[S9E20] The High In The Low

"The Puerto Rican Day" is the 176th episode of the NBC sitcom Seinfeld. It aired on May 7, 1998, and was the 20th episode of the ninth and final season.[2] It was the show's second-highest-rated episode of all time, with 38.8 million viewers, only behind the series finale. The episode aired one week before the two-part clip show and the two-part series finale aired. It was a rare late-series return to a "plot about nothing" style and filmed in real-time, a format more often seen in early seasons. The episode follows the cast's misadventures as they try to escape from the traffic surrounding the Puerto Rican Day Parade.

But now, 32 years later, that American dream is beyond dead. It's a myth. The political situation that would have allowed the Simpson family a relatively stable middle class life was made possible by a robust labor movement, high taxes on the wealthy, a strong welfare state and the postwar prosperity that stemmed from U.S. industry having been untouched by the ravages of World War II. We are very, very far from that moment now.

It is also less likely that Homer would have been able to find a good union job. Union membership has declined since 1989, from 16.4% of the workforce to 10.5% in 2018. Union jobs provide better benefits, better job protections, and higher wages on average compared to their non-union counterparts. Perhaps those job protections are the reason Homer hasn't been fired from his job as a nuclear plant inspector, despite all his workplace transgressions.

At an extremely high level a government shutdown exists when the government runs out of statutory funding authority. Successive administrations has crafted a now standard legal regime whereby ending of statutory funding just stops non-essential government services. These have withstood scrutiny because no court would read the Antideficiency Act as mandating a catastrophe.

My two cents as a lawyer (commercial litigator, not constitutional) is that I've thought for many years that there's a pretty clear argument under ordinary statutory interpretation principles that Congress works an implied repeal of the debt ceiling to the extent it authorizes spending that exceeds the ceiling without providing any other mechanism to pay for it (e.g., higher taxes, authorizing sale of sufficient existing government assets, authorizing printing more money, etc.). There were a series of SCOTUS decisions in the 1970s finding that Presidents were constitutionally required to spend everything that Congress directed them to spend, so implied repeal is far more plausible under existing precedent than what appears to be the present Republican theory that the President has the inherent authority to decide how to prioritize spending.

Instead of selling a $100 bond that has a low interest rate for $100 dollars, they can offer a $100 bond that has a high interest rate and see how much money people will give them for it. People would pay more than $100 for that bond, and therefore the Treasury could raise more than $100 while only issuing $100 worth of debt. It\u2019s kind of stupid, but it\u2019s less goofy than a platinum coin. And it is also stupid in a manner that is perfectly suitable to the underlying stupidity of the statutory debt ceiling, which purports to limit the face value of debt that the Treasury can issue separate from all the legislation that specifies how much money the Treasury has to spend.

And since the debt ceiling caps the face value of the debt, it suggests that the Treasury should continue to meet the nation\u2019s financial obligations by changing the way it sells bonds to prevent the face value of the debt from growing too high.

The first thing this would do is let the Treasury finance the ongoing operations of the government while dramatically slowing the pace at which the face value of the outstanding debt accumulates. I picked numbers at random, but there\u2019s no reason it has to be a $100 bond with a 27% interest rate. Treasury could just as easily sell a $1 bond with a 2,700% interest rate and raise the $712 that way. This is the magic of the trick. Just as the government can sell high face-value bonds at low interest rates to raise a large sum of money, they can also sell tiny face-value bonds at high interest rates to raise the exact same sum of money.

In addition to the 10-year bond that\u2019s often discussed in policy terms, the government sells a lot of short-term debt \u2014 1-month, 2-month, 3-month, 4-month, and 6-month bonds \u2014 so there are always some fresh bonds coming due. By swapping out old bonds with high face values and low interest rates for equivalent-yielding bonds with low face values and high interest rates, the Treasury can not only slow the pace at which the face value of debt accumulates, it can start to reduce the face value of that debt. This should not only get around the debt ceiling issue \u2014 it should make it entirely irrelevant over time.

In practice, confidence in the full faith and credit of the United States will be somewhat diminished if the Treasury resorts to this tactic, and federal borrowing costs will rise. Since the federal government is also the guarantor of the bonds issued by Fannie Mae and Freddie Mac, the yield on their debt will also rise.1 That's going to raise the rate charged on mortgages, making it more expensive for new buyers to buy homes and depressing the equity value of homeowners' existing dwellings. Higher interest rates also depress stock market values. What's more, because U.S. government debt is always going to be safer than other kinds of dollar-denominated debt, if a crisis raises yields on treasuries, borrowing costs for every business in America will go up. It will also mean higher borrowing costs for every school district or municipal water system that wants to sell bonds to facilitate some repairs. It's definitely bad, and the best thing would be for Republicans to not shoot the country in the foot out of spite for having lost the 2020 election.

That said, if yields go up a lot because people are afraid the Treasury Department would lose this case in court, I\u2019d happily swoop in and buy some bonds. Because I have a very high degree of confidence that they would win.

The biggest practical problem is that troublemakers only need to find one insane district court judge somewhere in the country to order a national injunction and create at least a temporary crisis. In the end, Biden will prevail in court because the GOP appointees to the federal courts are mostly not insane. But there is a non-zero level of insanity out there, and the \u201Cone district judge issues a nationwide injunction\u201D trend has unfortunately become a tricky issue for basically all policymaking.2 As you get to a higher level, though, I think the legal argument in favor of doing it is unimpeachable. It's not clear who would even have standing to sue as the allegedly injured party. But beyond that, in the event of a debt ceiling breach, the executive branch has to do something, and issuing high-yield bonds is a way to avoid doing something flagrantly illegal.

He needs to try to take this issue off the table. Meanwhile, ideally we should separate the debate over the debt ceiling from the debate over fiscal policy. I always thought Obama\u2019s quest for a Grand Bargain was a misread of the objective economic situation in which he found himself. But given the economic circumstances of 2023, a reasonable deficit reduction package would be a good idea. Biden should do a big speech calling for a bipartisan commission on deficit reduction! But then he should have the Treasury start working on some high-yield bonds, because there is no sense in negotiating with hostage takers. 781b155fdc