Long ago, back in October 2015, as John Boehner was finding his way out the door to the cheers of the right wing of his conference, he shepherded through a budget deal that included a suspension of the debt ceiling through March 2017. That was the right thing to do for both his country and his party: it meant that the new Speaker could begin his tenure without having to fight a losing and possibly disastrous battle, and it meant that 2016 would bring a welcome respite from our strange national debt ceiling bloodsport, letting both parties focus their energies on our presidential political bloodsport instead.
But like a sports team front office, signing free agents and making trades to improve their positioning in the offseason, Representatives Jeb Hensarling (R-TX) and Sean Duffy (R-WI) have done a bit of maneuvering while the nation’s attention has turned to the presidential race. The Chairmen of the House Financial Services Committee and its Oversight subcommittee, respectively, they released a non-committee-approved staff report this week, “The Obama Administration’s Debt Ceiling Subterfuge: Subpoenaed Documents Reveal Treasury Misled Public in Attempt to ‘Maximize Pressure on Congress.”
The headline finding is that the Treasury Department and Federal Reserve Bank of New York (FRBNY) have been engaging in coordinated contingency planning for a cash flow emergency caused by a failure to raise the debt ceiling since March 2011. Hensarling and Duffy aren’t saying that this planning was inappropriate—far from it, actually, they think it is clear that the Treasury ought to be ready to prioritize debt service payments should we run hard up against the debt ceiling. Rather, their complaint is that the Treasury has obfuscated and misled Republican congressional leaders about the state of these efforts so as to be able to claim that utter disaster would ensue if the debt ceiling goes unraised and the Treasury runs through all of its operating cash.
This is far from a petty complaint. I have argued that in any debt ceiling impasse, close and honest communication between congressional leaders and the administration would be crucial in the effort to transform the incident from a blow-up to a hiccup. To the extent that Treasury misdirection has eroded its credibility in the eyes of congressional leaders, it may have created an obstacle to safely working through debt ceiling impasses, and for that it deserves some real blame. All the more so if, as the document says, it not only failed to be forthcoming itself but also actively suppressed communication between the FRBNY and Congress.
But, supposing the report’s charges are correct, the implications are nevertheless rather ambiguous. Defenders of using the debt ceiling as a bludgeon in inter-branch budgetary hardball, like the Mercatus Center’s Veronique de Rugy, assert that the upshot of Hensarling and Duffy’s report is crystal clear: Republicans should feel free to take a hard stand on the debt ceiling without any fear that doing so will blow up the global financial system. If the government has to seriously tighten its belt in such a situation, all the better.
That is a serious over-reading. Just because the Treasury has done some planning that it hasn’t allowed Congress to fully observe, that doesn’t mean that it is perfectly prepared to deal with the exigencies that would arise should we run hard up against the debt ceiling. Saying so is like assuming that North Korea must have a functional nuclear triad because it has prevented outside inspectors from overseeing its weapons programs.
As I have previously noted, this debate about the Treasury’s ability to prioritize features a strange inversion of the usual roles for Democrats and Republicans arguing about the federal bureaucracy. Democrats, usually defenders of administrative competence, aver that both our civil servants and the technology available to them are woefully inadequate to ensure any smooth response to hitting the debt ceiling and warn that even debt service is far from a sure thing. Republicans, usually quick to scoff at the idea of Washington bureaucrats doing their jobs efficiently and effectively, apparently have supreme confidence that the Treasury Department would perform flawlessly in such an unprecedented situation and dismiss any worries about tragic malfunctions.
The stakes of this positioning are straightforward enough: the less we think debt ceiling hardball is likely to bring true financial or constitutional disaster, the more acceptable it is as a tool for forcing spending cuts a la summer 2011. This same dynamic is at work when Republicans try to take debt default completely off the table through the Default Prevention Act, which passed the House but has not yet been taken up by the Senate. Arguably, the Republicans’ offseason moves marginally improve Congress’s negotiating position by making it slightly more embarrassing for the administration to invoke the specter of apocalypse in rejecting debt ceiling negotiations.
But at the end of the day, it’s hard to imagine that tweaking either the law, if the Default Prevention Act should pass, or the public’s understanding of Treasury’s capabilities will really turn the debt ceiling into a winning device for fiscal restraint. The uncertainty around what would happen if the ceiling goes unraised remains too high, even if there are some glimmers of hope that things wouldn’t be a total disaster. And that means that the president’s hand is just too strong in debt ceiling confrontations to make them anything other than moments of empty speechifying for Congress.
We now return you to your regularly scheduled 2016 politicking…