Republicans and Democrats are again playing a game of chicken over the U.S. debt ceiling – with the nation’s financial stability at stake.

Treasury Secretary Janet Yellen recently said that June 1, 2023, is a “hard deadline” for raising the debt limit, currently set at US$31.38 trillion, to avoid an unprecedented default. The government hit the ceiling back in January and has been using “extraordinary measures” since then to keep paying its bills.

Last-minute negotiations between the White House and Republicans have been mostly fruitless as conservatives in the House push for big spending cuts and policy changes, while President Joe Biden has insisted on lifting the ceiling with no strings attached. They are expected to continue to meet in the coming days.

Economist Steven Pressman explains what the debt ceiling is and why we have it – and why it may be time to abolish it.

1. What is the debt ceiling?

Like the rest of us, governments must borrow when they spend more money than they receive. They do so by issuing bonds, which are IOUs that promise to repay the money in the future and make regular interest payments. Government debt is the total sum of all this borrowed money.

The debt ceiling, which Congress established a century ago, is the maximum amount the government can borrow. It’s a limit on the national debt.

2. What’s the national debt?

The U.S. government debt of $31.38 trillion is about 22% more than the value of all goods and services that will be produced in the U.S. economy this year.

Around one-quarter of this money the government actually owes itself. The Social Security Administration has accumulated a surplus and invests the extra money, currently $2.8 trillion, in government bonds. And the Federal Reserve holds $5.5 trillion in U.S. Treasurys.

The rest is public debt. As of October 2022, foreign countries, companies and individuals owned $7.2 trillion of U.S. government debt. Japan and China are the largest holders, with around $1 trillion each. The rest is owed to U.S. citizens and businesses, as well as state and local governments.

3. Why is there a borrowing limit?

Before 1917, Congress would authorize the government to borrow a fixed sum of money for a specified term. When loans were repaid, the government could not borrow again without asking Congress for approval.

The Second Liberty Bond Act of 1917, which created the debt ceiling, changed this. It allowed a continual rollover of debt without congressional approval.

Congress enacted this measure to let then-President Woodrow Wilson spend the money he deemed necessary to fight World War I without waiting for often-absent lawmakers to act. Congress, however, did not want to write the president a blank check, so it limited borrowing to $11.5 billion and required legislation for any increase.

The debt ceiling has been increased dozens of times since then and suspended on several occasions. The last change occurred in December 2021, when it was raised to $31.38 trillion.

4. What happens when the US hits the ceiling?

Whenever the U.S. nears its debt limit, the Treasury secretary can use “extraordinary measures” to conserve cash, which she indicated began on Jan. 19. One such measure is temporarily not funding retirement programs for government employees. The expectation will be that once the ceiling is raised, the government would make up the difference. But this will buy only a small amount of time.

If the debt ceiling isn’t raised before the Treasury Department exhausts its options, decisions will have to be made about who gets paid with daily tax revenues. Further borrowing will not be possible. Government employees or contractors may not be paid in full. Loans to small businesses or college students may stop.

When the government can’t pay all its bills, it is technically in default. Policymakers, economists and Wall Street are concerned about a calamitous financial and economic crisis. Many fear that a government default would have dire economic consequences – soaring interest rates, financial markets in panic and maybe an economic depression.

Under normal circumstances, once markets start panicking, Congress and the president usually act. This is what happened in 2013 when Republicans sought to use the debt ceiling to defund the Affordable Care Act.

But we no longer live in normal political times. The major political parties are more polarized than ever, and the concessions McCarthy gave right-wing Republicans may make it impossible to get a deal on the debt ceiling.

5. Is there a better way?

One possible solution is a legal loophole allowing the U.S. Treasury to mint platinum coins of any denomination. If the U.S. Treasury were to mint a $1 trillion coin and deposit it into its bank account at the Federal Reserve, the money could be used to pay for government programs or repay government bondholders. This could even be justified by appealing to Section 4 of the 14th Amendment to the U.S. Constitution: “The validity of the public debt of the United States … shall not be questioned.”

Few countries even have a debt ceiling. Other governments operate effectively without it. America could too. A debt ceiling is dysfunctional and periodically puts the U.S. economy in jeopardy because of political grandstanding.

The best solution would be to scrap the debt ceiling altogether. Congress already approved the spending and the tax laws that require more debt. Why should it also have to approve the additional borrowing?

It should be remembered that the original debt ceiling was put in place because Congress couldn’t meet quickly and approve needed spending to fight a war. In 1917 cross-country travel was by rail, requiring days to get to Washington. This made some sense then. Today, when Congress can vote online from home, this is no longer the case.

This article has been updated to reflect ongoing negotiations and the expected default deadline of June 1.

Steven Pressman, Part-Time Professor of Economics, The New School

This article is republished from The Conversation under a Creative Commons license. Read the original article.

Honolulu has lost more than 5 miles of its famous beaches to sea level rise and storm surges. Sunny-day flooding during high tides makes many city roads impassable, and water mains for the public drinking water system are corroding from saltwater because of sea level rise.

The damage has left the city and county spending millions of dollars on repairs and infrastructure to try to adapt to the rising risks.

Future costs will almost certainly be higher. More than US$19 billion in property value, at today’s dollars, is at risk by 2100 from projected sea level rise, driven by greenhouse gas emissions largely from the burning of fossil fuels. Elsewhere in Honolulu County, which covers all of Oahu, many coastal communities will be cut off or uninhabitable.

Unwilling to have their taxpayers bear the full brunt of these costs, the city and county sued Sunoco LP, Exxon Mobil Corp. and other big oil companies in 2020.

Their case – one of more than two dozen involving U.S. cities, counties and states suing the oil industry over climate change – just got a break from the U.S. Supreme Court. That has significantly increased their odds of succeeding.

Suing over the cost of climate change

At stake in all of these cases is who pays for the staggering cost of a changing climate.

Local and state governments that are suing want to hold the major oil companies responsible for the costs of responding to disasters that scientists are increasingly able to attribute to climate disruption and tie back to the fossil fuel industry. Several of the plaintiffs accuse the companies of lying to the public about their products’ risks in violation of state or local consumer protection laws that prohibit false advertising.

The governments in the Honolulu case allege that the oil companies “are directly responsible” for a substantial rise in carbon dioxide emissions that have been driving climate change. They say the companies should contribute their fair share to defray some of the costs.

The gist of Honolulu’s complaint is that the big oil companies have known for decades that their products cause climate change, yet their public statements continued to sow doubts about what was known, and they failed to warn their customers, investors and the public about the dangers posed by their products.

Were it not for this deception, the lawsuit says, the city and county would not be facing mounting costs of abating the damage from climate change.

Importantly, the complaint is based on state – not federal – law. It alleges that the defendants have violated established common law rules long recognized by the courts involving nuisance, failure to warn and trespass.

The city and county want the companies to help fund climate adaptation measures – everything from building seawalls and raising buildings to buying flood-prone properties and restoring beaches and dunes.

Supreme Court could have killed these cases

Not surprisingly, the oil companies have thrown their vast legal resources into fighting these cases.

On April 24, however, they lost one of their most powerful arguments.

The U.S. Supreme Court declined to hear challenges in the Hawaii case and four others involving the seemingly technical question of which court should hear these cases: state or federal.

The oil companies had “removed” the cases from state court to federal court, arguing that damage lawsuits for climate change go beyond the limits of state law and are governed by federal law.

That theory would have derailed all five cases – because there is no federal common law for greenhouse gases.

The court made that position clear in 2011 in American Electric Power Co. v. Connecticut. Several state and local governments had sued five major power companies for violating the federal common law of interstate nuisance and asked for a court order forcing these companies to reduce their emissions. The Supreme Court refused, holding that the federal Clean Air Act displaced federal common law for these gases.

In Native Village of Kivalina v. Exxon Mobil Corp., a federal court of appeals extended that holding to also bar claims for monetary damages based on federal common law.

To avoid this fate, Honolulu and the other plaintiffs focused on violations of state law, not federal law. Without exception, the federal courts of appeals sided with them and sent the cases back to state court.

What happens next?

The Honolulu case leads the pack at this point.

In 2022, the 1st Circuit Court in Hawaii denied the oil companies’ motion to dismiss the case based on the argument that the Clean Air Act also preempts state common law. This could open the door for discovery to begin sometime this year.

In discovery, senior corporate officers – perhaps including former Exxon Mobil CEO Rex Tillerson, who was secretary of state under Donald Trump – will be required to answer questions under oath about what the companies knew about climate change versus what they disclosed to the public.

Evidence from Exxon documents, described in a recent study by science historians Naomi Oreskes and Geoffrey Supran, shows that the company’s own scientists “knew as much as academic and government scientists knew” about climate change going back decades. But instead of communicating what they knew, “Exxon worked to deny it,” Supran and Oreskes write. The company overemphasized uncertainties and cast doubt on climate models.

This is the kind of evidence that could sway a jury. The standard of proof in a civil case like Honolulu’s is “preponderance of the evidence,” which roughly translates to 51%. Ten of the 12 jurors must agree on a verdict.

Any verdict likely would be appealed, perhaps all the way to the U.S. Supreme Court, and it could be years before the Honolulu case is resolved.

Lawsuits don’t begin to cover the damage

It is unlikely that even substantial verdicts in these cases will come close to covering the full costs of damage from climate change.

According to the National Oceanic and Atmospheric Administration, in 2022 alone the U.S. sustained 18 weather and climate disasters that each exceeded $1 billion in damage. Together, they cost over $165 billion.

But for many of the communities most at risk from these disasters, every penny counts. We believe establishing the oil companies’ responsibility may also discourage further investments in fossil fuel production by banks and brokerage houses already nervous about the financial risks of climate disruption.

Patrick Parenteau, Professor of Law Emeritus, Vermont Law & Graduate School and John Dernbach, Professor of Law, Widener University

This article is republished from The Conversation under a Creative Commons license. Read the original article.

One year in the next five will almost certainly be the hottest on record and there’s a two-in-three chance a single year will cross the crucial 1.5℃ global warming threshold, an alarming new report by the World Meteorological Organization predicts.

The report, known as the Global Annual to Decadal Climate Update, warns if humanity fails to reduce greenhouse gas emissions to net zero, increasingly worse heat records will tumble beyond this decade.

So what is driving the bleak outlook for the next five years? An expected El Niño, on top of the overall global warming trend, will likely push the global temperature to record levels.

Has the Paris Agreement already failed if the global average temperature exceeds the 1.5℃ threshold in one of the next five years? No, but it will be a stark warning of what’s in store if we don’t quickly reduce emissions to net zero.

Warming makes record heat inevitable

The World Meteorological Organization update says there is a 98% chance at least one of the next five years will be the hottest on record. And there’s a 66% chance of at least one year over the 1.5℃ threshold.

There’s also a 32% chance the average temperature over the next five years will exceed the 1.5℃ threshold. The chance of temporarily exceeding 1.5℃ has risen steadily since 2015, when it was close to zero. For the years between 2017 and 2021, it was a 10% chance.

Human-caused greenhouse gas emissions have already driven up global average temperatures by more than 1℃ since the late 19th century. The update notes the 2022 average global temperature was about 1.15℃ above the 1850-1900 average, despite the cooling influence of La Niña conditions. Temperatures are now rising by about 0.2℃ per decade.

We now have more than a century of global mean temperature data. That means it should be getting harder, not easier, to achieve new records. If there was no trend, we would expect to see fewer records as time passes and the data we’ve collected better captures the full range of natural climate variability.

Instead, because we are warming the world so quickly, more heat records are being set globally and at the local level. The human influence on the climate is pushing temperatures to unprecedented highs with alarming frequency.

Add El Niño, then extreme highs are likely

The current record global average temperature dates back to 2016. A major El Niño event early that year pushed up the global average temperature.

El Niño events are associated with warmer-than-normal seas over much of the central and eastern Pacific. This helps warm the lower atmosphere and raise global temperatures by about 0.1℃. This might not sound like much, but with rapid background warming it’s often enough to break the previous record.

In the seven years since the current global temperature record, humanity has continued to intensify the greenhouse effect. This is making a new record ever more likely.

El Niño conditions are starting to form in the Pacific and are looking increasingly likely to take hold in June and July. This could be the first significant El Niño since 2016. An El Niño would greatly increase the chance of breaking that year’s record high global average temperature, particularly in 2024.

Does this mean the Paris Agreement has already failed?

Almost all nations around the world have signed the Paris Agreement. The aim is to limit global warming to well below 2℃ and preferably below 1.5℃ above pre-industrial levels.

The prediction that an individual year above 1.5℃ global warming is more likely than not is alarming. But it doesn’t mean we have failed to achieve the Paris Agreement’s goals. The agreement aims to limit long-term global warming to a level that avoids major climate impacts, including ecosystem loss. One or two years that pop over the 1.5℃ level don’t constitute failure.

However, the world is getting closer to the 1.5℃ global warming level due to our continuing high greenhouse gas emissions. The forecast of a probable year that exceeds that level should serve as a warning.

Yet another sign of humanity’s damage to the climate

Past inaction on reducing emissions and tackling climate change means we have already warmed the world by more than 1.2℃. Global emissions remain at near-record high levels, so we are continuing to intensify the greenhouse effect and warm the planet.

If we are to limit global warming to well below 2℃, then we must act so future generations don’t suffer a much less hospitable planet.

We have understood the solution for decades. We must reduce emissions to net zero to stop warming Earth. Countries such as Australia, with high historical emissions, have a leading role to play by decarbonising electricity supply and ramping down coal, oil and gas production in line with goals laid out by the United Nations.

Failure to act should not be considered an option. Otherwise we are locking in more record hot years and much worse climate change impacts for decades and centuries to come.

Andrew King, Senior Lecturer in Climate Science, The University of Melbourne

This article is republished from The Conversation under a Creative Commons license. Read the original article.

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