In a weekend deal with House Speaker Kevin McCarthy, President Joe Biden reached an “agreement in principle” on the recently debated debt ceiling, offering to slash benefits for several non-military programs in exchange for raising the national debt limit. Throughout mainstream and independent media, journalists have overwhelmingly characterized the recent back-and-forth between Biden and the McCarthy-led House as a “hostage crisis.” Essentially, in exchange for allowing the government to issue money it’s already agreed to spend, McCarthy has villainously contrived to extract concessions from the executive branch, including new work requirements for SNAP food assistance, funding for a pilot project to help states kick people off the Temporary Assistance for Needy Families (TANF) program, a $28 billion boost to military funding, a scheme to claw back COVID funds from states and municipalities, an end to the student loan payment pause, and a slick new energy permitting process that will make it easier to drill for fossil fuels. Speaker McCarthy has dubbed this agreement “the most conservative deal we ever had.”
In a recent episode of The Rogue Scholar, host Steve Grumbine also used the phrase “hostage-taking” to describe these recent attempts to stall the government’s spending authority. As Grumbine explains, the “debt ceiling” is something US citizens shouldn’t have to care about, an anachronism from World War I, when Congress passed a law to “facilitate and help with making sure debts were paid on time in the midst of war.” In a January 2023 article titled “Stop the Charade: The Federal Budget Is Its Own ‘Debt Ceiling,’” Cornell University law professor Robert Hockett describes this law, the Liberty Bond Act of 1917, as “a means both of (a) conferring more budgetary discretion on the President in funding the U.S.’s First World War Effort, while also (b) imposing some minimal degree of control over the President’s use of that discretion during and immediately after the War.” Essentially, both Grumbine and Hockett agree, as do many other pundits and legal experts, that the 1917 law that birthed the first debt ceiling was designed to serve a very specific early 20th century purpose.
Hockett further explains that the 1974 Congressional Budget Impoundment and Control Act gave Congress “ultimate control over the federal budget process,” fundamentally giving Congress the power to determine its own ceiling. According to Hockett, the debt ceiling did not become a topic of contention until 1995, when politicians like House Speaker Newt Gingrich “rediscovered it in the U.S. Code and decided to try their hands at employing it for stunt-performing purposes like shutting down the government.” That original 90s-era hostage drama has resulted in a series of increasingly less entertaining sequels, which recur with peculiar regularity mid-way through Democratic presidential terms, particularly terms like this one, when Democrats have lost control over one or both houses of Congress.
Die Hard in the US House of Representatives
Appropriately enough, this first ratings-busting showdown between a President and a calculating villain wanting to “bring down the entire international financial system” occurred during a decade when hostage movies had reached their cultural apex. Wanting to capitalize on the success of the 1988 action film that made Bruce Willis a star, countless directors began cloning the winning Die Hard formula, which included some criminal mastermind attempting to hold a group of people hostage over the transfer of money or maybe some antiquated financial instruments like bearer bonds. But one thing that villain did not realize is that lurking somewhere in a nearby air duct or elevator shaft was a tough but lovable cop, cook, or fireman devising some risky and slightly convoluted plot that would hopefully defeat said villain without causing too much collateral damage to the office building, battleship, or hockey rink currently being terrorized.
Although the malevolent charm of the late actor Alan Rickman immortalized Hans Gruber, the original Die Hard villain, history might not applaud the misdeeds of the rotating cast of House Speakers who continue to threaten economic collapse each time a new episode in the debt ceiling franchise gets released. Curiously, these real-life villains don’t want anything quite as cool as $640 million in bearer bonds. Rather, their demands involve spending cuts that result in kicking a million people off food assistance or shutting down the government and threatening to turn off the lights on the national Christmas tree.
The question of historical memory also casts doubt on the enduring legacy of the Bruce Willis wannabes perpetually battling these evildoers. How will historians view these Average Joes (or Bills or Baracks) who lead our nation to the brink where “hostage negotiations” appear to be the only viable option? Why don’t Democrats take command of the debt ceiling during the brief interludes when they control both the executive and legislative branches of government? The thing about sequels and recurring narrative tropes is that eventually viewers find some of the protagonist’s plights predictable and perhaps even avoidable. Even if you just watch the original Die Hard enough times, you start to catch on to the different actions the hero John McClane could have taken to make his life easier. For example, when he first hears the terrorists’ gunfire, he takes a moment to grab his gun. Why doesn’t he also grab his shoes?
Why Don’t the Democrats Just Wear Shoes?
Professor Hockett’s May 2023 essay “‘Not a Thing’: Seven Legal Reasons the Federal ‘Debt Ceiling’ is Null & Void” itemizes seven legal grounds on which the President, Congress, and the Treasury Secretary should simply consider the debt ceiling a non-issue. Here Hockett explains how Articles I and II of the US Constitution give broad budgetary powers to both the legislative and executive branches of the US government, but since these articles do not specify the process by which budgetary decisions should be made, other laws, including the Liberty Bond Act, have been established to outline the processes needed to accommodate each historical time period. From the World War I era into the early 1920s, Congress passed a series of laws that provided the President more discretion in funding national needs, including the war effort. As Hockett explains:
“The ‘debt ceiling’ is rooted in this era, during which Congress relinquished its previous role as legislator of every distinct federal bond-issuance. This Congress did to afford the President – by their own law our primary budget-formulator – more flexibility in determining revenue sources for funding the growing variety of legislated programs. That’s right, the original ‘ceiling’ was about affording the President more discretion, not less.”
This early 20th century “regime” of budget laws granting the President additional budgetary powers then met its end in 1974 during the Nixon administration, when Hockett describes the former President as “more ‘imperial’ than the Constitution allowed.” According to Hockett, Nixon had a habit of choosing for himself which newly passed legislation should be funded. Hockett writes:
“The practice in which he manifested this proclivity was known as ‘impoundment.’ The idea was that instead of spending what Congress had instructed him to spend and what he had agreed, by signing their legislation, to spend, Nixon was routinely spending only what he wished to spend, while ‘impounding’ the rest – in effect, holding it hostage.”
Thus, in an attempt to thwart a hostage threat that would prevent important legislative priorities from being funded, Congress passed the Congressional Budget and Impoundment Control Act of 1974, which outlined the budgetary process that exists to this day. Hockett explains that “the President is prohibited under this regime from not spending what the budget mandates he spend” and further the law “mandates that he borrow any time mandated spending exceeds mandated revenue.” Although Hockett goes on to explain other legal grounds on which the so-called debt ceiling should be ignored, including the oft-cited 14th Amendment, which declares that “the validity of the public debt … shall not be questioned,” the simplest and most relevant legal argument he cites involves this 1974 law, which he says “displaces” the ceiling established in 1917. In fact, Hockett’s legal interpretation of the 1974 act asserts that “any current budget enacted later in time than the last ‘debt ceiling’ hike of course supersedes the latter.” Therefore, any newly legislated budget establishes a new debt ceiling, thus rendering the previously declared debt ceiling null and void.
In the world of a 1990s hostage drama, this would be the equivalent of discovering that the terrorists have been armed with, in Hockett’s words, “leaky water pistols” for the last three decades. If ersatz Hans Grubers like House Speakers Gingrich, Boehner, and McCarthy don’t even have a 1917 law that they can wield “like an AR-15,” then on what grounds are we supposed to consider them dangerous? If their power was negated by a Nixon-era law, then why has our current John McClane impersonator of a President been running around barefoot in a blood-soaked undershirt, showering elevator shafts with bullets and trying to show he takes this debt ceiling threat seriously? Why can’t he just put on his shoes and go home?
Re-writing the Hostage Drama as a Farce
Law professor Rohan Grey of Willamette University has another proposition that could expose this decades-long debt drama as the satirical farce it truly is. In a January 2023 Macro N Cheese interview, Grey begins by explaining the absurdity of Congress members refusing to pay for commitments they’ve already authorized. He clarifies that the “debt” in question is not just Treasury “debt,” which is itself a misnomer since all Treasurys are just interest-bearing financial instruments denominated in the US government’s own currency. Rather, the “debt” that McCarthy and his cohorts continue to question also includes the payment of legal contracts. Grey explains:
“There are checks that are due to go out. There are people that have a legal claim to receive money. There are contracts that have been entered into that people are expecting payment from. There are things that fall under the 14th amendment of the Constitution that says that the president shall take care not to bring the debts of the government into question. These are the debts we’re talking about here. Not just the national debt, not just Treasury debt, but every spending commitment that we have to make.”
So essentially, when McCarthy refuses to raise the debt limit, he doesn’t just want to hijack the government’s issuance of publicly owned Treasury bills, notes, and bonds, but also the government’s ability to pay people who are legitimately owed money, including federal employees and contractors. So each time these House Speakers cloak themselves in the robes of fiscal responsibility, claiming they are in fact the “good guys” who just want to save future generations from runaway debt, remember they are in fact wanting to stop your federally employed friends, neighbors, and relatives from getting the paychecks to which they are legally entitled. A memorable moment occurs in the original Die Hard when Hans Gruber meets the hero and disguises himself as one of the hostages. Luckily, the streetwise McClane immediately sees through the ruse. Unfortunately, our own President lacks the wherewithal to recognize a ruse when he sees one. Worse yet, he lacks the political will to fight on behalf of all the federal employees, contractors, pensioners, and beneficiaries who are held hostage when the House Speaker challenges the government’s ability to pay its bills.
Grey echoes Hockett in calling out absurdities about this contrived clash between McCarthy and the President, a dramatic showdown over an issue that, to coin a phrase from Hockett, is “not a thing.” But while Hockett remains focused on enumerating legal reasons and coining clever phrases to point out that the debt ceiling does not actually exist, Grey’s primary solution to the whole debt ceiling debacle rests in the coining of something more tangible — namely, a coin — a literal coin.
Grey proposes that US Treasury Secretary Janet Yellen use the provisions within the U.S. Code that allow her to “mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.” Grey describes how former U.S. Mint Director Philip Diehl, with the support of Republicans who liked the seigniorage revenue that commemorative coins could produce for the U.S. government, wrote Section 5112K of this 90s-era coin act with the intention of keeping the law very open-ended, to the point where the law only dictates the appearance of such coins, rather than their denomination or use. Theoretically, according to Grey and a growing number of policy analysts and legal experts, a single coin or a collection of coins could be minted in various denominations and then simply deposited into the Federal Reserve account to essentially wipe away the remaining “debt.”
Of course, Modern Monetary Theory economists like Stephanie Kelton remind us that this “debt” is not the same as the household debts that most of us hold. Instead, the national “debt” is just a misleadingly named number – essentially the difference between what the US government has spent over the years and what it has taken back in taxes. As Kelton often points out, government “debt” results in a private sector surplus, which is arguably a good thing. In fact, in her 2020 book The Deficit Myth: Modern Monetary Theory and the Birth of the People’s Economy, Kelton maintains that “fiscal surpluses suck money out of the economy.” Kelton presents evidence from Professor Frederick Thayer, who wrote in 1996, just one year after the first major debt ceiling showdown between Newt Gingrich and President Clinton, that “the US has experienced six significant economic depressions” and “each was preceded by a sustained period of budget balancing.” Kelton goes on to argue that the fiscal surpluses resulting from Clinton’s presidency “weakened private sector balance sheets, magnifying the damage caused by the arrival of the Great Recession, which began in 2007.”
Grey, as a legal scholar and member of the MMT community, would agree with Kelton that the national debt is just a number, and like Hockett, he can cite several legal reasons, including the 14th Amendment, explaining why the national “debt” — such that it is — must simply be paid and not questioned by an artificial limit. But since the size of that number continues to cause so much conflict and consternation, Grey’s comically simple proposal to mint a coin large enough to bring the balance to zero seems like an appropriate conclusion to this decades-long drama turned farce. In his January interview with Steve Grumbine, Grey asks and answers this rhetorical question: “What’s the big sin of the coin? It sounds silly. That’s it. It doesn’t sound serious.” He then paraphrases an argument from renowned economist John Kenneth Galbraith’s 1975 book Money: Whence it Came and Where It Went: “In that book he said the process by which money is created is so simple that the mind is repelled. For something so important, a greater degree of mysticism seems appropriate.” Treasury Secretary Yellen has dismissed her power to mint a trillion-dollar coin as a “gimmick,” but as a growing number of Americans understand the gimmicky nature of our entire financial system, including the fact that suspending debt limits is uncontroversial during Republican administrations, it seems appropriate to just end this tragicomedy now and put us all out of our misery.
Grey narrates a possible final scene for this achingly long melodrama:
“So my suggestion is … mint a really big papier-mâché coin … and then we roll it from the Mint to the Fed. And then when we get there, we take out a sledgehammer and we just bash the hell out of it … And there’s a tiny little coin inside … You break the whole thing. There’s a lot of candy. There’s a lot of chocolate coins, and there’s one real coin. And like Charlie and the Chocolate Factory, we get all the kids in DC to come. They all get to have a chocolate coin. And the one who finds a trillion-dollar coin hands it over to the Federal Reserve.
There’s a big ceremony. We take a lot of cameras, and then we put that coin in a nice glass case, and we put it in the Smithsonian. And we teach this moment as a moment when America first of all got past all of those myths about the gold standard and finally put this deficit terrorism to bed with the white supremacy that goes with it.”
Grey’s storybook ending, which bears a resemblance to the end of Sense & Sensibility, where Alan Rickman himself smilingly tosses a handful of coins to a group of village children, would be a great improvement over the ending we’re enduring now. Since our current barefoot and blood-soaked McClane stand-in has basically surrendered the bearer bonds to the water-gun-toting terrorists, a comically simple deus ex machina twist like a trillion-dollar coin would bring the theatrics of the last three decades to a fittingly farcical conclusion, something akin to Janet Yellen lobbing Monty Python’s Holy Hand Grenade at a killer bunny. Though their approaches differ, both Hockett and Grey agree that this is a conflict that shouldn’t exist. In a nation that creates its own fiat currency, with a Constitution that affords broad budgetary powers to both the executive and legislative branches, the artificial contrivance of a “debt limit” is a plot device for a film no one should sit through. As this current installment of the debt ceiling franchise draws to an unsatisfactory close — with people losing access to food assistance, fossil fuel companies gaining freer reign over our land, and an already bloated military gorging itself on another funding hike – let us vow to make this our last debt ceiling showdown. Let us band together and demand our leaders stop using manufactured crises as an excuse to hold hostage the resources Americans need to survive. Let the rotating cast of Hans Grubers and pseudo-John McClanes plunge to their political demise. Yippee-ki-yay.