Infrastructure / Reconciliation / Debt Limit Sweat

This is quickly turning into a complete shit show. Who could have guessed with such dynamic leadership.

Pelosi is now saying this, which directly contradicts what everyone agreed to in order to get the stupid fucking bipartisan shit sandwich passed:

So fuck off Nancy.

Meanwhile they have no actual plan at all for the debt ceiling.

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The new approach seems to be pitch to the progressives that they vote yes on the bipartisan bills and centrists agree to a “framework” for finishing the reconciliation bill. Sort of unclear what that means. I can construct ways where that isn’t terrible, but I expect it to be terrible.

Seems like at the very least the reconciliation bill will be much smaller, means tested, and pro fossil fuels than originally envisioned.

Also not impossible they pivot to push to pass the bipartisan bill and then pivot the reconciliation attempt to just raising the debt ceiling and calling it a day

There seem to be enough non-idiot progressives in the House to tank Nancy’s stupid-ass “plan” here.

I’m more of a pragmatist than most here but its time to just rip the band-aid off and blow it all up. This status quo where we don’t do anything even when in power is guaranteed fascism - just a matter of time. If Democrats are unwilling to confront structural issues (can’t even break a filibuster to pay our damn bills), the country is totally gone anyway.

Tank the BIF, stand firm, let the chips fall. Enough.


I agree, although expect a full propaganda effort against the progressives if it goes that route.

The question is do they also just say you know what, fuck it, we aren’t reconciling the debt ceiling either. There’s a majority of votes yes and if it blows up the Republicans can argue arcane rules and why they voted to default.

Yeah, the media coverage of this is going to be INFURIATING.

Even outlets that aren’t always shitty are going to be mostly blaming progressive Democrats if there are any hiccups.

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Pass a one line bill called “the united states will always pay its debts” bill and when it gets filibustered say oh well I guess one party doesn’t want the united states to pay its debts and then go on vacation for another month.

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The reconciliation bill needs to be passed before centrists can try to wring concessions in exchange for inclusion of a debt ceiling increase.

Pass it, then try to pass a debt ceiling increase without reconciliation and dare Republicans to block it.

America has one of the worst designed democratic political systems on earth but even with how bad it is the debt limit thing is a true star. It is hands down the dumbest political feature ever devised. Nothing else is even close. You could task a team of the worlds best political scientists with thinking up a stupider idea and they would surely fail.

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I mean, the original debt ceiling was established to allow Treasury to issue debt without approval from Congress. It wasn’t until to 1990s when the Republicans intentionally broke it so they’d have something to hang on Bill Clinton. The rules worked for 80 years, the fault lies more with Rs having no sincere interest in governing than the rule itself. Without the debt ceiling, each individual issuance of debt would be approved by Congress. That would distract them from their important productive work, assuming anyone can think of any.


A couple thoughts. Is the US really at risk of losing much if we default? Will the world really strip us of reserve currency status? I think probably not. That assumes we get “current” at some point fairly quickly obviously.

If we are truly in an unstoppable death spiral wouldn’t we be better off getting it over with so that we could live some of our lives in whatever comes after?

Uh, yes.

Explain what you think happens if we default for a week or two before ultimately making some deal to solve it? The world switches to the Euro? The Yuan? People stop buying US debt? I don’t see it.

There’s like dozens of articles out there that explain what might happen if the US defaults.

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I understand what “might” happen. I’m asking you what you think actually happens in that scenario.

Here’s a good (old) primer:

The real issue is that the continuous issuance of new debt by Treasury is an assumed process baked into the financial system. A temporary government shut down hurts the economy, but a real significant default would tear at the liquidity in the financial system. Like in 2008, one might have asked “well if everyone is over leveraged in their homes, shouldn’t we just get it over with and adapt to the new normal?” Sure, but debt market turmoil has extreme collateral damage.

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A massive recession, job losses, entitlements stop getting sent out, retirement savings losses, internet rates spike, etc.

Canada has a debt ceiling.

One thing I think about often is that when the reckoning comes there’s going to be a lot of violence and the authority figures with guns are most definitely not the good guys.

If we default for a week or two? I’m going to disagree with you on that. I don’t see major US bond holders liquidating their holdings over some political posturing that likely only lasts a few days. That would likely be the real triggering event right? Or at least that’s what these articles talk about? Bond prices plummeting? If the US somehow permanently defaults or it drags on for months, sure I agree with you, that would be catastrophic.

What we are talking about is progressives using the fear of this to get something meaningful done right? I’m all for it.

Well, a lot of the financial plumbing breaks because it is based on Treasuries being a risk-free, AAA rated assets. Treasuries get downgraded and prices collapse as institutions are forced to sell because of ratings issues. Other credit markets are dragged into the same vortex and credit availability gets pulled way back. Housing prices decline. The tides go out on an overleveraged financial sector and an overheated financial market that is priced for perfection, major stock pullback perhaps as high as 50%. Consumer confidence collapses and businesses pull back amid the uncertainty sending us into recession Inflation remains stubbornly high crimping real spending power. The usual fiscal policy boost doesnt materialize in the short-term as Congress is handcuffed from spending, both by partisan politics and a sharp rise in the cost of debt (spending probably actually decreases in the short-term). We enter recession, not as deep as the financial crisis or COVID, but probably prolonged maybe like the extended malaise of the 1970s. Unemployment probably goes to 9-10% and hangs out there for the rest of the Biden administration.

Empirically, just the threat of of not raising the debt ceiling nearly caused a recession in 2011/2012 and things were a lot less overheated and we werent in the middle of a global pandemic.

EDIT: The thing that I think is hard to appreciate is that even a short default means the treasuries are going to be rated a default. That means massive forced selling in massive size, there isnt a choice of “oh we’ll just wait it out and see what happens”. The documents and mandates of many of the large treasury holders and/or bank regulations will force massive and immediate selling with limited buyers and will force massive selloffs in other risk assets (if treasuries now yield 8%, how can a US based company debt yield 3%? It cant, price has to go down). There are likely very bad unintended consequences that will have major economic ramifications with limited ability to use the tools that we usually use to stave off recessions.

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