Streams

The Debt Ceiling was a Huge Deal—Until it Wasn't

Wednesday, May 04, 2011

After spending all year warning the government against failing to raise the debt ceiling, Treasury Secretary Tim Geithner announced on Monday that the default deadline, originally scheduled for May 16th, could be pushed back to August 2nd. He'd already delayed his estimate once before, to land somewhere in July. 

So why all the dilly dallying? Is the debt ceiling an impending problem, or not?  

Buoyed by "stronger-than-expected" tax receipts this spring, Geithner trotted out a few "extraordinary measures" that the government could resort to in order to avoid defaulting until the sweltering days of August, widely recognized as the worst month of the year.

What are these extraordinary measures, and where have they been hiding? Let Mr. Geithner explain, as he did recently in a letter to Congress:

[O]n May 16, I will (1) declare a “debt issuance suspension period” under the statute governing the Civil Service Retirement and Disability Fund, permitting us to redeem existing Treasury securities held by that fund as investments, and to suspend issuance of new Treasury securities to that fund as investments and...

Okay, stop right there. A "debt issuance suspension period"? You can just declare that and it'll happen and we'll all be spared from a default that would grind every government outlay to a halt and cripple the global economy? Alarms should be going off in your head: through some epic finagling, one man has the power to stave off an economic disaster. And it's nothing new.

Go on, Mr. Geithner.

...and (2) suspend the daily reinvestment of Treasury securities held as investments by the Government Securities Investment Fund of the Federal Employees’ Retirement System Thrift Savings Plan.

That is so many capitalized words. And so infuriating. The debt limit deadline, already an estimate, can be extended by means that sound as frivolous as the debt limit itself

These machinations are nearly indecipherable for anyone outside the cloisters of politics and academia. We marvel at voter turnout and apathy every election cycle, but when the price of staying informed is burying yourself in studies of trusts, securities, debt and interest rates, the root of the problem seems obvious: the modern economy is far too complicated. And, in a word, arbitrary.

Fitting, then, that the politics of raising the debt ceiling have gotten as absurd as the economy itself. Talking points, like the deadline, are mostly superficial. Threats from House Republicans and some Democrats not to raise the limit (for which they have the backing of a majority of Americans) don't appear to recognize just how disastrous a default would be, demanding "meaningful and immediate" spending reductions that would be largely symbolic and couldn't possibly keep us from needing to raise the ceiling before autumn.

Markets are fickle enough to respond to the news that Osama bin Laden died, to rise or fall in the absence of any new fiscal policy or change in productivity. Can you imagine how they would react to a looming U.S. default? The very real, very painful effects of such a flop?

Which would happen all because we didn't raise a number as arbitrary as our economy itself—which is to say, very.

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