caps just after the 2024 elections.
Then there's an agreement to support the REINS Act, which would require congressional approval on any regulatory measure with an impact of more than $100 million, or that will have significant harmful impact on the economy, or will increase consumer prices.
Of course the Democrats and Mitch McConnell Republicans would conveniently refuse to pass this as soon as the ink was dry on the debt ceiling deal.
So is there no way around the perennial debt ceiling dilemma? Sure there is. A couple of ways, as a matter of fact.
First is, we must elect a Congress that will actually cap spending and pass such things as the REINS Act on its own merit. Remember, even when the Republicans controlled Congress and the presidency, they did not pass spending caps or the REINS Act.
They are charlatans.
Here's the reality: If Republicans actually voted to reduce spending on the front end of the budget cycle, and passed budgets that reduce the deficit rather than increase the deficit, then there will be no debt ceiling crisis to resolve.
And then there's another way to solve the problem, an idea that then U.S. Rep. Ron Paul proposed back during the debt ceiling crisis of 2011: Let's just abolish the federal debt held by the Federal Reserve.
Hmmm. Right now, the Federal Reserve owns about $6 trillion of federal debt, as of the fourth quarter of 2022, which is subject to the debt ceiling. That's up from from $476.3 billion in the third quarter of 2008. Just wipe it out and we are nowhere near the debt ceiling.
So why not do that? Technically, the Fed is an agency of the government, so its assets are assets of the government. In effect, as Paul argued, this is debt the federal government owes to itself. Just get rid of it (as a prelude to getting rid of the Fed itself).
Here's how Paul put it in 2011, when the amount of federal debt held by the Fed was far lower: "We owe $1.6 trillion to the Federal Reserve. But where did they get the money to buy our debt? Well, they created it out of thin air. Taxpayers keep working hard to pay the interest to the Federal Reserve, as well as to finance these bonds if the Fed wants to take the monies. So I would say that is not a real debt. It's a fictitious debt."
As Paul argued more than a decade ago, the debt held by the Fed is not obligated, so there's no direct loss of income to anyone by abolishing it.
Of course, as soon as such a proposal surfaced, the banks who control the Federal Reserve squealed like pigs, revealing the unconstitutionality of the institution itself and the lie of who really controls the central bank, but that's beside the point.
Now one could argue that canceling the debt would be akin to minting that trillion-dollar platinum coin - a stunt. But there's a big difference between that and the platinum coin: Minting a coin would actually mean printing more money, while canceling a debt would decrease the need to print more money. What's more, the government pays the Fed interest on that debt - only a portion of which is returned to the treasury in the form of excess profits - and that would produce savings in addition to reducing the federal debt.
There's another route as well. As Alan Reynolds of the Cato Institute has pointed out, the Federal Reserve has effectively become a lender of first resort for Congress. While the federal debt held by the Fed was exploding since 2008 - from 7.5 percent to 25.3 percent of GDP - so was the federal debt itself as a proportion of GDP, from 67.3 percent to 122.6 percent of GDP.
"It seems doubtful that it would have been so easy for Congress to have let the debt grow twice as fast as the economy had it not been able to count on such an accommodating central bank," Reynolds wrote in The Wall Street Journal.
His solution would prohibit the Fed from holding more than a specified percentage of the national debt whenever that debt exceeds a specified percentage of GDP.
Both of those are sensible solutions, and that means Congress will never enact either one.
That leaves it up to the voters, as it usually is. The choice is clear: Vote for those seeking real change or grab the buttered popcorn for your debt ceiling reruns every year, brought to you by the congressional uniparty and directed by the current administration.
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