The last imbroglio over raising the debt ceiling may be over for the moment but the threat is still hanging on the horizon. Its use as a bargaining tool by the minority to circumvent laws they don’t like and elections they lost is an extremely dangerous tactic that effects not just the American economy but could bring down the global economy and irreparably harm the value of the dollar and America’s reputation of being a good investment. Even the financial and business sectors have called the debt ceiling toxic to economic health. The CEO of JP Morgan, Jamie Dimon, when asked about the consequences of not raising the debt ceiling responded, “you don’t want to know.” Martin Wolf, the chief economic commentator at The Financial Times called the debt ceiling law a “doomsday device” that should be repealed. In simple terms he explained why it is too dangerous to use:
The first is constitutional. In a recent article, Neil Buchanan of The George Washington University and Michael Dorf of Cornell (pdf) argue that a binding debt ceiling would create a “trilemma” for the president: “Ignore the debt ceiling and unilaterally issue new bonds, thus usurping Congress’s borrowing power; unilaterally raise taxes, thus usurping Congress’s taxing power; or unilaterally cut spending, thus usurping Congress’s spending power.” Thus, a binding debt ceiling would force the president to violate his obligation to “take care that the laws be faithfully executed”. The authors conclude that the president should choose the “least unconstitutional” course and ignore the debt ceiling. But, inevitably, whatever the president did would create a constitutional crisis. No responsible Congress would seek to put the president in that position.
The second reason why the debt ceiling is so dangerous is that the administration could not obey it in a non-destructive way. At some point between October 17 and the end of the month, the administration would lack the money to pay its bills. All choices would be dire.
Mr. Wolf explains that the claims of “prioritisation” by the Treasury Department to pick and choose which bills to pay would still be a default (pdf). Mostly, it is not possible since Treasury uses two different computer systems to pay its foreign and domestic bills. The states that the economics effect of choosing which to pay and which to allow to default would effect the Treasury bonds aming them a risky investment. The International Monetary Fund and World Bank heads meeting in Washington last week issued warnings of the grave dangers to the global economy.
In an interview with Bill Moyers’, Mr. Wolf gives his analysis of the debt ceiling crisis.
Transcript can be read here