The 2023 Debt Ceiling Crisis

[malchior]

China is one of biggest foreign bond holders, they aren't going to make it worse. They will happily use the chaos to grab more international influence though.

[Pyperkub]

China is one of biggest foreign bond holders, they aren't going to make it worse. They will happily use the chaos to grab more international influence though.

China has been steadily reducing it's bond holdings - this is an article from last year, but I'd expect it has accelerated...

The share of U.S. government debt belonging to China has dropped below $1 trillion — the lowest level in 12 years. China has been a big buyer of U.S. debt. So what’s behind the change?

[malchior]

It looks like they've been letting them go to redemption and have ceased buying them. Still they hold $900B of bonds. They aren't going to do anything to actively undermine their investment or risk all the linkage to the real US economy. Japan appears to be doing the same thing FWIW as well. It makes sense to diversify with the United States being run by petulant children.

[Alefroth]

Interesting argument about a legal mechanism to prove that the debt ceiling is unconstitutional and end this stupidity.

Some commentators have raised separation-of-powers issues: Can the president simply ignore a duly enacted statute? And furthermore, will markets accept unilateral executive action if they are not sure it is valid? This uncertainty led President Obama to reject the tactic (unwisely, in my view) the last time the GOP threatened to blow up the economy.

Both questions can be addressed, because we already have a remedy in place. It involves suing Janet Yellen.

A bond is a contract between a lender and debtor. The lender provides money now in order to be paid back with interest later. Secretary Yellen’s announcement on May 1 makes one thing crystal clear: The federal government will break that debt contract, because the debt ceiling statute, by denying the necessary borrowing capacity to cover debts, forbids the Treasury from honoring its contracts.

This scenario is not speculation; it is literally the position of the law as it stands today. If nothing changes, the federal government will not honor its debts to bondholders. That means that it is time for a lawsuit against the Treasury, arguing that its refusal to pay the debt violates the Constitution.

Who would have “standing,” that is, the legal right to bring the case to court? The answer is straightforward: anyone who holds federal government debt and would therefore be owed money by the Treasury. The Court’s standing doctrine makes this clear. It insists on concrete and particularized, actual or imminent injury-in-fact, causation of the injury, and redressability by court action. All three are present here. If I hold a T-bill, and the Treasury says it will not pay me on June 1, then I have all concrete and imminent injury necessary to bring a suit. That injury is caused by the debt ceiling. And it can be redressed by finding that ceiling unconstitutional, enabling the executive to pay the government’s debts.

It’s one thing to have the president simply ignore the debt ceiling statute. The markets might get skittish because of legal uncertainty. But if a court declares the ceiling unconstitutional, that’s a different story. If anything, that would increase certainty and thus stability. With a favorable ruling, markets would know that Republican hostage-taking is over.

No way this could be worked out by June, right?

[Smoove_B]

No way this could worked out by June, right?

I'm calling it right now, if there is some type of legal maneuvering that the administration is going to attempt in an effort to side-step the GOP holding our economy hostage, I guarantee the GOP will immediately file lawsuits to try and force a default. Because that's how goddamn ridiculous they are at this point.

[Alefroth]

Seems like safe money. I really don't understand the inaction by Biden. Is he just waiting for them to blink?

[malchior]

Seems like safe money. I really don't understand the inaction by Biden. Is he just waiting for them to blink?

My assumption is all his work is behind the scenes since the problem is in Congress. Perhaps to not step on the potential clean bill progress in the House. Though there is now some talk that McConnell won't allow a clean bill either.

[Pyperkub]

It looks like they've been letting them go to redemption and have ceased buying them. Still they hold $900B of bonds. They aren't going to do anything to actively undermine their investment or risk all the linkage to the real US economy. Japan appears to be doing the same thing FWIW as well. It makes sense to diversify with the United States being run by petulant children.

Letting them go to redemption and not re-buying is how one extracts value .

But if we game this out, and China decides it's in their best long term interest to tank the US/Global Economy, dumping $900b of bonds (roughly what the US spends on defense every year), timed to go along with even just an impending debt default, during inflationary times, could certainly do so... and as an early mover, they might get more returns on those bonds than everyone else who then tries to flee treasuries.

Heck, they could even offer yuan to buy those treasuries back at pennies on the dollar, which could be even more devastating to the US Economy, as well as tying the Global Economy to the Yuan rather than the dollar.

An insane GOP can and very well may make the US a secondary player in the 21st Century as China roars to the forefront...

[Isgrimnur]

And then they'd bitch about that, too.

[malchior]

It looks like they've been letting them go to redemption and have ceased buying them. Still they hold $900B of bonds. They aren't going to do anything to actively undermine their investment or risk all the linkage to the real US economy. Japan appears to be doing the same thing FWIW as well. It makes sense to diversify with the United States being run by petulant children.

Letting them go to redemption and not re-buying is how one extracts value .

Right I meant more versus straight up selling them which would be quicker and indicate a desire to exit or weaken the dollar. Different in my mind.

But if we game this out, and China decides it's in their best long term interest to tank the US/Global Economy, dumping $900b of bonds (roughly what the US spends on defense every year), timed to go along with even just an impending debt default, during inflationary times, could certainly do so... and as an early mover, they might get more returns on those bonds than everyone else who then tries to flee treasuries.

It's likely too big for a big sell to tank them. Maybe when the portfolio is smaller. I buy the idea it is mostly about yuen price stabilization. I'd hazard a guess that what we'll probably see is they are going to shrink into a smaller position (at a yet to be seen level) that they may maintain indefinitely.

[Pyperkub]

It looks like they've been letting them go to redemption and have ceased buying them. Still they hold $900B of bonds. They aren't going to do anything to actively undermine their investment or risk all the linkage to the real US economy. Japan appears to be doing the same thing FWIW as well. It makes sense to diversify with the United States being run by petulant children.

Letting them go to redemption and not re-buying is how one extracts value .

Right I meant more versus straight up selling them which would be quicker and indicate a desire to exit or weaken the dollar. Different in my mind.

But if we game this out, and China decides it's in their best long term interest to tank the US/Global Economy, dumping $900b of bonds (roughly what the US spends on defense every year), timed to go along with even just an impending debt default, during inflationary times, could certainly do so... and as an early mover, they might get more returns on those bonds than everyone else who then tries to flee treasuries.

It's likely too big for a big sell to tank them. Maybe when the portfolio is smaller. I buy the idea it is mostly about yuen price stabilization. I'd hazard a guess that what we'll probably see is they are going to shrink into a smaller position (at a yet to be seen level) that they may maintain indefinitely.

Maybe. As we know, China has a hardon for invading Taiwan, and IMHO, if the US and the West hadn't put up a vigorous defense of Ukraine, including massive economic sanctions in part dependent upon cutting access to SWIFT, China probably would have invaded last year. Tanking the Western Economies to change that economic leverage to China for the price of a max of $900b (it would likely be a lot less than that) may well be deemed worth it to Xi and Co.

[malchior]

Maybe. As we know, China has a hardon for invading Taiwan, and IMHO, if the US and the West hadn't put up a vigorous defense of Ukraine, including massive economic sanctions in part dependent upon cutting access to SWIFT, China probably would have invaded last year.

Wut?

Tanking the Western Economies to change that economic leverage to China for the price of a max of $900b (it would likely be a lot less than that) may well be deemed worth it to Xi and Co.

Uh. No.

[em2nought]

I hope I can get out of the dollar before ya'lls team totally tanks it.

[gbasden]

I hope I can get out of the dollar before ya'lls team totally tanks it.

You are super funny. But a great example of how the GOP could shoot the economy in the head and somehow people would still blame the Democrats.

[Alefroth]

I hope I can get out of the dollar before ya'lls team totally tanks it.

You are super funny. But a great example of how the GOP could shoot the economy in the head and somehow people would still blame the Democrats.

He's useful in that regard.

[El Guapo]

Maybe. As we know, China has a hardon for invading Taiwan, and IMHO, if the US and the West hadn't put up a vigorous defense of Ukraine, including massive economic sanctions in part dependent upon cutting access to SWIFT, China probably would have invaded last year.

Wut?

Tanking the Western Economies to change that economic leverage to China for the price of a max of $900b (it would likely be a lot less than that) may well be deemed worth it to Xi and Co.

Uh. No.

Yeah, I mean the big problem is that it wouldn't just tank the Western economies, it would tank the global economy. And that, in turn, risks instability and the thing that Xi and Co. really care about - holding a monopoly on power within China.

[malchior]

Right. There is zero chance China is going to destabilize their biggest trading partner for some short-term power play. That's not how they work.

It's the same thing with Taiwan. An actual invasion is way down the list. They want Taiwan for several reasons - it is a thorn in their side and also they want TSMC. China has poached away quite a few important folks to help them with their chipmaking situation in the last year which may take some of the pressure off.

But bottom line China has *ZERO* generals who have ever led a soldier into battle. Almost none of their systems are battle tested. They don't have any real experience. They will heavily weigh the risk that any military adventure may expose they are a paper tiger. And they know this so I don't believe they would do anything about Taiwan unless they absolutely see no other way.

[waitingtoconnect]

Seems like safe money. I really don't understand the inaction by Biden. Is he just waiting for them to blink?

They want Biden to torch his own base or let the country default which will touch his own base.

Remember in a universe where they have billionaires buying Supreme Court justices they are assuming they will get through with support from the new oligarchs and they are banking on refashioning America in their image.

Of course in a default key government members won’t be paid; namely military troops. How long before they revolt or desert?

[Alefroth]

Seems like safe money. I really don't understand the inaction by Biden. Is he just waiting for them to blink?

They want Biden to torch his own base or let the country default which will touch his own base.

I know what they want. I asked what is he waiting for.

[Kraken]

Seems like safe money. I really don't understand the inaction by Biden. Is he just waiting for them to blink?

They want Biden to torch his own base or let the country default which will touch his own base.

I know what they want. I asked what is he waiting for.

He said the 14th gambit isn't in play...yet. With a hostile SCOTUS I hope it doesn't come to that.

[waitingtoconnect]

The other real risk is that they want the default for their own ends.

If Biden caves on anything they will reneg and demand more and more and more…

That means no payments for troops, no money for companies doing federal work….it would be brown trousers time in the financial markets…

Yeah they would obviously priotise but if none at the treasury is at work to move those payments around because they aren’t being paid?

I legit think they might drive the country off the cliff this time. And I'll hear idiots at work blaming Biden. Can't wait.

They’ll be blaming him at home most likely! As unemployment will likely go up 10% in 3 months.

[Smoove_B]

The GOP is totally going to blow it all up, aren't they?

BREAKING: Kevin McCarthy just called to cut Social Security, Medicare, Medicaid, SNAP benefits and more — or else he will crash the global economy. McCarthy says he is demanding more work requirements for “all the programs,” meaning if Americans don’t meet his demands, he will take these programs away from them. These work requirements have been proven to make no impact on employment, but they do result in millions losing their benefits.

[malchior]

Krugman with a blistering assessment of Biden's incompetence dealing with this situation. I'm surprised because Krugman often has some strong opinions but they usually don't come with sharp elbows. He makes several salient points though out that Biden has mismanaged this situation and now might surrender and encourage more hostage taking. I agree.

As soon as Republicans took control of the House last November, it was obvious that they would try to take the economy hostage by refusing to raise the federal debt limit. After all, that’s what they did in 2011 — and hard as it may be to believe, the Tea Party Republicans were sober and sane compared to the MAGA crew. So it was also obvious that the Biden administration needed a strategy to head off the looming crisis.

More and more, however, it looks as if there never was a strategy beyond wishful thinking. I hope that I’m wrong about this — that President Biden will, at the last minute, unveil an effective counter to G.O.P. blackmail. He may even be forced to do so, as I’ll explain in a bit. But right now I have a sick feeling about all of this. What were they thinking? How can they have been caught so off-guard by something that everyone who’s paying attention saw coming?

[Unagi]

The GOP is totally going to blow it all up, aren't they?

My money (*literally?) is on, yeah.

[Alefroth]

Either that, or Biden is going to capitulate-

https://www.washingtonpost.com/business ... p-demands/

President Biden and top congressional leaders expressed optimism about urgent negotiations over the debt ceiling after a meeting at the White House on Tuesday, as the administration’s liberal allies worry that talks with House Republicans over the budget risk rewarding the GOP’s hard-line stance.

House Speaker Kevin McCarthy (R-Calif.) sounded confident that an agreement could be reached ahead of a June 1 deadline to raise the nation’s borrowing limit or risk a global economic catastrophe. Biden gave a similar assessment, though major differences remain between the two sides before a deal can be struck.

[Unagi]

It's sad to feel like if both sides feel there may be 'agreement', that one side has actually just totally sold out.

Is that how I should feel?

[malchior]

It's sad to feel like if both sides feel there may be 'agreement', that one side has actually just totally sold out.

Is that how I should feel?

No no. They are the very serious adults. We totally won't be back here at this next year.

[Unagi]

It's sad to feel like if both sides feel there may be 'agreement', that one side has actually just totally sold out.

Is that how I should feel?

No no. They are the very serious adults. We totally won't be back here at this next year.

Yeah yeah - that's fine and good - and I agree. What I want is for "My Side" to come out and say that this was a total "sell out" (forced or not) and not just some "agreement".

I've got maybe a dozen sighs left in me, and then it's just fuck all.

[Kurth]

Krugman with a blistering assessment of Biden's incompetence dealing with this situation. I'm surprised because Krugman often has some strong opinions but they usually don't come with sharp elbows. He makes several salient points though out that Biden has mismanaged this situation and now might surrender and encourage more hostage taking. I agree.

As soon as Republicans took control of the House last November, it was obvious that they would try to take the economy hostage by refusing to raise the federal debt limit. After all, that’s what they did in 2011 — and hard as it may be to believe, the Tea Party Republicans were sober and sane compared to the MAGA crew. So it was also obvious that the Biden administration needed a strategy to head off the looming crisis.

More and more, however, it looks as if there never was a strategy beyond wishful thinking. I hope that I’m wrong about this — that President Biden will, at the last minute, unveil an effective counter to G.O.P. blackmail. He may even be forced to do so, as I’ll explain in a bit. But right now I have a sick feeling about all of this. What were they thinking? How can they have been caught so off-guard by something that everyone who’s paying attention saw coming?

I thought this Krugman piece was excellent. And terrible to read. What a cluster fuck and a clown show performance by Biden and his administration to not see this coming down the road and plan for it.

I feel even more pessimistic about this debt ceiling stand off than I usually do when this happens because the stakes seem terribly asymmetrical this time around. I don't think the GOP actually wants an agreement of any kind. I think they want to default. Taking their lead from the Orange Clown himself, I think they see a default and the chaos it will bring to our financial system as a great way to hurt Biden and to help take the presidency in 2024.

Please tell me I'm wrong about this.

[malchior]

It's hard to tell because they're inherently irrational now. The GOP is very tolerant of their extremists. They could act like actual adults but they won't. This is what I meant long ago when I said there aren't really moderate Republicans. If there were any in any decent numbers, they'd break with MAGA, argue the conservative case (adults pay their fucking bills), and work with Democrats to get a debt ceiling bill through and negotiate spending during budget time.

Even worse, Biden has served up a meatball of an argument to Trump. If they don't default and extract concessions then Trump will claim he was just a hard negotiator and say he was able to help stop reckless spending. If we do default, he'll say the same thing (we were trying to negotiate) and blame Biden for not negotiating. As usual the asymmetry helps the Republicans because they've apparently again outmaneuvered and out messaged the ridiculously incompetent Democrats. And like others they might be gambling (shrewdly if I'd guess) that more economic pain gives them a shot they might otherwise not have. It's grim. But this is what authoritarians do to take power.

[LordMortis]

I thought this Krugman piece was excellent. And terrible to read. What a cluster fuck and a clown show performance by Biden and his administration to not see this coming down the road and plan for it.

I feel even more pessimistic about this debt ceiling stand off than I usually do when this happens because the stakes seem terribly asymmetrical this time around. I don't think the GOP actually wants an agreement of any kind. I think they want to default. Taking their lead from the Orange Clown himself, I think they see a default and the chaos it will bring to our financial system as a great way to hurt Biden and to help take the presidency in 2024.

Please tell me I'm wrong about this.

I don't think the GOP are monolithic on this. But I do think enough of the GOP are MAGAts and freedom concussed that it's a realistic possibility and the sane and/or institutionalist GOP are afraid and are getting along with their other half rather than being sane or institutionalist. We'll find out in the next two weeks I guess. But will we just punt to September or to election season? I can't see the GOP not being monolithic enough to go out past the election. Just like they made agreed to a budget only good enough to seat this Congressional insanity.

[malchior]

As an aside, I visited Calgary over the weekend to see friends and participate in a sports event. It was depressing how many Canadians expressed that their trips to the United States were coming to an end. I also saw some friends who permanently relocated to Vancouver and they (and I) count themselves as lucky to have escaped the asylum. It wasn't "intentional" but it sure sounds like it wasn't unwelcome.

[Alefroth]

Why does Biden think he can negotiate with KM when he likely can't even get the votes he'll need.

[waitingtoconnect]

As an aside, I visited Calgary over the weekend to see friends and participate in a sports event. It was depressing how many Canadians expressed that their trips to the United States were coming to an end. I also saw some friends who permanently relocated to Vancouver and they (and I) count themselves as lucky to have escaped the asylum. It wasn't "intentional" but it sure sounds like it wasn't unwelcome.

Many Canadians share MAGA views. Its not entirely an oasis of stability. For example someone was attacked the other day for daring to buy Bud Light.(https://nypost.com/2023/05/11/couple-su ... uor-store/#)

And if the debt ceiling is breached - which would take the crown of the biggest self inflicted wound to an economy from the madness of Brexit - then Canada will suffer and will suffer hard.

Why does Biden think he can negotiate with KM when he likely can't even get the votes he'll need.

Some MAGAites are saying the only negotiation should be for Biden/Harris to resign and handover to McCarthy who then appoints Trump as his VP and then resigns.....

[hepcat]

Some MAGAites are saying the only negotiation should be for Biden/Harris to resign and handover to McCarthy who then appoints Trump as his VP and then resigns.....

If your return to power reads like a rejected script for 24, it’s probably best to rethink your life.

[Apollo]

The only thing I knew for sure about this was that everyone would blame Biden, regardless of the outcome. If he compromises the Progressives, who have hated him from day one, get to gleefully pile on the President and bring us a step closer to having an authoritarian President elected in 2024. If he successfully pulls a gimmick like the Trillion dollar coin, he and the entire government face ridicule from the public and never-ending attacks from the GOP who will certainly launch a thousand lawsuits to keep everyone talking about this until the 2024 elections (The 14th amendment strategy never had a chance with this Supreme Court). And if he does nothing, we have a debt default that will ruin the worldwide economy and likely end the dollar's days as the world's reserve currency, right when the BRICS nations are trying to do the same thing.

Biden has been no more incompetent on this issue than the Democratic party as a whole. And we're already seeing that, instead of doubling down with their attacks on the GOP's attempt to blow us all up to get what they want, the Progressives will try to use a compromise as an issue to attack and ultimately replace Biden in 2024, despite the fact that the public has shown they have little interest in a Bernie Sanders/Elizabeth Warren type socialist as President and prefer a moderate candidate (like Biden) more in line with traditional Democratic policies.

In my eyes there are two things the Democrats need to avoid in all of this: 1. A Debt default and 2. Trump being re-elected in 2024. And I personally think that, as much as we might hate it, the reality of the situation is that the GOP has a gun to our head and Biden is doing the best that can be done in this situation.

[malchior]

The only thing I knew for sure about this was that everyone would blame Biden, regardless of the outcome.

That's the job.

Biden has been no more incompetent on this issue than the Democratic party as a whole.

Wrong. Biden is the President of the United States. He has the vast resources of the federal government at his finger tips. He can call a meeting with practically anybody. He has the ability to get on the air and communicate with the public at his whim. Yet despite all that he has demonstrated that they had NO PLAN for this foreseeable event. And frankly this isn't the first time he has failed at preparing for a foreseeable event. Afghanistan, Title 42 expiration, etc. He has been exposed as incompetent many times now. Sorry to say it but when you screw up this badly this often...we should reasonably question his ability to lead.

And we're already seeing that, instead of doubling down with their attacks on the GOP's attempt to blow us all up to get what they want, the Progressives will try to use a compromise as an issue to attack and ultimately replace Biden in 2024, despite the fact that the public has shown they have little interest in a Bernie Sanders/Elizabeth Warren type socialist as President and prefer a moderate candidate (like Biden) more in line with traditional Democratic policies.

This is a massive non sequitur. This isn't a progressives vs. mainstream problem. Biden is unpopular except with Democrats in general - broad based support in the Democratic party in fact. So this is frankly nonsense. He isn't being attacked by progressives generally speaking in any concerted fashion. Republicans who naturally are going to be against him are being joined by the majority of voters - independents. Which is a problem.

In my eyes there are two things the Democrats need to avoid in all of this: 1. A Debt default and 2. Trump being re-elected in 2024. And I personally think that, as much as we might hate it, the reality of the situation is that the GOP has a gun to our head and Biden is doing the best that can be done in this situation.

Might be time to take the blinders off because a lot of folks are pointing out that Biden has screwed up again. You can disagree for sure but he is frankly a poor President overall and this is unfortunately par for the course with him. We were told his experience and ability to cut through politics was going to be his strength. He has a extremely difficult political environment to be sure but that doesn't excuse the President of the United States NOT BEING PREPARED when crises appear that can be foreseen. It's completely unacceptable.

[Zarathud]

How do you prepare for crazy lunatics running the House?

If you have a specific, actionable plan, then let’s hear it. Your expectations are much too high on how to deal with crazy. At the end of the day, Biden needs a vote on the debt ceiling where Republicans and Democrats can vote.

[malchior]

How do you prepare for crazy lunatics running the House?

If you have a specific, actionable plan, then let’s hear it.

Go read the Krugman article for one set of ideas. The most salient point was that the Democrats possibly could have dealt with this in the lame duck but Biden didn't like the plan. I'm sure he regrets his pollyannish views now about regular order. But despite lack of foresight then he should have been talking about and preparing for this for months. Instead, he has been passive. Maybe they were working behind the scenes but there is little to no evidence of that. There have been multiple reports indicating there is chaos now in the administration. Frankly the call for a specific actionable plan is horse shit. He is the President. I don't need to have a plan. He does. He just didn't have one. Again.

Your expectations are much too high on how to deal with crazy.

No. I'd argue that your expectations are much too low. Democrats accept mediocrity and failure from Democrats because the Republicans are crazy. A perfect excuse that continues to be the standard retort that avoids failure being called to account. In other words, there is no price for failure because it was too hard all along. That's childish. The Republicans are indeed out of control but he took the job. We should expect him to at least have a strategy - even if it ultimately fails. He doesn't and is scrambling. So he is rightfully taking a beating for his lack of ability. That's the job too.

At the end of the day, Biden needs a vote on the debt ceiling where Republicans and Democrats can vote.

Sure but cancelling plans and engaging at the last minute is a piss poor way of managing a crisis of this magnitude.

Example of their advanced thinking a little over a week ago. "No Plan B". I'd argue Plan A doesn't exist either if it was predicated on Biden wishing on a star that Republicans aren't crazy.

[waitingtoconnect]

Some MAGAites are saying the only negotiation should be for Biden/Harris to resign and handover to McCarthy who then appoints Trump as his VP and then resigns.....

If your return to power reads like a rejected script for 24, it’s probably best to rethink your life.

When you don't live in the real world what does the "debt run up by Democrats and RINOS" matter? Only Trump "winning" matters no matter the cost to them.

I saw this madness in the UK in Brexit. They had people wanting to resurrect the British Empire. They took the country over the edge for the sake of a vague dream that was fundamentally impossible.

https://news.sky.com/video/lets-get-bac ... e-11530606

The issue is the Republicans have taken this country to a massive GDP overspend by giving tax cuts to the megarich. Major cuts are needed. To pretend that is not real is madness. Biden has to negotiate.