The debt ceiling is back. Of Lost, "the button," and the debt ceiling.

 Did you watch Lost?  I did.  I admit it.  If you did not, and do not know the premise, a plane crashes on a tropical island on which strange things happen.  Got it?  Anyway, during the second season, much of the plot revolves around an underground bunker left behind by a scientific research group called the Dharma Initiative.  In this bunker, there is a computer station which requires you to enter a sequence of numbers every 108 minutes, and then hit "enter."  The characters refer to this process as 'pressing the button.'  When the characters discovered the bunker, they found a guy in it, doing this, for reasons he did not understand.  The characters do not know what happens if you do not press the button.  Yet they keep doing it, every 108 minutes, out of a fear that if they do not do it, some disaster will occur, as stated by a filmstrip within the bunker.  Press the button, or something very bad will happen.  Trust me.

At the end of the second season, John Locke (yes, really) becomes convinced that the Dharma Initiative set up this bunker as merely a psychology experiment, so he decides that they are not going to press the button.  As it turns out, the button is real.  Blah blah, electromagnetic energy, blah blah, the button discharges it, blah blah, disaster.  In fact, the plane crash was caused when the guy they found in the bunker-- Desmond-- failed to press the button in time.

A few seasons later, most of the characters go back in time to when the Dharma Initiative was in the process of drilling down to where that station would be.  What if the time traveling characters could prevent "the incident" from happening?  The "incident" that required the button, Desmond's failure to press it, the plane crash, and everything?  Blah blah, predestination, blah blah, paradoxes, yadda yadda.

Anyway, we have our own economic button.  It is called "the debt ceiling."  We have to raise it every... the mathematics of bond sales and federal debt are not so kind as to put it on a schedule as regular as every 108 minutes, but if we do not do it in time, then... what?

Is it all just some game?  The House of Representatives has been taken over by a party whose controlling faction seems to think as John Locke did at the end of the second season.

Here is a refresher.  The debt ceiling is not the national credit card limit.  There is no personal analog to the debt ceiling, and trying to find one will not work because the nation does not work like a person, nor a household.

Congress appropriates money.  It does so every year, and in addition to the money that Congress appropriates, there is entitlement spending that is automatically allocated for Medicare and Social Security.  Congress also gives the IRS the authority to collect taxes.  However, the money that Congress directs the IRS to collect is always less than the money it tells other agencies to disburse.  The Treasury makes up the difference by selling bonds.

However, there is a statutory limit on the total value of all outstanding bonds.  That statutory limit is the "debt ceiling."  There is no such thing for individuals nor households.

As Congress continues to appropriate more money than it directs the IRS to collect, that money has to come from somewhere.  The Treasury must increase the number of bonds it sells.  Eventually, it hits the debt ceiling.  If the debt ceiling is not raised, one of several things must happen, by mathematics.

1)  Federal agencies disburse less money than they are directed, by law, to disburse.  (Translation: someone doesn't get paid.)

2)  The IRS collects more money in taxes, by law, than it is directed to collect.

3)  The Treasury sells more bonds, by law, than it is allowed to sell.

OK, pop quiz.  Which of those three options is legal?

Do you see a problem here?

So what actually happens if we breach the debt ceiling?  The Swan Station alarm is blaring, and the 108 minute counter is ticking down.

If we do nothing, is it like failure to press the button in Lost?  Economically speaking, it's bad.  Legally speaking, in technical terms, it's a "catastro-fuck."  Whatever happens, it is necessarily illegal.  There's no way the IRS collects taxes illegally.  There's no way the Treasury sells bonds illegally.  Instead, someone won't get paid.  Who?  We have no idea because there is no legal process for determining that.

But, whoever it is has a legal case against the US Government.  Which can't pay up, even though it loses the case.

Next kaboom in the rolling series of economic explosions is the interest rate problem.  Bond rates skyrocket because nobody wants to loan the US Government money.  If bond holders are the ones who don't get paid, bonds become very risky.  Even if the bond holders are paid, and it is someone else who draws the short straw, bond holders have to worry that they might not get paid, and interest rates still keep going up.

That has several consequences.  First, it makes it very hard to finance the budget because we have to pay that.  Debt just went up, dumbasses.

Second, right now, the Federal Reserve is doing this delicate dance of trying to manage the so-called "soft landing."  Powell is trying to get inflation down without creating a recession.  How?  By raising interest rates just enough to bring down inflation, but not enough to spur a recession.  If bond rates start skyrocketing, so much for Powell's careful attempt to orchestrate a soft landing.  Whether you think it will work or not, whether you think we'll get a recession or not this year, once those bond rates start taking off, we're fucked.

So everything I just wrote is inference.  We have not seen this before.  How confident am I?  Confident enough that press the fucking button.

Or better yet, dismantle the Swan Station.  In Lost, the Dharma Initiative just set up that computer because once "the incident" happened, they couldn't figure out anything better than entering those numbers into the computer every 108 minutes.

We can.  Eliminate the debt ceiling.  It is an objectively stupid law.

What prevents the debt ceiling from being raised?  Right-wing demagoguery.  What prevents the debt ceiling from being eliminated?  A combination of that, and Democratic stupidity.  They could have, and should have put that into one of their budget reconciliation bills, and we wouldn't be here.  I even suggested, a while back, that if anything justified "the nuclear option" in the Senate, it would have been the elimination of the debt ceiling.

Instead, here we are.  Again.  Yellen announced that we are hitting the debt ceiling earlier than expected.

Are we fucked?

I don't know, but the problem is that a debt ceiling increase needs to get through the House, and Kevin McCarthy is a) incompetent, and b) sees himself as completely beholden to the same caucus that drove John Boehner from power for doing precisely what needs to be done now.

Does Kevin McCarthy have enough of a brain in his head to recognize that the debt ceiling needs to be raised?  Or does he think that crashing the economy would just help the GOP in 2024?  I have no idea what goes on in his head, except the need to pander.  The only thing that matters to him is the gavel.  If he thinks it is a choice between letting a debt ceiling increase get a floor vote and keeping the gavel, he'll block a floor vote for a debt ceiling increase.

One of the crazier ideas that started to circulate around the commentariat in 2011 was the $1 trillion coin.  At this point, I pretty much advocate that.  Take the debt ceiling off the table.  You cannot negotiate with Republicans on this.  This is a terrible idea, from a policy perspective, from a governance perspective, and really, from every perspective, but what should have happened was that the Democrats should have eliminated the debt ceiling when they had unified control.  They didn't.

Now it's time for a controlled detonation of the Swan Station.  Will there be collateral damage?  Yes, but the risk of doing otherwise is too great.  I wish we could go back in time and prevent "the incident," but we can't, and the 108 minute game is too dangerous to keep playing.

More Jeff Beck.  "I Ain't Superstitious," from Truth.