4 February 2016

Debt ceiling duplicity


A shocking new report on what really went on during the showdown in 2013 on the debt ceiling should serve as a warning alarm to all GOP presidential candidates for the top job. Two months after the next president is inaugurated, after all, the debt ceiling will expire and debate about raising the debt limit will ensue. So the new report is full of ammunition for a general election campaign against a Democrat who surely will be itching to get the debt ceiling raised when it next expires in March 2017.

It’s also a wake-up call to Congress to pay attention to whether it is being told the truth by the Treasury Department. The report suggests that the Obama administration was playing a two-faced game in the last crises over the debt ceiling. It was warning of catastrophe on Capitol Hill in an effort to buffalo the Congress into letting it borrow more money, while privately making plans to prioritize payments so as to be able to operate beyond the debt ceiling deadline.

The report was made by Financial Services Subcommittee on Oversight and Investigations, chaired by Republican Rep. Sean Duffy, a former prosecutor from Wisconsin. It took years to pry out of the administration the details — correspondence, internal documents from the Federal Reserve and the Treasury — that sketch the story. The committee concludes that the Treasury has “sought to withhold from Congress and the American people” particulars of its “contingency plans” — and for a reason.

Its purpose, the committee warns, was “pressuring Congress to acquiesce to the Administration’s position that any increase in the debt ceiling not be accompanied by spending constraints.” It unearthed internal documents of the New York Fed disclosing that, contrary to Treasury’s own testimony, it was planning precisely to prioritize its payments during the debt limit impasse. The Fed, moreover, was objecting furiously “to Treasury’s efforts to conceal the Administration’s contingency plans.”

That is a fascinating detail — particularly coming from the Financial Services committee, which has been in a running battle with the Fed over the desire of the House (and a majority of the Senate) to gain greater oversight of the central bank. It is suggesting that whatever concerns it has about the Federal Reserve, the Treasury is even worse. The dissembling alleged by the House committee occurred under both Secretaries Timothy Geithner and Jacob Lew.

It’s hard to recall a precedent for the Congress issuing, little more than a year out from the next debt ceiling battle, a report questioning the candor of the Treasury Department. Treasury is being quoted as by MarketWatch as insisting it did tell Congress about the contingency planning it was doing in respect of the debt. But the committee report nonetheless sets up a battle royal a year hence, when any administration will almost immediately run up against the March debt ceiling deadline.

“While Treasury and the administration’s deceptive behavior is disturbing,” writes Veronique de Rugy of George Mason University, “it is good news for the next battle over lifting the debt limit early next year.” The report strengthens the hand of the Tea Party faction that fought against using more debt to pay for the runaway spending that, in the first place, precipitated recent debt ceiling crises. The borrowing strategy has ballooned the federal debt to more than $19 trillion from under $5 trillion in 1993.

We don’t yet know who will be leading the next administration, but we do know that, absent a change, the House will be led by Rep. Paul Ryan, a very different speaker than Rep. John Boehner, under whom the debt crisis of 2013 became such an issue. Ryan was an opponent of Tea Party brinksmanship on the debt ceiling, but he moved rapidly to send to the Senate the Fed Oversight Reform and Modernization Act, which could restore Congress’s primary role in monetary policy. A potentially historic convergence.

Seth Lipsky is editor of the New York Sun.