The debt ceiling is a hoax
Phony “crisis” justifies screwing the hungry for Wall Street
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Sighs of relief echoed from Wall Street to Capitol Hill as the White House and Republicans in Congress reached a deal on the debt ceiling just in the nick of time. What the op-ed writers and readers didn’t get a chance to learn, however, is that the debt ceiling crisis is a huge scam.
The facts: the deal sacrifices the food security of hungry Americans and any hope of peace in Ukraine in return for a two year extension of the ceiling. The ceiling has worked exactly as planned: Democrats get to point to impending economic catastrophe as an alibi for their continued gutting of the welfare state, making cuts that would get Republicans crucified.
Democrats in turn don’t have to worry about any big problems in their primaries -- they stood up to those crazy Republicans that almost blew up the economy with the debt ceiling! But the alleged catastrophe behind the ceiling -- a default on U.S. sovereign debt -- is also a hoax.
Keep in mind: mega investors really do not want that to happen, and they get to decide whether it really happened or not.
Lots of folks have written about the prospect of the Treasury issuing a coin to cover the costs of debt service, but even if the Biden Administration or some other Democratic president** declined to mint such a coin, would Wall Street really consider this a default? The consequence would be blowing up the bedrock collateral of the global financial system, U.S. Treasury bonds. But if instead they said it wasn’t REALLY a default, since the U.S. is good for the money, just some pesky political hiccups have delayed payment, they could avoid voluntarily destroying the value of almost all of their investments.
It wouldn’t be consequence-free, of course, but the notion that capital will knee-cap itself out of principle when it could simply define the problem away seems very unlikely. In 1998, Russia froze payment of foreign debts for over a year, but creditors simply extended maturities. Last year, however, when sanctions forbade Russia from accessing the capital markets needed to service its debt, that was its “first default in over a century” -- 1998 didn’t count.
The difference: the powers-that-be and their bankers had a political and financial interest in one being defined as a default, and one being forgiven. If they extend such leeway to Russia, how much more can the United States get away with?
Chances are we’ll never know. A system is what it does, and the debt ceiling system sets up a ticking time bomb every few years that can only be defused by screwing over working people. It lets Washington do what it wants to do anyways and the amorphous threat behind it lets politicians pretend like their hands are tied. Meanwhile the Post and Times editors know that the only times their readers miss a meal is when they get into intermittent fasting -- it’s all upside for their class.
**Note that Democrats never use this leverage to force the GOP to restore past cuts…
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