Topline
The Biden Administration is reportedly considering leveraging a constitutional clause to evade Congress’ authority over the debt ceiling, among a string of long-shot proposals being floated on Capitol Hill as lawmakers face a looming deadline for raising the federal government’s borrowing limit.
President Joe Biden walks with House Speaker Kevin McCarthy, R-Calif., as he departs following the … [+]
Key Facts
The Biden Administration is set to meet next week with House Speaker Kevin McCarthy (R-Calif.) to discuss the GOP’s spending priorities, their first sit-down since February that comes as the two sides are at an impasse over a House bill passed last week that ties the debt ceiling to a host of Republican spending and policy priorities.
A bipartisan agreement seems unlikely as the Biden Administration says it will not agree to a bill that raises the debt limit with other conditions attached, while Republicans committed to pushing through spending cuts, meaning a series of proposals, ranging from unserious to potentially realistic, are cropping up:
Constitutional amendment: The White House is eyeing a post Civil War-era clause in the 14th Amendment that states “the validity of the public debt . . . shall not be questioned” as a potential argument for continuing to issue debt past the $31.4 trillion borrowing limit set by Congress, which is set to expire as early as June 1, the New York Times reported.
$1 trillion coin: Some economists and lawmakers have raised the lofty idea of the Treasury Department minting a $1 trillion platinum coin through the Federal Reserve that it could use to close its cash gap, but Congress could argue the law that authorizes platinum coins was created for the sake of issuing commemorative coins, which would “put the Federal Reserve in the middle of the battle . . . significantly jeopardizing its independence,” Moody’s recently noted—while Treasury Secretary Janet Yellen has also dismissed the idea as a “gimmick.”
Discharge petition: House Democrats are using the procedural move to bypass committee approval and bring a clean debt ceiling bill to the floor for a vote, House Minority Leader Hakeem Jeffries (D-N.Y.) said Tuesday in a letter to colleagues, but the petition requires majority support in the House, meaning five Republicans would need to join all Democrats to move it forward.
The Manchin/Sinema factor: Sens. Joe Manchin (D-W.Va.) and Kyrsten Sinema (I-Ariz.) have repeatedly broke from the Democratic caucus to push Republican-backed legislation through the upper chamber, and while both have defied the ranks of the party in saying they believe Biden should negotiate with Republicans to raise the debt ceiling, they’ve also said they don’t agree with the entirety of the House bill.
Stopgap measure: Lawmakers on both sides of the aisle have suggested authorizing a short-term debt limit increase, including Sen. Rick Scott (R-Fla.), who floated a 30-day extension in an interview with PBS, and Rep. Brendan Boyle (D-Pa.), who suggested on Bloomberg TV tying the issue to the fiscal year 2024 budget, which is due Sept. 30, but this proposal has more vocal opponents than it does supporters, including Senate Majority Leader Chuck Schumer, who dismissed the idea on Tuesday.
Key Background
The federal government reached its $31.4 trillion borrowing threshold in January, prompting the Treasury to take “extraordinary measures” to stave off a default that would prevent it from meeting its financial obligations and have catastrophic financial consequences, including a potential market crash and recession. Those “extraordinary measures”—which are essentially accounting tricks, including suspending investments in federal employee retirement accounts—are set to expire on June 1, Yellen said Monday. Congress is charged with setting the debt limit and has raised the threshold 78 times since 1960. But this year’s negotiations are especially fraught given Republicans’ slim 222-213 majority in the House, putting McCarthy at the mercy of a coalition of conservative lawmakers demanding spending cuts in exchange for raising the debt ceiling.
Tangent
Indicators of investor confidence in the U.S. Treasury are already showing increased signs of stress due to the looming debt ceiling crisis, analysts said this week. Spreads on credit default swaps have soared to levels unseen in decades, causing Morgan Stanley economists to suggest the risk of an accidental default is at least twice what it was in the 2011 debt limit battle that saw the S&P 500 tank 15%. The Treasury yield curve has also been inverted since October, when 3-month rates rose above 10-year treasury bonds in a sign investors are more concerned about the economy’s near term than the long-term, a phenomenon that’s preceded every recession since 1955.
Further Reading
Here’s Why The Debt Limit Matters—And How An Accidental Default Could Spark A Recession (Forbes)
Yellen Urges Congress To Raise Debt Limit Immediately, Warning U.S. Could Run Out Of Money By June (Forbes)
House Approves Raising Debt Limit—But Biden Plans To Veto Bill (Forbes)
Source: https://www.forbes.com/sites/saradorn/2023/05/03/civil-war-era-amendment-these-long-shot-proposals-could-end-the-debt-ceiling-battle/