Monthly Archives: May 2013

No, It Looks Like the House Has Not Unintentionally Eliminated the Debt Ceiling After All

By Dan Kervick

In my previous post I argued that, in passing H.R. 807 on May 9th, the House of Representatives might have unintentionally eliminated the debt ceiling “as a serious political and operational consideration going forward.”

But upon further reflection, and benefiting from the insightful reactions of several commenters, I now think my reading of the act is incorrect, and that if it were passed by the Senate and signed by the President it would not provide the Secretary of the Treasury with a way around the debt ceiling, other than for the limited, intended purposes of paying off maturing debt and Social Security obligations.

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Did the House of Representatives Just (Unintentionally) Eliminate the Debt Ceiling?

By Dan Kervick

My fellow NEP blogger Joe Firestone wrote recently about House Resolution 807, the Full Faith and Credit Act, which was passed on May 9th by the US House of Representatives.  The supposed purpose of the act is to prevent default on the public debt as a result of the debt ceiling.  Many have described the act as a measure that prioritizes the financial obligations of the US government, and authorizes the Secretary of the Treasury to meet only the highest priority obligations when at the debt ceiling.   Indeed, that is how the act is described by its own authors, since the head of the resolution contains the description, “A bill to require that the Government prioritize all obligations on the debt held by the public in the event that the debt limit is reached.”

Now that the bill has been passed, the words “a bill” in that description have been replaced by “an act.”  The act seems to have been designed to provide the Secretary of the Treasury with an alternative mechanism for paying off public debt and meeting Social Security obligations once the government has reached the statutory debt limit.  But the new mechanism cannot be applied directly to other government spending commitments, and so Congress would still apparently have the ability use the debt ceiling as a tool for shutting down other government payments and forcing the executive branch to accept further spending cuts.

Such might have been the authors’ intentions.  But if I am not mistaken, this act would provide the Secretary of the Treasury with the power to meet all US spending obligations, and effectively eliminate the debt ceiling as a serious political and operational consideration going forward.

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Money, Taxes and What We Can Afford

By Dan Kervick

People sometimes seem to suggest that the Western democracies are at the end of the road economically.  They claim that these governments are spent, broke, tapped out.  They insinuate that Western nations can no longer afford to carry out ambitious projects of the kind they organized in the past, and must downsize or dismantle many of the governance systems and public enterprises they currently operate.  They insist that these democracies must hand over yet more of their nations’ destinies to the financial and corporate baronies that dominate the private sector, and give the latter a free hand to arrange whatever kind of future they might deign to mash up for us as a by-product of  their voracious struggles for private gain and glory.

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Mr. President, End Debt Ceiling Hostage-taking for Good!

On May 9, 2013, The Republican House passed H.R. 807 the Full Faith and Credit Act. The Bill says in part:

(a) In General- In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, the Secretary of the Treasury shall, in addition to any other authority provided by law, issue obligations under chapter 31 of title 31, United States Code, to pay with legal tender, and solely for the purpose of paying, the principal and interest on obligations of the United States described in subsection (b) after the date of the enactment of this Act.
(b) Obligations Described- For purposes of this subsection, obligations described in this subsection are obligations which are–
(1) held by the public, or
(2) held by the Old-Age and Survivors Insurance Trust Fund and Disability Insurance Trust Fund.

So, in brief, the Bill provides for the Treasury, even when it is about to reach the debt ceiling, to issue additional debt to pay principal and interest on debt instruments issued to the public including foreign nations, and to pay principal and interest on Social Security (SS) “trust fund bonds” in the course of paying SS recipients. Continue reading

Brown-Vitter Will Not and Cannot Work but it is Criminogenic

By William K. Black


Senators Sherrod Brown (D-OH) and David Vitter (R-LA) have introduced a bill entitled “Terminating Bailouts for Taxpayer Fairness Act of 2013.”  It is a miracle of modern staffing that Vitter, who loves polluters as much as his prostitutes, was able to pull himself away from demanding that President Obama’s nominee to run the EPA answer over 600 questions and join Brown in proposing the bill.  Under Obama, bipartisan bills have a dismal fate because the Democrats negotiate away key elements necessary to create a good bill and add provisions that make parts of the bill harmful – just to pick up a few token co-sponsors – and then the Republicans kill good parts of the bill anyway and try to enact the bad parts. Continue reading

A Contest: MMT for Eighth Graders

What’s the best way to communicate the principles of MMT to an audience who doesn’t know any economics?  Can you draw out the implications of the sector balances or explain the importance of sovereign money without complex jargon?  Can you do it a way that will resonate with the average eighth grader?  Can you do it in 25 words or less?  We’ll collect the best submissions and post them next week.  Give it your best shot!

*UPDATE*  I can see that we are off to a bad start.

Identify a single MMT principle and then explain that principle in 25 words or less.  We are not asking you to explain *all* of MMT in 25 words.

“Without jargon” means that you should not use words like: “fiscal”, “reserves”, “GDP”, “debit”, “credit”, “policy space”, “bonds”, “capital”, “austerity”, “monetary policy”, etc.  You’re communicating with someone who has an eighth grade education, people!   In the USA.  Think about what that means.

William Black at CFIA Conference

South-South News interviews NEP’s William Black at CFIA Conference. He provides his extended dispair with Eurozone policies.

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Niall Ferguson’s Latest Gay Bashing is the Least of His Problems

By William K. Black
(Cross posted at

It is always a disaster when devotees of theoclassical economists speak their minds in front of what they think are friendly audiences.  Mitt Romney’s attack on 47% of Americans as leeches that it was his job not to represent were he elected President was the final nail in his self-constructed electoral coffin.  We now have Niall Ferguson, a history professor at Harvard and Hoover fellow whose theoclassical views have proven so influential with Prime Minister Cameron’s government’s adoption of austerity policies that have killed the UK recovery. Continue reading

Make ‘em Prove the Causality before They Cause Any More Suffering: Part Three, Reinhart – Rogoff Retrospective

This post is a more complete statement of my conclusions based on the analysis in Parts One and Two of this series. As I’ve explained in Part Two, there’s no reason in the Reinhart-Rogoff (R-R) data to believe that the debt-to-GDP ratio has a negative impact on growth. Ironically, that’s because their data set is terribly biased in its incompleteness, and was constructed to try to prove that there was a negative relationship between the debt-to-GDP ratio and economic growth. The interests supporting the RR work, both in its inception, and in disseminating its original results, were clearly trying to develop a basis for saying that since there is such a negative relationship, the right thing to do when the ratio gets too high (over 90%) is to implement a program of austerity aimed at deficit reduction, more or less drastic, depending on the individual case. Continue reading

Make ‘em Prove the Causality before They Cause Any More Suffering: Part Two, the Fall and After

In Part One, I asked whether the Carmen Reinhart/Kenneth Rogoff study and book didn’t show that, on average, nations experiencing debt-to-GDP ratios above 90% had negative rates of economic growth? And I said the answer to the question was “no.” But I didn’t explain why that was true. So, here goes.

The Fall

When Reinhart and Rogoff published their work they did not make their data set available to people to replicate, analyze, critique their findings, and augment to improve the data set. They ignored the scientific norm that you do that when you’re claiming that you’ve made an important empirical discovery. Other researchers wrote them and requested access to their data set in vain for at least the past three years. Continue reading