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The Wrong Solution to Crushing Student Loan Debt

Thursday August 6th, 2015   •   Posted by Craig Eyermann at 9:34pm PDT   •  

Graduation_Cap_and_Diploma The story we’re about to share is completely true. It was just published by Bloomberg and describes how the Obama administration is working to relieve the crushing burden of student loan debt by making taxpayers pick up the tab for the wasted education of a 29-year old Chicago woman who graduated with a doctorate degree.

Laura Strong, a 29-year-old in suburban Chicago, owes $245,000 on student loans for the psychology Ph.D. she finished in 2013. This year, she says she hopes to earn $35,000 working part-time jobs as a therapist and yoga teacher—not enough to manage a loan payment of about $2,000 a month. But Strong isn’t paying anything close to that. She’s one of at least 3.8 million Americans who’ve qualified for federal programs that tie payments to income and eventually forgive debt for some struggling borrowers, leaving taxpayers to pick up the tab.

Clearly there’s a lot that has gone wrong here. For example, Laura Strong could have pursued a degree program that would have led her to a genuinely productive career, one that if people valued her line of study enough to justify her academic program’s enormous tuition bills, would have led to a well-paying job in her field of study. But that was something that was not to be found waiting for her at the end of her studies, and as a result, she has instead found herself with a fool’s gold-plated trophy diploma, which she might as well have been awarded for participation rather than meaningful academic achievement.

But with $245,000 of student loan debt to show for her poor choices, we have to recognize that the bad decisions that led to her personal taxpayer-funded bailout weren’t made in a vacuum. She got the federal government to loan her the money to rack up that tuition bill. And in fact, she may have been exploited by the government-academic industrial complex that was counting on her being bailed out even as they jacked up her tuition bills year after year.

Income-based repayment was introduced under President Clinton, but the programs weren’t heavily promoted until late 2013, when the Obama administration began sending e-mails to borrowers, including Strong, telling them, “Your initial payment could be as low as $0 a month.” The number of people using these plans has quadrupled since 2012. About half of borrowers taking out the Department of Education’s Grad Plus loans, which finance advanced-degree studies, are in income-driven plans. Most borrowers in the programs have payments capped at 15 percent of income, with allowances for housing and other expenses. In December the Obama administration is expected to expand the number of borrowers eligible for a payment cap of 10 percent. In a July 27 speech at the University of Maryland’s Baltimore campus, Secretary of Education Arne Duncan said the plans protect people going into socially valuable but low-paying lines of work from crushing debt. “That’s good for them. That’s good for our economy. It’s good for our society,” he said.

Critics say the plans are a hidden subsidy to well-off students and colleges, which can justify tuition increases by reassuring students that they may not have to repay their debt. In a seminar at Georgetown Law, Charles Pruett, assistant dean for financial aid, was captured on video telling alumni they could “ignore” debt balances if they spent 10 years in government or nonprofit jobs, which would qualify them for early loan forgiveness. (The video was first reported in 2013 by the New America Foundation, a Washington think tank.) Pruett says Georgetown promotes the programs to encourage graduates to take public-service jobs. “It’s an earned benefit, not a giveaway,” he says.

Speaking of that video, here it is:

It seems like an awful lot of nonsense to go through to justify being able to work in a “socially valuable but low-paying line of work,” which is really just a polite way of saying a “job that really doesn’t require all that much education.” Kind of like a minimum wage-paying cashier’s job at a fast food restaurant and many of the kinds of jobs that can be easily taken over by today’s automation technology.

And all to benefit the government-academic industrial complex, at the expense of those they exploit.

There is a better way to handle that situation, one that puts the cost of bad decisions directly on those who contribute to both making and enabling them. Allow all student loans, whether issued by private lenders or the federal government, to be fully discharged in bankruptcy.

Here, people like Laura Strong who have made poor choices in pursuing their academic path would bear the direct penalty of going through bankruptcy proceedings. While that would limit their ability to take out other kinds of loans, it would actually have the benefit of lasting for fewer years on their record than the government’s preferred “income-based repayment” alternative, which is really just the same as an income tax—one that’s additionally imposed on people who have proven to only be capable of earning low incomes.

At the same time, the federal government would have a strong incentive to be a lot less wasteful in how it doles out federal direct student loan dollars, as it would no longer be able to profit when many of the students whose educations they fund turn out to not be capable of paying them back because people don’t value them very much or because the economy won’t support them.

And with a federal government that can no longer subsidize the growth of tuition at U.S. universities to the extent they have, that tuition growth in the future would be much more restrained, which would actually help make pursuing college and advanced degrees more affordable for those who can genuinely benefit from gaining that level of education.

It seems odd to suggest that bankruptcy is a better solution than alternatives that avoid that outcome, but where student loan debt is concerned, the benefits would far outweigh the costs for everyone but the government-academic industrial complex.

And as long as U.S. taxpayers are going to be made to bear the cost, they might as well get something positive to show for it by sticking it to the people who are gaming the system for their own benefit.

Puerto Rico Defaults

Tuesday August 4th, 2015   •   Posted by Craig Eyermann at 8:12am PDT   •  

US-bankruptcy-court-puerto-rico-seal The clock ticking toward Puerto Rico’s default on its debt has finally struck. CNN reports that the U.S. territory just went into default for the first time in its history:

The commonwealth paid a mere $628,000 toward a $58 million debt bill due Monday to creditors of its Public Finance Corporation. This will hurt the island’s residents, not Wall Street. The debt is mostly owned by ordinary Puerto Ricans through credit unions.

“This was a decision that reflects the serious concerns about the Commonwealth’s liquidity in combination with the balance of obligations to our creditors and the equally important obligations to the people of Puerto Rico,” Puerto Rico’s Government Development Bank president Melba Acosta Febo said in a statement.

The default is a historic moment in Puerto Rico’s economic “death spiral,” a term the island’s governor, Alejandro Garcia Padilla, has used. The island is struggling with about $70 billion in total outstanding debt, and its economy is in recession....

On Monday, Puerto Rico had to make a monthly debt payment of $483 million. Puerto Rico paid all its debt due except the $58 million due to creditors of its Public Finance Corporation. The government is strategically choosing not to pay the PFC debt because the entities that own the debt, credit unions and ordinary Puerto Ricans, have little legal power to fight back in court.

What is happening now in Puerto Rico, as it stiffs the lenders to whom it owes money, is particularly instructive, because it provides insights into how U.S. officials in other jurisdictions would prioritize who gets paid when a debt payment is due and who doesn’t.

In this case, Puerto Rico’s government has chosen to default on some 20 “moral obligation” bonds, which provide the least amount of legal recourse for those who lent the troubled territory money. In this case, that means stiffing the ordinary citizens of the U.S. territory whose financial institutions invested money in the bonds issued by the Puerto Rico’s government. The New York Times describes where the money went and how it was able to rack up so much more debt than it should ever have been allowed to take on:

While Puerto Rico made some other bond payments that were due on Monday, attention in the financial markets was focused on the decision to skip the $58 million in payments due on about 20 so-called moral obligation bonds. Those bonds were issued by a subsidiary of the Government Development Bank for a variety of projects—including school construction and the creation of landfills.

The government bank initially financed the projects, then refinanced them through its subsidiary, the Public Finance Corporation. By tapping the municipal bond market in that way, the bank removed the liabilities from its own balance sheet.

Although this particular type of bond does not carry with it a legal requirement for repayment in the absence of a budget appropriation, market experts said Puerto Rico’s decision not to pay amounted to a default and left them perplexed about the strategy of paying some bonds while letting others lapse.

By taking the actions it did to transfer its liabilities off of its balance sheet, Puerto Rico’s Government Development Bank arguably was committing an act of fraud by making it appear that both it and Puerto Rico’s government were more solvent than they really were. In doing so, they enticed the financial institutions in which ordinary Puerto Ricans entrust their savings, into buying the bonds that they have now defaulted upon.

And in defaulting, they’ve effectively seized the savings of ordinary Puerto Ricans. Not only won’t they receive the interest payments they were due, but they very likely won’t recover their principal.

Unless something changes, that’s the American playbook for government debt defaults.

When Government Builds a Business

Friday July 31st, 2015   •   Posted by Craig Eyermann at 6:37am PDT   •  

saupload_obamacare What if the U.S. federal government were to build a brand-new business from scratch? Would it, with the full backing of the resources of the U.S. government, be an unparalleled success? Or would it—because none of the people who work for the government are really smart enough, capable enough, or competent enough to run anything well—be doomed to fail?

Thanks to the Affordable Care Act, which is most popularly known as “ObamaCare”, we now have the answers to these questions! The Associated Press reports on how well the U.S. government’s experiment to create 23 brand-new non-profit health-insurance businesses called “Consumer Operated and Oriented Plans“, or “CO-OPS”, is going:

WASHINGTON – Nonprofit co-ops, the health care law’s public-spirited alternative to mega-insurers, are awash in red ink and many have fallen short of sign-up goals, a government audit has found.

Under President Barack Obama’s overhaul, taxpayers provided $2.4 billion in loans to get the co-ops going, but only one out of 23—the one in Maine—made money last year, said the report out Thursday. Another one, the Iowa/Nebraska co-op, was shut down by regulators over financial concerns.

The audit by the Health and Human Services inspector general’s office also found that 13 of the 23 lagged far behind their 2014 enrollment projections.

The probe raised concerns about whether federal loans will be repaid, and recommended closer supervision by the administration as well as clear standards for recalling loans if a co-op is no longer viable. Just last week, the Louisiana Health Cooperative announced it would cease offering coverage next year, saying it’s “not growing enough to maintain a healthy future.” About 16,000 people are covered by that co-op.

“The low enrollments and net losses might limit the ability of some co-ops to repay startup and solvency loans, and to remain viable and sustainable,” said the audit report. A copy was provided to The Associated Press.

To correct the AP’s reporting, we should note that since the U.S. government has been running large deficits without interruption for years, no money collected from U.S. taxpayers was used to fund these poorly considered non-profit ventures, as the U.S. government instead borrowed the money to “invest” in these 23 brand-new non-profit businesses, of which 22 are failing.

But rest assured that the Obama administration’s top people understand what they’re doing and are on top of the situation!

In a written response to the audit, Medicare chief Andy Slavitt said the administration agrees with the findings as well as the IG’s recommendations for closer oversight and clearer standards. He also offered a defense of the co-ops, saying they don’t have an easy job.

“The co-ops enter the health insurance market with a number of challenges, (from) building a provider network to pricing premiums that will sustain the business for the long term,” Slavitt said. “As with any new set of business ventures, it is expected that some co-ops will be more successful than others.”

The administration “takes its responsibility to oversee the co-op program seriously,” he said.

Ah yes, the “solution” to making 22 businesses that only have to break even to remain solvent and be successful is the adoption of clearer standards and more government oversight. What could possibly go wrong?

Government No-Cut Contract Hurts Taxpayers

Thursday July 30th, 2015   •   Posted by K. Lloyd Billingsley at 5:15am PDT   •  

CalTrans_200Assemblywoman Kristin Olsen has noticed that the California Department of Transportation, also known as Caltrans, is paying “3,500 people to just be sitting around at a desk.” As Andrew Holzman notes in the Sacramento Bee, Olsen wants to cut those 3,500 full-time positions, for a saving of $500 million, half a billion dollars. As Holzman explains, “Their proposal is taken from a 2014 Legislative Analyst’s Office report, which says Caltrans has too many engineers who prepare and oversee construction projects. The cut represents about a third of those positions, which the analyst’s report suggested could be eliminated without an effect on transportation work.” Caltrans bosses immediately cried foul.

Jim Davis, chief of project management, told Holzman, “we’d stop working on projects” and “we wouldn’t have the money to do any future projects the legislature might be contemplating.” Bruce Blanning, executive director of Professional Engineers in California Government, criticized the legislative analyst as “childlike” and said cutting staff was not the way to go. Rather, he said, staff should be kept on hand to prepare projects for the future. And outsourcing the work to independent contractors “wastes taxpayer money.”

Taxpayers might wonder how Caltrans engineers performed on past projects, such as the new eastern span of the Bay Bridge. As we have noted, the span was $5 billion over budget, ten years late, and safety issues linger with faulty welds, corroded rods and such. In fact, UC Berkeley structural engineering professor Abolhassan Astaneh-Asi believes the structure is unsafe and declines to use it. Mark DeSaulnier, now a congressman, held hearings on the safety issues and ignored calls for a criminal investigation. “It’s frustrating,” he said, “that there’s never been anyone in the management of the bridge who has been held accountable.” But they all get paid, whether they perform poorly or sit around doing nothing. So assemblywoman Olsen’s efforts aside, a ballpark figure for the number of engineers Caltrans is likely to cut is zero. That amounts to zero in savings for the Golden State’s embattled taxpayers.

Meanwhile, Caltrans engineers are not the only ones getting paid to do nothing. It now emerges that in 2014, a year after he stepped down, the University of California paid former president Mark Yudof $546,000.

Fed Official: U.S. Should Borrow More

Monday July 27th, 2015   •   Posted by Craig Eyermann at 8:08pm PDT   •  

Federal-ReserveS11Earlier this month, the president of the Federal Reserve Bank of Minneapolis, Naranya Kocherlakota, said a pretty amazing thing. Michael Derby of the Wall Street Journal reports:

“I want to be clear at the outset that I am not saying that it is appropriate for fiscal policy makers to increase the long-run level of public debt,” Mr. Kocherlakota said. But it could help push up the level of so-called neutral rates in a way that would also allow the Fed’s interest-rate target, when set to neutral levels, to be higher than currently appears to be the case, he said.

Because the neutral interest-rate level for the Fed is lower than in the past, the central bank has less room to cut rates when trouble arises, Mr. Kocherlakota explained. He said the Fed can deal with its inability to lower rates into negative territory by way of buying long term assets, but he noted that there doesn’t seem to be much appetite any longer for providing stimulus this way.

The government can step into this situation by borrowing more debt and putting pressure on interest rates, moving them higher, the official said.

“This additional debt issuance would reduce the likelihood of the FOMC’s hitting the lower bound on the nominal interest rate. The FOMC would be better able to achieve its employment and price objectives,” Mr. Kocherlakota explained.

Keeping in mind that despite how he introduced his comments, what nearly every U.S. politician and government bureaucrat really heard was “the Fed wants us to borrow and spend more to help them fight off recessions!”, we should take a moment to explain how interest rates work to see what he’s after.

Interest rates represent the price of debt, and like all prices, they are subject to the laws of supply and demand, where the interest rate, or in the case of government-issued debt security, the yield, represents a balance between the two.

Here, the people who loan money to the government want to get the highest yield possible because the higher the yield, the more money they make. Meanwhile the government wants to have the yield set as low as possible, because that means the cost of its borrowing is less.

This is where supply and demand come into play. Here, when the government needs to borrow a certain amount of money, the yield for government-issued debt securities is adjusted until it succeeds in borrowing that amount of money. If the yield it offers is too low, too few lenders will offer to accept the deal, so the government will have to increase the yield it will pay to them over the term of the debt security.

But if there are many lenders who seek to loan money to the government, such as is often the case when the economy is struggling so much that investing elsewhere presents too much of a risk, the government can hold out on making a deal with them unless they lower the yield they will accept.

That’s significant for the economy as a whole, because most interest rates that regular Americans and businesses can get for the loans they take out are directly tied to the yields of government-issued debt securities. When the yields on U.S. Treasury bonds, bills and notes rise and fall, so do all those other interest rates.

As a general rule, when interest rates rise, making it more costly for regular Americans and businesses to borrow money to support productive activities, it tends to restrain economic growth, while falling interest rates tend to stimulate economic growth as debt becomes less costly. The Federal Reserve’s ability to affect interest rates is perhaps its most powerful tool for trying to affect the growth rate of the U.S. economy.

Now, let’s consider the current condition of the U.S. economy. At this point in 2015, it has been bad enough for long enough that interest rates have fallen to nearly zero. If a new shock were to negatively impact the economy under these circumstances, the Fed would not be able to us its power to stimulate the economy by loaning massive amounts of money to the U.S. government to force interest rates lower.

So when Minneapolis Fed president Kocherlakota says that having the government go on a debt-driven spending binge might be desirable, he’s doing so because he’s afraid that the Fed won’t be able to minimize the negative impact of the next recession.

Which according to an accidental leak of its confidential five-year economic forecast for the U.S. economy late last week, is an increasing near-term concern of the Fed’s staff economists.

But here’s the thing: To make that scheme work, the U.S. government doesn’t need to issue a gargantuan amount of new debt so large that it would turn off lenders from loaning any more money to the government unless it significantly raised the yields they would be paid.

The Fed could get there a lot more quickly by simply refusing to lend money to the U.S. government, which wouldn’t require the U.S. government to borrow any more than it currently plans today. Which if you think about it, is exactly what the Fed will be doing when it finally turns the screws to start hiking interest rates for the first time in eight years. And since the Fed has become the largest single holder of publicly held U.S. government-issued debt securities, it is the 800-pound gorilla in the U.S. Treasury auction room and could make it happen all on its own any time it wanted to.

That it hasn’t says quite a lot. In fact, the more we think about it, the less serious a realistic proposition it seems.


Friday July 24th, 2015   •   Posted by K. Lloyd Billingsley at 10:11am PDT   •  

seal_ca_200California is not exactly a hot spot for jobs, but as Dan Walter explains in the Sacramento Bee, it’s not for lack of government spending. California has, count ‘em, at least 30 “workforce development” programs in, count ‘em, nine state agencies. And these programs spend “an estimated $5.6 billion each year, $3.1 billion from the state general fund and another $2.5 billion from other sources, mostly special taxes and the federal government.” Something called the Employment Training Panel spends some $70 million a year and in 2014 was turning people away for lack of funds. Then, as Walters notes, “it was discovered that the ETP had a $24.2 million balance in its account, financed from payroll taxes on employers.”

Walters cites no hard data on how many jobs, exactly, these 30 agencies have provided. But he does note that “over time, the programs proliferate with almost no coordination or evaluation. They become political entitlements whose beneficiaries – the organizations that live off the flow of money from Sacramento – lobby the powers that be to keep the cash moving.”

Cash is also moving in the University of California, as the Bee’s Alexei Koseff shows. The top 15 UC administrators will bag raises of 3 percent. That brings Sam Hawgood of UC San Francisco to $772,500, Nicholas Dirks of UC Berkeley to $516,446 and Linda Katehi of UC Davis, which has pepper sprayed students protesting tuition hikes, to $424,360, more than the President of the United States. The other UC chancellors got their big raises last year, but there’s more to it than overpaid bureaucrats.

As Mr. Koseff also notes, an upgrade to the University of California payroll system “will ultimately cost more than twice as much as originally expected,” a full $375 million, instead of the original estimate of $156 million. In the past two decades, “the state spent nearly $1 billion on seven computer projects that were either terminated or suspended.” Earlier this year UC President Janet Napolitano, a former Arizona governor and Department of Homeland Security boss, told reporters that UCPath “will work and it will provide savings and consistency in payroll moving forward.” On the other hand, IT analyst Michael Krigsman said it was “out of control, poorly planned and lacks basic governance,” adding, “the only people who could afford to do this are people who have a blank check.”

More Ghoulish Bureaucrats Behaving Badly

Friday July 24th, 2015   •   Posted by Craig Eyermann at 7:05am PDT   •  

hrs_111210-A-0000C-cemeterya Earlier this week, we featured a story about the misconduct of an employee of the Department of Veterans Affairs who is expected to plead guilty for stealing gravestones from a national cemetery in Rhode Island, which he used as flooring in a shed and garages on his own property.

But a more serious matter involving the ongoing misconduct of VA employees has now come to light: their rationing of health care by denying care to the nation’s veterans. The Huffington Post reports that one-third of the veterans who sought medical care from the VA died before receiving any care:

A review of veteran death records provided to the Huffington Post found that, as of April, 847,822 veterans were awaiting healthcare and that of those, 238,647 were already deceased.

The report was handed over by Scott Davis, a program specialist at the VA’s Health Eligibility Center in Atlanta.

He also sent copies to the House and Senate VA panels and to the White House.

A VA spokeswoman told Huffington Post that the department can’t subtract dead applicants from the list and that some may never have completed an application but remain on the back log.

Spokeswoman Walinda West also said that more than 80 percent veterans who come to the department “have either Medicare, Medicaid, Tricare or some other private insurance.”

“Consequently, some in pending status may have decided to use other options instead of completing their eligibility application.”

Davis dismissed that argument.

“VA wants you to believe, by virtue of people being able to get health care elsewhere, it’s not a big deal. But VA is turning away tens of thousands of veterans eligible for health care,” he said. “VA is making it cumbersome, and then saying, ‘See? They didn’t want it anyway.'”

The Huffington Post‘s report also indicates that the VA is demanding more funding for its programs and is threatening to begin shutting down a number of its hospitals for veterans in August 2015 unless it receives the money by that time.

We would suggest that the U.S. Congress might find adequate funds to sustain the VA’s operations through the end of the fiscal year by clawing back all of the bonuses its managers and employees received after generating false documentation that indicated they were meeting the Department’s goals for providing timely medical care to the nation’s veterans.

Ghoulish Bureaucrats Behaving Badly

Monday July 20th, 2015   •   Posted by Craig Eyermann at 8:19pm PDT   •  

15600192_SIt’s been a while since we featured a new episode of our occasional series Bureaucrats Behaving Badly, and to tell the truth, we debated waiting until Halloween to tell this particular tale, but because it’s just been in the news, we really can’t resist.

Today’s story comes to us by way of the Washington Post‘s Federal Eye, which tells the story of Kevin Maynard...

... an employee at the Rhode Island Veterans Memorial Cemetery in Exeter, R.I. [who] is expected to plead guilty on Monday at his arraignment in federal court to stealing worn and broken gravestones from the cemetery over numerous years. Kevin Maynard, 59, of Charlestown, R.I. took the stones to his home, then used them as flooring in his garage and shed, prosecutors said.

When an investigator with the VA’s inspector general’s office and a Rhode Island State Police detective went to Maynard’s home near the cemetery, they discovered at least 150 veterans’ grave markers laid out as a floor in a shed and two makeshift garages on the property.

Investigators also found a box of American flags he allegedly stole from the cemetery.

It’s yet another classic case of a government bureaucrat putting personal preferences above the needs of the ordinary Americans that bureaucrats claim to serve.

Meanwhile, if you click through to the article, you’ll find that the gravestone-robbing VA employee is actually the second story of a double feature. The first tale is a simple story of graft and influence peddling, in which another VA employee took $1.2 million in kickbacks from contractors to whom he used his authority to award lucrative contracts, even if they never completed the projects for which they were hired.

That’s government work for you!


Monday July 20th, 2015   •   Posted by K. Lloyd Billingsley at 10:53am PDT   •  

calpersLogo_200California taxpayers, the most embattled in the nation, have good reason to wonder how much their government is spending. According to Dan Walters of the Sacramento Bee, a veteran observer, government is spending a lot more than people think. The 2015 state budget has been reported as $115.4 billion, for the general fund, and $167.6 billion, which includes special funding for highways and such. Both numbers are “correct as far as they go,” Walters says, but they don’t go far enough. For example, the budget fails to include pensions paid to retirees by state pension trust funds, including the California Public Employees’ Retirement System (CalPERS) and the California State Teachers’ Retirement System (CalSTRS). These payouts, Walters says, total about $30 billion a year.

As Walters recently noted, in 1999, Gov. Gray Davis and the legislature boosted state pension benefits based on assurances from CalPERS that it’s investment earnings would cover the costs without burdening taxpayers. These assurances turned out to be “fallacious,” says Walters, noting that last year CalPERS “earned an anemic 2.4 percent on its investments in the past year, less than a third of its 7.5 percent target.” And CalPERS value plummeted by 25 percent in one year alone. CalPERS “sharply increased its mandatory contributions from the state and its local government clients to cover losses, dramatically raising pension costs” and pension obligations “figured prominently in the bankruptcies of three cities.” This does not disturb the state’s comfy ruling class.

According to government union boss Brian Rice, president of Sacramento Area Firefighters, this is how the state promotes economic growth. Each year, Rice claims, the CalPERS alone “creates $30.4 billion in economic activity” and the teacher’s retirement system, CalSTRS, generates “an $11 billion boost to the economy.” It’s the trickle-down theory, good for those on the gravy train but a bad deal for taxpayers. The pension problem, meanwhile, is actually much worse.

In his research for California Dreaming: Lessons on How to Resolve America’s Public Pension Crisis, Independent Institute Senior Fellow Lawrence McQuillan discovered that from 2008 through 2012, California’s local governments pension spending increased 17 percent while tax revenue grew only 4 percent. Ventura County’s pension costs soared from $45 million in 2004 to $162 million in 2013. And California accounts for $550 billion to $750 billion of the $4.7 trillion in unfunded pension liabilities nationwide. So governments everywhere are spending more than they claim, and much of the spending is on pensions for ruling-class retirees who support the status quo and resist reform.

Should the U.S. Ditch the Debt Ceiling?

Friday July 17th, 2015   •   Posted by Craig Eyermann at 6:41am PDT   •  

34105876_S That’s the question Nick Timiraos of the Wall Street Journal raised in a recent article on the findings of a study by the U.S. General Accountability Office (GAO), in which the agency investigated the impact that hitting the nation’s debt ceiling has had in the past.

The question is, of course, relevant today because the U.S. government has once again hit its debt ceiling. Since March 16, 2015, the nation’s total public debt outstanding has been held steady at roughly $18.152 trillion, as the U.S. Treasury has employed its so-called “extraordinary measures” to play a shell game to keep the total national debt below its statutory limit.

That’s not how the bureaucrats who work for the federal government would prefer to do things, however. So on their behalf, the GAO has proposed three options for the U.S. Congress to consider implementing, which would end their inconvenience:

Option 1: Link Action on the Debt Limit to the Budget Resolution

This is a variation of a previously used approach under which legislation raising the debt limit to the level envisioned in the Congressional Budget Resolution would be spun off and either be deemed to have passed or be voted on immediately thereafter.

Option 2: Provide the Administration with the Authority to Increase the Debt Limit, Subject to a Congressional Motion of Disapproval

This is a variation of an approach contained in the Budget Control Act of 2011. Congress would give the administration the authority to propose a change in the debt limit, which would take effect absent enactment of a joint resolution of disapproval within a specified time frame.

Option 3: Delegating Broad Authority to the Administration to Borrow as Necessary to Fund Enacted Laws

This is an approach used in some other countries: delegate to the administration the authority to borrow such sums as necessary to fund implementation of the laws duly enacted by Congress and the President. Since laws that affect federal spending and revenue that create the need for debt already require adoption by the Congress, Congress would still maintain control over the amount of federal borrowing.

The Bipartisan Policy Center has projected that because tax revenues this year were better than expected, the U.S. Treasury Department can keep playing its debt ceiling shell game with the accounts it controls well into November or even December 2015 before it runs out of money to play its game.

Then again, if the federal government simply stopped spending more money than it can collect in revenue, the shell game would never even have to be played.

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