Here we go again. Washington, and to a lesser degree, Mr. Market are all a twitter over the display of macho in the latest round of the Team Dem versus Team Republican professional wrestling bout budget battle.
In case you’ve managed to tune it out thus far, the Treasury will run into debt ceiling limits around mid-October, so Something Must Be Done. And the current version of attempted Republican hostage-taking is to insist Obamacare be delayed a year or weakened in other respects. This Washington Post piece describes how the Republican see their strategy:
To be clear, the GOP leadership has always considered the debt ceiling, not the CR (continuing resolution), to be the place most appropriate to use its leverage. First, if the CR gets passed the threat of a government shutdown and the risk the GOP will be blamed for it goes away…
It is also important to keep in mind that what the House sends over to the Senate to start the bidding isn’t all that critical. If the hard liners want to lard it up with Obamacare defunding and every other shiny object, there is little downside. What is critical is what the Senate does with it and how the House responds to whatever comes back. Sen. Ted Cruz (R-Tex.) and the other members of the shutdown squad don’t have a lot of allies. Unless something changes, there aren’t enough R’s to block a CR that doesn’t include their pet defunding plan. What comes back to the House therefore will in all likelihood not have a defunding measure. At that point the real fight will occur: Can the GOP leadership get 218 votes to keep the government running and then pivot to the debt/Obamacare showdown?
Then the familiar drill will repeat itself. The White House will press for closed door negotiations. The House will insist on regular order. And then we are back to a three-sided face-off and a real test for Senate Dems. Will they stick by the “no changes on Obamacare” edict from the White House or will there be a deal in there.
The New York Times editorial today bemoans how those reckless meanie Republicans are willing to cause a huge train wreck (and arguably hurt themselves worse than the Dems) to force some sort of concession because they haven’t been attentive enough to the calendar and they really might have a shutdown. Key sections:
Until now, the only House Republicans pushing for a government shutdown and debt crisis were a few dozen on the radical right, the ones Senator Harry Reid, the majority leader, referred to as “the anarchists.” On Wednesday, however, the full Republican caucus, leadership and all, joined the anarchy movement, announcing plans to demand the defunding of health care reform as the price for keeping the government open past Sept. 30…
What is worse, the House leadership also announced plans to make a series of demands of the White House in exchange for raising the debt ceiling in mid-October, threatening a government default if they don’t get their way. The demands, announced by the majority leader, Eric Cantor, are a goodie-bag of Republican priorities: approving the Keystone XL oil pipeline, delaying health reform by a year, and changing the tax code in ways that will undoubtedly benefit corporations and the wealthy….
As a strategy, the House plan makes little sense. After the House takes its vote this week to approve a temporary resolution that pays for the government to keep running through mid-December — but defunds the health law — the measure will go to the Senate. Assuming 60 votes can be found to beat back the inevitable filibuster from Republicans like Mike Lee or Ted Cruz, the Senate will almost certainly approve the resolution minus the defunding language, sending the bill right back to the House. Nothing will have changed, except that there will be only a day or two left before the government’s financing runs out…(Their tactics will never turn back health reform, but fighting that battle means Democrats are unlikely to stop the destructive sequester cuts for another year.)
Mr. Boehner is playing the dangerous game of trying to placate the extremists for a few days. But, in the end, the burden will be squarely on his shoulders. If he allows the entire House, including Democrats, to vote on straightforward measures to pay for the government and raise the debt limit, the double crisis will instantly end. If he does not, he will give free rein to his party’s worst impulses.
Now all this pearl-clutching perpetuates the canard that Obama could be forced to shut the government down to preserve cash in order to avoid defaulting on Treasuries. No, folks, even if the Republicans miscalculate, Obama can easily prevent a crisis, so if the government indeed were to shut down, it’s entirely his doing. Ditto with diluting or delaying Obamacare or making any other concession.
Joe Firestone describes how the mouthpiece of Democratic orthodoxy, Ezra Klein, is “terrified” because Boehner has lost control of the rank and file, which is determined to play hardball, and Obama is similarly refusing to negotiate. This is from his transcript of a Chris Hayes segment with the young Ezra and Robert Costa:
Ezra: no. the white house has complete religion on the debt ceiling. they believe not just about this negotiation, but about as a matter of presidential legacy. if they are the white house remembered for permitting the debt ceiling to become a routine matter of hostage taking in american politics, imagine you just think there’s a 10% chance of any debt ceiling negotiation going on. it’s not very big, but over ten years, it’s going to go wrong. this white house does not want their legacy to be they set in motion the chain of events that led to america’s role as an economic corner stone of the world being degraded. so they believe not just as matter of this negotiation, but all negotiations going forward. they need to break this habit now and that’s why i am scared going into this. nobody believes we’re likely to go over the debt ceiling, but if you look at the positions on the table now, the white house’s we will not negotiate and boehner’s, right now, the only thing that is there is the default.
Joe points out the last time we had a budget staredown, the blogosphere debated various ways to circumvent a debt ceiling. No less than Ezra’s fellow mouthpiece of professional lefie thinking, Matt Yglesias, came out in favor of the MMT crowd’s favorite idea, the platinum coin. But here’s a full list of the ways out of this impasse:
1. a selective default strategy by the Executive, prioritizing not paying for things that Congress needed, and perhaps not paying debt to the Fed when it falls due and working with the Fed to get the $1.6 Trillion in bonds that it was holding canceled;
2. an exploding option involving selling a 90-day option to the Fed for purchasing some Federal property for $ 2 Trillion. Then when Congress lifts the debt ceiling, the Treasury could buy back the option for one dollar, or the Fed could simply let the option expire;
3. using the authority of a 1996 law to mint proof platinum coins with arbitrary face values in the trillions of dollars to fill the Treasury General Account (TGA) with enough money to cease issuing debt instruments, and even enough to pay off the existing debt; and
4. using the authority of the 14th Amendment to keep issuing debt in defiance of the debt ceiling, while declaring that the debt ceiling legislation was unconstitutional because it violated the 14th Amendment in the context of Congressional appropriations passed after the debt ceiling mandating deficit spending.
Since, the summer of 2011, beowulf has offered yet a fifth option for getting around the debt ceiling by issuing consols. Consols are debt instruments that pay a fixed rate on interest in perpetuity, but never promise principal repayment at a maturity date.
The debt ceiling law is written in such a way that what counts against the ceiling is the principal repayment guaranteed by the instrument. Since consols provide no principal repayment, one can have unlimited consol issuance without increasing the debt-subject-to-the-limit.
Of all the items on the list, option 1 looks far and away the most likely, although an Administration with more guts might try a bit of option 2 along with it. Unlike a platinum coin, which just sounds too weird to people who haven’t heard about the idea (and the Administration would need to be selling it hard now to see if it could legitimate it in the court of public opinion), options are something the public hears about regularly and sounds less gimmicky. But the larger point is that this budgetary Battle of the Titans is a phony war. Obama can finesse the Republicans if he needs to. But both sides seem quite convinced the other will bear the brunt of the public opprobrium that would result from a government closure (see the Atlantic for a rundown; many of the points it makes are valid, but I disagree about the Clinton margin of victory being a meaningful indicator; Bob Dole ran a world-class terrible campaign).
So hang tight for way too much unnecessary melodrama over the next month. It’s another round of watching the two parties play chicken, with each posturing that it won’t be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he’s been trying to do for years: sacrifice old people since he perversely believes that “reforming” Social Security and Medicare will get him brownie points in the presidential legacy ledger. This staged impasse is hard to take it as seriously until there’s evidence that this iteration of budget farce really is different from its predecessors.