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I am posting this here because there are (obvious) and necessary political implications, and such discussion is unwelcome at the other board. This is not meant to be partisan nor start food fights, and I hope long time posters will recognize me and understand this is not a trolling post. That said:

The recent fiasco in the House of Representatives offers a significant threat to the macroeconomic future of the US, and by extension the stock and bond markets in 2023. My reading (both Conservative and Liberal sources) of the Grandstanders is that while they may have settled down for a while, it will not last, indeed, It Cannot LastŪ. For the moment there is a quasi-peace, but later this year the US will bump against the debt ceiling, and this is one of the signature issues where they can use their minority power to cause havoc. And I believe, will.

To try to stop Federal spending, especially any spending they don't like, all they have to do is shut down operations in the House, and that has become trifling simple. Any single Rep can call for a 'no confidence' vote of the Speaker, and without the Speaker the House cannot move forward. (It used to take such a call from the leadership caucus, an unlikely scenario.) So if perpetually media hungry stars like Boebert, Green, or Gaetz want headlines, it's a simple call, and McCarthy has no say in it.

A 'no debt ceiling increase' would - as the mere threat of it in the past - roiled the markets, causing stocks to plummet, but *more to the point* a default of the US government would absolutely crater the bond market. Actually 'crater' is too mild a world; nuclear holocaust is probably a better descriptor.

Playing chicken with the US economy would seem to be a loser's game, but then I offer the Grandstand caucus and their lack of connection with the real world in any but the most grievance ridden anti-establishment sense as exhibit #1 in what is likely to happen. In recent years such games of chicken ended quickly enough (only after *some* damage was done) but the last few days convinced me that game might go on longer, perhaps long enough for the participants to crash head-on, at full speed.

Yes, there are scenarios where that might not happen. There are arcane - and difficult to use - House procedures, untested for a hundred years. And there is the fantasy scenario where moderate Republicans and moderate Democrats come together, although any attempt to do so will doom McCarthy as a Speaker (see: one vote 'no confidence' call, above.) If McCarthy countenances such cooperation he is doomed, immediately. If he does not, he is not really the leader anyway, and those Republicans cooperating do so at the cost of being primaried in 2024, when a national Party leader (like Trump? Santos?) will surely call them out. (Yes, there have been a few pathetic bi-partisan moves these past two years. This is unlikely to be repeated, in my view.)

So buckle up. 2023 has a reasonable chance to be the worst bond year since, uh, 2022, which was the worst in 100 years, and only the 2nd worst in recorded history.

Too bad the currently governing party didn't raise the debt limit enough to function the next two years without this hanging over our heads.

It's a dumb rule/law. Congress passes the laws and budget ... then they also have to raise the debt ceiling? Why the two-step process?

Eeeeeyup.

The meltdown could happen earlier than the expected September time frame when the debt ceiling limit is reached and needs to be raised. Any other spending requirement (emergency relief for a domestic disaster? a new military aid package for Ukraine if Putin escalates into a greater, wider war?) that triggers any of the six core alt-reality Representatives to trigger a no-confidence boat can trigger paralysis if four decide to stick together and withhold their vote from a "mainstream" Republican alternative.

As I mentioned in this post https://watchingtheherd.blogspot.com/2023/01/magic... on my blog, the real danger is not that we've discovered some weird parliamentary "magic moment" that can unexpectedly imperil the functioning of government. The danger is that we have actors within the core of our democratic systems who are hellbent on FINDING these idiosyncratic vulnerabilities in our systems then continually exploiting them to simply paralyze the system and the entire country. The agenda is not for policies, the agenda is solely for chaos.


WTH

It's a dumb rule/law. Congress passes the laws and budget ... then they also have to raise the debt ceiling? Why the two-step process?

Because Congress has different ways to fund the spending they authorize in the budget. They can raise taxes, of course - and have a host of alternative taxes they can turn to. Personal income taxes, excise taxes, corporate taxes, tariffs and duties...they can even impose a capitation if they wanted to. They can also raise money by selling assets - the U.S. government owns tons of valuable property. Or they can borrow the money. All of those different ways of bringing in enough money to fund outlays require Congressional authorization (for the most part), so whatever method is chosen, Congress will have to have a second step to get the money.

So if Congress authorizes a given level of spending that exceeds current estimated revenues, there's no presumption that the difference has to be - or is intended to be - met by issuing debt. Congress has to choose how the shortfall will be funded. They have typically done so by authorizing the Executive to issue more debt - but the Executive can't do that on its own.

Any single Rep can call for a 'no confidence' vote of the Speaker.... (It used to take such a call from the leadership caucus, an unlikely scenario.)

No, it didn't "used to." Any Representative could call for a move to vacate from Congress' inception. It just didn't happen very often (Boehner being the last, and he avoided it by resigning in lieu of the threat of one). It was the Pelosi regime that imposed the limited and protective leadership caucus requirement. All the "new" rule does is restore the status quo ante. The greater risk is that members of the Progressive-Democratic Party will frequently move to vacate. In the event, though, moves by any member would only present a disruptive day or two, since the motion must immediately go to a floor vote.

...roiled the markets, causing stocks to plummet....

There's a big so what. The markets aren't the economy in which average Americans live and work and spend. The markets are tied to our economy with a thick, stout rope, but there's a tremendous amount of slack in the rope due to the lack of temporal connection between the two--there's just too much time variability in the feedback loop among actual doings in the economy, government machinations with spending and taxing, and investors' and traders' actions in the markets.

Regarding the debt ceiling raise, it's been too often and too easily raised in order to support the borrowing (which is the real risk to our national credit rating) that Party politicians, Republicans who agree with profligate spending, and Republicans without the courage of their own convictions and so go along to get along inflict with their profligate spending. In the event of a government shutdown, tax requirements would continue, tax revenues would continue to flow, and interest on the national debt would continue to be paid--no default, although that is a technicality.

What has happened in the past is that blocking the debt ceiling raise was used to force concessions on future spending so as to obviate the need for future ceiling raises--only to see those agreements welched on by the big spenders. Hopefully, the current crop will be made of sterner stuff and the agreements regarding future spending will last longer.

Interesting that unions are allowed to threaten a business' existence altogether by blocking its ability to produce with strikes, but politicians aren't allowed to insist on fiscal responsibility in our government.

Eric Hines

"So if Congress authorizes a given level of spending that exceeds current estimated revenues, there's no presumption that the difference has to be - or is intended to be - met by issuing debt. Congress has to choose how the shortfall will be funded."

Having a limit on the debt doesn't change that.
Rather than having a limit, make spending bills specify the source of funding - with debt as a default in the absence of any specific source.

It's really too late to be discussing debt limits when the spending is already authorized.

Regarding the debt ceiling raise, it's been too often and too easily raised in order to support the borrowing (which is the real risk to our national credit rating)

Curiously, in the 200 year history of the Republic, the only threat to the national credit rating has come when people threaten to stop raising the debt, not when they create more of it. If you want to see what a serious credit crisis looks like, take a look at the times when (that party) has threatened to stop paying the bills. Treasury rates spiked, redemptions soared, the market teetered. (No, the market is not 'the economy' but they are quite closely linked, as a quick glance over 1929 or any other number of incidents should inform.)

The argument isn't really over whether we should spend more, it's over what we should spend it on . Republicans now want to cut both Social Security and Medicare. (I hope they try, and make it loudly known.) Democrats want to cut military spending. Actually, those three things are about the only drivers, the entire rest of the budget is nickels and dimes in the sofa cushion.

It will be interesting to see how it plays out, except I expect the performance caucus to carry the threat further than in the past, with similar and dire consequences. I have - elsewhere - suggested arranging one's portfolio and financials to be prepared to accommodate a different future, one which I hope does not come to pass.

Republicans now want to cut both Social Security and Medicare.

No, they never have. They have variously proposed raising the retirement age and privatizing Social Security, with effect for those significantly younger than the current retirement age, and they've proposed requiring the States to pay more for their own Medicare costs and get fewer transfer payments from the Feds.

I wish Social Security would be privatized. The monies should be for the payer's own future retirement and not immediate transfers to strangers' current retirement. Aside from that, there's fiscal reality: we can't afford the transfers anymore. When Social Security was invented, the worker:retiree ratio was 7:1, and a retiree generally died in his early 70s. Today, the worker:retiree ratio is less than 3:1 and declining, and a retiree generally dies in his 80s, with that actuarial datum extending into longer life (the Wuhan Virus' impact on life spans notwithstanding).

Similarly, Medicare transfer payments to the States should be put on a declining block grant basis until after [10] years no more transfer payments are made. Let the citizens of each State keep their tax money for their own State's use.

Regarding the Great Depression and government response, compare that with the Depression of the early '20s. The Great Depression was exacerbated and extended by price and wage controls and by FDR's confiscating everyone's privately held gold, not by spending per se, and the markets merely reflected that.

Eric Hines

Regarding the Great Depression and government response, compare that with the Depression of the early '20s. The Great Depression was exacerbated and extended by price and wage controls and by FDR's confiscating everyone's privately held gold, not by spending per se, and the markets merely reflected that.

The depression in the early 1920s lasted about 18 months. FDR became president after the depression had been going on for about 36+ months, so I am unsure what actions FDR made that extended the depression longer than 18 months. Following is how real GDP changed over the early 1930s.

1930 -8.5%
1931 -6.4%
1932 -12.9%
1933 -1.2%
1934 10.8%
1935 8.9%
1936 12.9%
1937 5.1%

It is difficult for me to see how coming off the gold standard in 1933 prolonged the depression.

Craig

bacon,
You have everything almost exactly backwards.

"The monies should be for the payer's own future retirement and not immediate transfers to strangers' current retirement. "
That's what happens now. The money collected is reserved for the payer's own future retirement. It's just a ledger entry. The money itself is fungible. It doesn't matter where it is used. None of it actually exists as a physical thing.

"Let the citizens of each State keep their tax money for their own State's use."
With regard to local expenditures for things like roads and infrastructure, perhaps. But healthcare and social security should be national programs without local involvement.

Time for us to grow up and become an actual country instead of pretending to be a union of independent countries.
Universal healthcare with rational federal standards and universal social security at rational levels for all is what is required.

Federal laws and standards should ALWAYS take precedence over state laws and standards.
Otherwise, we don't have a country.

I wish Social Security would be privatized. The monies should be for the payer's own future retirement and not immediate transfers to strangers' current retirement.

You understand that this would necessarily involve smaller checks for every single recipient, right? The only reason the checks are as large as they are is because some people die before collecting as much as others do. That may seem unfair, but that's how insurance works. Imagine if you called Aetna and said 'I paid for fire insurance but didn't have a fire, so send me back my premium.' That would (obviously, I think) mean that people who *did* have a fire wouldn't get paid.

we can't afford the transfers anymore

And yet we do. And without much pain on anybody's part, especially those who earn more than the top figure and who stop contributing halfway through the year.

Let the citizens of each state keep their tax money for their own state's use

One of the worst ideas yet. Some states <cough/Conservative/cough> have already shown a predilection to ignore health issues in favor of tax cuts for the already wealthy. And somehow they keep getting elected. Well, that's OK with me, except for the part about people dying, disease spreading, and people opting to travel to take advantage of those states which *do* protect their populations. This is one of those things that makes us a country instead of a potpourri of fiefdoms, like Europe.

the Great Depression

Your 'facts' are wrong, so wrong as to make me think you've never read anything but wildly biased tales about it. It's already been refuted upthread, I'll just add that it's nothing close to reality. (PS: Roosevelt issued wage and price controls, um, in 1943. The Great Depression began in 1929. See the difference?)

Republicans now want to cut both Social Security and Medicare

No, they never have.

Actually they have multiple proposals on the board, they have talked about it for a long time, and they are finally in a place with their rules committee and House majority that they may actually try to pass something. Gosh, I hope they do, if only to signal to voters what their long plan is. As for raising the age, that's already been done.

compare that with the Depression of the early 20's

Recessions are not all the same, even if they sport the same word. Post war recessions tend to be short, as an economy retrenches and reallocates from wartime production to consumer. Same thing happened after World War II. Recessions involving a (partial) collapse of part of the economic system are different. You're spouting talk show economics.

"Democrats want to cut military spending."

Which prominent Democrats want to cut military spending? For the most part, they support it.

later this year the US will bump against the debt ceiling, and this is one of the signature issues where they can use their minority power to cause havoc.

Goofy's post on this issue a couple weeks ago has lingered on my mind. The more I think about it, the more I see this issue growing in importance in the coming months. Biden's administration is resolutely saying 'we won't negotiate with terrorists'. I see little chance for compromise, and I agree with Goofy that the House is highly likely to push this to a crisis point.

Since Goofy's post, Treasury Secretary Janet Yellen has notified us that the US hit the debt limit last Thursday and has begun taking extraordinary measures to manage affairs such that the limit isn't breached. She anticipates such measures will allow the US to pay its bills until early June.

All this begs the question as to why Biden and Congress didn't raise the limit in one of the laws they passed in the last year? Surely this relates directly enough to the budget that it could have been included in the last law passed by reconciliation? Was it a political calculation intended to trip up the new House leadership, or did key Congresspeople object, i.e. Manchin?

Inflation has been slowing, interest rates have been dropping (long term) or staying flat (short term). It seems the chances for a soft landing have been inching up, but this debt ceiling issue could throw a wrench in that game plan.

I have read that Democrats consider it a political calculation. They are/were afraid that doing so without Republican help would give the Republicans a ready made campaign issue ('wildly spending Dems'), and that doing so would give them Dems all of the liabilities without any of the positives. I.e. if there isn't a 'debt ceiling crisis' nobody notices and the Dems don't get any credit, if there is a crisis then everybody notices and the Republicans get at least some of the blame, if not all.

It's an odd calculation, but then politics is often odd, eh?

Bottom line: they didn't want to be stuck with a losing election issue for doing the right thing. I think the definition of Pyrrhic victory is having a winning issue at the expense of destroying the country.

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