As of today's Treasury Statement (May 16 statement date) here is the breakdown on the total debt limit and total debt outstanding.
As you can see, the total public debt outstanding is $14.345 trillion. That's approximately $52 bln over the limit.
This shows the debt ceiling is meaningless. It also shows that the government can keep on spending and issuing debt and if it does, the Republicans lose all the leverage that they think they have on spending cuts and debt reduction.
The question is, does Obama and Geithner know this?
Here is prefect chance for the president to exert executive authority at the expense of Congress, saying that Congress appropriated the funds and then blocked paying them, which is unconstitutional under 14th Amendment and court interpretation. Congress would be livid, but all they could do is to try to impeach the president. Fat chance of that happening.
ReplyDeleteYup. Would be interesting to hear what the Treasury and the DOJ are saying about the legal situation now. Maybe Obama does have the courage to do nothing by running business as usual in defiance of a law which can't legally be obeyed - without coin seignorage. Maybe they're waiting for the Repubs to suggest that.
ReplyDeletebut debt subject to limit not breached yet, correct? But close nonetheless.
ReplyDeleteapj,
ReplyDeletenone of it is really "subject to limit" ;) Resp,
yeah I know, but you know....gotta be true to the definitions and not give the mainstream talking points.
ReplyDeletego those Tsys hey.....maybe I'll up the ante and suggest a good risk of a lurch lower in yield very soon....none of this 2-3 pips malarkey.
I don't think the debt ceiling is unconstitutional in the hear and now. I also think that the Administration is now in violation of the law. Here's my argument:
ReplyDelete1) Congress mandates a debt ceiling that Treasury has now exceeded by $52 Billion. So Treasury is currently in violation of the law\
2) Congress also mandates that all deficit spending must occur after bonds are issued to "make room" for the spending.
3) Congress also prohibits the Federal Reserve from letting Treasury run a negative balance in its account, which is probably just a function of 2)
4) The Constitution prohibits anyone from questioning the validity of any debts of the United States
5) If only 1-4 applied, then 1) would be unconstitutional and the Executive could ignore 1) on constitutional grounds, continue issuing debt and wait for the Courts to tell Congress that the debt ceiling is unconstitutional
6) However, the context includes more than 1)-4). It also includes the authority for the Executive to employ coin seigniorage to replenish the TGA and pay all of the obligations of the United States.
7) So, since the Executive has a way of paying all obligations without deficit spending by using coin seigniorage and its Constitutional duty is to uphold both the Constitution and the laws of the United States, it follows that the Executive must immediately end its violation of the law, and use coin seigniorage to replenish the GA as necessary to implement all the spending appropriations passed by Congress and all the previous obligations of the United States
is there anything wrong with this argument?
Also, can anyone explain how it's possible for Treasury to have exceeded the debt limit by $52 Billion? Doesn't that mean that either the TGA has a negative balance, or that the Government issued enough debt to exceed the debt ceiling? And aren't these things prohibited by law.
Joe,
ReplyDeleteGood one and agree with your point on the coins. Treasury has a perfectly good way to get funds in it's account that way and then no overdraft or debt ceiling...
It must be that "debt ceiling' only refers to issuance of bonds. So the fact that Treasury is over the limit must mean that they have issued more treasuries than the ceiling.
But they are still establishing other govt liabilities, for instance I believe they are now not transferring balances into certain federal employee retirement accounts and instead are establishing an IOU to those accounts that yes are not new Bonds per se, but are still govt liabilities (pecuniary obligations).
these IOUs to the fed employees while still govt liabilities are not applicable to the "debt ceiling", the same could probably be said for coins deposited, they would still result in a govt liability, but that liability would not be applicable to the 'debt ceiling'....
I agree with EconoSpeak in "What To Do If The Debt Ceiling Is Not Raised? Ignore It". It is a question of law enforcement. Some tea baggers might bring on lawsuits but who will arrest Tim Geithner? Like these absurd 19th century anti-adultry laws in some US states somebody must be willing and able to enforce the law. Otherwise it's safe to ignore them.
ReplyDeleteSo basically, the cowardly lion, upon finding himself cornered, might transform into the King of the Beasts?
ReplyDelete". . . these IOUs to the fed employees while still govt liabilities are not applicable to the "debt ceiling", the same could probably be said for coins deposited, they would still result in a govt liability, but that liability would not be applicable to the 'debt ceiling'...."
ReplyDeleteMatt, Treasury profits from coin seigniorage are now accounted for by GAO as miscellaneous revenue. So they get counted against the deficit. If coin seigniorage were used to always close the gap between spending and anticipated tax revenues; there'd never be a deficit, so the Government would never be forced to issue debt; though it could always do so to help maintain the Fed's interest rate targets.
I think that this is good opportunity to get rid of the debt ceiling as unconstitutional, or at least to put before SCOTUS.
ReplyDeletePima Levy has a post a American Progress on it today, citing the 14h Amendment and also Perry.
Real Americans Hate the Debt Ceiling—The Constitution prohibits fetters on the government's ability to make payments
This is probably getting ahead and wearing rose-colored glasses but I have a question about what control is in place or could be put into place if:
ReplyDeleteIf this debt ceiling situation led government leaders to the epiphany that the federal government was not revenue constrained , what control is in place or if there is not one, what control could be put into place, that would put some constraint on Congress and the President from going hog-wild with spending that could lead to inflation (if we neared full capacity)?
Tom - I agree. Perhaps MMTers should push for it going in front of the Supreme Court. It is also something that could push MMT thinking into the mainstream.
ReplyDeleteCrake, there is no constraint in a fiat system other than intelligence and prudence. Restraints can be imposed but they can always be changed.
ReplyDeleteThe point of MMT is that an intelligent and prudent approach is dictated by , which uses the sectoral balance approach and funcional finance.
Someone needs to sue Geithner as he is in direct violation of the 14th Ammendment, section 4, which states that the gov't must pay pensions. He has stopped paying them. Does anyone know a lawyer who would take this up on a "pro bono" basis?
ReplyDelete"Funding" and "paying" the pension are not the same thing, are they?
ReplyDelete@Tom Hickey, Challenging the constitutionality of the debt ceiling is more risky than using coin seigniorage. The latter depends on Obama alone at this point. The former means trusting the Court.
ReplyDelete@Crake
ReplyDelete"If this debt ceiling situation led government leaders to the epiphany that the federal government was not revenue constrained , what control is in place or if there is not one, what control could be put into place, that would put some constraint on Congress and the President from going hog-wild with spending that could lead to inflation (if we neared full capacity)?"
A constraint exists now and will always exist. It is what Congress chooses to appropriate. Treasury can't spend more than this. The debt ceiling is being used as political cover by Congresspeople who want to hide behind the debt, but won't vote against appropriations for specific programs, because they'd have to go on record opposing them.
The bottom line is that we don't need a 'constraint' that excuses Congresspeople from accountability. It would be better to remove this constraint or show that it is meaningless, so that they have to stand up and be counted.
Well, it's moot anyway, because of the political realities that Obama faces. The public is concerned with jobs and erroneously believes the "crowding out" argument, The public stupidly thinks that reducing spending will result in more jobs because government is crowding out investment.
ReplyDeleteI think that the point is going to have to be proved the hard way that this is erroneous, but then there will be another false argument to show that this is not the case, and so on.
Corporate America will get its way. There will be another debt-deflation led depression, and the cycle will begin again with another New Deal of some sort.
Btw, folks, the Government isn't over the debt limit yet. Mike's blog didn't distinguish between total public debt outstanding and total debt subject to the limit,
ReplyDeleteAs of May 18th, the total debt subject to the limit was $14,293,975 Million, while the debt ceiling is: $14,294,000 Million. So, there's still $25 Million to go, before the President is in violation of the debt ceiling.
Sorry, I forgot the link:
ReplyDeletehttps://www.fms.treas.gov/fmsweb/viewDTSFiles?dir=w&fname=11051800.pdf