That ritual of political hypocrisy is upon us: the time has come when Congress must raise the debt ceiling.
There is little new in the political brinksmanship we have already seen, and it will reach a crescendo as the October 18th deadline looms. Time and again, we watch the same politicians who were only too willing to help amass trillions upon trillions of dollars of red ink, grandstanding as they point the finger at anyone but themselves when the debt ceiling vote rolls around. And each time, as we saw last week, the Secretary of the Treasury and Chairman of the Federal Reserve Bank dutifully march down to the Capitol, pound the table, and admonish members of Congress to put their partisan differences aside, and do as duty calls, lest financial calamity befall us all. Skyrocketing unemployment. An economy plunged into recession. Savings lost, lives destroyed.
Mitch McConnell is having none of it. A brilliant political tactician who may well go down in history as one of the prime movers in the destruction of the American Experiment, McConnell sees everything through the lens of political advantage. For this one brief moment, he appears to be luxuriating in being in the minority, as he can leave the debt ceiling problem in Chuck Shumer’s lap, even as he looks to squeeze some tactical advantage for Republicans when the Senate is once again up for grabs next year.
McConnell has been down this path fourteen times over the past two decades and knows how this movie ends. He has declared he will have no part of the debt ceiling vote, and — unlike Democrat leaders Shumer and Pelosi — his members will follow him in lockstep. Not a single Republican Senator — not even Ohio’s Rob Portman or Missouri’s Roy Blount, erstwhile “moderates” on the eve of retirement, who one might have hoped would behave like grownups before they ride off into the sunset — has given any indication they will budge on the matter. Yet there is no risk of financial calamity, as he knows that when push comes to shove, Democrats will never allow a default on their watch.
No one should be surprised, of course. Republicans, who normalized massive deficits during the Reagan Revolution, reliably get on their high horses when the time comes to raise the debt limit whenever a Democrat sits in the oval office, and this time is no different. The debt ceiling is itself a contrivance in the purest sense, as when the time comes when the debt ceiling has to be raised, the acts of fiscal profligacy that necessitated raising it have long passed. If politicians, whether in Congress or the White House, oppose deficit spending and the issuance of debt that derives from it, they might consider introducing balanced budgets in the first place. But that would force them to actually do the heavy lifting of governing — balancing priorities of taxing and spending that Article 1 of the Constitution suggests they were elected to do.
Since Ronald Reagan changed the rules of the game, one GOP president after another has done their level best to push the public debt ever higher, even as they claimed to be fiscal conservatives. Indeed, the record shows — as much as Republicans bristle when confronted with the actual data — that the GOP has consistently outperformed Democrats when it comes to piling up the red ink. Reagan and George H.W. Bush gave new meaning to the word profligacy — in terms of the budgets they introduced, lest one try to shift the blame to Congressional Democrats during that era — while Donald Trump outdid them all, piling up a record $8 trillion in new debt in a single term in office. Fiscal conservatism, once the hallmark of Republicanism, has long been reduced to little more than a rhetorical device. Refusing to raise the debt ceiling after decades of pumping out red ink is not the hallmark of prudence, but rather performative theatre of the most cynical sort, a truncheon with which to bludgeon Democrats before the GOP faithful.
Even as President Biden lashed out at Mitch McConnell this week for his debt ceiling gamesmanship, and refused to guarantee that the nation would not head over the fiscal cliff that looms just two weeks away, the markets evinced little concern that a default on U.S. debt and the ensuing financial calamity predicted by Treasury Secretary Janet Yellen constitute a material risk. Even after a 5% pull-back over the past month, the S&P 500 remains up 25% over the past year, while long-term bond markets have been similarly sanguine.
Investors have many good reasons to be concerned about the state of the world; it is just that Congress’s ritual games of brinksmanship are nowhere near the top of the list. First and foremost, there is China to worry about. Forty years ago, China President Deng Xiaoping launched the transformation of the Chinese economy. It was an action that transformed the world, as it opened China up to world trade and led, in turn, to: China’s membership in the World Trade Organization; previously unimaginable declines in the percentage of the world population living in extreme poverty; the evisceration of the American middle class; political unrest and depression across the American heartland; and the rise of Donald Trump. China grew more prosperous. Much of America grew less prosperous. And in both countries income and wealth inequality exploded.
Over the past few months, China President Xi Jingping has changed course. Readers of the financial press know that he has implemented a dramatic crackdown on China’s largest corporations and wealthiest elites. He has moved the country away from its growth-at-all-cost policies toward the prioritization of “common prosperity.” Those changes, in turn, threaten to upend the rules of global trade and investment, and have contributed to stock market volatility over the past few months.
While some might imagine that the cascading evaporation of democracy in America before our eyes — The Economist magazine recently downgraded the United States from Full Democracy to Flawed Democracy in its Global Democracy Index — would have unsettled global markets, the real driver of volatility over the past month or two appears to have been the Xi Jingping’s determination to veer away from Deng’s capitalist road and put a bit of Mao back in his step.
And along with turmoil in the world’s second largest economy, there are plenty of other concerns for investors to focus on, before considering whether the debt ceiling is a real problem. There are continuing disruptions to global supply chains. Soaring global energy prices and supply shortages. There are fears of inflation and fears of deflation, and impacts on stock valuations. There are rising tensions in the South China Sea and the Straits of Taiwan and doubts about America’s commitments across the globe. Against that backdrop, Washington’s quasi-annual debt ceiling dance barely registers.
Somehow, investors seem able to look past most anything these days. As long as global interest rates remain near their historic lows, everything else seems to be discounted as just more noise in the social media soap opera of everyday life. The GOP at war with democracy. The Democratic Party at war with itself. The Maoist Restoration in China. The pandemic of the unvaccinated. And the possibility of a US debt default. It is all just grist for the mill, and things just roll along.
Until they don’t. Over the past few decades, each time the debt ceiling had to be raised and the ritual game of brinksmanship started, a voice whispered in the back of my mind, “What if things are actually different this time? What if this time they really don’t get it done?” And each time, of course, that voice recedes when members of Congress, often with just hours to go, belly up to the bar and behave like grownups. The debt ceiling is raised. Default is averted. Financial calamity waits until the next time around.
But what if things actually are different this time, and the unthinkable actually happens? Isn’t everything actually different this time around? Few imagined Donald Trump would get elected, but he did. Few could believe that a majority of Republicans in Congress would vote against the peaceful transfer of power, but they did. Have we really ever seen this degree of dysfunction? Things could be different this time, for the simple reason that things are different this time.
Perhaps, if Mitch McConnell stays the course, content that he has the strategic advantage, Democrats will call his bluff and decide not to play the grownups all by themselves, as he fully expects them to do. If the progressives and moderates in Congress are willing to go to the mattresses battling each other, perhaps this time, instead of doing as McConnell expects them to do, what he is counting on them to do, they will instead make common cause and call his bluff.
Then, on or around the stroke of midnight on October 17th, announcing that Mitch McConnell has forced their hand, they will change the rules of the game. They can pass legislation not raising the debt ceiling, but instead confirming Janet Yellen’s ability, as Secretary of the Treasury, to mint five $1 trillion coins as the law allows. It is a tactic that has long been whispered about, and for which legislation is already on the books. It would change the rules of the game, and end the charade of the debt ceiling forever.