Three Debt-Ceiling Workarounds and One Big Problem

A blog about business and economics.
Oct. 9 2013 9:00 AM

Three Debt-Ceiling Workarounds and One Big Problem

672798
Series 2001 one-dollar-bill notes pass through a printing press Nov. 21, 2001, at the Bureau of Engraving and Printing in Washington, D.C.

Photo by Alex Wong/Getty Images

Several people have asked me for my view of Matt Levine's idea that the Treasury Department could evade the debt ceiling by issuing "super-premium" bonds. Basically you sell a bond with a $100 face value, but price it at $225. That way you're raising extra money without increasing the quantity of outstanding principal. Why would you pay $225 for a $100 bond? For the same reason you'd pay $100 for a $100 bond—to get the interest. Presumably a higher interest rate would be demanded for the overpriced bond, which would be unfortunate, but a lot better than a default.

This is very clever and definitely belongs on the list of workarounds alongside platinum coin seigniorage and various constitutional dictates.

Advertisement

But what officials in the Treasury and the White House will tell you is that all three of these workarounds have the same basic big problem with them—they're bound to set off an avalanche of litigation and uncertainty about what's really what. Now I think you can overstate this. For perfectly normal bargaining purposes, the administration doesn't want to get into detailed discussions about fallback plans. But the downsides of any of these options seem small relative to the downsides of flipping the "off" switch on all the federal payment systems and letting the national economy collapse. The really big problem with these workarounds is just that they're so clearly worse than nice, clean, simple congressional action. Maybe the workarounds would "only" lead to a small and semipermanent increase in U.S. borrowing costs and a brief moment of financial panic that the Fed easily smoothes over. Or maybe the workarounds would really fail in some big way and prompt a confusing run on money-market funds and force the government to field-test emergency response measures while simultaneously dealing with large-scale furloughs. We don't really know. It might be OK, it might be pretty terrible.

What's clear is that any of the workarounds is obviously inferior to Congress doing the right thing, and obviously superior to letting the statury debt ceiling simply trump all the other obligations of the United States.

Matthew Yglesias is the executive editor of Vox and author of The Rent Is Too Damn High.

TODAY IN SLATE

Sports Nut

Grandmaster Clash

One of the most amazing feats in chess history just happened, and no one noticed.

The Extraordinary Amicus Brief That Attempts to Explain the Wu-Tang Clan to the Supreme Court Justices

Amazon Is Officially a Gadget Company. Here Are Its Six New Devices.

Uh-Oh. The World’s Oceans Have Broken Their All-Time Heat Record.

The NFL Explains How It Sees “the Role of the Female”

Future Tense

How to Keep Apple From Sharing Your iPhone Data With the Police

Food

How to Order Chinese Food

First, stop thinking of it as “Chinese food.”

A Simple Way to Keep Apple From Sharing Your iPhone Data With the Police

The Country Where Women Aren’t Allowed to Work Once They’re 36 Weeks’ Pregnant

The XX Factor
Sept. 18 2014 11:40 AM The Country Where Women Aren’t Allowed to Work Once They’re 36 Weeks’ Pregnant
  News & Politics
Weigel
Sept. 18 2014 8:20 PM A Clever Attempt at Explaining Away a Vote Against the Farm Bill
  Business
Moneybox
Sept. 18 2014 6:02 PM A Chinese Company Just Announced the Biggest IPO in U.S. History
  Life
Outward
Sept. 18 2014 4:15 PM Reactions to a Sketch of Chelsea Manning Reveal Transmisogyny
  Double X
Doublex
Sept. 18 2014 8:07 PM Crying Rape False rape accusations exist, and they are a serious problem.
  Slate Plus
Behind the Scenes
Sept. 18 2014 1:23 PM “It’s Not Every Day That You Can Beat the World Champion” An exclusive interview with chess grandmaster Fabiano Caruana.
  Arts
Brow Beat
Sept. 18 2014 4:33 PM The Top 5 Dadsplaining Moments From The Cosby Show
  Technology
Future Tense
Sept. 18 2014 6:48 PM By 2100 the World's Population Could Be 11 Billion
  Health & Science
Science
Sept. 18 2014 3:35 PM Do People Still Die of Rabies? And how do you know if an animal is rabid?
  Sports
Sports Nut
Sept. 18 2014 11:42 AM Grandmaster Clash One of the most amazing feats in chess history just happened, and no one noticed.