The Debt Ceiling End-Game

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Yves here. This is a very lucid post on the debt ceiling game of chicken that presents some options that I had not heard discussed before, such as a conflicts of law argument for spending in excess of debt ceiling limits.

By Eric Kramer. Originally published at Angry Bear

What should President Biden do if Republicans refuse to raise the debt ceiling?  What should he say he will do, in advance, to avoid a catastrophe and gain leverage in negotiations?

The answer to these questions is far from clear.

Krugman and Klein on Unorthodox Legal Strategies

Paul Krugman argues that the administration should do something – anything – to avoid a debt default.  He doesn’t care about the details – platinum coin, consul bonds, 14th amendment.  He thinks that there is a real possibility that the Republicans will be unwilling to accept any compromise on the debt ceiling, and that this could have such dire consequences that some plan B is essential.  (Krugman has also opposed any negotiations over the debt ceiling, a position I have previously discussed.)  But Krugman worries that the administration has made the adoption of unorthodox policies more difficult by dismissing the possibility of a legal workaround:

I have no idea what happens next. I think there’s a real possibility that Biden officials will in the end be forced by sheer Republican intransigence to adopt unconventional methods after all — a task that will be made much harder by the fact that those same officials have spent months trash-talking the approaches they may need to follow.

One problem with any effort to ignore the debt ceiling is that it will be subject to litigation.  We do not know how this litigation will end.  As Ezra Klein rightly points out, the Supreme Court can do whatever it wants.  In the meantime, while litigation works its way through the courts, it is far from clear that financial markets will function properly.  Furthermore, consistent with my previous posts, Klein believes the politics of repudiating the debt ceiling are bad for Biden:

If testing the question wouldn’t cost anything, there would be no harm in trying. But I don’t think it would have no cost. The strength of the Biden administration’s political position is that it stands for normalcy. The debt ceiling has always been raised before, and it must be raised now. But if the administration declares the debt ceiling unconstitutional, only to have the Supreme Court declare the maneuver unconstitutional, then Biden owns the market chaos that would follow. Who will voters blame in that scenario? Republicans, who say they just wanted to negotiate over the budget, as is tradition? Or Biden, who did something no other president had done and failed?

Right now, at last, the positions are clear. The White House is open to budget negotiations but opposed to debt ceiling brinkmanship. Republicans are the ones threatening default if their demands are not met. They are pulling the pin on this grenade, in full view of the American people. Biden should think carefully before taking the risk of snatching it out of their hands and holding it himself.

Biden should certainly try to negotiate a reasonable resolution of the stand off.  (“Reasonable” to me means a balance of spending cuts and tax increases, cuts that are not harshly targeted at the poor or Biden’s key policy priorities, a substantial increase in the debt limit so that we are not doing this again this year or next, and no sequester.)  But as Krugman argues there is no guarantee negotiating will work, so the administration still needs a plan B.


There are two debt limit strategies other than the platinum coin, consul bonds, and the 14th Amendment that should be on the table in this discussion.

First, the President can try to avert a financial crisis by prioritizing interest payments and reissuing maturing debt (which keeps the total outstanding debt within the debt ceiling limit).  Other spending obligations would be met to the extent that cash is available, consistent with the Treasury’s ability to target and prioritize.  (For example, perhaps the Treasury can send out Social Security checks, but withhold payments to health care providers.)  Here is a short description of how this might play out by Edelberg and Sheiner at Brookings.

If this succeeds in averting a major financial crisis – a big “if”, but certainly possible – hitting the debt ceiling might end up looking something like a government shutdown to the public.  There would be considerable short-term pain, but the public would quickly grasp the stakes and Republicans would be forced to raise the debt ceiling.  As Edelberg and Sheiner note, there would likely be litigation claiming that the Treasury cannot pick and choose who to pay, and that debt holders need to take a haircut.  (For some additional legal, operational, and political problems with this approach see here.)  But at least in this case it might be the Supreme Court that would trigger a financial crisis.

This may be the administration’s plan B.  It would explain why the administration has dismissed some of the extraordinary legal theories that have been bouncing around – the Treasury doesn’t need to mint a platinum coin or issue consul bonds to execute this strategy.  On the other hand, it’s far from a perfect or foolproof option.  Like any failure to raise the debt ceiling, it could lead to a worldwide economic cataclysm, especially if prioritization fails operationally or legally.

Ignoring the Debt Ceiling

Finally, rather than citing the 14th Amendment, the President could argue that when the debt limit is reached, he needs to disobey a duly enacted law of Congress – tax law, spending law, and the debt limit are inconsistent – and that ignoring the debt limit is the least unconstitutional option.  This position has been argued persuasively by Dorf and Buchanan (see here for a brief summary and citations).  The 14th Amendment would be helpful here, but it is not the central issue (the conflict between duly enacted laws would exist even without the language in the 14th Amendment).  This is important, because the language of the 14th Amendment is far from clear, which means that the Court can do whatever it wants.

Litigating Ex Ante

If we hit the debt limit, some degree of financial disruption is inevitable because of uncertainty about the legality of whatever strategy the administration pursues.  (The strategy least subject to legal uncertainty may be paying off all creditors on a first-come, first-served basis, but first-come, first-served will stiff bond holders and will clearly disrupt financial markets.)  Perhaps this uncertainty should have been cleared up through litigation ex ante, although this would empower the Supreme Court to issue an opinion designed to advantage the Republicans.  In any event, although there is a lawsuit in process, it is far from clear that the legal uncertainty will be resolved before the limit is reached.

So Where Are We?

Where does this leave us?  I’m not sure.

In the long run the only solution to our debt accumulation problems is to develop a bipartisan national consensus on fiscal policy.  Obviously, this is impossible in the present moment.  I will discuss this in future posts.

Given the current situation, I tend to agree with Ezra Klein that announcing an intention to resort to unconventional methods is politically risky.  So is refusing to negotiate, at least without a compelling explanation that most voters can understand.  Biden and the Democrats are supposed to be our non-crazy political party.  As I have previously suggested, I do not think that arguments about hostage taking etc. are compelling to voters, and voters may well blame Biden if he refuses to negotiate and a debt default triggers a severe recession.  It may not be fair, but politics ain’t beanbag.

As I have previously argued, the best way to refuse to negotiate on the terms House Republicans have proposed is to offer to negotiate over the future of Social Security, Medicare, and Medicaid.  But this train has probably left the station.  Given where we are today, the best bet is to agree to negotiate and compromise, but insist that spending cuts must be matched with tax increases on the wealthy dollar-for-dollar and to fight for cuts that reflect democratic priorities.  Negotiations on these terms might well fail, but the Democrats would have a solid case that any breakdown was due to Republican intransigence.  This might force Republicans to pass a clean increase or allow Biden to blame Republicans for his unconventional measures (if he takes them) and for any economic harm that results from their intransigence.

Finally, suppose that Biden believes the best response – the least unconstitutional option, and the least economically damaging – to a failure to raise the debt ceiling is to simply ignore the debt ceiling.  This is the Dorf/Buchanan position.  In this case the President could announce that if the debt limit is reached he will keep issuing debt to fulfill his obligations under Congressional tax and spending statutes, because in his judgment this is the constitutionally required solution.  However, to be gentlemanly and bipartisan about it, he could say that he would consider defaulting on the debt if Republican leaders of the House and Senate ask him to do so in writing.

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  1. timbers

    The solution is so easy. Mint 1,000,000,000,000,000,000,000 coins each worth $1,000,000,000,0000,0000,0000,0000,000. Deposit in Treasury as need. At same time, instruct JustUs Department to bring suit against debt limit as unconstitutional. We will never again hear of The Debt limit in our life times. And Biden will have his time freed up to further mess up in Ukraine and start a war over Taiwan.

    1. djrichard

      The coin would pry the “pay go” policy from the cold dead hands of the Dems. Which is why they won’t adopt the coin or pursue 14th amendment or anything else that undermines “pay go” policy.

  2. John

    I was going to say just ignore it, but a handful of trillion dollar tokens are no more real or unreal than any other sort of fiat money. I can see the coin now: one trillion spelled out on the face with the obverse a hand with raised middle finger.

    After the kabuki is ended, abolish that silly law.

  3. Pensions Guy

    I agree with this analysis, but I might add one more wrinkle. Exactly who would have standing to sue and demand that the government default? Even Josh Hawley’s wife (who incorporated a group solely for the purpose of filing suit in Texas to challenge Mifepristone) might have trouble conjuring up a plaintiff who has been damaged by the refusal to default. This analysis would provide a convenient way for the courts to dodge the issue completely. We used to call this a “political question”, so maybe the courts could dust off some of those older cases. Just keep paying the bills and issuing more debt.

  4. KD

    Isn’t this premised on the idea that Biden doesn’t want to pursue “bi-partisan” solutions like cutting social security, privatizing medicare, and cutting non-defense spending? Shouldn’t Biden put on a show to resist, and then cave citing the deficit, giving him cover for adopting his true political preferences? My sense it is more the Democrats in the Senate that actually care, and are trying to prevent Biden from doing his typical corporatist “centrist” selling out ordinary people.

  5. Tony Gaggiotti

    Any economic analysis that begins with Krugman is off to a very bad start.

    1. JonnyJames

      I agree, but I am biased – I haven’t been able to read/watch the dude for years – he’s an apologist for the status-quo and the DNC.

      Michael Hudson (and others) have utterly destroyed his credibility, and he has destroyed his own credibility.

  6. marym

    There’s a lawsuit:

    “The National Association of Government Employees asked a federal court Monday [5/8/23] to block Treasury Secretary Janet L. Yellen from complying with the borrowing limit set by the law, arguing that the statute is unconstitutional. The lawsuit also asks the court to stop Biden and Yellen from defunding any federal government operations unless Congress specifically directs to do so.”

    Friday the plaintiffs filed for an emergency injunction. Here’s more with some additional links:

    The complaint is downloadable from

  7. Lex

    I find the assumption that Joe Biden or the Democratic Party have a plan presumptuous. And based on the administration’s track record so far (see, sanctioning Russia) the likelihood of them having not just a plan but a good plan is a bridge too far.

    The actual plan is probably to make noise until the last minute and then cave, cutting to the bone on important things that benefit the majority and lower classes. Biden will complain bitterly that the evil republicans forced him to do all the things he’s worked for 50 years to achieve. But he had to do it for the greater good and saving America. Vote for him in 2024, he promises to undo it all then.

    1. JonnyJames

      I agree, they always do this kabuki theater and charade – it’s an old tired routine, but memories are short. The phony drama “brinksmanship” is always used until the last minute. The kleptocracy will steal more public resources, while always having plenty for banksters, subsidies for oligarchy, nuclear force “modernization”, ever-larger DoD budgets, weapons, domestic surveillance, more billions for Ukro-Nazis, Apartheid Israel.

      It’s the same old tired bipartisan drama – as if the US is a democracy and respects the so-called rule of law. A lifetime of misinformation and psychological conditioning are hard to overcome.

  8. Mikel

    These debt ceiling debates are like a game of lovey-dovey footsie between neoliberals and neocons being played underneath the bargaining table.

  9. ambrit

    Silly thought here but, has anyone considered that a Depression level economic collapse might be what the Jackpot Party really wants? The decrease in “surplus population” that ensues from such a situation would be in line with Neo-liberal Green Rule #2 “Die.”
    As the Trade Federation envoy says: “We will not survive this.”

    1. Bobby Gladd

      And, don’t forget Trump, cheerleading the Reeps from the sideline to go ahead and let the default happen. He bizarrely thinks it will immunize him from prosecution, given that they intend to Necklace Biden with it, paving the path for him to return in 2024.

      1. ambrit

        Both the Democrat Party and the Republican Party acting in a kabuki fashion.
        I made the name up from an amalgam of Gore Vidal’s “Property Party,” which views the Dems and Repubs as wings of a single political continuum, and William Gibson’s “Jackpot.” Thus, both American Legacy parties as a unitary stealth political entity working for the “Elites” promoting the Club of Rome agenda.
        Stay safe!

        1. John Taylor

          They are exactly. Both Corporate Political Parties are 2 wings of the same bird picking this Nation and it’s workers bones clean. The old 2 Party Tango right into the grave & history books.

      1. ambrit

        Yes, but if I remember correctly, the Federal Government did not default on any debt payments. (Correct me if I’m wrong.) Any default on Treasuries will “break the bank” as far as the bond market is concerned. It will only accelerate the shift away from the dollar as the world’s reserve currency.

  10. Michael.j

    Given the ruling elites’ objective is further centralizing wealth, I’d say the current Kubuki is merely more “Shock Doctrine”. Nothing allows for more austerity for the majority than a good excuse.

    Inasmuch as the largest debt is incurred by MICIMATT, that would be logical location for trimming. Good luck with that, and welcome to the Banana Republic.

  11. nippersdad

    Or the Democratic party could have just spent the past few months banging on a podium:

    I have never really understood how the Republican party rationale of “not having an income problem but having a spending problem” gained sufficient moral high ground to the degree that anyone listens to them. Has anyone ever bothered to add up the costs of their tax cuts? Their wars? Their big business subsidies? The costs to society of deliberately making people homeless and hungry in their own homeland?

    If you don’t want to pay the bills that you have already agreed to it seems like it should be a hard sell that they are being responsible agents of the public purse. Especially when their efforts always immiserate the same people to the benefit of their donors*. No one ever thinks about making the execs at Lockheed Martin earn the money they are so freely given; with the percentages they enjoy of the federal budget there should never be an issue of our running out of bombs, for example.

    If the debt is around thirty trillion and Iraq, alone, cost around eight that should make a pretty good argument that it is the Republican spending problem that is the problem, and that they should just sit down and shut up. I realize that this is a bi-partisan issue but they are the only ones ever squealing about it, and that sounds like an opportunity to me that is just being squandered. It is not like hypocrisy is a rarity in our political discourse, and this should be a prime opportunity to crank up the spin machine.

    That the Biden Administration is not doing so makes it clear that he is just awaiting the moment when he can cave**, as all of our most recent Democratic Administrations have tried to do. Maybe he will be successful this time, and we can finally be rid of the rotting albatross around our necks that the Democratic party represents.

    There was never any need for the minting of a trillion dollar coin or invocations of the Fourteenth Amendment. That they are not having a cage fight tells me everything I need to know: This is an argument that they want to lose.



  12. Steven

    ‘Our currency’ is no longer just the rest of the world’s problem. The country’s – and Europe’s – financiers can no longer export factories, jobs and ‘debts that can’t be repaid and won’t be’ in exchange for the rest of the world’s wealth. Western politicians can no longer run up more government debt in lieu of taxing their wealthiest constituents to pay the costs of government. (There is no more blood in all those turnips.)

    On a metaphysical scale we can stop turning the world’s dwindling resources into more unpayable debt, stop Biden’s expensive geopolitical (i.e. imperial) wars and spend the money combatting real threats like climate change.

    I don’t like economic pain more than anyone else. But it is past time to end all the lies and subterfuge that have sustained the global economy since the end of WWII. There is no small irony that it may be accomplished by people who don’t have a clue what they are doing.

  13. tegnost

    I do not think that arguments about hostage taking etc. are compelling to voters, and voters may well blame Biden if he refuses to negotiate and a debt default triggers a severe recession. It may not be fair, but politics ain’t beanbag.

    Larry summers, prominent democrat and ivy league scumbag, says we need a severe recession to punish workers…add this to the link re migration as economic policy and I must reiterate a long standing belief…no working class person should vote democrat.

  14. Adam

    Democrats could have fully taken care of this during the lame-duck session, but they thought it would end up hurting Republicans so they didn’t. It did hurt Republicans the last couple of times this came up, but it is still an unbelievably stupid way of governing.

  15. 10leggedshadow

    I can’t believe that they actually will compromise on spending cuts. The dems have no backbone and the reps are the party of bad faith. This is no way to run a government.

    1. CarlH

      Perhaps the Dems don’t want to do what they claim to want to do, making a backbone irrelevant. This is part of the kabuki. We give them an out by falling for their schtick. I do not think they are stupid or weak. I do think they are a corrupt, malevolent evil, just like their Repub brothers and sisters in arms.

  16. djrichard

    Obama almost had the “Grand Bargain” in his grasp, but the Freedom caucus couldn’t bring themselves to do a deal with Obama. So we got Sequestration instead. Given what’s going on now, I strongly suspect Biden was instrumental in Tee’ing up both the “Grand Bargain” as well as the Sequestration alternative.

    Biden said he learned from that. Indeed – he learned that we can still make this work yet.

    Indeed the GOP has learned as well, in their case that they needed to play this game of chiken more convincingly. Previously nobody believed them when they said they took off the steering wheel and threw it out the window. Now they have legislation showing they’re serious. So the serious people who matter (Krugman, Eric Kramer/Angry Bear, et. al.) can vouche for the GOP and sell it to the people – that the GOP really means it. Therefore the dems should blink in this game of chicken. All the cover Biden needs.

    Now it’s just a matter of negotiating deals like a union boss would. Keep dissenters away from the negotiating table and spring it on the dissenters as TINA.

    And this will be a gift that keeps on giving. Biden and GOP have set up the playbook for the next time the debt ceiling rolls around.

    1. Starry Gordon

      This is the way it has almost always been done before, but what if the cuts cause actual pain among the folk and they go into the streets? It’s never this time until it is.

      1. djrichard

        My prognostication is that we’re heading into a recession/ depression. Not as a consequence of the debt ceiling or how it gets resolved. We’re on path to a recession / depression regardless. So all of this will be quickly forgotten and the focus will turn to bailouts.

        Only question is how soon it hits. I’m pretty sure this will unfold before the 2024 election. And all of Biden’s efforts to use this fake debt ceiling crisis to tact to the center will have been for naught as the recession / depression will be draped around his shoulders and Dem shoulders. That alone dooms their prospects for winning the WH in 2024.

  17. tinbox

    Seems like this discussion leaves out the fact that the House has already passed a debt ceiling increase. Joe Biden may not like it, but elections have consequences. You know, democracy and all that.

    Why does the White House hate democracy?

    1. djrichard

      I for one hope the deal falls apart. And then the GoP can stare into the abyss and decide whether debt default is better than a clean raise of the debt ceiling. And if they decide for default, whether their messaging will be “elections have consequences”

  18. Mark A Oglesby

    This person, Eric Kramer, keeps going on and on and on about what voters will or won’t do, but please, when has our political systems ever cared about what voters want or are demanding in massive numbers? We are simply promised this but given that (from Neil Young’s ‘Out of the blue into the black’- “You pay for this/but they give you that”). Biden and the Democrats made considerable promises in the 2020 elections, did they keep any of those “PROMISES”? Hell no! So please Mr. Kramer, let up on the will of the voters if just a little bit: We the People do not matter, never have, most likely, never will!

  19. elkern

    IMO, the best way for Democrats to show that they are our “non-crazy political party” is to stop pretending that the GOP *isn’t* crazy – call them out, and explain why negotiating with the GOP is futile and actually dangerous.

    Democrats have let the GOP get away with this charade too many times. That’s *partly* because *some* (many?) elected Democrats are owned by Big Donors, but IMO it’s more a result of a kind of boiled-frog Stockholm Syndrome from 40 years of abuse by the GOP/FOX noise machine. Each time the GOP got away with this blackmail, they got crazier and more blatant about doing it again. Why do they hate America?

    I say Print the damn KrugmanRands, then explain why (Prime Time speech, but make Joe nap for 2 days first). Put the faces of Reagan, Bush, Bush, and Trump on the coins to “honor” them, and explain (complete with graphs – especially the original Ferengi graphs from 1992!) how the Federal Debt increased during their years in office. Display quotes from the Congressional GOP crazies who made McCarthy promise to shut down the Federal Government if they don’t get their way. Explain that the BBB means Federal money to fix potholes, and caving to the GOP means higher local taxes AND more potholes. Look straight at the camera and tell all us old farts “I’m gonna do whatever I have to do to make sure you get your SocSec check next month!”.

    Only question is, what to put on the backside of those coins? Hmmm, “tails”…

  20. MFB

    The problem with relying on card-carrying Democrats for an accurate insight into the misconduct of the Democratic Party is rather obvious: conflict of interest. When the issue is also about something which the leadership of the Democratic Party desires but cannot admit to desiring — namely, using a fake fiscal crisis in order to plunder the poor and enrich the wealthy, including their campaign donors — then such reliance becomes completely absurd.

    I would assume that this farce will end thus:

    The Democrats announce that they will stand firm against the evil Republicans and their demonic balrog with the bad haircut;

    The Democrats do whatever the Republicans tell them to while saying they aren’t;

    The Democrats declare victory;

    Democrat-supporting economists like Krugman explain that starving the poor and allowing infrastructure and social services to collapse is a really good deal for the economy;

    The Republicans increase their control of Congress in the next election.

  21. Henry Moon Pie

    And if you think this is bad, just wait. There is a consensus that is now daring to speak out here and there that wants to at least double defense expenditures back to Cold War levels since our foreign policy consensus is anxious to fight two nuclear powers at once. Add to that a three- or four-fold increase in interest expenditures on the debt. All us Eaters are going to be dumpster-diving.

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