“The Congress shall have the Power ... to borrow Money on the credit of the United States; ... To coin Money, [and] regulate the value thereof. ...”
— The Constitution of the United States, Article I, Section 8
“The validity of the public debt of the United States, authorized by law ... shall not be questioned. ...”
— The Constitution, Amendment XIV, Section 4
“When I use a word,” Humpty Dumpty said, in rather a scornful term, “it means just what I choose it to mean – nothing more nor less.”
“The question is,” said Alice, “whether you can make words mean so many different things.”
“The question is,” said Humpty Dumpty, “which is to be master — that's all.”
— Lewis Carroll, “Through the Looking Glass”
The fiscal cliff is behind us, but a fiscal and monetary chasm lies just around the next hairpin turn of the road. The driver of the bus we all are riding in is seemingly asleep at the wheel, and the passengers up front are partying and not noticing.
Well, maybe the driver is not asleep. Maybe he's daydreaming, or maybe he's just appallingly ignorant of the peril our country is in.
President Obama, the driver of the bus, has made it quite clear he will not negotiate with the Republican House on raising the debt limit, and thus far Republicans are equally adamant they will not approve another borrowed dollar that is not matched by a dollar in real spending cuts (not promised ones). Fool me once, shame on you; fool me twice (three or four times, actually), shame on me.
This is one fight Republican leadership in the House simply cannot afford to lose. If they knuckle under again, as they did by raising tax rates on Obama's “millionaires and billionaires,” while getting virtually nothing in return on spending cuts, the already strong public sentiment to “throw all the bums out” will surely spike.
In the electorate's eyes, many of the bums this time are Republicans, too.
What actually will happen if Congress refuses to raise the debt ceiling above the current $16.4 trillion the U.S. Treasury is currently authorized to borrow? Theoretically, it would mean that the government no longer could spend more than it raises in revenue. In other words, it would have to cut slightly more than $1 trillion from planned spending each year, not over a span of 10 years as such cuts ordinarily are advertised. It would have to establish firm priorities on what the nation can afford and what it cannot.
Presumably, though not certainly — there are still honorable men and women in Washington — it would not follow Argentine precedent by giving holders of Treasury debt a “haircut,” forcing them to accept less than the principal owed. At worst, it would renegotiate the borrowed $16.4 trillion on terms more favorable to the Treasury.
Presumably, too, it would not formally default on these loans, but continue paying the interest.
Whatever the action taken, however, it will have serious implications for both the U.S. and world economies. The recession, from which neither America nor Europe in actuality has recovered, likely would be prolonged through a second Obama administration. Unemployment would remain high, conceivably the highest ever in the post-Depression era.
Many ideas are floating around to address the debt ceiling crisis. House Minority Leader Nancy Pelosi urged the president to ignore the ceiling entirely. “If I were president,” she recently told CBS newsman Bob Schieffer on “Face the Nation” last Sunday, “I'd use the 14th Amendment, which says that the debt of the United States will always be paid.”
To which a serious-minded skeptic might rightly respond: “Yes, but paid in what? Dollars whose purchasing power has been diminished by irresponsible deficit spending over many years?”
An even nuttier idea making the rounds is to have the Treasury mint a platinum coin with a declared value of $1 trillion dollars. (Someone has calculated that at current per-ounce prices of platinum, a coin actually having a metallic worth of $1 trillion would weigh some 220,000 tons.)
The actual trillion dollar coin, possibly about the size and weight of a dinner plate, would then be deposited at the Federal Reserve, which would then crank up the printing press to turn out $1 trillion in paper currency, making it possible — I hesitate to say legal — for the Treasury to pay a year's worth of the deficit.
How long do you think it would take for the markets to conclude that the U.S. dollar was becoming worthless?
And that is what all those whose savings, pensions, earnings, investments, life insurance, etc., are measured in dollars will face if Washington does not persuade the man at the wheel to slow down the speeding bus we are riding in.
R.L. Schreadley is a former Post and Courier executive editor.