Ezra Klein writes today that the debt limit may indeed be unconstitutional, but this would be a bad time to test that proposition. He says that “layering a constitutional crisis over political gridlock” would have a similar effect of sapping the market’s confidence in the US political system, which is at the root of the debt limit debate. If the market decides that US debt is no longer a good investment, they will pull out, whether the reason is a reaching of the debt limit or a court battle over whether the debt limit exists or not as a check on paying federal bills when they come due. He adds that “The debt ceiling needs to be resolved in a way that assures investors that America’s other economic problems will be resolved, too. A court case that affirms the executive’s right to rack up more debt and the political system’s inability to agree on a reasonable deficit reduction package is the precise opposite of that.”
I’m pretty sure I don’t agree with him on that last point, considering that gridlock is the PATH to a sustainable budget future, not an impediment to it. If there’s no solution, the deficit problem takes care of itself. So a court case that affirms the executive’s right to rack up more debt without strings attached would put the political system in a healing kind of gridlock that brings the budget into primary balance. I don’t see the problem.
But stepping back even more, the issue is not really whether or not to invoke this Constitutional option; it’s whether to do it as an alternative. An alternative to what? An alternative to this:
Social Security payments to millions of retirees and people with disabilities could be threatened if President Obama and Congress can’t agree to increase the government’s debt limit by Aug. 2, a new analysis shows.
Although the Treasury Department likely could avoid delaying Social Security checks, the analysis by the Bipartisan Policy Center points up the depth of the cuts that would be needed if the $14.3 trillion debt ceiling isn’t raised.
It shows that in August, the government could not afford to meet 44% of its obligations. Since the $134 billion deficit for that month couldn’t be covered with more borrowing, programs would have to be cut.
Or this:
Mark Zandi, a prominent economic forecaster, says the US economy will gather steam in the second six months of 2011 – unless Congress fails to raise the government debt limit. In that case, “we go into recession, and my forecast would be blown out of the water,” he said Tuesday at a Monitor-hosted breakfast for reporters [...]
“If we get to August 2 and there is no debt ceiling limit, and there has to be significant spending cuts – even if Congress and the administration reverse themselves days later, I think the damage will have been serious, and we probably would be thrown into a recession,” Zandi said.
Or this:
The International Monetary Fund said today global markets will suffer if the U.S. Congress fails to approve an increase in the $14.3 trillion debt ceiling and cautioned about the risk of a downgrade in the country’s credit rating.
“The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,” the IMF said in a report on the U.S. economy. The report said a failure to reach a budget and debt compromise could result in a “sudden increase in interest rates and/or a sovereign downgrade.”
So if the choice is to ignore the debt limit or not, maybe you conclude that it’s too much of a risk to ignore it. If the choice is to ignore the debt limit, or to face immediate, massive spending cuts, the delay of Social Security checks, a double-dip recession and a “severe shock to the world economy,” suddenly ignoring the debt limit looks a lot better, right?
But wait, you say, what about the space in between, the space for a deal that will increase the debt limit, “get our fiscal house in order” and bring forth so much confidence that everyone will run right out and buy an extra car and Starburst fruit chews and lead a recovery for the ages? Well, that’s not going to happen. I know because a guy named Ezra Klein told me.
The best advice I’ve gotten for assessing the debt-ceiling negotiations was to “watch for the day when the White House goes public.” As long as the Obama administration was refusing to attack Republicans publicly, my source said, they believed they could cut a deal. And that held true. They were quiet when the negotiations were going on. They were restrained after Eric Cantor and Jon Kyl walked out last week. Press Secretary Jay Carney simply said, “We are confident that we can continue to seek common ground and that we will achieve a balanced approach to deficit reduction.” But today they went public. The negotiations have failed.
If the negotiations have failed, if there’s an impasse where the Democrats won’t accept an all-cuts solution and Republicans won’t accept anything with revenue, if positions have hardened because the President called the GOP out on revenue today (and they have, just look at John Boehner’s statement), then isn’t the least harmful option then one that follows the plain reading of the Constitution and Supreme Court precedent, and allows all bills to be paid on time?
Ezra adds that we should all “follow Eric Cantor’s lead and hedge your exposure to treasuries.” Alternatively we could just remark that there’s another option, and it can be found in the 14th amendment.
UPDATE: I should add that the President was asked if the debt limit is Constitutional today, and he completely dodged the question. It was part of a three-part question, and he only answered the other two parts.




15 Comments

Support this site!
Subscribe to the newsletter
Advertise on Firedoglake
Send
us your tips
Make us your homepage
About FDL News Desk
I don’t agree with Ezra, as usual. Republican economist Bruce Bartlet makes an good case for why the President could and should do this:
Which would be worse defaulting on our debts creating a worldwide economic crisis? Or a kerfluffle in the media that may die out while the objections run through he courts?
I’ll go for the latter
Well, that’s one way to play it. The other is to take care that all laws are faithfully executed, including the Coinage Act: “(h) The coins issued under this title shall be legal tender… (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.”
As Warren Mosler explained:
It seems the US Treasury is already legally empowered to simply mint its own platinum coin in any denomination it wants and effectively deposit it in its Fed account, rather than sell bonds to the public to fund its Fed account.
This process doesn’t change actual govt spending, so doing it this way doesn’t add to inflation, nor does it change the fact that govt deficit spending adds income and net financial assets to the other, non govt sectors. It’s just that the new financial assets will simply be new reserve balances at the Fed, rather than new Treasury securities (which are also simply accounts at the Fed).
What issuing these coins does do is remove the legal need for the debt ceiling to be raised, and also reduce the amount of outstanding Treasury securities, which is what is called govt debt. So while both reserves and Treasury securities are, functionally, govt liabilities and differ in name (and sometimes duration) only, the headline rhetoric does make that distinction. So technically, this process eliminates the ‘national debt’ and removes any (misguided) notion of solvency risk.
For a long time I thought that Ezra Klein got too much grief from people here.
Plus, anybody who Mickey Kaus has a sick obsession about can’t be all bad.
But the in the last few weeks Klein has shown himself to be just another Beltway pretty boy.
dday, just my opinion, but i think you’d benefit by reading more beowulf and less ezra klein.
please see comment @2
in addition to smarts, you have way more patience than i do.
I read Beowulf in junior high! Sadly for all of us, the beowulf to which you refer does not set current conventional wisdom inside the Beltway. So dragons must be slayed.
I found this PDF interesting, especially this note:”Marshall A. Robinson, The National Debt Ceiling: An Experiment in Fiscal Policy,
Washington, D.C.: The Brookings Institution, 1959, pp.1-6.
Even Greenspan of all people thinks the ‘debt limit’ is a ‘creative anachronism’(my words).
Of course he’s mistaken when he says “”There is a limit to how much the United States Treasury can borrow. We never came close to that [limit] since 1791.” as evidenced by the aforementioned PDF.
This is nothing but a power play over a house of cards. Where’s Maverick when you need him?
ah….. i thought (hoped?) adding to the conventional wisdom outside the beltway was the goal of your post.
i didn’t realize that your target audience is inside the beltway. guess my misunderstanding about that explains a great deal of my frustration… :(
will try to remember before hitting the “submit comment” button… save us both some grief.
an insiders game.
wish they’d stick baseball or something. would do a lot less damage to the country.
Well, it was, I guess. But using the inside CW as a foil.
http://www.youtube.com/watch?v=OyKE9ZZNPu4
good luck! i think you’ve given yourself an impossible task. inside CW just turns to mush what v few brain cells i have left.
nice… simple tech. good audio (vocal and music).
Sadly for all of us, the beowulf to which you refer does not set current conventional wisdom inside the Beltway…
I guess when Yeats wrote, “And what rough beast, its hour come round at last, Slouches towards Bethlehem to be born?”, the correct answer is ME! :o)
So my platform is terribly unpopular (Uncle Sam’s currency monopoly means the falcon CAN hear the falconer; Things DON’T fall apart; the centre CAN hold), think Overton Window. While minting Jumbo platinum cuts the Gordian knot while complying with all current laws, sadly it will result in leaving America’s bond traders underemployed. So if coin seigniorage is on the table, it makes declaring (per Perry v. United States) the debt ceiling unconstitutional the reasonable, moderate alternative that will keep Wall Street happy and fully employed.
You don’t have to be a Republican to understand (though apparently it helps), If you want the moon, you start by asking for the Sun. Thanks for the kind words Selise!
This post that I did at Dkos gives the details on the jumbo-coin option.