Don't try to appease economic terrorists

A few days ago, I received an automated text message from my bank.

For some reason, the bank's algorithm flagged a valid charge on my debit card as

;

the message asked me to verify the purchase.

In a rational world, raising the federal debt limit would be considered equivalent to typing "1" in response to that message:

recognize a purchase that has already been made.

REUTERS/Mohamed Azakir

No, raising the debt limit does not give the president free rein to spend whatever he wants.

It simply allows the government to keep its promises, which include everything from paying interest on your debt to sending checks to Social Security recipients.

These promises, duly authorized by Congress,

the expected amount of taxes and other revenue, so they must be fulfilled, in part, through loans;

but that is normal operating procedure, and the financial markets are

to lend us the money.

Unfortunately, a quirk of the US budget process requires Congress, once budget legislation is enacted, to vote again to authorize the Treasury to raise the funds necessary to carry out the law.

And Republicans - who had no problem with large-scale borrowing when

was in the White House - are now preparing to weaponize that quirk

This week we officially hit the debt limit, but accounting maneuvering can put a crisis off for several months.

But what happens when those maneuvers run out?

US government operations will be disrupted - claims by Republicans that they have a way to "prioritize" payments, keeping some promises but not others, so as to limit damage are almost certainly a folly.

Even if, say, interest payments could be sustained, we would leave everyone, from investors to suppliers, wondering if the United States can't be trusted to pay its bills.

In addition, US debt plays a

in world markets, which view federal bonds as the ultimate safe asset, collateral for many transactions.

If investors lose confidence that the US Treasury will deliver on its promises, it could lead to a global financial meltdown (which came close to happening in March 2020, when markets, shaken by COVID-19, scrambled for cash).

A debt crisis would therefore be bad and

So should the Democrats give in to the Republican demands?

Not.

A party that barely controls one chamber of Congress should not impose

policies on the nation as a whole.

And it's not even clear that the Biden administration could give up if it wanted to.

The current crop of House Republicans makes the Tea Party, which (unfortunately) used the debt limit to blackmail President

, seem reasonable.

Today's GOP doesn't even seem to have a coherent set of demands;

a significant number of caucus members may well want a crisis, preferring to "watch the world burn" under a Democratic administration.

What then are the alternatives?

I see three possible main routes.

First, while it remains puzzling that the Democrats didn't raise the debt limit while they still controlled Congress, there might still be a legislative solution:

Democrats could request a "discharge petition" to force a vote on raising the debt limit despite opposition from Republican leaders.

This would take time and require the support of a handful of sane Republican members of the House.

But it's definitely worth a try.

Second, it is probably possible to use financial engineering to bypass the debt limit.

The most famous proposal involves minting a

with a face value of, say, $1 trillion, depositing that coin with the Federal Reserve, and spending from the bank account thus created.

Believe it or not,

Another option would be to raise money by issuing "

" at maturity of existing debts:

bonds whose face value is the same as the bonds they replace, so they do not officially increase debt, but they do offer high interest rates, so they sell for much more than their notional value.

It would, of course, be

And?

If trickery must be resorted to to thwart the plans of destructive extremists empowered by a legal whim and thereby avoid financial catastrophe, so be it.

Finally, there are a couple of options that I consider constitutional.

The 14th Amendment to the Constitution says that the validity of the public debt "shall not be questioned," which could be interpreted as a reason to

rather than default.

Alternatively, it seems fair to say that the White House faces incompatible demands.

Congress has specified, through duly enacted laws, the levels of federal spending and taxes;

But a house of Congress seems ready to tell the president that he can't raise the money he needs to comply with previous legislation.

Since it seems that President

cannot avoid breaking at least some laws if the debt ceiling is not raised, ignoring the debt ceiling may be the

option .

Which option should the Democrats pursue?

I would say all.

Above all, this is not the time for officials to worry about looking foolish or unworthy.

The Biden administration is facing the threat of economic terrorism, which sounds extreme, but is basically what amounts to creating an artificial debt crisis.

And you must do

to deal with that threat.

c.2023 The New York Times Company

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