Redmont’s Financial Sector is expected to rejoice today as the hotly contested Borrowing Authority Act passes with little fanfare, granting unprecedented powers in a move many say will equip the government with the tools to fight the much-anticipated “Jaron Wave”.
The Act was introduced by Representative TrueDarklander and sponsored by Representative Incarnation__, with support from DOC Secretary ElysiaCrynn and FRB Governor jJoshuaTheGreat. The Act enables the government to borrow money from the public at an interest rate of up to the lower of the FRB policy rate + 3.5% or 5.75%, through the issuance of loans or debt securities such as Treasury Bills (“T-Bills”) and Treasury Bonds (“T-Bonds”) that are often used by other governments to finance their budget deficits. It is unclear from the text of the Act whether the interest rate ceiling is monthly or annual.
Although the Act institutes a “debt ceiling”—a political instrument widely regarded by economists as damaging to a government’s creditworthiness—as an olive branch to anti-borrowing politicians, this ceiling may be bypassed by the Cabinet at any time through the declaration of a “Fiscal Emergency,” an action that may be enacted for reasons such as “the payment of public employees” or “the maintenance of continuity of the Government.” It is unclear whether the judiciary will limit the extent to which these vague conditions may be interpreted. Additionally, a Fiscal Emergency may force the FRB to purchase government securities unwanted by the free market, an action known as “debt monetization” or, in common parlance, “printing money.”
To meet the government’s novel requirement for public auctioning and trading of bonds, the FRB has tentatively selected The Stock Exchange (TSE) to host tenders for government securities. TSE is expected to support both non-competitive and competitive bids. Non-competitive bidders will receive securities at the market-clearing rate set by competitive bids. TSE CEO Mug declined to comment when asked about the deal.
The Borrowing Authority Act appears to be more controversial among the public than among the political elite, with only two members of Congress voting against it. In the small amount of public debate the Act had before passage into law, FRB Governor jJoshuaTheGreat remarked that increased government spending was necessary to solve the current demand-deficiency economic crisis, saying, “the longer it [the government] keeps up [with] the current very conservative fiscal policy, the slower the economy is going to get,” referencing “automatic destabilizers”: when the government is forced to reduce spending and increase tax rates in response to a recession driven by low aggregate demand, further lowering it and plunging the economy into a recessionary spiral. In contrast, renowned Volt banker and legalese fan Omegabiebel criticized the Act’s “Fiscal Emergency” clause, claiming it has “too much abuse potential.”
Representative NovaKerbal, one of the two Representatives who voted against the Act (along with xEndeavour, who proposed increasing taxes instead during the Congressional debate on the forums), said
Simply, I oppose it because we haven’t taken meaningful steps to address the deficit. If our plan is to print or borrow our way out of the hole, I’m vehemently against that. I don’t believe the government should enter into debt outside of times of crisis, and the house is entirely capable of fixing the deficit if we so choose.
Despite the paucity of debate and public comment, for better or for worse, the Borrowing Authority Act has now silently become law.
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