Credit: The Economist

At noon on Friday, the Treasury Department began the latest round of accounting contortionism brought on by Republicans’ refusal to raise the debt ceiling. CNN Money explains that a financing mechanism to aid state and local governments will be the first casualty:

The debt ceiling clock is about to start running again. The U.S. Treasury on Friday will begin using “extraordinary measures” to keep the country from defaulting on its obligations. […]

It’s unclear how much time the extraordinary measures will buy, but Treasury Secretary Jacob Lew said last week the measures could last “at least” through Labor Day. Other estimates put the drop-dead date for raising the debt ceiling at sometime in October or even November.

The first move that Treasury will take is to temporarily stop issuing special securities to state and local governments as of noon on Friday.

Treasury calls these maneuvers “extraordinary measures,” but they have become routine since the GOP began dabbling in debt ceiling brinkmanship in the summer of 2011. That fight ended the precedent of legislators raising the ceiling as necessary for the past 50 years, including seven times under President George W. Bush. The GOP’s 2011 maneuver led Standard & Poor’s to downgrade its rating of U.S. debt for the first time in the nation’s history, but that didn’t stop Republicans from labeling the nation’s creditworthiness “a hostage worth ransoming.”

That attitude persists in 2013, as Senate Minority Leader Mitch McConnell (R-KY) indicated in March. Even with the deficit shrinking so rapidly that the Congressional Budget Office can hardly keep up, and with Republicans’ dire claims about debt levels hampering economic growth proven wrong, the GOP is reportedly mulling over what ransom to seek this year. After successfully extracting fiscal concessions in the past, however, its focus is sliding from spending toward conservative red meat.

At a House GOP meeting this week to decide what to demand, the Washington Post’s Lori Montgomery reports that proposals included tying the nation’s credit rating to the Keystone XL pipeline or the repeal of Obamacare, and that “at least one person wanted to take on late-term abortion.”

The United States is again approaching its debt limit, though an improving economy and new revenues have pushed the deadline for when it will need to be raised as far back as October. And yet again, Republicans are pushing legislation that amounts to nothing more than a phony fix to the issue, a bill known as the Full Faith and Credit Act that will prioritize debt payments in a way that House Speaker John Boehner (R-OH) says “makes it clear to our bondholders that we’re going to meet our obligations.”

But such a plan makes it clear that the U.S. will meet only some of its obligations, leaving many Americans, including troops, veterans, and the elderly, out in the cold. Boehner doesn’t see that as a problem, he told Bloomberg TV last night:

COOK (Host): Doesn’t it mean as Democrats have suggested you’re basically choosing to pay China before U.S. troops?

BOEHNER: Listen. Those who have loaned us money, like in any other proceeding, if you will — court proceeding — the boldholders usually get paid first. Same thing here.

Worse yet, the Republican plan doesn’t allow the nation to avoid default. If the U.S. services its debt payments but still misses others, it is still defaulting on payments it is required to make. Since the bill only allows Treasury to make payments as it receives revenues, and the bulk of its payments are made at the beginning of the month even though revenues don’t come in until later, it would almost certainly be unable to meet at least some of its obligations.

When the GOP has considered similar plans before, Treasury officials have called it “unworkable.” Bipartisan analysts said it was “essentially impossible.” Failing to fulfill spending obligations would be “the first step to becoming a banana republic,” a Bush-era Treasury official said. Instead of inspiring confidence among investors, bondholders, and the American people, the legislation would zap it.

Far from preventing default, the Full Faith and Credit Act would essentially ensure it. That wouldn’t just put paying China ahead of senior citizens and members of the military — it would also hammer economic growth both in the United States and across the world. (HT Huffington Post)

Both House and Senate Republicans have signaled their unwillingness to increase the nation’s debt limit, which the U.S. is projected to reach in mid-May, without deep spending cuts and changes to entitlements, setting up another fight like the one that brought the country to the brink of a debt default in the summer of 2011. The GOP attempted to extract cuts for a debt ceiling increase in January of this year before acceding to a three-month increase, but not before they came up with a plan to stave off default by allowing Treasury to prioritize the payments it made so as not to add any more debt.

That plan, which bipartisan analysts called “essentially impossible,” is now again en vogue with Republicans, who are working on legislation to force Treasury to prioritize payments ahead of the May debt ceiling deadline, the Wall Street Journal reports:

The legislation would direct the Treasury to pay holders of U.S. debt and interest on the debt at the expense of funding operations of the federal government if Congress fails to reach an agreement to increase the statutory borrowing limit.

In a memo to rank and file GOP lawmakers, House Majority Leader Eric Cantor (R. Va.) said the House would consider the bill in the near future, ensuring that while the need to increase the debt ceiling could be some months off, the issue will remain prominent in Congress.

The prioritization of payments aims to force Treasury to make payments toward the debt instead of to fund government operations, entitlements, and other programs. That plan is problematic for several reasons, including that Treasury’s computer system isn’t capable of prioritizing payments in this manner. But even if it could, prioritization would only allow Treasury to make payments as revenues came in — and while it makes the bulk of its payments at the beginning of the month, it doesn’t receive revenues until the middle or later parts. And it wouldn’t even avoid default, since the U.S. would manage to miss payments to at least some of the people and programs to which it owes money.

The conservative American Enterprise Institute has called the prioritization scheme unworkable, as have Bush-era Treasury officials. Federal Reserve Chairman Ben Bernanke, meanwhile, has warned Republicans not to mess with the debt ceiling, given that the 2011 fight increased the nation’s borrowing costs and suppressed job and economic growth for months after it ended.

Right after the House of Representatives approved a Senate bill to avert a government shutdown, House Speaker John Boehner (R-OH) set the stage for another down-to-the-wire crisis that will threaten the nation’s economic growth. At his weekly press conference, Boehner indicated that Republicans would again demand spending cuts in exchange for raising the nation’s debt ceiling, which it is set to hit in May.

Boehner said Republicans would only raise the debt ceiling if they got an equal amount of spending cuts, the Huffington Post reports:

“Dollar for dollar is the plan,” Boehner told reporters, adding that there have been no major talks on the debt limit at this point.

“The president has been clear that he’s not going to address our entitlement crisis unless we’re willing to raise taxes. I think the tax issue has been resolved,” said Boehner. “So at this point then, I don’t know how we’re going to go forward.”

Boehner’s House of Representatives has created an atmosphere of perpetual crisis in Washington since the GOP took control in 2011. The GOP took the government to the brink of shutdown early in 2011 before nearly forcing a default by demanding spending cuts in exchange for a debt ceiling increase that summer. That fight set up sequestration, the automatic budget cuts that threatened to derail the economy at the beginning of 2013 before a last minute deal pushed them back to the beginning of March. Republicans failed to extract more cuts when the debt ceiling was temporarily extended in January, but Boehner is now seeking to make sure cuts happen in May — even though the U.S. has already cut more than $2 trillion in spending over the last three years.

Those cuts have hammered the economic recovery, as has the culture of crises Boehner and the GOP have created. The last debt ceiling fight increased borrowing costs and slowed down economic growth, but despite evidence that both the GOP’s fights and their preferred policies are harming the economy, Boehner insists on repeating the same mistakes. Raising the debt ceiling was never an issue for Boehner when George W. Bush was president, but the recent fights have proven so harmful that top policymakers like Federal Reserve Chairman Ben Bernanke are now calling for the permanent abolition of the debt limit.

Republicans and Democrats agreed to increase the debt ceiling for three months at the end of January, but with another deadline approaching in May, the top Senate Republican is hinting that the GOP will again demand spending cuts in exchange for any increase.

That is par for the course for Republicans, who have repeatedly threatened to let the nation default on its obligations if President Obama and Senate Democrats don’t agree to cut spending, but this time, Senate Minority Leader Mitch McConnell (R-KY) said the GOP will likely demand cuts to America’s entitlement programs — Medicare, Medicaid, and Social Security — to agree to an increase in the borrowing limit, The Hill reports:

“Until we make our entitlement programs fit the demographics of our country, you can’t save America, you can’t save the healthcare system,” McConnell said. “There is no revenue solution, I would say to you.”

“We all anticipate that the president’s request of us to raise the debt ceiling, which we’ll probably do sometime this will generate another, hopefully, another discussion about solving the real problem,” he said.

Republicans continue to crow about entitlement reform, ignoring that Social Security is fully solvent for at least two decades, that Obama extended Medicare’s solvency by nine years as part of his sweeping healthcare law, and that at least one of the major reforms Republicans favor — raising the retirement age for Medicare enrollees — would do nothing to improve the program’s health. Meanwhile, the GOP refuses to actually put forth specific entitlement reform plans that would do anything other than end the programs as they exist today.

Using the debt ceiling to extract such cuts is an even less reasonable position, given the pain the GOP’s debt intransigence has already inflicted on the economy. The 2011 debt fight led to increased borrowing costs, hampered job growth for months, and created the automatic budget cuts that went into effect at the beginning of March — all of which burdened an economy that is still struggling to fully recover from the Great Recession. That brinksmanship has led leading policymakers like Federal Reserve Chairman Ben Bernanke, as well as a vast majority of economists, to call for the abolition of the statutory debt limit.

The Senate today — on a vote of 64-34 — successfully passed a bill to raise the nation’s debt ceiling for three months. The bill has already passed the House, so it now goes to President Obama for his signature. Four Republican amendments were rejected prior to final approval.

With the debt ceiling out of the way for the moment, the next big budget task for Congress is funding the federal government beyond March 27th, when the current round of funding expires, and dealing with the $1.2 trillion in spending cuts that will occur in early March due to the so-called “sequester.”

House Republicans recently agreed to raise the debt ceiling, preventing a self-inflicted economic calamity. Experts agree that failure to raise the debt ceiling would have catastrophic consequences for the U.S. economy. The debt ceiling debacle of 2010, during which the U.S. did not actually breach the debt limit and default, will wind up costing U.S. taxpayers $18.9 billion and one million jobs.

But television watchers going to CNBC, Fox News, or Fox Business for their news may not know just how dangerous a weaponized debt ceiling really is. As Media Matters’ Alan Pyke showed, those networks were very likely to discuss the debt ceiling without noting the negative effects that breaching it might have:

Only 100 segments out of 273 mentioned the negative economic effects of failing to raise — or threat of failing to raise — the debt ceiling. MSNBC most frequently mentioned negative effects in 41 of 68 segments (60 percent), while CNN mentioned them in 13 of 23 segments (57 percent). The remaining networks lagged far behind, with CNBC, Fox Business, and Fox News mentioning macroeconomic consequences in 26, 23, and 25 percent of segments, respectively.

The debt ceiling, of course, hasn’t gone away, and will need to be dealt with again in May. Economists largely agree that the debt ceiling should be abolished.

After months of threatening to again take the economy hostage in a move they had admitted could cause a global financial disaster, House Republicans today approved a three-month increase in the federal debt ceiling that will allowed Treasury to avoid defaulting on the nation’s debts. The increase, which lasts until May 19, passed the House 285-144.

Democrats largely opposed the measure before the vote, and Minority Leader Nancy Pelosi (D-CA) called it a “gimmick unworthy of the challenges we face.” 111 Democrats and 33 Republicans voted against passage.

The legislation, which also requires both houses of Congress to pass a budget resolution, will now go to the Senate, where it is also expected to pass. The White House has said it would not oppose the three-month increase even as it sought a long-term solution.

Republicans anxious to avoid a debt default without actually raising the nation’s debt limit have proposed a scheme that would, in their eyes, allow the government to prioritize debt payments, paying off holders of U.S. bonds first and other programs after. The Bipartisan Policy Center has called such a plan “essentially impossible,” noting that Treasury’s computers aren’t capable of prioritizing payments and that, even if they could, such a scheme would prevent the government from making large portions of its payments, which is still a default on legally owed obligations.

Still, Rep. Paul Ryan (R-WI), the chairman of the House Budget Committee, endorsed such a plan today at the House GOP’s annual retreat in Virginia, Slate’s Dave Weigel reports:

“We believe they have the ability to prioritize,” he said. “I’m speaking for myself — I believe Pat Toomey would say the same thing. There’s disagreement about whether that’s true or not.”

Republicans proposed a similar plan during the 2011 debt ceiling debate, but such a plan simply isn’t feasible. Not only is Treasury incapable of prioritizing, but most of the government’s largest bills are due early in the month even though revenues often come in later. And prioritization wouldn’t change the government’s obligation to make those payments — it would simply delay them until Treasury had enough money to make them.

The conservative American Enterprise Institute says prioritization is unworkable, and multiple Republicans who worked in the Bush administration agree. If “there’s disagreement” over the feasibility of such a plan, it exists solely because Republicans like Ryan and Toomey refuse to acknowledge its impossibility.