Adventures with debt-ceiling politics

By Felix Salmon
May 17, 2011
simply don't believe Tim Geithner when he tells them that if the debt ceiling isn't raised by then, we will have some kind of macroeconomic Armageddon.

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As the debate over the debt ceiling has heated up over the past month, the yield on the ten-year bond has plunged, from 3.57% on April 11 to 3.12% today. This is not a market which fears catastrophe come August 2. So it’s easy to see why Republicans simply don’t believe Tim Geithner when he tells them that if the debt ceiling isn’t raised by then, we will have some kind of macroeconomic Armageddon.

Remember, the House Republicans were told in no uncertain terms — by George W Bush, no less — that if they voted against TARP, that would have equally catastrophic consequences. Bush’s threat was more credible than Geithner’s, and the Republicans in the House were less truculent then than they are now. And even so they voted against TARP.

On the other hand, this kind of thing simply is about as far from responsible lawmaking as you can get:

Dennis Ross, a House Republican and a member of the Tea Party caucus, told Reuters: “I’m not an economist, but I have maintained a household. The federal government owns 70 per cent of Utah, for example. There are federal buildings. If you need cash, let’s start liquidating.”

He wants to sell Utah?

The sensible thing to do, of course, is to abolish the debt ceiling altogether — it serves no useful purpose. It’s “a historical relic,” writes Annie Lowrey, “the budgetary equivalent of the appendix”.

At the same time, however, Ross is absolutely right that the sun is going to rise on August 3.

But here’s what I don’t understand: we’ve already reached the debt ceiling. At this point, Geithner can point at just about anything and say that it’s an expenditure we can’t afford right now, and we’ll have to put it off until the debt ceiling is raised. Why doesn’t he just do that with all Congressional salaries? If the House Republicans had to live without pay between now and when the debt ceiling is raised, that would surely concentrate their minds a bit. And it’s got to be a better idea than the current strategy, which seems to involve Geithner all but begging the Republicans to call his bluff and wait until after August 2 to do anything.


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I completely agree with Felix that the Treasury Secretary should put off paying anything other than required coupon payments on the federal debt in order to avoid a default now that the debt ceiling has been reached. Congressional salaries would be an excellent starting point, let the tea baggers in the House of Representatives, almost all of whom are people of means, put their money where their mouths are.

But of course there’s no evidence that Geithner thinks in a sufficiently Machiavellian manner to actually even get to the point of threatening this. Witness how he rolled over under pressure from bankers when he was president of the new york fed.

Posted by Strych09 | Report as abusive

great idea, let’s let Geithner determine what the Federal Government spends money on, screw the debt limit, cut off things that Republican’s like. Stop loaning money to the Banksters for 30 seconds and the deficit limit will pass.

Posted by msobel | Report as abusive

It’s quite possible that Geithner does not have the legal authority, as a matter of constitutional or administrative law, to decide if he will pay the salaries, as that would flagrantly be an attempt to interfere with the operation of the legislature.

Posted by DrFuManchu | Report as abusive

I happen to agree with Geithner when he says that we simply don’t know what the consequences of not raising the limit are. Catastrophe is a legitimate outcome. Bill Gross said he’d be selling treasuries earlier this year as the deadline to raise the limit approaches.

RIght now, I think yields are determined more by money fleeing Europe and continued Fed buying from the Primary Dealers than a worry over the debt-limit debate (which has happened over over 70 or times since its existence… and is always used a bargaining chip by the opposition). It MUST be raised, but markets won’t be affected unless negotiations drag out too long.

Posted by bernankesbubble | Report as abusive

I can’t help but be annoyed by populist short sighted thinking when it comes to congressional compensation. Sure, it’s tempting to look at the grotesque state of the legislative branch of our government and want to starve the jerks who are screwing it up. I have to wonder how this logic would apply to any other professional field. If your company is staffed by incompetent engineers, would you correct the problem by lowering compensation and benefits in order to get them to work harder?

Of course not. This would only cause a mediocrity spiral and doom your company to failure. The best course of action is to fire the incompetent employees and increase the compensation of the position until you attract the best engineers available. While we often “fire” our representatives by voting them out, the options for replacement are all too often just as bad, and the people we get rid of actually are able to START to make serious money by cashing in on their fame and connections.

This isn’t to say that congressional positions aren’t coveted already, but I have a major issue about WHY they are so desirable. Anyone who is truly qualified to legislate would have significantly better financial prospects in the private sector and without the many difficult issues faced by elected government officials and the even the candidates for these positions. This leaves one to wonder what the motivation is for anyone to run for public office. While civic duty would be the ideal answer, I’m more inclined to believe it’s a more some combination of ego, opportunism, and power lust.

What if we paid our congress something more in line with the status, power, and exposure that the position holds? Let’s say something akin to what top tier professional athletes or corporate executives make. The desire for just compensation is motivator I can at least understand and respect. Also, while it won’t completely allay all the issues that might keep those of significant talent away from the position, it would at least jar some people of quality loose enough to give us better alternatives to the dregs we have representing us now.

Posted by AverageDrafter | Report as abusive