Monday, May 24, 2010

Legislative Background on the Debt Ceiling

The public debt limit or "debt ceiling" is established by the Congress and the President as a self-imposed constraint on the governments own activities. It is documented in Title 31 United States Code, subsection 3101. Here is a link to the section 3101 of title 31, it is from a while back and still does not reflect the latest law, but you can see the context.

Congress most recently increased this limit via a binding Joint Resolution which has the force of Law if it is signed by the President.

Here is a link to the latest Joint Resolution that raised the debt ceiling. The first paragraph reads:
"Resolved by the Senate and House of Representatives of the United States of America in Congress assembled, That subsection (b) of section 3101 of title 31, United States Code, is amended by striking out the dollar limitation contained in such subsection and inserting in lieu thereof $14,294,000,000,000."
Instead of revising the text to increase the numerical limit Congress could very easily just strike the whole Section 3101 from the Title 31 USC the next time the limit is near, and then there would be no self-imposed debt limit. Upon passage of the appropriation bills, the Treasury Department could just go do what was necessary to execute the appropriations.

In this regard, if Treasury continues to choose to use the Federal Reserve System as their fiscal agent, they will probably have to continue to issue US Treasury bonds due to the way the Fed runs the banking system and conducts Monetary Policy, but for no other reason such as having to "borrow the money".

9 comments:

MortgageAngel said...

Breakin' it down - great post, Matt!

Mike Norman said...

Yes, this is a great post, but striking Section 3101 will never happen in a million years because it makes too much sense.

Bob said...

All the forces are aligning for another pullback, S. Korea says they will ban trading with their #2 trading partner N. Korea and they will make them pay for sinking their ship, at the sametime announcing joint anti-submarine warfare exercises with the US in the west sea starting soon.
Latest from Bloomberg Solar Stocks in Spain and Germany are in trouble due to risk of losing their govt. to these industries. Probably cheaper to buy a Spain or German bond govt bond , you get higher interest rate with the same risk as buying solar stocks. To me what other industries could be in same situation?
The bill before congress to remove the swaps and prop trade components of the big banks from their control. This bill could force C,GS,BAC,MS,WFC,JPM to spin off these components. (we can only hope).

BP spill will cause more expensive ops in the gulf, IE higher fuel prices.

All these forces are coming together at the sametime, please tell me what good things are offsetting these items. Only thing I can come up with is earnings beat from an arbitrary target set by the analysts. Not much good news to offset a repricing of the equities indexes.

Bob said...

Correction, type error,

Solar Stocks in Spain and Germany are in danger of losing the govt subsidies to aid their industries,
due to governments cutting back on spending and trying to balance budgets.

Mike Sandifer said...

Guys, here's the latest foolishness from Peter Schiff"

http://www.youtube.com/watch?v=z-MwSKLxYow

He "debates" Mike Mussa here.

beowulf said...

As I mentioned to Matt on the "Marshall" thread at Mosler's place, Congress wouldn't have to touch the statutory debt limit if they authorized Tsy to resume issuing US currency notes (think Lincoln Greenbacks) usable as bank reserves. They're zero-interest bearer bonds but are excluded from the statutory debt limit.

Of course, there IS something else not within the statutory debt limit (not debt at all, in fact) that's used every day to create money, Congress's power to coin money and set the value thereof. Any coin authorized by Congress is legal tender, the Fed buys them at face value. Once the US Mint's costs are covered, Tsy books any seignorage profits as a miscellaneous receipt.

Congress could just give Tsy discretion to use this seignorage power to mint coins of any denomination. Just stamp $1 trillion coins as needed -- with Reagan's face no doubt-- why should the US ever bother borrowing again? Actually, Congress already did (quite by accident, I'm sure).

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.
31 US 5112

TomatoBasil said...

When my treasuries mature the treasury direct service doesn't pay back reserves, they issue zero percent certificates of indebtedness. Why on earth do they do this?

Mike Norman said...

Mike,

It's really sickening that this guy isn't totally laughed off the air at this point. He completely ignores facts and keeps spewing this dogma. Very sad commentary on the media.

Mike Norman said...

My Fiscal Trend Digest predicted this all back in January!