“Are you just gonna sit there and pick and choose?” Chuck Todd wondered.
He was querying Janet Yellen on the prospect of payment prioritization in a scenario where Congress fails to raise the US debt ceiling.
Yellen’s “Meet The Press” cameo came on a day when Kevin McCarthy suggested the White House would rather force a US default than compromise with House Republicans pushing what the Biden administration insists is an unrealistic set of demands. Talks broke down late last week and went nowhere over the weekend.
“[Or] are you gonna pay all of our debts and essentially let the courts tell us you shouldn’t have?” Todd pressed.
“Well, we take the debt ceiling seriously as a constraint,” Yellen, who seems increasingly unable to hide her disdain for this charade, began. “My assumption is that if the debt ceiling isn’t raised, there will be hard choices to make about what bills go unpaid.”
Todd put the question directly to Yellen: Is Biden really willing to sit idly by and allow the US to default if Congress doesn’t do its job? Yellen walked through the stakes — principal and interest payments on US debt, obligations to seniors, military salaries, government contractors and so on. “Some bills have to go unpaid,” she said.
When asked by Todd if she’s decided which bills wouldn’t be paid, Yellen was understandably evasive: “There can be no acceptable outcomes if the debt ceiling doesn’t get raised.”
That raises (no pun intended) this question: Why, if there are no acceptable outcomes in the event the debt ceiling isn’t raised, is that outcome (i.e., not raising the debt ceiling) acceptable? Joe Biden claims it isn’t. And senior congressional leaders on both sides of the aisle say the same. Yet here we are still talking about it and crucially, it feels more “real” this time, something I discussed at length in the weekly+.
In “What Janet Yellen Sees As Debt Limit X-Date Looms” I walked through Treasury’s dilemma. If you haven’t read that short article, I encourage you to do so. But the simple figures below, from Goldman, capture the gist of it. They show what the US has to pay and when.
Goldman’s projections suggested it’s at least possible that Yellen could make payments through next month even without a deal, but she indicated Sunday that’s unlikely. It’ll be “very difficult” to make it to June 15 (when “substantial” tax receipts are expected) without an increase, she remarked, calling June 1 a “hard deadline.”
Having written voluminously on every angle of this debate (and not just in 2023), I won’t subject readers to another recitation of the familiar, but I do want to point out an underappreciated aspect.
By now, everyone’s written a lament for what a default would signal to America’s allies and pseudo-allies about Washington as a bastion of stability in an increasingly unstable world. After January 6, 2021, and with the de-dollarization narrative gathering adherents even among those who support the decision to seize Russia’s reserves (you can be weary of the implications even if you believe it was the morally right thing to do), the last thing the country needs is a self-inflicted financial and economic crisis.
But consider this: Xi Jinping and other autocrats depend on the notion that over time, democracies will become too fractious to function. They believe the quest for compromise, along with overlapping checks and balances, will paralyze the US. That’s one reason why propaganda campaigns orchestrated by autocratic states seek to polarize electorates across Western democracies. The more polarized the populace, the more difficult consensus becomes, and the more calcified a country thereby is.
The debt ceiling deadlock, were it to result in a default (or even just a few late payments) would constitute powerful validation for that idea. There’s a vociferous debate currently about whether America’s courts would be willing to countenance a default by allowing executive action on America’s financial obligations to be challenged. If the courts did accept challenges, it’d be dangerous, and emblematic of the same democratic paralysis.
Some might suggest, albeit certainly not in public, that in the unimaginable event Congress forced a prolonged default wherein the US missed payments of all sorts — so, seniors stopped getting checks, the military stopped getting paid and America missed principal and interest payments leading to financial chaos — and the courts accepted challenges to executive action, a president would have no choice but to resort to the unimaginable him or herself. Biden is the commander-in-chief, and my guess is that America’s finest wouldn’t be enamored with the idea of missed paychecks, which could lead to missed mortgage payments and so on.
And that gets us right back to the paradox which confronted senior US officials across various government agencies, including those at the Pentagon and the FBI, at regular intervals from 2015 to 2020, and may confront them again in 2024: What does it say about democracy when the only way to save it from itself is to resort to undemocratic measures?