To The Daily Sun,
In our spiral to third-world status, we twisted from sequestration (still growing) to shut down in seven months. Will default follow in 17 days?
Other than Denmark, we are the only developed nation on the planet with a debt ceiling. Nothing in our Constitution requires it. No rationale justifies it.
It began as a charade in 1917. As America prepared to enter World War I, it needed financial resources to raise and equip an army. The Wilson Administration proposed selling Liberty Bonds to raise funds; that is, it proposed borrowing money to fight the war.
To comfort skeptical Americans, Congress wrote a debt ceiling into the Second Liberty Bond Act. Its purpose was not to limit spending and borrowing. It was to reassure the public that Congress could control spending even as it approved a credit line.
It was a ruse. There was no need for the law. The Constitution unequivocally gives Congress the power to tax, pay debts and borrow money. Congress perpetuates its absolute "control of the purse strings" through authorization and appropriation processes.
An authorization is a law giving government entities the okay to spend designated amounts for purposes specified in the legislation. No government entity can spend a nickel without Congressional authorization.
An appropriation is an entirely separate law that actually makes money available. Again, a government entity cannot spend a nickel until Congress appropriates the nickel.
It is like a mother telling her child, "You can buy the smartphone. Go ask your father for the money." If the kid gets the money, mom authorized it; dad appropriated it.
In its nearly century-long existence, the ceiling never significantly curbed spending or borrowing. The reason is straightforward. Raising the debt ceiling is not a policy, spending or borrowing decision (although many would have us think it is all three). It is a mathematical imperative.
While debt ceiling as fiscal restraint has proved useless, it has provided a near perfect vehicle for Congressional demagogy and grandstanding. Members of Congress could berate debt with impunity. No matter how loudly they wailed and strutted, there was no downside. Congress had to raise the ceiling. The money had been authorized, appropriated and spent.
A near perfect rant came from Senator Barack Obama of Illinois in 2006, when he voted against a raise: "(Raising the debt) is a sign of leadership failure . . . that (government cannot) pay its own bills . . . that we now depend on ongoing financial assistance from foreign countries to finance our (recklessness. . . . This) weakens us domestically and internationally. . . . Americans deserve better."
Of course, there was always a small, but real danger demagogues might command a majority. If that happened, though it seemed farfetched, Congress could stand on principle, vote an ideology and crash the economy. (Who could be that stupid?)
When the debt ceiling became law — America was a bit player in planetary economics. Today, as the Great Recession (2007 – 2009) demonstrated, America plays lead. Its turbo capitalism nearly brought down the world's economy.
As it stands, the Department of the Treasury has said it will run out of money Oct. 17. Several independent analysts think Nov. 1 is more realistic.
So, what happens to America if it defaults? The best answer is we do not know, but it looks scary, very scary.
In 2011, just by publicly considering it, confidence fell, hiring declined, the recovery stalled, Standard & Poor's downgraded our credit worthiness and the stock market (Dow Jones) dove 14 percent. (In today's 15,000-point market, 14 percent would be 2,100 points.)
We should anticipate an actual default to be worse than a scare of default on confidence, recovery (perhaps a new recession or worse), our credit rating and the markets. Over time, we might find costs to borrow (nationally and individually) will be elevated for years or decades and our standard of living damaged for a generation or more.
Two parting thoughts:
Is the Constitutional authority given Congress to pay debts also the authority to renege on debts? It would be something if after plunging the planet into depression, destroying our credibility, undermining the dollar, condemning our children to lesser lives and making our homilies to be emulated a joke, the Supreme Court said Congress did not have suicidal authorities?
Section 4 of the 14th Amendment reads, "The validity of the public debt . . . shall not be questioned." If the president evokes this provision to pay debt after Congress reneges, what new Constitutional and political crises arise? What new spin deepens the spiral?