Speaker 1: Hello, and welcome to another episode of The Odd Lots Podcast.
Speaker 1: I'm Joe Wisenthal.
Speaker 2: And I'm Tracy Alloway.
Speaker 1: Uh, Tracy, stupidest law in the world. The debt ceiling.
Speaker 1: We're still here.
Speaker 2: I was gonna say, you'll have to narrow that one down,
Speaker 2: but I know exactly what you're talking about. Yeah, the
Speaker 2: debt ceiling. I am really struggling with this one. I'm
Speaker 2: struggling to get into it because I feel like we've
Speaker 2: been here before and we kind of know how it's
Speaker 2: going to play out. But of course the wild card
Speaker 2: this time around is just I guess the lengths to
Speaker 2: which a certain portion of a certain party is willing
Speaker 2: to go and using this as political leverage.
Speaker 1: Yeah, well, you know, I think what you said sort
Speaker 1: of captures the spirit perfectly. We know how this plays out,
Speaker 1: and it probably will play out as you have in
Speaker 1: your head, except that the potential in the scenario where
Speaker 1: it doesn't play out like that is very bad. People
Speaker 1: think yes, and so you have this situation where like, oh, everything,
Speaker 1: you know, we all know how it works out. It's
Speaker 1: all theater. They resolve it, and that's probably true, and
Speaker 1: yet the possibility that somehow it doesn't get worked out,
Speaker 1: it would be unprecedented and potentially very calamitous.
Speaker 2: Well, the other thing that's happened this time around, and
Speaker 2: again I am sort of struggling to get excited about
Speaker 2: this particular debt ceiling episode. But the other thing that's
Speaker 2: happened is that the White House started out this whole
Speaker 2: thing saying that it wasn't going to negotiate on the
Speaker 2: debt ceiling, and yet here we are, we're recording this
Speaker 2: on May twenty third. It seems like they're negotiating.
Speaker 1: They're absolutely negotiating. And it made sense for the White
Speaker 1: House to say that. And the reason I say that
Speaker 1: is because Biden was there in twenty eleven when Obama
Speaker 1: negotiated the dead ceiling deal with the House Republicans and
Speaker 1: sort of saw first hand how that sort of derailed
Speaker 1: Obama's presidency, and Biden had front or seats to that,
Speaker 1: and so you figure, like, from Biden's perspective, it's like, well,
Speaker 1: I'm not going to go down that road again. I
Speaker 1: saw how this derailed the White House the last time
Speaker 1: I was in the White House, and yet here we
Speaker 1: are and they I would say, at a minimum, the
Speaker 1: White House has failed to a stick by that and
Speaker 1: failed to sort of avoid the same path that Obama
Speaker 1: went down.
Speaker 2: What if saying you're not going to negotiate was in
Speaker 2: itself a negotiation tactic.
Speaker 1: It may have been. It may have been, but it
Speaker 1: seems to have failed. And so right, like that's like
Speaker 1: that's sort of the thing. It's like, well, that was, no,
Speaker 1: here we are.
Speaker 2: I don't think the intent was that in late May
Speaker 2: of this year we would be talking about the President
Speaker 2: potentially invoking the fourteenth Amendment to deal with this issue.
Speaker 2: That couldn't have been the game plan. And can I
Speaker 2: just say one more thing about this episode. I really
Speaker 2: resent having to turn this into a constitutional law podcast,
Speaker 2: Like I never wanted that for my career. And yet
Speaker 2: here we are.
Speaker 1: And yet here we are exactly right, and you know,
Speaker 1: again you sort of said it like we the problem.
Speaker 1: You said, you know, the president, the White House might
Speaker 1: have to invoke the fourteenth Amendment or might except that,
Speaker 1: except that the White House has already said that's not
Speaker 1: a great option. It doesn't really want to do that option.
Speaker 1: And so if there are these various off ramps, like
Speaker 1: if there are these various alternatives to just sort of
Speaker 1: raising the dead ceiling via Congress, like it's been done
Speaker 1: dozens of times in the past. The White House has
Speaker 1: like trashed every one of those operations.
Speaker 2: This is the process with talking specifically about the off
Speaker 2: ramps is you kind of tell everyone what your least
Speaker 2: preferred option is, and all of them are bad options,
Speaker 2: it seems like for the White House. And so there's
Speaker 2: no like they have to really pointed to this is
Speaker 2: the thing that would be a massive win for us.
Speaker 1: Right, they just point to the things that would be
Speaker 1: a loss for them. Should we get started? So how
Speaker 1: did the White House get into a position in which
Speaker 1: it expressly said it would not? How is the White
Speaker 1: House negotiating over the debt ceiling when it expressly said
Speaker 1: for months and months that there would be no negotiation.
Speaker 1: Today we are going to be speaking with two guests,
Speaker 1: Gonda Amernath, executive director and Employe America and Arnap Data,
Speaker 1: senior counsel for employ America. So let's get started. Is
Speaker 1: the basic intro true skanda that the White House said
Speaker 1: it wasn't going to negotiate and is now negotiating.
Speaker 3: Thanks for having me on a thank I think that
Speaker 3: descriptively checks out that they promised to not negotiate that
Speaker 3: they wanted a clean debt ceiling increase, right, and yet
Speaker 3: here we are where it very likely will not be
Speaker 3: a clean debt ceiling increase, and they are very clearly negotiating.
Speaker 3: I don't know how to take issue with that description.
Speaker 2: Can I ask a really basic question just before we
Speaker 2: go any further, But I would be curious to get
Speaker 2: either of your opinions on this. But what is it
Speaker 2: about the debt ceiling that makes it such an attractive
Speaker 2: pressure point for this kind of political wrangling?
Speaker 3: I think it's a ransom note of sorts, right, So
Speaker 3: it ends up being this catastrophic risk if people perceive
Speaker 3: that we don't raise the deat ceiling, then we're going
Speaker 3: to default or it's going to lead to chaos and
Speaker 3: how government pays for various things, and that chaos is
Speaker 3: owned by the executive branch. And so if you are
Speaker 3: in Congress and you want to extract concessions, this is
Speaker 3: a kind of holdout problem where I can effectively force
Speaker 3: you into position of giving whatever I want in order
Speaker 3: to raise the debt ceiling as a matter of procedure.
Speaker 3: And it's all kind of operating in the shadow of
Speaker 3: what is a reasonable concession to extract, and that hold
Speaker 3: out problem is, yeah, a very real one that the
Speaker 3: White House is facing right now.
Speaker 4: Add to that too, Yeah, add to that too, And thanks,
Speaker 4: thanks so much for having me that the uncertain timeline
Speaker 4: of it, I think really necessitates that hostage tanking mentality.
Speaker 4: This is not like the typical appropriation cycle where you
Speaker 4: have an X date from the beginning. You know, when
Speaker 4: this was first announced for four months ago, when Secretary
Speaker 4: Ellen said we're going to hit the dead ceiling. We
Speaker 4: have to start taking extraordinary measures. Even the date was
Speaker 4: highly uncertain at that point. We're now a week before
Speaker 4: June first, which they say might be the X date,
Speaker 4: but we're still not sure. And so it creates this
Speaker 4: kind of uncertain environment that I think is really because
Speaker 4: you don't have the opportunity to make certain cuts or
Speaker 4: certain demands during that typical process of authorization or appropriations.
Speaker 4: It's kind of a convenient place to take hostage the
Speaker 4: global economy.
Speaker 1: So what was the White House hoping for when it
Speaker 1: said months ago, we're not going to negotiate over the
Speaker 1: dead ceiling this time. What was sort of the original
Speaker 1: vision there?
Speaker 3: So I think the hope in the gamble was that
Speaker 3: the extremist nature of the demands, or what was perceived
Speaker 3: to be extreme by the administration. It's called what's the
Speaker 3: I know it as the LSGA Limit Save and Save
Speaker 3: Growth Act or Limit Save and Grow Act would be
Speaker 3: seen as so dangerous and even just the process of
Speaker 3: getting to that piece of legislation would reveal so many
Speaker 3: extreme demands, all to raise the dead ceiling, that you'd
Speaker 3: have this confluence of political pressure, media driven pressure, and
Speaker 3: a sort of maybe CEO driven pressure. There's a lot
Speaker 3: of reports of Secretary Yellen trying to get major CEOs
Speaker 3: to talk to Republicans persuade them of the importance of
Speaker 3: raising the dead ceiling, and that through this sort of
Speaker 3: these different pressures, the Republicans would see the light that
Speaker 3: they would feel like they had no other choice of
Speaker 3: the coalition would fracture and they would have to raise
Speaker 3: the debt ceiling cleanly.
Speaker 5: I would just yeah, I.
Speaker 4: Would agree with all of that and say, I think
Speaker 4: there was this particular question, that particular decision that just
Speaker 4: gond disappointed about CEOs, that these interests would be advocating
Speaker 4: lobbying with Congress. You guys have to do the right thing.
Speaker 4: Here because they're demanding a clean debt ceiling hike. And
Speaker 4: I think that was a real miscalculation because you know,
Speaker 4: Jamie Diamond doesn't have an interest in a clean debt
Speaker 4: ceiling hike on its own.
Speaker 5: He just wants a debt ceiling hike.
Speaker 4: And so I think that's really part of the miscalculation
Speaker 4: that happened here.
Speaker 2: Wait, can you can you talk a little bit more
Speaker 2: about the distinction between a debt ceiling hike versus a
Speaker 2: clean debt ceiling hike and so what is the difference there?
Speaker 2: And then secondly, why does it seem like the Democrats
Speaker 2: more into the idea of a clean debt ceiling hike
Speaker 2: this time around?
Speaker 4: Yeah, so, by clean debt ceiling hike, it just means
Speaker 4: raising the limit on the debt ceiling without any other
Speaker 4: changes in the law and no strings attached. And what's
Speaker 4: likely to happen now with a deal is you're going
Speaker 4: to have a hike in the debt ceiling, but it's
Speaker 4: going to come attached with paps on spending, potentially cuts
Speaker 4: to spending. And also there's all these other you know,
Speaker 4: items that make I would emphasize very very little, have
Speaker 4: very little impact on the budgetary outlook of the country.
Speaker 4: But are things that a certain party is interested in,
Speaker 4: for example, like work requirements on certain welfare programs. That's
Speaker 4: those are kind of the concessions that the administration will
Speaker 4: have to give here without having a clean debt ceiling hike.
Speaker 1: Okay, And so this is you know, again, we have
Speaker 1: this in twenty eleven where it went down virtually to
Speaker 1: the wire at the very last second. Oh, the Obama
Speaker 1: administration and the newly elected Tea Party majority led by
Speaker 1: John Bayner, they came up with this dead ceiling hike,
Speaker 1: and they had the sequester, and there was sort of
Speaker 1: a limit to growth of both discretionary and defense spending,
Speaker 1: and arguably it slowed the trajectory of the recovery coming
Speaker 1: out of the Great Financial Crisis. Talk to us about
Speaker 1: the alternatives. So, okay, we saw what happened in twenty eleven,
Speaker 1: We saw how that potentially derailed the recovery. What could
Speaker 1: the White House theoretically have done differently, And we'll get
Speaker 1: it into details, but months ago, other than say please
Speaker 1: just give us a clean dead ceiling hike.
Speaker 4: Yeah, I think the biggest thing I would emphasize here
Speaker 4: and I think perhaps the biggest miscalculation was not developing
Speaker 4: the operational readiness to undertake unilateral actions. So obviously there
Speaker 4: are a number of different avenues that they could take
Speaker 4: unilaterally that we can talk about more.
Speaker 5: Platinum Coin is I think a favorite of some people,
Speaker 5: perhaps some people on this podcasts.
Speaker 4: Yeah, perhaps there's also this this idea that's been floating
Speaker 4: around for console bonds, these perpetual bonds. All of these
Speaker 4: things take some operational readiness to be executed, and the President,
Speaker 4: I think, just a couple of days ago, said even
Speaker 4: if we wanted to take unilateral action, we couldn't do
Speaker 4: so in a number of weeks. And I think that
Speaker 4: perhaps that lack of operational readiness is maybe the biggest
Speaker 4: fault that you can put on the Treasury Department, which
Speaker 4: which is when they're, for example, issuing a new security,
Speaker 4: a new debt instrument, it takes a lot of work.
Speaker 4: I'm not a debt expert, and I don't understand their
Speaker 4: programs internally, but it takes a lot of coding. There's
Speaker 4: a lot of different things with auction design and that
Speaker 4: they need to do to get these securities ready, and
Speaker 4: they could have taken steps four months ago when they
Speaker 4: knew they were coming to the debt ceiling to be
Speaker 4: able to do that if we came to a default moment.
Speaker 4: And I think there's a broader principle to abstract here,
Speaker 4: which is, when you are dealing with a environment of
Speaker 4: high uncertainty, the most important course you could take, I
Speaker 4: would argue, is to maintain as much optionality as possible,
Speaker 4: and part of that is developing that operational readiness. And
Speaker 4: so yes, let's say six months ago, if Treasury had
Speaker 4: done an operational test to deposit a coin to mint
Speaker 4: a new coin and depositive for ten thousand dollars, or
Speaker 4: if it had started taking the steps to issue console bonds,
Speaker 4: certainly that would have gotten noticed. These aren't you know,
Speaker 4: it's not the Fed, the Treasury. Good agencies do a
Speaker 4: number of tests and pilots. They don't always get a
Speaker 4: lot of attention. This probably would, but I think in
Speaker 4: the broader context of the uncertainty they were dealing with.
Speaker 4: Both with divided government, we saw a very protracted speaker fight,
Speaker 4: which just is another indicator of the volatility within Congress
Speaker 4: that you have to manage. Not developing that operational readiness,
Speaker 4: to me, is a really, really big mistake.
Speaker 2: I'm just thinking back to the interview with Terry Duffy.
Speaker 2: He was sort of talking about whether or not he
Speaker 2: would leave Chicago, and he threw out there that they
Speaker 2: had renegotiated all their leases to make them more flexible.
Speaker 2: They didn't actually own any property. That seems like laying
Speaker 2: the groundwork for a.
Speaker 1: Possibility executive leadership.
Speaker 2: Okay, can we talk about the fourteenth Amendment, because all
Speaker 2: I know about it is that it says something along
Speaker 2: the lines of the validity of the public debt of
Speaker 2: the US shall not be questioned, something like that. What
Speaker 2: is this option? Where did it come from? And why
Speaker 2: does it seem to be a very big deal about
Speaker 2: whether or not President Biden will actually invoke it.
Speaker 3: I'm going to toss this over to my senior council.
Speaker 4: Yeah, so basically, I mean, you got you got the
Speaker 4: text right this thing.
Speaker 2: I am reading it from the screen to be fair.
Speaker 4: But yeah, okay, So basically, this is a post Civil
Speaker 4: War amendment that was passed, and there are a number
Speaker 4: of reasons.
Speaker 5: Why it was passed.
Speaker 4: There's they wanted to be able to They wanted to
Speaker 4: make sure that bonds that were issued to pay for
Speaker 4: the Civil War were not renegged on. But basically the
Speaker 4: text of that that a lot of constant scholars who
Speaker 4: are you know, I would say highly respective, believe is
Speaker 4: that it is unconstitutional for the US to default.
Speaker 5: Everything needs to be done to avoid a default.
Speaker 4: And I think, just to take this into a broader
Speaker 4: context here, there's because I think sometimes a bit of
Speaker 4: a challenge, a bit of a mistake in how people
Speaker 4: understand the fourteenth Amendment in this context. And basically, what
Speaker 4: I would say is the fourteenth Amendment is not a verb.
Speaker 4: You can't fourteenth Amendment something. This isn't something that is
Speaker 4: like as as our mutual friend Carlos Muchra says, this
Speaker 4: is not a sword. And so I think sometimes people
Speaker 4: think that you can just like invoke the fourteenth Amendment
Speaker 4: like you're Michael Scott in the office declaring bankruptcy.
Speaker 2: And somebody woke the fourteenth exactly, and that's not really
Speaker 2: how it works.
Speaker 4: What the fourteenth Amendment does is it places a obligation
Speaker 4: a duty the executive branch to avoid default. That places
Speaker 4: a duty on the executive branch to find every lawful
Speaker 4: avenue to avoid a default. And that's where you start
Speaker 4: to get into the different tools that are available at
Speaker 4: the executive branch's discretion. But that's what I would really
Speaker 4: emphasize about the fourteenth Amendment.
Speaker 2: So it's more a frame of mind rather than like
Speaker 2: an actual set of things that you could start doing,
Speaker 2: right like Biden.
Speaker 1: Biden took an oath to protect the constitution. In the
Speaker 1: Constitution is the fourteenth Amendment, And therefore the argument would
Speaker 1: be that in order to sort of uphold his oath
Speaker 1: to defend the Constitution, he has to find a way
Speaker 1: to pay the debt regardless of what the law says.
Speaker 5: SCN.
Speaker 1: I want to go to you because we sort of
Speaker 1: glossed over something important. You and Arna were talking about
Speaker 1: a console bond bond. How if the government is running
Speaker 1: up against the debt ceiling, is there an argument that
Speaker 1: there is a type of bond that would allow the
Speaker 1: government to keep borrowing and not violate that What is
Speaker 1: a console first of all? And why would that not
Speaker 1: violate the debt sealing law?
Speaker 3: So the debt sealing statute is very short, very easy
Speaker 3: to read. You don't have to be a lawyer to
Speaker 3: understand this. I am not a lawyer. I have a
Speaker 3: lot agree so I'm in this sort of in between space.
Speaker 3: But you can read the statute and you can see
Speaker 3: how it is written in terms of face value of
Speaker 3: the bond. Ah And so there are bonds that have
Speaker 3: no face value, specifically perpetual bonds, and you can issue
Speaker 3: perpetual bonds with obviously they existing perpetuity. You can put
Speaker 3: call options on them so that you can take them
Speaker 3: out of circulation later. But these bonds also have precedent
Speaker 3: in US treasury history. You issued them as part of
Speaker 3: financing the Panama Canal. These were things that existed before
Speaker 3: the debt ceiling Statute was passed and general bond authorities
Speaker 3: were passed. So if there are bonds that exist that
Speaker 3: don't have a face without face value, and you can't
Speaker 3: issue them under the bond authority. Again, there's also something
Speaker 3: unique about issuing bonds. There doesn't have to be that's
Speaker 3: for the statute. There doesn't have to be a time
Speaker 3: limitation where principle must be repaid. This is in contrast
Speaker 3: to treasury notes and treasury bills. Again, these are things
Speaker 3: that are pretty plain to see in the statutes. You
Speaker 3: don't have to make exotic interpretations, you don't have to
Speaker 3: make any sort of particularly strained interpretation of the law
Speaker 3: to figure out that these things are possible. These things
Speaker 3: have been done. They were pretty well understood by Congress
Speaker 3: when they passed the debt ceiling. And if this is possible,
Speaker 3: if we all can agree that perpetual bonds are possible,
Speaker 3: then what the implication of fourteenth Amendment, at least under
Speaker 3: certain interpretations. I'm not here to tell you there's only one.
Speaker 3: But if you think that that is a constraint, if
Speaker 3: you think avoiding default is a really important thing for
Speaker 3: both economic and constitutional reasons, you have actually every obligation
Speaker 3: to find a solution to this problem and to try
Speaker 3: and reconcile all of the laws of the United States.
Speaker 3: That's the part that I think is sort of being
Speaker 3: glossed over by the Treasury, which is to say, oh,
Speaker 3: we don't have we have a bad situation where if
Speaker 3: the dead ceiling binds, we have no choices. Therefore we
Speaker 3: may have to talk about the fourteenth Amendment. But it's like, no,
Speaker 3: you do have other options. Some are probably better than others,
Speaker 3: but I will you do have a suite of solutions
Speaker 3: on the table you could consider. One of them could
Speaker 3: be the coin. There are pros and cons to it
Speaker 3: from a legal perspective, but it's not, at least in
Speaker 3: terms of literal interpretation. That's pretty strong. There are console bonds,
Speaker 3: perpetual bonds that are stuff you can just read in
Speaker 3: the I say, the bond authority is the statute right
Speaker 3: after the dead cealing. So you have plenty of room
Speaker 3: to identify alternative solutions. And if you identify alternative solutions,
Speaker 3: I guess simple negotiation theory, simple game theory would say
Speaker 3: that more alternatives, more viable alternatives, strengthens your negotiating position,
Speaker 3: strengthens the likelihood of a clean debt sealing increase. And
Speaker 3: if you play down those alternatives, if you think those
Speaker 3: alternatives are less viable, and you telegraph that to the world,
Speaker 3: that'll actually reduce your bargaining position.
Speaker 1: Tracy, I have a question for you. No, No, it's
Speaker 1: a serious question. It's a serious question. Actually, does the
Speaker 1: idea of issuing perpetual console bonds offend you less than
Speaker 1: the coin?
Speaker 3: Yes?
Speaker 1: Okay, I kind of feeling this is like this is
Speaker 1: me and Tracy. It's like coin consopts, Like both of
Speaker 1: them are like these sort of accounting legal workarounds, and
Speaker 1: they sort of like appeal and disappeal to different parts
Speaker 1: of us.
Speaker 2: I find comfort in using like the traditional language and
Speaker 2: structure of the existing financial system in solving a looming problem,
Speaker 2: rather than trying to do something completely out of the box.
Speaker 2: Let's just put it that way.
Speaker 1: That's a good uh.
Speaker 2: But actually, could I since we're on the topic of
Speaker 2: like more reasonable solutions versus large novelty coins, can I
Speaker 2: ask about like another basic solution that I have seen?
Speaker 2: You know, people talk about a little bit, But couldn't
Speaker 2: couldn't you just have like a vote on the debt
Speaker 2: ceiling and just like maybe create a situation where some
Speaker 2: more moderate Republicans could switch sides and make it happen.
Speaker 3: You can pass the debt ceiling increase. You could. The
Speaker 3: challenge with doing this through Congress when it's center divide
Speaker 3: government is the legislative procedure, where again they're certainly better
Speaker 3: experts and more thoughtful people than myself. But a discharge
Speaker 3: tradition in which you can actually get something through government,
Speaker 3: even while the Speaker of the House very intently wants
Speaker 3: to have the debt ceiling increase be attached to other
Speaker 3: policy itself. That takes a long time. That takes a
Speaker 3: long time, and it's not something that's very easy to
Speaker 3: execute on. And I think these are things that get
Speaker 3: to talk to about a lot in maybe sort of
Speaker 3: more kind of wish casting of like, oh, there will
Speaker 3: be a clean debt's the only increase because there'll be
Speaker 3: a discharge petition that will undercut Kevin McCarthy. And these
Speaker 3: things have always been kind of a hope's wishes, dreams
Speaker 3: as opposed to the realities of how long it takes
Speaker 3: to get some of those things through, and it may
Speaker 3: even take longer than trying to identify alternative lawful solutions
Speaker 3: on the part of Treasury.
Speaker 4: Wow, these process take time. Legislative You know, I worked
Speaker 4: in the Senate, so I don't have a good sense
Speaker 4: of House procedures. But these things take a lot of time,
Speaker 4: and there's a lot of maneuvering that can happen even
Speaker 4: with the discharge petition, And so you know, you're you're
Speaker 4: kind of in that place where if you had tried
Speaker 4: some of that stuff a couple of months ago, maybe
Speaker 4: the urgency wouldn't be there for the moderate Republicans that
Speaker 4: Tracy may mentioned, And so you're always trying to balance
Speaker 4: those issues. And I think it's it's really hard to
Speaker 4: do this stuff legislatively.
Speaker 2: So this is one of those instances where a technocratic
Speaker 2: solution that would be i mean hopefully done fairly quickly,
Speaker 2: it might be the more viable option.
Speaker 6: Yes, yeah, yeah, So I want to actually talk about
Speaker 6: the operational aspect of some of these workarounds.
Speaker 1: So one where you know, the coin and theoretically could
Speaker 1: be minted tomorrow and according to Philip Deal who he
Speaker 1: had on the podcast, it'd be a few days. What
Speaker 1: is you mentioned arna the coding, So it's like, let's
Speaker 1: say Janet Yellen woke up Tomorrow's like, all right, you
Speaker 1: know what, We're going to issue consoles. We're going to
Speaker 1: issue these perpetual bonds because it'll allow us to keep
Speaker 1: borrowing money without adding to the face value of the debt.
Speaker 1: What do we know about the you talked about operational preparedness,
Speaker 1: which the Treasury could have been working on six months ago.
Speaker 1: What do we know about what it would take to
Speaker 1: even like launch console auctions the way we'd have for
Speaker 1: like thirty year and ten year and five year bonds,
Speaker 1: et cetera.
Speaker 4: Yeah, So there's there's a number of things that happen
Speaker 4: when I should clarify this is not my area of expertise.
Speaker 4: I'm kind of just going off with small other smart
Speaker 4: folks have told me so apologies if I get something
Speaker 4: slightly wrong. But basically what it is is when Treasury
Speaker 4: issues and new security, they go through a number of
Speaker 4: tests and a number of calculations, and they test kind
Speaker 4: of how this is going to be priced by the market,
Speaker 4: whether they're actually going to sell. So there's all of
Speaker 4: that prep work first that has to go into it,
Speaker 4: and then there's the coding challenge itself of they've never
Speaker 4: priced a perpetual bond before, at least on their new
Speaker 4: auction system, so I think the.
Speaker 5: Highest they've gone is thirty years.
Speaker 4: Maybe they've done fifty, but they've never really tried to
Speaker 4: price a perpetual bond, and so there's time that once
Speaker 4: you've kind of once you've put that into the coding
Speaker 4: into the computer mechanism, you then also have to go
Speaker 4: through all that analysis and Treasury just doesn't have I
Speaker 4: think the muscle memory. There was a new security that
Speaker 4: was issued sometime during the Obama administration and it took
Speaker 4: about six seven months for it to get off the ground,
Speaker 4: and I don't think.
Speaker 5: You can, you know.
Speaker 4: Unfortunately, I mean we saw this in a different context
Speaker 4: during the COVID recovery, during the pandemic, when they passed
Speaker 4: the Cares Act and had unemployment this great, these great
Speaker 4: additions to unemployment, insurance and state agencies couldn't change their
Speaker 4: Cobel programmed systems to actually give out money in time.
Speaker 4: And so I think there's like, you know, Treasuries I
Speaker 4: think probably better equipped and probably has better software systems,
Speaker 4: but these things still take a lot of time.
Speaker 3: If I could just give a quicker more recent example, obviously,
Speaker 3: the Undersecretary reneution they launched the twenty year bond, right so,
Speaker 3: and that took a long time to sort of plan out. Ideally,
Speaker 3: this is going to be an emergency. And look, I
Speaker 3: think arm is probably selling some of his knowledge a
Speaker 3: little short in terms of we've talked to a few
Speaker 3: people who've worked into Treasury and gave us some insight
Speaker 3: into the time it takes to execute this. It's not
Speaker 3: it would not be easy to do it super quickly,
Speaker 3: but it certainly would be. It could still be done
Speaker 3: if you give it enough time. The question really is,
Speaker 3: is the treasure you've been thinking and working about on
Speaker 3: this in the background. Is there something that's like they've
Speaker 3: been trying to keep their cards closer to the vest.
Speaker 3: They're trying to indicate that they're not looking at alternatives,
Speaker 3: but they really are. I don't know why they would
Speaker 3: trash alternatives while still working on them, but it's possible
Speaker 3: they are, And if they are, that would be good
Speaker 3: to know because that would obviously create the kind of
Speaker 3: pathway to avoid default and avoid a lot of the
Speaker 3: chaos that's tied to the debt ceiling itself.
Speaker 4: There's no opportunity like a crisis, and I think there's
Speaker 4: obviously this process that they go through with issuing these bonds.
Speaker 4: But I hope that someone at Treasury is thinking, Okay,
Speaker 4: let's say we can't do it through our existing process.
Speaker 4: We can't do it like that twenty year issuance that
Speaker 4: Secretary Mnuchin did.
Speaker 5: Is there another way?
Speaker 4: Is there some you know, we obviously we did bond
Speaker 4: issuances and new bond issuances before all the software is created.
Speaker 5: So can I hope that.
Speaker 4: Someone there is going through and trying to find an
Speaker 4: avenue to do this quickly if possible. But that also
Speaker 4: doesn't take away from the fact that they should have
Speaker 4: been doing the operational readiness exercises six months ago.
Speaker 2: Is there any indication why they wouldn't have done that? Is,
Speaker 2: do we just think they sort of dropped the ball
Speaker 2: and thought that this issue would be resolved, even though
Speaker 2: there's quite a lot of evidence out there that there
Speaker 2: is a sort of more extremist element of the Republican
Speaker 2: Party who is maybe willing more willing to take this
Speaker 2: down to the wire.
Speaker 5: No.
Speaker 4: Look, I think I mean, I tend to give I
Speaker 4: think it's good to give a lot of these people
Speaker 4: the benefit of the doubt.
Speaker 5: They're good faith actors.
Speaker 4: I think that what they would probably tell you is
Speaker 4: that if we take these steps, people are going to notice,
Speaker 4: and then it's going to become oh, you're doing an
Speaker 4: operational test for the coin, Biden is thinking about minting
Speaker 4: the core, and it becomes a story, and I think
Speaker 4: they view some risk in that. To me, that just
Speaker 4: comes down to a different risk calculation. I think that
Speaker 4: that would be a if there is risk to those
Speaker 4: stories coming out, I think that's a risk worth taking.
Speaker 4: And I think, if any if it also would strengthen
Speaker 4: your hand in negotiation. In negotiations, knowing that you're taking
Speaker 4: the steps to do this, and if Congress wants to
Speaker 4: take away that authority, they can go ahead and do it.
Speaker 4: But until then, we're going to make sure we have
Speaker 4: the operational readiness to do what we need to do.
Speaker 2: I would just like to say that Treasury has an
Speaker 2: open invitation to come on this show and reveal that
Speaker 2: they have in fact been working on either premium bonds
Speaker 2: or the coin. Just throwing that out there.
Speaker 1: That's the invite. Twenty four to seven. You want to
Speaker 1: schedule something, get two and in the morning we'll wake
Speaker 1: Kerman up and say, hey, we're talking to the Treasury
Speaker 1: about consoles and the coin. We're recording in fifteen minutes,
Speaker 1: let's do it. I want to talk about one more
Speaker 1: option that we haven't talked about, and I think there's
Speaker 1: two dimensions to it, which is the idea of we
Speaker 1: hit the debt ceiling and then the Treasury theoretically prioritizes
Speaker 1: interest payments and so it preserves the incoming revenue from
Speaker 1: taxation so that it can meet its constitutional obligations to
Speaker 1: honor the debt. And I feel like there's two dimensions
Speaker 1: to this question. Maybe is this possible software wise? Do
Speaker 1: we know if the Treasury has the software capabilities to
Speaker 1: set aside certain payments as going ahead while other payments
Speaker 1: don't go through. And then b is that legal in
Speaker 1: the sense that can the executive branch just decide, Hey,
Speaker 1: these are the payments we're not going to make, even
Speaker 1: though the Congress is authorized X and Y, welfare and
Speaker 1: defense and all this stuff, We're just gonna not make them.
Speaker 1: Can we talk about both the software and legal prioritization.
Speaker 3: I'll leave the legal aspect of this question to aren't.
Speaker 3: But at least terms of feasibility, there was a lot
Speaker 3: of reporting about Secretary Geithner taking the steps to make
Speaker 3: sure that prioritization became a possibility of feasibility. So I
Speaker 3: think at least there was reporting that effect either.
Speaker 1: From a software perspective, at least it could theoretically be.
Speaker 3: Done that this kind of prioritization would become more feasible.
Speaker 3: I would be curious at the standpoint of the law,
Speaker 3: what artifs take is here?
Speaker 5: Yeah, so I do not believe that would be lawful.
Speaker 4: This is basically I think there's the Fourteenth Amendment constitutional
Speaker 4: challenges that you run into that we've already talked about.
Speaker 5: But then there's this separation.
Speaker 4: Of powers issue that you would run into with prioritization,
Speaker 4: and i'll I can go a bit more into detail
Speaker 4: on that, which is, the executive branch does not have
Speaker 4: the authority to prioritize mandatory payments. So there's different you know,
Speaker 4: the government, the federal government spends trillions of dollars on
Speaker 4: a number of different things. Some of that spending is
Speaker 4: discretionary and some of it is mandatory. And mandatory spending
Speaker 4: includes things like Social Security, Medicare, certain veterans programs, certain
Speaker 4: student loan programs.
Speaker 5: And a couple of other small things.
Speaker 4: And regardless of who is in power, what the president's
Speaker 4: ideological persuasions are, even if we're in government shutdown, those
Speaker 4: payments continue to be made because their Congress has simply
Speaker 4: given no discretion to the president to do so. Congress,
Speaker 4: in the Constitution, is afforded the authority to control the strings.
Speaker 4: And so what you would end up in here is
Speaker 4: you would end up in the situation where let's say
Speaker 4: the President decides we're going to stop making certain student
Speaker 4: loan payments and not to keep making interest payments. That
Speaker 4: act in of itself the first time that that payment
Speaker 4: is not made or the first time that a Social
Speaker 4: Security payment is not made for a political decision is
Speaker 4: a constitutional crisis. Congress is not allowed to delegate that
Speaker 4: authority to the president, and they where they do delegate
Speaker 4: spending discretion, they have to provide what's called an intelligible
Speaker 4: principle to guide the president's decision making, and they haven't
Speaker 4: done that here. The debt limit Statute has nothing to
Speaker 4: say about if we run into the limit, what.
Speaker 5: Payments should be prioritized or what shouldn't.
Speaker 4: And if Congress were to do that, maybe this would
Speaker 4: be a constitutional law. But until they do that, they
Speaker 4: can't delegate that to the president. Congress can't advocate that authority.
Speaker 3: If I can just like add on to that part,
Speaker 3: it's let's think about it. If any president, whether it's
Speaker 3: Biden or Trump or Bush or Obama, that they have
Speaker 3: to prioritize payments, some will have different ecological persuasions about
Speaker 3: what's important to keep spending on and what's important what's
Speaker 3: worth cutting. Let's say there's a president that wanted to
Speaker 3: cut the entire Department of Defense until uh, the deat
Speaker 3: ceiling was lifted. Like that's a lot of discretion.
Speaker 1: Someone listeners somewhere.
Speaker 3: I'm sure I go with the program that would scare
Speaker 3: every single listener here, And that discretion scares this almost
Speaker 3: surely uh scare of the Supreme Court. It would scare
Speaker 3: a lot of legal scholars with a lot of different
Speaker 3: persuasions about the notion that there's so much unchecked power
Speaker 3: and discretion that would arise from the situation. And I
Speaker 3: think that's like actually something worth reckoning with. When people say, oh,
Speaker 3: we'll just like prioritize payments and keep like making sure
Speaker 3: we pay bondholders, like this is not actually a very
Speaker 3: lead goal solution either, And.
Speaker 5: It would set a really poor precedent.
Speaker 4: Right if if the dead ceiling allows the president to
Speaker 4: limit certain types of mandatory spending, what other situations do.
Speaker 4: Where is that extraordinary power coming from? And could a
Speaker 4: future president abuse it? I think that's like a real
Speaker 4: real constitutional problem that not enough folks are wrestling with.
Speaker 5: Right.
Speaker 1: I guess the situation that arises is what if a
Speaker 1: president one could imagine, let's just say a future Republican
Speaker 1: president and Democratic House, the House votes to raise the
Speaker 1: dead ceiling, the president doesn't agree to the dead ceiling hike,
Speaker 1: and just to say do you know what I'm going
Speaker 1: to prioritize instead? Because the dead ceiling has been hit.
Speaker 1: So I guess there's all kinds of permutations there where
Speaker 1: if you sort of like give the executive branch that
Speaker 1: discretion to prioritize, who knows where you go anyway, Tracy
Speaker 1: say no, I was going to say.
Speaker 2: That makes a lot of sense to me, and has
Speaker 2: been also, ironically one of my criticism of the trillion
Speaker 2: dollar coin, which is like, Okay, maybe you agree with
Speaker 2: using it in this one instance, but what happens in
Speaker 2: the next presidency. Maybe it's someone you don't agree with
Speaker 2: and they decide to use it to fund something outrageous.
Speaker 3: I don't know.
Speaker 2: But anyway, getting back to the current situation, what's your
Speaker 2: base case for how this plays out? I know I
Speaker 2: joked in the intro that you know, we've kind of
Speaker 2: been here before, we've seen it all before, but there
Speaker 2: are some elements that are different this time. So where
Speaker 2: do you think we go from here?
Speaker 3: It seems like the direction of travel is towards what
Speaker 3: Republicans are seeking and what they can get away with
Speaker 3: from at least some faction of centrist Democrats I would
Speaker 3: call it. So It probably will be a some kind
Speaker 3: of bipartisan increase in the debt ceiling and some kind
Speaker 3: of government spending deal that will involve spending caps and
Speaker 3: cuts of a few different kinds. There will be some
Speaker 3: debate about how much composition that should shift towards non
Speaker 3: defense over defense. I think it's going to be an
Speaker 3: open question about how much work requirements sort of see
Speaker 3: their find their way in to this type of deal.
Speaker 3: But that's something that's been talked about. The one place
Speaker 3: of bipartisan interest that may actually serve some administrator in
Speaker 3: some of the interests of the administration or on permitting reform,
Speaker 3: but that actually will take time to kind of craft
Speaker 3: well and craft correctly, and I'm not sure that can
Speaker 3: be done so quickly on a dime, even though there
Speaker 3: is actually a lot of mutual interest across party lines there.
Speaker 3: That's something that's been talked about. I wouldn't want to
Speaker 3: hype that up too much in terms of this deal,
Speaker 3: even though it seems like it's a point of mutual
Speaker 3: agreement that could possibly come about. But those are the
Speaker 3: kinds of things that we're hearing, and it does seem
Speaker 3: to me that for all to talk about clean debt
Speaker 3: ceiling increase, We're going to get a dirty debt ceiling increase,
Speaker 3: and the incentives to do more ransom taking hostage taking
Speaker 3: are going to increase. This worked, That's what it seems
Speaker 3: like to me.
Speaker 4: One thing I am not certain about a lot of
Speaker 4: things in this environment. One thing I am certain about
Speaker 4: is that whatever happens, it's not going to change the
Speaker 4: long term budgetary trajectory of the federal government. And I
Speaker 4: think that's something really worth emphasizing because the debt ceiling.
Speaker 4: You know, a lot of people say the coin is
Speaker 4: a gimmick, or consoles are a gimmick.
Speaker 5: The debt ceiling is the real gimmick.
Speaker 4: It allows people to feign seriousness about the debt picture
Speaker 4: of the United States without actually doing anything to make
Speaker 4: a difference.
Speaker 5: Work requirements on welfare programs are not going to change
Speaker 5: the budget picture. This is really something that is not
Speaker 5: a serious thing.
Speaker 4: No other country has it, and it won't impact the
Speaker 4: debt picture at all.
Speaker 5: And I think if you believe I'm.
Speaker 4: Not one of the people who believes we're on an
Speaker 4: unsustainable debt path, but if you believe that, then what's
Speaker 4: going to come out of this is probably not something
Speaker 4: that is actually going to seriously address your concerns.
Speaker 1: Arnabn Sconda, thank you so much for coming on.
Speaker 5: Oddlins, Thanks for having me, Thanks for having me.
Speaker 1: Tracy, I thought that was I liked your line about
Speaker 1: the Constitution. Sorry, the fourteenth Amendment is more like, rather
Speaker 1: than a tool, is a frame of mind like the Obligator.
Speaker 1: The frame of mind to that would.
Speaker 2: Make a good T shirt. Don't you think the fourteenth
Speaker 2: Amendment is a frame of mind?
Speaker 1: Like like there's like teristy T shirts like the Bahamas.
Speaker 1: It's a frame of mind. I love that.
Speaker 2: I'm gonna I'm gonna make it. Yeah, No, but I
Speaker 2: actually really agree. Well, two things stood out for me there.
Speaker 2: So One the point about like you would expect the
Speaker 2: business base of the Republican Party to maybe make more
Speaker 2: noise about this issue and force their hand at some point.
Speaker 2: That doesn't seem to have happened this time around. That's
Speaker 2: kind of interesting. Where is everyone? Why is in everyone
Speaker 2: on issuing you know, big warnings about this. I know
Speaker 2: some people are, but there could be more. Maybe we're
Speaker 2: just so used to it at this point it's hard
Speaker 2: to get worked up about it. And then secondly, Arnub's
Speaker 2: last point about the debt ceiling kind of has never
Speaker 2: mattered that much, Like it just gets raised and raised
Speaker 2: and raised, and the public debt continues building and not
Speaker 2: to go full on MMT, but you know that can
Speaker 2: become a problem at certain points with inflation, but not always.
Speaker 2: And so I would my personal preference would be for
Speaker 2: the debt ceiling to remain as meaningless as it has
Speaker 2: throughout all of history and for us to not even
Speaker 2: be recording this episode as interesting as it has been.
Speaker 1: Uh, do you regret during the episode or do you
Speaker 1: just want to do you want to live in a
Speaker 1: future in which we never have.
Speaker 5: To do it again.
Speaker 2: I want to live in a world where we don't
Speaker 2: have to talk about this at all, because you know,
Speaker 2: it happens automatically. You know, maybe well we.
Speaker 1: Did it, did you know? For years? So this was
Speaker 1: so I think like at one point and we you know,
Speaker 1: there's a lot of history. I think like throughout much
Speaker 1: of the eighties, Congress had a rule which is when
Speaker 1: they approved a new budget, I think it was called
Speaker 1: the gap heart rule, which is when they approved a
Speaker 1: new budget, they just increased the dead ceiling automatically, which
Speaker 1: is what obviously what they should do. And then I
Speaker 1: think nude Ingridge ended that. But it is really silly
Speaker 1: that you know we're not going to That's the thing like,
Speaker 1: because I think it was Tisconda's last point, because there
Speaker 1: is most likely going to be a quote dirty increase.
Speaker 1: The message to future congresses is this is your chance
Speaker 1: to extract the concession right, and so we're going to
Speaker 1: have to do more in twenty twenty five.
Speaker 2: Every time this happens, the less attention is going to
Speaker 2: be paid to it, because it's sort of like a
Speaker 2: Boy who Cried Wolf kind of thing where everyone just
Speaker 2: becomes very a nerd to it.
Speaker 1: And then what happened with the boy who cried Wolf?
Speaker 1: I can't remember, No, I think it was, and then
Speaker 1: eventually something bad happened. I think, yeah, I just think
Speaker 1: that's why we tell That's why we tell our kids
Speaker 1: this story.
Speaker 2: I just want to clarify though I do not regret
Speaker 2: recording this episode.
Speaker 5: I do.
Speaker 2: I really resent having to look up section four of
Speaker 2: the fourteenth Amendment and learn about it on what is,
Speaker 2: you know, ostensibly a finance and economics and markets podcast.
Speaker 1: You know what I thought is really interesting too. People
Speaker 1: say like, oh, just invoke the fourteenth Amendment. And I
Speaker 1: really appreciated arno argument about why that really is inherently
Speaker 1: problematic that no matter who it is, no matter what
Speaker 1: the president, what you're basically saying is, let's create a
Speaker 1: condition in which the president can start picking and choosing
Speaker 1: which appropriations to make. So you might have one president
Speaker 1: who is like a big pacifist piece, and they say, Okay,
Speaker 1: the Defense Department doesn't get any money, and then another
Speaker 1: one say okay, the EPA and Social Security and Medicaid
Speaker 1: recipients don't get any money. If you think it through
Speaker 1: what prioritization entails, it is pretty problematic.
Speaker 2: I thought that was a really interesting and important point
Speaker 2: because you do see a lot of people talking about, oh,
Speaker 2: this might not be such a big tale because they
Speaker 2: can just prioritize payments. But actually that opens up a
Speaker 2: whole other count of wars and a potential, i guess,
Speaker 2: overturning of political and social norms. So interesting stuff all round.
Speaker 1: We'll see what happens.
Speaker 2: Shall we leave it there?
Speaker 1: Let's leave it there.
Speaker 2: This has been another episode of the All Thoughts podcast.
Speaker 2: I'm Tracy Alloway. You can follow me on Twitter at
Speaker 2: Tracy alloway.
Speaker 1: Oh I meant to say, cobol came up again. Oh yeah,
Speaker 1: it's always, It's always coming back.
Speaker 2: You can't escape Coball.
Speaker 1: I'm Jill wisanth All. You can follow me on Twitter
Speaker 1: at The Stalwart, follow Scanda at Irving Swisher, and follow
Speaker 1: Arnab at Arnab Data three two one. Follow our producer
Speaker 1: Carman Rodriguez at Carmen Arman and dash Old Bennett at Dashbot.
Speaker 1: Follow all of the Bloomberg podcasts under the handle at podcasts,
Speaker 1: and for more odd Lots content, go to Bloomberg dot
Speaker 1: com slash odd Lots, where we post transcripts. We have
Speaker 1: a blog and a newsletter that comes out every Friday.
Speaker 1: And check out our discord discord dot gg slash odd logs,
Speaker 1: where listeners are talking about all these topics. Twenty four
Speaker 1: seven thirty been tons of debt ceiling talk. So if
Speaker 1: you want to wake up at two in the morning
Speaker 1: and talk debt ceiling, there's almost certainly in there someone
Speaker 1: who will talk about the intricacies of the fourteenth Amendment
Speaker 1: and Section three one two one K and the coin
Speaker 1: and all there. Go there and check it out. It's
Speaker 1: really fun. I hang out in there a lot thanks
Speaker 1: for listening,