ARTICLE
As someone who follows the work of the United States, State and Local governments, I am always fascinated by the deft conversation that divides the policy making process from the politics of the day. Earlier this year dating back to January — the talk in Washington DC between the White House, the House of Representatives and the US Senate was the great debate of the federal debt. You may recall a quote by Janet Yellen, Secretary of the United States Treasury on January 15, 2023 — “Default could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil. Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost.” At the time, no one really questioned Secretary Yellen’s bold statement and the scare it placed on Americans worrying about growing inflation and if the debt ceiling was not addressed what were the dire consequences? How would other countries react to a financial crisis? Would the Federal Government stop paying our bills, pensions for retirees, social security payments and other government obligations? The short answer is no, but that did not stop the ongoing dialogue between Kevin McCarthy, the Republican Speaker of the House and President Joe Biden. The debate lingered through the winter and into early June when once again Secretary Yellen told the Congress and the American people that the Federal Government could run out of money by June 5, then restated by June 15. The real debate was not about the United State’s financial debt ceiling, but rather a political exchange between raising the debt (spending) or reducing spending. Let’s do a little history on the subject. As many of you know I worked in the US Congress from 1982 to 1986 and again from 1988 to 2000. The importance of the genesis of the federal debt goes way back to 1868 — yes, shortly after the Civil War. One of my former bosses, a constitutional scholar and former Congressman Tom Campbell pinned an opinion piece in the Orange County Register. In the OpEd, he states: “The Constitution requires the government to pay the principal and interest on its borrowing. After the Civil War, a question arose about whether the federal government would pay veterans of the war what it had promised. The federal government had sold bonds to provide those funds. Giving assurances that these veterans would not be short-changed was so important that the newly adopted 14th Amendment to the Constitution, approved in 1868, specified, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” He further states, “Not paying our bonds also would violate the Fifth Amendment to the Constitution, which prohibits the federal government from depriving any person or property without due process of law. Due process, for instance, would be met when the government takes property through taxation. You can read the OpEd here: OC Register - Tom Campbell Opinion Piece. Through June 11, the Federal government has received $2.994 trillion in revenue for fiscal year 2023. And through June 11, the Federal Government has spent $4.149 trillion for fiscal year 2023. We continue to outspend our revenues and have for the last 22 consecutive years. This is how we always run up against the debt limit that is set by Congress every few years to enable more spending. Our national debt is now at $31.8 trillion as of June 2023. When the debt of the U.S. government bumps up against the ceiling, then the Treasury Department must resort to “extraordinary measures” to pay government obligations and expenditures until the ceiling is raised again so more borrowing can ensue. Extraordinary measures have been in place since January 19, 2023, when the ceiling of $31.4 trillion was reached. As you know President Biden and Speaker McCarthy agreed to a resolution for the debt limit to suspend it until 2025 and enable spending to continue and current obligations by the federal government to be paid on time. Ironically the suspension deadline moves beyond the 2024 election cycle. It was a compromise where each side applauded themselves on this milestone. The debt ceiling conversation will come back again. In 1985, I worked in Congress when the federal spending limit was a subject of great debate. Bi- partisan legislation called the Gramm-Rudman-Hollings Act created a system triggering across-the- board cuts in spending if certain deficit reduction targets were not met. The legislation was amended in 1990 however, the threat of across-the-board cuts was kept in place. It worked and deficits went down in 1992 and by 1998, the US actually balanced its budget. There have been a number of showdowns over the debt ceiling in Congress since 2011, some of which have led to partial government shutdowns, such as temporary or partial closures of national parks, reducing the number of delivery days for mail, or a furloughing of federal workers in some departments. The Treasury can always prioritize payments. And like you, if your revenues were to fall short of your monthly bills, the Treasury can always call their vendors and ask to extend their payment schedule until revenues increase or the debt ceiling limit is ultimately raised. A creative U.S. Treasury can work tough times out, providing everyone ultimately gets paid. Congress can always “claw back” appropriated obligations that haven’t been spent yet, reducing overall debt. This is what the House wanted to do with unspent COVID-19 appropriations. They achieved some bonus political points regarding unspent pandemic relief payments and also regarding the funding of 87,000 new IRS agents that was appropriated by Congress last August as part of the Inflation Reduction Act. I am sure other points of view on the great debt ceiling debate will reignite after the 2024 election cycle and when (and if) there is the possibility of a political shack-up of Congress and the White House. Until then, let's watch the revenue and spending discussion simmer for now.
As someone who follows the work of the United States, State and Local governments, I am always fascinated by the deft conversation that divides the policy making process from the politics of the day. Earlier this year dating back to January — the talk in Washington DC between the White House, the House of Representatives and the US Senate was the great debate of the federal debt. You may recall a quote by Janet Yellen, Secretary of the United States Treasury on January 15, 2023 — “Default could trigger a spike in interest rates, a steep drop in stock prices and other financial turmoil. Our current economic recovery would reverse into recession, with billions of dollars of growth and millions of jobs lost.”
At the time, no one really questioned Secretary Yellen’s bold statement and the scare it placed on Americans worrying about growing inflation and if the debt ceiling was not addressed what were the dire consequences? How would other countries react to a financial crisis? Would the Federal Government stop paying our bills, pensions for retirees, social security payments and other government obligations? The short answer is no, but that did not stop the ongoing dialogue between Kevin McCarthy, the Republican Speaker of the House and President Joe Biden. The debate lingered through the winter and into early June when once again Secretary Yellen told the Congress and the American people that the Federal Government could run out of money by June 5, then restated by June 15. The real debate was not about the United State’s financial debt ceiling, but rather a political exchange between raising the debt (spending) or reducing spending.
Let’s do a little history on the subject. As many of you know I worked in the US Congress from 1982 to 1986 and again from 1988 to 2000. The importance of the genesis of the federal debt goes way back to 1868 — yes, shortly after the Civil War.
One of my former bosses, a constitutional scholar and former Congressman Tom Campbell pinned an opinion piece in the Orange County Register. In the OpEd, he states: “The Constitution requires the government to pay the principal and interest on its borrowing. After the Civil War, a question arose about whether the federal government would pay veterans of the war what it had promised. The federal government had sold bonds to provide those funds. Giving assurances that these veterans would not be short-changed was so important that the newly adopted 14th Amendment to the Constitution, approved in 1868, specified, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” He further states, “Not paying our bonds also would violate the Fifth Amendment to the Constitution, which prohibits the federal government from depriving any person or property without due process of law. Due process, for instance, would be met when the government takes property through taxation. You can read the OpEd here: OC Register - Tom Campbell Opinion Piece.
Through June 11, the Federal government has received $2.994 trillion in revenue for fiscal year 2023. And through June 11, the Federal Government has spent $4.149 trillion for fiscal year 2023. We continue to outspend our revenues and have for the last 22 consecutive years. This is how we always run up against the debt limit that is set by Congress every few years to enable more spending. Our national debt is now at $31.8 trillion as of June 2023.
When the debt of the U.S. government bumps up against the ceiling, then the Treasury Department must resort to “extraordinary measures” to pay government obligations and expenditures until the ceiling is raised again so more borrowing can ensue. Extraordinary measures have been in place since January 19, 2023, when the ceiling of $31.4 trillion was reached.
As you know President Biden and Speaker McCarthy agreed to a resolution for the debt limit to suspend it until 2025 and enable spending to continue and current obligations by the federal government to be paid on time. Ironically the suspension deadline moves beyond the 2024 election cycle. It was a compromise where each side applauded themselves on this milestone. The debt ceiling conversation will come back again.
In 1985, I worked in Congress when the federal spending limit was a subject of great debate. Bi- partisan legislation called the Gramm-Rudman-Hollings Act created a system triggering across-the- board cuts in spending if certain deficit reduction targets were not met. The legislation was amended in 1990 however, the threat of across-the-board cuts was kept in place. It worked and deficits went down in 1992 and by 1998, the US actually balanced its budget.
There have been a number of showdowns over the debt ceiling in Congress since 2011, some of which have led to partial government shutdowns, such as temporary or partial closures of national parks, reducing the number of delivery days for mail, or a furloughing of federal workers in some departments.
The Treasury can always prioritize payments. And like you, if your revenues were to fall short of your monthly bills, the Treasury can always call their vendors and ask to extend their payment schedule until revenues increase or the debt ceiling limit is ultimately raised. A creative U.S. Treasury can work tough times out, providing everyone ultimately gets paid.
Congress can always “claw back” appropriated obligations that haven’t been spent yet, reducing overall debt. This is what the House wanted to do with unspent COVID-19 appropriations. They achieved some bonus political points regarding unspent pandemic relief payments and also regarding the funding of 87,000 new IRS agents that was appropriated by Congress last August as part of the Inflation Reduction Act.
I am sure other points of view on the great debt ceiling debate will reignite after the 2024 election cycle and when (and if) there is the possibility of a political shack-up of Congress and the White House. Until then, let's watch the revenue and spending discussion simmer for now.