Consols are bonds that pay interest but have no maturity date, somewhat like perpetual annuities. If adopted, they would not fall within the scope of the debt ceiling because there would be no principal that is an obligation of the US Treasury. If no principal ever comes due there is no addition to American government debt that has an expiry or pay/back date.
Consols were discussed by James Leitner and Ian Shapiro in a Washington Post article on November 15th. They suggest introducing them as a way of getting round the next, and subsequent, fights between the Tea Party and the Administration over the debt ceiling, if Congress refuses to increase that ceiling in a timely way. Which they probably will. If extra government debt were funded by consols that would effectively last indefinitely, there would be no risk of default by the government. QED.
Anyone familiar with the “Forsyte Saga” will be aware of consols. They were the reliable mainstay of the growing Victorian and Edwardian middle class in England, and the subject of constant discussion, if you believe Galsworthy.
They are still traded in the UK.
This is not the first time this financial instrument has been mentioned as a rational weapon in an irrational political war. To deploy them would provoke outrage. It has to be used as a publically un-discussed threat of last resort, sprung upon an opposition whose knowledge of economics is dismally small. Epicurus was a great one for finding clever ways of taking weapons from the hands of hostile people. He would approve.
The silly thing is that the deficit is already on a downward path, and as soon as the economy is in better shape it will come down even quicker. The reason it is anaemic is that the Republicans denied Obama the opportunity to inject serious capital into the economy. Their constant call is for tax reductions. Well, there was a massive tax reduction under Bush, not to mention a free-for-all in among the banks – and what did it lead to? The worst slump since the 1930s. If tax reductions worked they would have worked by now. The Republicans policy is economics-for-fairies in la-la land.
“The Republicans policy is economics-for-fairies in la-la land.”
I’m not sure Republican economic policies rise even to the level of la-la. Tax cuts during long wars that decreased American security? Their programs have been marginally less destructive than war because the latter kills bodies. The takeover of the media and “stink tanks” and other PR efforts have chiseled these destructive slogans, e.g., “deficits are are worst enemy,” into conventional wisdom.
Were “consols” the same thing as “4 per-centers?”