While fights over Supreme Court and Federal Reserve Board nominations come sporadically as vacancies arise, there is one political battle we can almost always count on from year to year, and that is the struggle over extending the federal debt ceiling.
If it’s not increased, we’re told, the U.S. government will default on its obligations, Social Security and other government program beneficiaries will be rendered destitute, Treasury bondholders will see the value of their holdings decimated as they go without their interest payments, our soldiers and other government employees won’t get paid, and the global financial system will grind to a halt.
Most serious-minded adults, however (I hope), have learned to ignore this annual game of chicken that the White House and Congress insist on playing every year, although the financial press and media commentators profess to take it seriously.
Whichever political party controls the White House or the houses of Congress, the drama generally follows the same predictable format, namely the Democrats always favor raising the debt ceiling to avoid the catastrophes described in the first paragraph, while the Republicans express opposition in the name of fiscal responsibility.
Yet no matter how long the drama plays out, the outcome is always the same: the Republicans eventually knuckle under, life goes on and everyone gets their money, until the next debt debacle. Lather, rinse, repeat.
This year, it seems, the play has begun early.
Five whole months before the government allegedly runs out of money without a debt limit increase, Treasury Secretary (and former Fed Chair) Janet Yellen has already sounded the alarm and instructed her troops to put in place “extraordinary measures” to allow the government to keep paying its bills before it hits the current $31.4 trillion debt limit in June.
Yellen wasted no time in using the dreaded D-word to emphasize the supposed seriousness of the situation.
“A failure on the part of the United States to meet any obligation, whether it’s to debtholders, to members of our military or to Social Security recipients, is effectively a default,” she said. Continue reading "Treasury Default Hysteria Begins"