The Biden administration has been warning (and warning and warning) that debt defaults and cutbacks for vital programs are at hand if the debt ceiling isn’t raised soon, and Republicans — who approved three debt ceiling increases and a 2019 debt ceiling suspension during Donald Trump’s four-year presidency — are refusing to raise the ceiling because they claim to be concerned about our nation’s debt burden.
The deadlock over the ceiling, whose suspension ended on July 31, poses all sorts of problems for our country and consumes an inordinate amount of political and journalistic oxygen.
So let me propose a suggestion that combines heresy with common sense.
President Biden and Treasury Secretary Janet Yellen should ignore the debt ceiling and have the Treasury borrow $100 billion by selling a private issue of 10-year Treasury IOUs to the government of Qatar or Saudi Arabia or some other U.S.-friendly country that’s sitting on tons of cash.
To attract a buyer for this unconventional security, which could end up in legal wrangles, Biden and Yellen should offer to pay double the current 10-year Treasury interest rate. That would be about 2.7 percent.
They shouldn’t ask political consultants about this, they shouldn’t ask Democratic congressional leaders Nancy Pelosi (Calif.) or Charles E. Schumer (N.Y.) about it, and they certainly shouldn’t ask any Republicans about it.
They should follow the Nike slogan: Just do it.
After it’s done, Yellen, who’s much better than Biden at explaining numbers, should tell people at every opportunity that the $1.35 billion a year of extra interest expense incurred by taxpayers is the fault of Republican congressional leaders Mitch McConnell (Ky.) and Kevin McCarthy (Calif.) for being so obstructive.
If Yellen presents the world with a done deal, as I suggest, the debate is transformed. Instead of Yellen and Biden needing McConnell’s and McCarthy’s permission for the government to pay its bills and avoid defaulting on its debts, the Republican leadership would have to overturn a fait accompli. Good luck with that.
This would end destructive debt ceiling blackmail, which Democrats have engaged in occasionally but now seems to have become a Republican staple when a Democrat happens to be in office.
The original purpose of the debt ceiling when it was created in 1917 was to simplify things so that Congress didn’t need to approve every single Treasury borrowing, which had previously been the case.
The debt ceiling served a useful purpose in its early years, making it easier for the government to sell Liberty Bonds to finance our World War I expenditures.
There have been more than 100 debt ceiling increases and suspensions since 1917; the Treasury counts 85 just since 1940. But over the past decade, raising the debt ceiling has turned from an annoying anachronism into partisan political theater. Ever since 2011 — when the Republicans’ brinkmanship drove the government to the brink of default and drove even a fiscal conservative like me out of the GOP — things have been getting crazier and crazier.
The only way to stop this escalating lunacy, which resulted in Standard & Poor’s downgrading our country’s debt a decade ago, is for Yellen and Biden to suck it up and just ignore the debt ceiling.
Our country is far more vulnerable now than it was a decade ago, given our internal political paralysis and our loss of international prestige. In addition, China is trying to have the renminbi replace the dollar as the world’s reserve currency.
Should that happen, it would be much more difficult — and much more expensive — to get foreign central banks and other institutions to buy Treasury IOUs to fund our budget deficit.
And yes, I would have proposed exactly what I’m proposing now if the Democrats had tried to use the debt ceiling to torture Trump the way the Republicans are using it to torture Biden.
It’s clear to any dispassionate observer that the debt ceiling has outlived its economic usefulness. So I hope Yellen and Biden do a big private placement of federal debt, justifiably blame Republicans for increasing our nation’s interest costs, and get on with governing. And follow up with other big private debt sales if necessary.
That will make the country better off, restore a bit of sanity to our political debate and make me happy, too.
What’s more, even though what I’m proposing is a Wall Street type of deal, I won’t ask for a Wall Street-like fee if Biden and Yellen take me up on it. Watching the debt ceiling debate disappear will be reward enough.