Former Secretary O'Neill popped up the other day on Bloomberg Television to compare debt-ceiling holdouts to jihadists. "The people who are threatening not to pass the debt ceiling," he said, "are our version of al-Qaida terrorists. Really."
"They're really putting our whole society at risk by threatening to round up 50% of the members of the Congress, who are loony, who would put our credit at risk."
But hang on, generally speaking, when you hit your "debt ceiling," your credit is at risk. If you've got a $10,000 credit card, and you run it up to the limit, but you need a couple more grand right now, pronto, because you outspend your earnings by 50% every month and you have no plans to change that anytime soon, well, the bank might increase the limit to $15,000, or $20,000. Or they might not. There is a question mark over your credit because there is a question mark over your creditworthiness: It is at risk.
Paul O'Neill seems to regard that attitude as unhelpful. So does Timothy Geithner, his successor at what is still laughingly known as the United States Treasury. Geithner says that even to be discussing the debt ceiling is "a ridiculous debate to have."
"I mean, the idea that the United States would take the risk that people would start to believe we won't pay our bills," continued Geithner, "is a ridiculous proposition, irresponsible, completely unacceptable."
The best way to persuade people to believe we'll pay our bills is to borrow up to our limit, and then increase the limit and borrow a whole bunch more. This would be the 75th increase in the debt ceiling in the last half-century. Let's just get it done, and resume the party.
But if Geithner thinks that even discussing the question is "ridiculous," then, why have a debt limit at all? What's the point?
Well, because it gives us more credibility with our creditors, right? Even if we set the debt ceiling way up in cloud-cuckoo land to a bazillion trillion gazillion dollars and 83 cents, even a debt limit entirely unmoored from reality still gives the impression we haven't quite flown the coop.
Yes, but why does the U.S. government need to maintain credibility with its creditors when increasingly it's buying its debt from itself? Every month there's more and more U.S. Treasury debt and fewer and fewer people who want it. The Chinese are reducing their exposure. The investment behemoth Pimco, which manages the world's largest mutual fund, recently dumped U.S. Treasuries entirely.
To avoid the failure of U.S. bond auctions, or an increase in interest rates to make them more attractive to rational lenders, the U.S. government's debt is bought by the U.S. government's Federal Reserve.
"Quantitative easing" is extremely quantitative if not terribly easing, so raising the debt ceiling would enable us to issue more debt for us to buy from ourselves. You can see why Secretary Geithner thinks that's a no-brainer.
"If the national debt doesn't matter, why have taxes at all?" Particularly when you no longer have to "print" money, you can just quantitatively ease yourself into it.
Once we raise the old debt ceiling, we'll be pretty much at the point where the U.S. government is spending four trillion but only taking in two trillion: For every dollar we raise in taxes, we spend two.
No surprise there: The "poorest" half of the population pay no federal income tax. They're not exactly poor as the term would be understood in almost any other country, but in federal revenue terms they're dependents, so in order to fund government services for the wealthiest "poor" people on the planet we borrow money from a nation of subsistence peasants where pigs are such prized possessions they sleep in the house.