Back on April 13th, as Speaker Boehner was being told by the business community not to condition an extension of the debt limit on a deficit reduction package, Sen. Chuck Schumer saw an opening. As Greg Sargent speculated at the time, the Democrats might be able to exploit any such linkage to drive a massive wedge between the Big Business and Tea Party factions of the Republican Party.
Executives like J.P. Morgan chief executive Jamie Dimon are worried that playing chicken with the debt ceiling could be “catastrophic.” Dems are hoping to use the debt ceiling showdown to divide Republicans between their corporate benefactors, who want the debt ceiling standoff resolved with no fuss, and the Tea Partyers, who are demanding that the GOP leadership use the debt ceiling as a hostage in the push for ever more extreme and draconian spending cuts.
The Democrats could have insisted that the debt ceiling be a clean vote with nothing attached, but they also saw the advantage to allowing the bill to be conditioned on debt reduction. It would freak out Wall Street, kill Republican fundraising, divide the party, and highlight their extremism.
Obviously, all of those goals have come to fruition. Some Republicans are openly expressing their regret at having pursued linkage on the debt ceiling.
“Maybe the debt ceiling was the wrong place to pick a fight, as it related to trying to get our country’s house in order,” Sen. Bob Corker (R-Tenn.) said Thursday. “Maybe that was the wrong place to do it.”
Maybe if Bob Corker and the Republicans had paid attention to Chuck Schumer’s “please don’t throw us in that briar patch” rhetoric in April, they wouldn’t have thrown the president in the briar patch. Strategy is not the GOP’s strong suit.
So, now it’s on to Plan B, which is Mitch McConnell’s pass-the-buck plan to raise the debt ceiling by voting not to do so. The president is perfectly happy to let McConnell save a little face:
During their Wednesday meeting, Mr. Obama commended Mr. McConnell for his proposal, Democratic officials familiar with the meeting said. He also didn’t bristle at the notion of being responsible for raising the debt ceiling. “If Senator McConnell wants me to wear the jacket for that, I’m happy to wear the jacket,” Mr. Obama said, according to the Democratic officials.
Why would he bristle? He set the GOP up, and they played their parts like unwitting fools.
Very very interesting. That article you linked to (to which you linked) yesterday in response to comment on thread. Pondering, along these lines, that with respect to process as well Obama’s pursuing HCR immediately set up the drawn-out negotiation / reaching across the aisle that we’re seeing now that ends up splitting the GOP. And isn’t the Obama presidency the first time we’ve seen these months-long processes bringing in the citizenry to such a degree?, more permeability between gov and citizenry because they are taking place over so many months?
The Democrats did ask for a vote on a clean debt ceiling bill early on. It failed in the House through a procedural maneuver requiring a 2/3 vote. Had it been a straightforward vote, it would have passed.
Yes, they did ask for a clean vote. It’s always a clean vote. But they figured out how to use linkage to decimate their opposition, politically, economically, unity-wise, leadership-wise, and (for the most part) substantively.
As I’ve said elsewhere, a poker player who shows you his cards or tells you which hands he will play, is not a good poker player.
BTW, I’m still going with the “Guns of August” scenario in which August 2 comes and goes and Obama has to scramble to ensure that our creditors know that we are not defaulting.
The strategies of the players and the unwillingness to back down result in the consequence all wished to avoid.
And I think that Obama can come of this crisis a winner if he handles it in his “no drama” style.
If this happens, I think the politics around the FY2012 budget might be different. Which might not be the case if a deal is reached that results in sharp spending cuts.
While the strategy and kabuki is interesting to watch, we should not forget that there are a huge and growing number of innocent people who are being hurt financially and otherwise by this detour into insanity. No doubt, that is what is motivating Gov. Dayton’s actions in Minnesota.
The proper way to frame this is to say that this has been a GOP experiment in what have small government or no government would mean. We now know definitively; we’ve been there.
I do not believe there will be a default. The more it looks like a default will happen, the better the bill will get for Democrats. Some time very soon, Boehner will collect the Main Street Republicans together and tell them that they must team up with House Dems to avoid catastrophe, Tea Party be damned.
McConnell and the Senate have already done this.
Ignoring the debt ceiling doesn’t mean a default. Revenues come in; expenditures have to for the short term be sufficiently lower than revenues to allow for debt service for creditors who either can’t or won’t defer on interest or bond retirement dates. The Social Security Trust Fund and the Fed are two holders of debt that sorta automatically can defer.
I think that framing the consequences as a default is both helpful politically before it happens but not helpful is no agreement is reached.
The United States of America cannot by the 14th amendment default. Period. Full stop. It has the power of coinage and can pay directly from the Treasury. To put that money directly into the economy might risk inflation, but the government does have that power and it is the President who exercises that power. That however, it not the recommended way to handle the situation.
Ohio can default. Texas can default. The United States of America cannot default. Greece can default. Ireland can default. Countries that link their currency to that of the US, like China now or Argentina used to, can default. The financial structure that backs the euro cannot default.
The only way that the US defaults is if Congress repudiates the debts of the US, the President agrees, and creditors get told by the Supreme Court that the 14th amendment doesn’t matter.
Can the markets get spooked by “default”? Yes. But the markets got spooked by “green shoots” into worrying about inflation. They are easily swayed by the conventional wisdom. Which is why, even if there is no deal, the markets are not likely to be spooked. I think they trust Obama and Geithner to be able to handle a crisis and hope the GOP comes to its senses.
Like I say, make sure that Democrats have credible candidates in all 435 Congressional Districts next year. There is the outside possibility that one of the major parties will go the way of the Whigs. I’m trusting Obama to make sure that it isn’t the Democrats.
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"But I will not let myself be reduced to silence."You could have skipped the Megan McArdle link. She lacks any credibility whatsoever. On anything. Even when she writes something I agree with.
Ramirez has a different take on Fulweiler’s $1 trillion platinum “coin” idea. Fulweiler uses the platinum coin to put a little hedge in the operation; the Federal Reserve could in principle hold the platinum coin until the metallic platinum reached the face value. That get out of the time-value-of-money bind of a straightforward deferral by the Fed. And it represents giving the Fed a higher grade asset, since the Treasury-Fed transaction is essentially an asset exchange. The Fed could then leverage the platinum coin to buy back US debt from private creditors and foreign governments. The Fed can do this as part of its general management of the money supply at its discretion, not being forced into immediate repurchase. Or creating money that has the possibility of stoking inflation.
Direct issuance of US Notes in payment of government obligations would have to be taken into account by the Fed and its de-deflationary effects effects would be unpredictable because it’s been a while since the money supply was expanded in this fashion. And that affects how fast the debt could be serviced.
Now in answer to McArdle echoing Lawrence Tribe. What would stop the President’s power would be the tax laws and appropriations that the Congress has made that has created the debt. Congress, Democrats and Republicans are wanting the President to take the heat for tax increases that only they can make and cuts only they can pass. Any deal would have to be passed by Congress.
The Fulweiler and Ramirez proposals don’t have to don’t touch that power to approriate and tax. They assume that existing appropriations and tax limits require the government to repay its bills. Period. In the Ramirez plan, that occurs through issuing currency the de-deflates the economy, producing eventually tax revenues under existing law that reduces the debt. In the Fulweiler plan. There is an immediate accounting reduction in the debt held by the Fed, permitting the government to continue operating and paying debt service. And a reasoned settlement of later term debt ahead of schedule so as to completely restructure the debt out of private and foreign hands and into the Federal Reserve. All they do is buy time. They don’t authorize issuance of new debt. And only the Ramirez proposal creates new money in the money supply.
Tribe’s fear might apply to future Presidents or to W but not to Obama. It is especially hypothetical and speaks to why government-by-constitutional-crisis will eventually destroy any constitution.
If you don’t like the word ‘default’ just stick with ‘catastrophe.’
In any case, my reading of the ‘original intent’ of the 14th Amendment is that it was meant to reassure people that although we would be reneging on all Confederate debt, the Union’s debt would be honored, and no one should be confused about the matter.
Yes, the language is still on the books to be utilized in a cynical manner, but I doubt Scalia will see it that way.
The context was in using the 14th amendment as a ticket of entry for the reconciliation of Southern states. And Southern members of Congress could be expected to either not want to pay for the Union debt (either through exception or nullification) or want the Confederate debt paid for by the victors. And Southern members of Congress could be expected to want federal compensation for the loss of the value of slaves, especially considering section 1.
But the amendment was stated in a generalized way, because debt was taken seriously.
The items following “including” relate to the specific case of the Confederacy. The remainder is a general requirement, and the key words are “authorized by law”.
Congress authorizes by tax laws and by appropriations laws what the national debt will be. Period.
By not extending the debt ceiling to pay for expenses that Congress has already authorized, if there is no deal to change that, Congress abandons its fiscal responsibility and leaves the President to comply on his on to the requirements of the 14th amendment that default not take place.
I am not arguing that the President can issue new debt. Or spend money that Congress has not authorized through appropriations. I am just saying that he will take what executive actions he can to not default and that as a coiner of the money and creator of its own currency, the United States has the power not to default, which Greece and other countries do not. That is far from using the language in a cynical manner.
What it is is a Constitutional crisis in which Congress has commanded the President do three contraditory things: collect taxes based on lots of loopholes and lower rates than fund expenses, spend the money that Congress has appropriated (especially for national defense or earmarked boondoggles), and not have the debt exceed a certain dollar amount. Obama’s “grand bargain” is to say “you can’t get all three; pick two” and fix this issue on a more or less permanent basis.
And fixing it on a permanent basis is exactly what the GOP does not want to do; it’s the only issue they really have left that a majority of the population care about. Leaving aside the issue that the majority want contradictory things itself.
It remains to be seen whether it will be catastrophic. That will depend on whether it happens and how the President deals with it.
It could be that a deal that resets the debt ceiling could be equally or more catastrophic in that the adverse effects on the public would persist chronically because the GOP clings to just enough power to prevent solutions of national problems.
Maybe this is not knowable because the McConnell plan is only a proposal, but I wonder if closing of tax loopholes and raising of tax rates qualify as cuts under the McConnell plan. Obama has been portraying these sorts of things as cost items for the budget so from his viewpoint they should.
Is there any evidence at this point that Republican fundraising has been “killed” as a result of the debt ceiling brouhaha?
I wouldn’t expect that to appear yet. September is when the political fallout can be assessed.
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"But I will not let myself be reduced to silence."Yes, I did see that. Very impressive obviously. I hadn’t considered the fact that it might have been influenced by the debt ceiling mess – maybe so, although I suspect that Tarheel Dem is right and we won’t see the full fallout for a couple months yet.
Well I for one decided to make my first donation since the official start of his campaign on the day of a speech right before the end of the quarter. I’m sure others had the same idea.
I can’t help but notice that Mitch McConnell didn’t get involved in the negotiations.
Mitch McConnell is a smarter than John Boehner and Eric Cantor put together.
Talk about a backhanded compliment. I can see a sliver of daylight under that bar, but it’s squeezing the snake slithering through.
I don’t mean it to be backhanded. That turtle-looking bastid is a legitimate political strategist.
That must be why he’s looking so terrified these days — he knows the GOP is toast, thanks to its own boneheaded blundering.
What’s your take on Cantor? is he really annoying everyone, or just being allowed to preserve his link to the tea party faction?
I guess it depends on who you think he’s annoying. I mean, the Tea Party wing of the GOP is currently annoying the rest of the party plus all independents and Dems – so basically, the whole country. Cantor is trying to identify himself with that wing, which now appears to be the GOP’s primary electoral base. So, the result is that he is being as annoying as possible to everyone except the Tea Party, to whom he’s trying to appear heroic.
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