The Econmist - USA (2021-10-09)

The Economist October 9th 2021 37

United States

Thedebtceiling

Groundhog days

F

or good reason,  countries  avoid  de­

faulting on their sovereign debts if they

can. Argentina, Greece and Lebanon can all

attest to the pain of that experience. Amer­

ica  is  exceptional,  however.  Every  few

years,  it  ends  up  precariously  close  to  a

partial  default,  only  to  yield  right  before

taking  the  country’s  full  faith  and  credit

(and  global  markets)  over  the  precipice.

The  precipitating  events  are  never  eco­

nomic,  but  always  political.  The  most  re­

cent flare­up of this self­destructive habit

was particularly senseless. And it is almost

certain to not be the last.

The  reason  is  an  abstruse  mechanism

called the debt ceiling. Since 1917, Congress

has, in one form or another, retained a lim­

it on the amount of debt the Treasury can

issue. Because Congress tends to run bud­

get deficits, this has needed raising or sus­

pension more than 100 times since its in­

ception. The only other Western country to

retain  a  similar  debt  limit  is  Denmark,

though  it  is  set  much  higher  than  actual

debt and is thus not close to “binding”.

In  contemporary  America  the  nearing

of a binding debt ceiling is perversely seen

as  a  moment  of  maximal  leverage.  As  the

latest  deadline  became  pressing,  Republi­

cans in Congress employed the filibuster (a

parliamentary stalling tactic allowed in the

Senate)  to  prevent  Democrats  from  easily

raising the ceiling. Janet Yellen, the treasu­

ry  secretary,  warned  that  the  federal  gov­

ernment could be nearing default as soon

as October 18th. The Treasury calls the day

that  it  no  longer  has  the  ability  to  pay  for

both  its  debt  service  and  essential  pro­

grammes  like  Social  Security  the  “x­date”.

Wall Street types cheerily call it the “drop­

dead date”. On October 6th, a deal seemed

at  hand  between  stalemated  Democrats

and  Republicans—who  seemed  poised  to

carry on the game of chicken until the mo­

ment of economic cataclysm was nigh—to

push  the  problem  off  until  December.  At

that point, the rigmarole starts up again.  

Previous  debt­ceiling  fights  have  been

destructive.  In  2011,  Republicans  brought

the country close to the brink of default in

order  to  force  budget  cuts,  resulting  in  a

downgrade  to  the  country’s  credit  rating

for  the  first  time.  Borrowing  costs  for  the

federal  government  rose  by  $1.3bn  in  that

year  alone.  Another  near­miss  came  in

2013,  when  Republicans  unsuccessfully

tried to force Barack Obama to defund his

signature  health­care  programme.  This

time, though, Republicans do not seem to

have any policy objectives.

Before the standoff was put off, Repub­

licans  were  insisting  that  Democrats  trek

around their filibuster using a special pro­

cess called reconciliation. This was doable,

though it would have wasted ten to 15 days

of floor time on the Senate in order to com­

plete.  Mitch  McConnell,  the  Republican

leader in the Senate and the chief architect

of debt­ceiling standoffs past and present,

had  argued  against  providing  any  “short­

cut”  to  these  procedural  hurdles  that  he

had  erected.  Reluctant  to  go  that  route,

Democrats  leapt  on  Mr  McConnell’s  later

offer to table the matter until December.

That  deal  only  offers  a  temporary  re­

prieve to this maddening cycle. What were

WASHINGTON, DC

Why can’t America quit flirting with financial ruin?

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