It would permit the president to unilaterally raise the debt ceiling unless congress affirmatively votes against it. It then gives the president veto power over this act of Congress, requiring a supermajority to overturn the veto.
The practical effect of this would be to allow a majority of lawmakers to get away with voting against accumulating more debt without taking any responsibility for what would happen if the debt ceiling wasn't raised.
By making a vote against raising the debt ceiling entirely symbolic, this reform would promote anti-debt voting. Within a year or two of the passage of this reform, I predict Republican lawmakers will start making pledges to always vote "no" on raising the debt ceiling.
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This is very likely to lead very quickly to a situation in which the president must use his veto to overcome the anti-debt majority. The result of that will be the issuance—for the first time ever in American history—of debt issued by the United States government in direct defiance of a congressional majority.
It's not beyond reason to suppose that a Congress that saw its will defied on the debt ceiling might attempt to attack the debt in other ways. Lawmakers could, for instance, instead refuse to authorize interest payments on counter-majority debt. In other words, we'd wind up having a very public fight over the debt anyway. Only this one would be far more dangerous, since we'd be arguing about whether we should make payments on bonds already issued rather than about whether to issue more bonds.
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Very many bright people say that by authorizing spending in excess of taxes collected, congress is implicitly authorizing the issuance of debt. This isn't technically true, since the U.S. government is the supplier of its own currency and doesn't need to find that currency in the debt market in order to finance its operations. Congress could, for example, authorize the Treasury to spend newly printed dollars. Accumulating debt is always a policy choice for the U.S. government.
It's also unsound to assume that implicitly authorized debt is exactly the same thing as explicitly authorized debt. Throughout the history of our Republic, all debt issued by the United States government was explicitly authorized by an act of Congress. Moving to implicit authorization is a major change.
Would investors feel that this kind of debt was as safe as debt explicitly authorized by congress? We don't know. We've never tried it. But it doesn't seem like the kind of thing we should risk.
Nonetheless, I won't be surprised if Congress attempts to abandon the debt ceiling. Lawmakers hate being saddled with the responsibilities the Constitution assigns them. If the president wants unilateral debt authority, Congress will probably give it to him.
- by CNBC Senior Editor John Carney
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