Monday, January 14, 2013

The Problem with President Obama's Argument on Raising the Debt Ceiling

This post is largely an academic exercise because I fully expect, that after suitable drama, the national debt ceiling will be raised, but it does demonstrate that like Paul Krugman, the president does have a problem of thinking not more than two steps deep.

His argument on why the national debt ceiling should be raised goes like this:
Congress has already approved the spending that is now pushing the debt over the ceiling, so by not raising the debt ceiling, Congress is preventing me from carrying out their spending instructions.
In other words, the President is indicating that the debt ceiling increase is something that should be passed automatically, because of earlier spending approvals by the Congress. But, what is going on here is that the President is ignoring here is Civics 101, that the US government is structured around many checks and balances.

Yes, Congress did earlier approve current spending levels, but that could have been based on revenue projections that have not lived up to projections. Or it could have been based on spending that was not expected to reach current levels so fast. Or both.

In other words, the requirement that Congress approve an increase in the debt levels is not a superfluous activity, as the President suggests, but a built in check, a speed bump, if you will, to see if previous approved spending levels should continue, given that we can now see how such spending is impacting the national debt ceiling.

Again, I don't expect the current Congress to do more than act out a little drama before raising the debt ceiling, but if Congress had balls, and really wanted to shrink government, they could show the President that raising the debt ceiling is far from just an automatic or superfluous activity of Congress, but a reason to again take under review all current government spending. In fact, it is a great time to do so.


  1. OK, so suppose the President vetoes the spending increases and the increase of the debt ceiling.

    Congress goes back, gets 2/3 vote, and passes a veto proof bill that increases spending the debt ceiling.

    You're talking about checks and balances, when you're really talking about a dog and pony show, and wanting the President to simply posture and make a political point, for the sake of appearances.

    The "checks and balances" is a sham. Get real.

    1. There are no checks and balances if every person in every branch of government is a spineless amoral careerist.

  2. Remember how the MMTers are always claiming that the treasury can and does just spend and spend and spend funny money into existence making taxation superfluous and that's how our modern monetary system really works? No theory, just facts, right. Well.....

    Federal Reserve officials have told Steve Liesman that in connection with past budget crises, the Fed determined that it would not provide credit to the Treasury in the event that the government's bank accounts hit zero. Treasury officials, speaking on condition of anonymity, told me in 2011 that the Treasury won't cut checks if it believes it doesn't have the funds to pay for them.

    So how do the MMTers respond?


    This is a very serious situation we are facing this is no time for ideological arguments... we need concerted action by well informed policy makers and pronto ... rsp,

    Because government debt and more government spending are all that holds civilization together, the MMTers are predicting Armageddon.

  3. These guys are serious, they are not comedians. Unfunded government spending is what provides "the non-US Govt sector" (us peons) with "savings".

    [Warren] Mosler is concerned that the White House rejecting the platinum coin idea will hurt the economy, because it makes it more likely that the debt ceiling will remain in place, and therefore the non-US Govt sector will not be able to accumulate the additional savings it desires.

  4. Funny story I was watching that interview with Dr. Murphy about Krugman and his 2 steps of logic before getting confused.