Tag Archives: debt ceiling

02.28.2013 | The Federal Budget: Sequester Facts

Understanding the sequester means we have to start with the Supercommittee.

Formed during 2011, the Supercommittee was the solution to the debt ceiling impasse. At the time, the Congress refused to pass a debt ceiling increase unless we had a plan to cut spending. So they passed the Budget Control Act (BCA) of 2011 with several spending reduction approaches. The first step was the Supercommittee. Composed of 6 Democrats and 6 Republicans, the committee was supposed to create a deficit plan. If they failed, then the alternative was future automatic cuts.

You know what happened. Because the members of the committee could not agree, the cuts kick in tomorrow, March 1. They target 4 areas that you can remember with DDMM: Defense, Discretionary, Mandatory, Medicare.

And finally, a detail. The sequester hits on March 1, but when? The White House says 11:59 p.m. while the GOP says 12:01 a.m.

DDMM Details:

I also hope the following graphs are helpful. The first provides a “macro” perspective while the second, with the specifics, is “micro.”

From the Washington Post

Sources and Resources: To look at additional details about the sequester, you will find this Washington Post article ideal. I used it and a Heritage.org graph and a Post graph for most of my facts. Also, here is the Budget Control Act of 2011 and here is more detail about the disagreement over when the sequester kicks in.

Posted by: adminEcon
Tags: debt ceiling, deficit, federal budget, sequester
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01.25.2013 | The Debt Ceiling: A “Choose Your Own Adventure” Story

Have you ever read a “Choose Your Own Adventure” book? Letting the reader select a plot path, the series had multiple endings. Now, a Quartz reporter very cleverly has suggested alternative endings for the “plot path” of the Congressional debt ceiling discussion.

Proposed less than 2 weeks ago, the “Choose Your Own Adventure” debt ceiling story, however, needs to include an unforeseen twist. The House just passed new legislation for a debt ceiling hike to last until mid-May with a Congressional salary clause. The clause? If a “chamber of Congress” does not agree on a budget then its members don’t get paid until one develops or until their terms end.

Still relevant, the “Choose Your Own Adventure” starting scenarios, each with its own series of results, were:

“A fiscal consolidation bargain”
“A concession to Republican demands”
No agreement and the Treasury has insufficient funds to cover its obligations.

Now we can add a fourth initial scenario:

The House passes legislation to raise the debt ceiling for a limited time period.

Discussing the debt ceiling, we should take a look at the debt. Whenever the US borrows, someone, somewhere buys a Treasury security such as a bond. So who has more than $16 trillion in government securities?

Actually, we do.

We owe 2/3 of the debt to ourselves. The US government lends to itself by using, for example, Medicare trust fund cash it does not need. Meanwhile, individuals, businesses, state governments, local governments, pension funds–the list is long– also buy US Treasury securities.

Washington Post data from 2011. Now the total would be over $16 trillions but the holders remain very similar.

Washington Post data from 2011. Now the debt total would be over $16 trillion but the proportions for debt holder categories are similar.

The rest of the US debt is held by foreign governments, businesses, citizens, etc., with China and then Japan at the top of the list. Next are Caribbean Banking Centers, Oil Exporters, Brazil and then still, a long list with South Africa at the bottom.

Sources and Resources: Here, at Quartz, you can see the entire debt ceiling ”Choose Your Own Adventure” while for the debt, my information came from the US Treasury and Fox News and graphs are from the NY Times and the Washington Post. Finally, you can read more here in the Huffington Post about the debt ceiling legislation that just passed in the House. In addition, here and here econlife has debt ceiling facts and history.

Posted by: adminEcon
Tags: China, debt ceiling, Medicare, social security
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01.10.2013 | Secretary of the Treasury: Jack Lew’s Signature

Asked why his signature on US currency differed from the usual way he had been signing his name, Secretary of the Treasury Timothy Geithner explained that it had to be legible.

Geithner’s Currency Signature

With most people assuming that President Obama’s Chief of Staff, Jacob Lew, will replace Geithner, concern has developed over Lew’s signature (below).

Reading about Geithner and Lew, I started thinking about Alexander Hamilton. Much worse than the fiscal cliff and the debt ceiling debate, the huge Revolutionary War debt was Treasury Secretary Alexander Hamilton’s top priority. To guarantee that the US could borrow money at reasonable rates, he knew he had to fund its current obligations. And yet, in 1790, with receipts of only $1.6 million, the US owed $74 million. So Hamilton said, let’s use the money we have now to pay what we owe to Europeans. Then, to fund the domestic part of the debt, we can give people new bonds that mature decades from now.

However, if the new domestic bonds returned 4% annually, he had to be sure the US paid the interest that was due. Hamilton worried Congress could battle interminably, refuse to pay interest, and destroy our public credit. As he expressed it, “Had a single session of Congress passed…without some adequate provision for the debt the most injurious consequences were to have been expected.”

Sounds familiar.

Economic growth and deft political negotiation solved Hamilton’s problem. In 1790, the debt to receipts ratio was 46 to 1. By 1794, it was 15 to 1. Robust economic growth and skilled political negotation would help us now, too.

Sources and resources: I got big smiles from The Washington Post article on Jacob Lew’s signature and enjoyed marketplace.org’s interview with Secretary Geithner about his handwriting. If you are curious about all other Treasury Secretary signatures, you can look here. But for an excellent book on the origins of the US economy and the source of my Hamilton quotes and details, I recommend, The Founders and Finance by Harvard professor Thomas K. McCraw.

Posted by: adminEcon
Tags: Alexander Hamilton, Congress, debt ceiling, Jack Lew, US currency
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01.04.2013 | Debt Ceiling: The Trillion Dollar Coin Solution

Through a hypothetical Oval Office meeting, a Yale law professor describes a platinum solution to the debt ceiling problem. The basic idea is that if Treasury can get the money to cover government spending without borrowing then it does not need to exceed the debt ceiling maximum. How? Just use 2 platinum coins.

At this hypothetical meeting, Secretary of the Treasury Geithner explains to the President, Vice President and Harry Reid, that an obscure provision in “31 U.S.C. Section 5112(k) says that we can print platinum coins in any denomination at our discretion…”

Geithner continues, “So we told the Mint to make a couple of trillion dollar platinum coins. Then, if the President gives the order, the Mint deposits the two coins in its account at the Federal Reserve. The coins are legal tender. We direct the Federal Reserve to move this money into the Treasury’s accounts, and we are up around two trillion dollars.”

That means the Treasury has an extra $2 trillion to spend and does not need to have the debt ceiling raised.

While no one takes the idea seriously, it could happen.

Please note that Bloomberg says Secretary Geithner has indicated he will be leaving Treasury before the next debt ceiling crisis strikes. He has already notified lawmakers (posted here at econlife) that we have hit the ceiling but not to worry because he can manipulate spending for approximately 2 months to avoid a default. And by then, he will be gone.

One question: Whose picture should appear on the coin?

A 2009 $100 Platinum Coin From the US Mint:

A Platinum Coin Can Have Its Face Value Determined by the Treasury

Sources and Resources: Since Yale Law Professor Jack M. Balkin described the idea here in his hypothetical Oval Room meeting, it has spread through countless blogs and new articles. A summary of the comments on the platinum coin solution is here and recent articles from The Washington Post and Businessinsider are here and here. For my information on Secretary Geithner’s departure, I used this Bloomberg column.

Note: The title of this note has been slightly edited.

Posted by: adminEcon
Tags: $1 trillion platinum coin, debt ceiling, deficit, Timothy Geithner, US debt, US Treasury
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12.28.2012 | Debt Ceiling: A Treasury Note

Secretary of the Treasury Geithner just sent Senate Majority Leader Harry Reid a letter.

Noting that in 5 days the US will again have hit the debt ceiling, Secretary Geithner explains that actually, we might have an extra 2 months. In an appendix to his letter, he outlines 4 types of “extraordinary measures” that will let us avoid a debt default for awhile. He adds though, that he is not sure how long he can stretch it because of the uncertainty created by the current negotiations over tax increases and spending cuts. (Ironically, no Congressional tax and spending deal means more time to get a new ceiling.)

Where is the debt ceiling? $16.394 trillion.

Where were we on December 26th? $16.027 trillion.

Some history…

In 1917, Congress decided it could not keep track of every U.S. loan. So, to maintain some control over national finance, they said, “We will decide the maximum amount the U.S. can borrow.” And, from that day onward, whenever necessary, they voted to increase how much the U.S. could borrow. Since 1962, the U.S. Congress has raised its debt ceiling 76 times.

Sources and Resources: Here is Secretary Geithner’s letter and the Treasury Department daily update of US debt totals. For some debt history, John Steele Gordon’s Hamilton’s Blessing The Extraordinary Life and Times of the National Debt is wonderful. Also, this CNN article and these these econlife posts, Debt Ceiling 101 and Looking at the Debt Ceiling, provide some background and some of the above history.

Posted by: adminEcon
Tags: Alexander Hamilton, debt ceiling, deficit, federal budget, federal debt, fiscal cliff, Timothy Geithner
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