The Latest Crazy Solution To the Debt Ceiling: IOU’s
Welcome to the latest crazy scheme to avoid reality.
The impending debt ceiling crisis, which we’ll reach by some time in mid-February unless Congress and the President are able to reach a deal to extend the debt ceiling, has already led to a couple bizarre banana republic like plans by which the President could avert the crisis without having to worry about Congress. One argument says that the 14th Amendment authorizes the President to create new debt despite the fact that the law doesn’t authorize it. As I noted the other day, though, it seems fairly clear that the legal arguments advanced in favor of this plan are a stretch at best, and that any debt that would be created would be of legally questionable status at the very least. Another argument says that the President can authorize the minting of a Trillion Dollar Coin, or several such coins, to authorize the Federal Government to spend money despite its inability to borrow. As I’ve noted, that strategy is of dubious legal merit and would have economic implications nearly as bad as failing to raise the debt ceiling itself. Now, someone’s come out with yet another idea, and this one just demonstrates how absurd the political conversation in Washington has become:
The $1 trillion platinum coin seems too wacky; the 14th amendment too risky. But could IOU’s be the solution to an impasse on raising the nation’s borrowing limit?
Yes, and President Obama should publicly adopt the idea, Edward Kleinbard, a University of Southern California law professor and former chief of staff to Congress’s Joint Committee on Taxation, argues in a Thursday New York Times op-ed. If lawmakers can’t reach an agreement before the nation hits its debt ceiling–which could happen as soon as next month–then Obama should have a backup plan of issuing IOU’s in place, Kleinbard argues.
“[Obama] should threaten to issue scrip—‘registered warrants’—to existing claims holders (other than those who own actual government debt) in lieu of money. Recipients of these I.O.U.’s could include federal employees, defense contractors, Medicare service providers, Social Security recipients and others.”
Kleinbard is hardly the first to propose the idea. Slate’s Matt Yglesias suggested it in early December. And New York Times Op-Ed columnist and Nobel Prize winner Paul Krugman argued for such IOU’s on Monday, though he called them “Moral Obligation Coupons.” In Krugman and Kleinbard, the idea has found two prominent proponents.
The appeal of the IOU, or scrip, lies in the fact that though it closely resembles debt, it isn’t, Kleinbard argues.
“It would merely be a formal acknowledgment of a pre-existing monetary claim against the United States that the Treasury was not currently able to pay,” Kleinbard argues. “The president could therefore establish a scrip program by executive order without piling a constitutional crisis on top of a fiscal one.”
The idea behind the IOUs, of course, is that the idea that people to whom the government owes money, such as contractors and vendors, will accept them based on the idea that they know that they’ll get paid eventually. There are, however, several problems with this argument. First of all, an IOU from the Federal Government does nothing to help a vendor, contractor, or other government creditor who relies upon the revenue he receives from this particular client to meet payroll, pay the rent, and meet other business expenses. He can’t deposit those IOU’s in the bank, he can’t use them to pay his own debts, and his employees would laugh in his face if he tried to give them his own “IOU” for the salary that he owes them. Paying these types of government debts with IOUs would do nothing to avert the economic impact of failing to raise the debt ceiling. Second, there’s the question of who exactly would get these IOUs. Even if we get to the point where the debt ceiling has not been raised, there will still be revenue flowing in to the Treasury and at least some of the bills will be paid in actual cash. How, exactly, would the Administration decide who gets real money and who gets the phony IOUs. Obviously, interest on the debt would have to be paid in cash but, beyond that, what criteria would there be for deciding who gets favorable treatment? When California did this in 2009 because of their own budget crisis, IOUs ended up going to people getting government assistance for one reason or another, among other groups. Would the Federal Government do the same thing? Finally, even if the IOU scam worked at the start because government creditors believed that the crisis would be short-lived, that acceptance would not last long if we ended up having some kind of an extended crisis. At that point, you’d have a large number of creditors who, either out of pique or simply economic necessity, would be demanding payment in actual money instead of phony IOUs.
All of these debt ceiling avoidance schemes — the 14th Amendment theory, the Platinum Coin Trick, and now the IOU Scam — have the same thing in common, they all involve a denial of basic reality and the idea that all we need to do is engage in some magic trickery to avoid dealing with the consequences of our fiscal problems. I agree with those who say that not raising the debt ceiling is an insane idea, but it’s also true that this nation is facing a serious of short and long term fiscal problems that need to be dealt with. Some of have suggested that the entire idea of a statutory debt ceiling should be eliminated, and while this idea has some merit reality tells us that Congress is not going to give up this check on Executive Branch power any time soon. That means that the two political branches of government need to work together within the bounds of the law as it actually exists rather than relying upon pie in the sky fantasies about platinum coins or IOUs. That’s the only way we’re going to solve our problems.
In many cases, these problems have come into being because the basic political institutions in Washington have broken down. Republicans refuse to consider even minor tax rate increases to be an acceptable option and have engaged in a pattern of obstruction based on that bizarre orthodoxy. In the Senate, Democrats led by Harry Reid have rejected any idea of passing Federal Budgets using the mechanisms of regular order, including Conference Committees, and have failed to pass a budget resolution as required by law for more than 1,350 days now. Over at the White House, the President is claiming that he’s not going to negotiate with the GOP at all over the impending debt ceiling crisis, a position which seems to me to be entirely irresponsible under the circumstances. There really aren’t any innocent parties involved here, and neither party is serious about dealing with our problems now rather than waiting until we have no choice and the pain will be much greater. Nothing we can do — not an fantastical interpretation of the 14th Amendment, not games with platinum coins, and not phony IOUs — is going to avoid that. The sooner we realize it, the better.
There is a long history of IOUs by governments. As you mention, California issued them, and recovered nicely.
So I wouldn’t really call a tested and successful strategy “crazy.”
That said, obviously the sane route is a debt resolution in Congress. Talk of “extreme” measures like IOUs or “crazy” ideas like trillion dollar coins are only good if they all focus back on that. With reasonable Congressional action we need neither the crazy nor the extreme.
@john personna:
I wouldn’t call California’s current fiscal condition a “recovery.”
@Doug Mataconis:
Actually Doug, it is. For the first time in 5 years we do not have a deficit. I realize that for some people, this is hard to take, but it is true.
Both sides Doug strikes again:
On the contrary, why should the President negotiate about Congress refusing to pay for spending it voted for? He should get that for free-like every President before him.Congress routinely agreed to raise the debt ceiling every year until 2009. All of a sudden , things changed when the Kenyan Muslim usurper took over.
Now, its taken for granted that the Republicans in Congress can threaten to sabotage the economy over what was previously a pro forma act.
So no, Doug both sides are not equally to blame. The only reason why we are even discussing these admittedly dubious measures is because your team has gone batf$%k crazy in opposing the black man in the White House, even to the point of derailing the economy for political gain.
Let the Republicans abandon their extreme tactics, and act like a rational opposition once again, and the possibility of these “crazy solutions” goes away. Why don’t you write a post advocating THAT?
Good main blog post. My eyes perked up when I got to this part:
That indeed was a trip, yeah. Although the various layers of irony were lost upon the Golden State’s loopy media-academe-politico cabal.
About a week after that happened the major banks out here stopped redeeming those IOUs, which resulted in a private trading market developing almost overnight, through which private companies profited from brokering the IOUs; again, the irony was lost on the political left wing.
The other germane point is that right after those IOUs started flowing the state universities out here hiked their annual tution costs by something like 30% (maybe more, I forget the exact amount) and then you had the added ironic spectacle of large numbers of young liberal students protesting massive tuition hikes at public universities, for which the actual root causes were incomprehensible to them and to their spaced out instructors and administrators.
In any case, trying to juxtapose fiscal and economic realities upon today’s political and pundit classes is like trying for the hell of it to stick a fork into a electric socket. Why bother?
Ultimately the final chapter of this sad story already has been written. We’re going to become Europe West. Colossal unemployment and underemployment will become systemic and irreversible. And that’s before Social Security and Medicare go kaboom. High inflation. High interest rates. Horrible growth.
Spending too much public money never works out over the long haul.
@al-Ameda:
For the wingnuts, California is always on the point of fiscal collapse , not like good solid red states like Alabama and Mississippi, which are always at the top of the list of states that are best for education, income-oh wait.
Doug, you’re making the common conservative error of accepting failure to raise the debt ceiling as some sort of relevant response to the deficit. Doesn’t failing to raise the debt limit involve
I see Laurence Tribe has endorsed the legality of the platinum coin scheme. And no, Doug, implementing one of these schemes would not be serious, it would be intended to ridicule the GOP’s clown act in the House.
@Tsar Nicholas:
That was pretty “crazy” to borrow a word. Is it your fantasy that the left likes IOUs as SOP?
Or do you think that default would have been “less crazy?”
The IOUs were used as a stopgap because for a short time there was no money. IOUs and trillion dollar coins are bandied now, not because “teh liberals” prefer them to money. No. They are bandied because we fear “teh GOP” is trying to drive over the cliff.
Are IOUs better than US national default? Yes.
There are two reasonable positions on the debt ceiling, either raise it or abolish it. Refusing to negotiate over it acknowledges that fact, and is not at all irresponsible.
It’s like explaining things to children while they’re having a meltdown in public. Same arguments make no headway against the insane, so why not try a little insane back?
Look, given that a pain-in-the-ass group of crazies who are blocking routes to a solution really believe in Randian magic unicorns, why not feed them some inane story to make them drop particular bomb. Given that they are already cognitively impaired, how can they claim to know the difference? At least this alternative would let us go along with paying our debts while the nutcases work their dispute through the courts.
@David M:
It’s irresponsible because it ignores reality. I don’t necessarily like it, but Congress simply is not going to give up this check on executive power, especially not under current political circumstances.
@Doug Mataconis:
Funny use of the word “reality.”
What you are really saying is that you want Obama to acknowledge “irrationality” and accept it.
In sticking to his guns he is staying with fiscal reality.
@Argon:
That was a real gem of a quote. Thanks for highlighting it.
If anyone believes “we have a spending problem,” they should interoduce a speding bill.
If they don’t have the votes for a spending bill, they should accept that with good grace.
That or acknowledge that you reject democracy itself.
@john personna:
As I said of Republicans during the Fiscal Cliff negotiations, you have to work within the system as it exists, not as you would like to pretend that it is.
Once again, an immediate assumption and acceptance by Doug that the GOP is just going to do the crazy thing, like it’s a fact of life we all have to live with. Why should the President have to reach any kind of deal? What’s the President got to do with it at all? Congress already voted on the spending, and it’s up to Congress to raise the debt ceiling.
Doug puts a lot of time and effort into shooting down the Democrats’ possible responses to GOP intransigence, and almost none at all into denouncing that GOP intransigence in the first place.
My solution: Take John Boehner to the 14th Street Bridge, turn him upside down, and shake him until a couple trillion falls out of his pockets. if that doesn’t work, do the same with Eric Cantor.
Option 2: Just shake them in general. Let people bid in an online auction to be the shaker.
Doug, the people denying reality are the ones who enacted the budget but now are refusing to authorized the necessary borrowing.
If I buy a bunch of stuff on my MasterCard, and then I refuse to pay the credit-card bill when it comes in, I’m the one denying reality. That is GOP policy in a nutshell.
I have an even crazier idea…how about Congress pays their debt?
Radical…I know.
@Doug Mataconis:
If my child is having a tantrum, and I ignore the tantrum, I’m not being irresponsible by ignoring its reality. “The tantrum is real, man, you have to accept it!” Um, no, I…don’t. What’s irresponsible is letting a petulant child learn that he can get anywhere with behavior like that.
Anderson,
Like it or not, the days of Congress just blindly raising the debt ceiling without some commensurate deal on spending cuts are gone at least for now. That’s political reality.
@Doug Mataconis:
Our actions create the system as it exists. The system as it exists is not handed down to us from on high. That’s like saying you simply have to negotiate with the hostage taker because he’s taken hostages. But you don’t, not if you know that he’s never going to kill the hostages. You can just wait him out.
Hi Doug. Your assertion that:
struck me as odd. What executive power is congress checking by denying him the means to spend money that he is legally obligated to spend? It would seem to me that if we hit the debt ceiling, the president would have to take on extraordinary new power to prioritize spending based on available revenue, which he cannot legally do. Hitting the debt ceiling would force a constitutional crisis, where the president is obligated by law to spend money, but does not have the money to spend. This is hardly a check on executive power in any normal sense. Instead it creates a situation where the President is legally obligated to do two contradictory things (spend money in excess of revenue without issuing new debt). Any Presidential action, therefore, is outside the normal purview of executive power, including halting all spending or prioritizing spending. One could conceive of the debt ceiling as a check on unilateral action by the dominant party in a multiparty system, and in a twisted way a method of forcing this president, as the head of his party, to negotiate, but it is not a check on the executive branch as such.
@Tim S.:
Very simply, it is the power to power on the credit of the United States.
Are the platinum coin, IOU and 14th Amendment options the preferred outcome? No, but it’s hard to see how they are worse than simply not raising the debt ceiling at all. Until this is resolved, those are the people creating the problem. The blame for this artificial crisis has to go to the “let’s crash the economy” group of lunatics, and no one else.
@Doug Mataconis:
Yes, it’s reality. It’s also really bad.
The GOP can fight over appropriations. That is the proper point of attack. This debt ceiling bullshit is dangerous, and it’s helping to make a total mockery of the US government (which, of course, the GOP likes because “government is the problem”).
The work-arounds people keep coming up with – the 14th amendment solution, the coin, IOUs… yes, they’re ridiculous. I’m partial to Ezra Klein’s take on it: if we go that route, yes it’s better than default. But it’s a cousin. People are still going to look at it and say “banana republic.” And they will not be wrong.
GOP delenda est.
@Doug Mataconis:
Please rewrite that in English. Very simply, if possible.
@David M:
Oh no, both sides are to blame. The GOP for creating the problem at all, and the Democrats for attempting to fix the problem the GOP is causing.
Look Tsar, it’s clear you hate the United States, but please stop publicly rooting against it. We’re trying to get some stuff done, and it’s not easy when most of the Republican house members have become hostage-takers.
@Doug Mataconis:
You are not championing the system. You are championing breakers of the system.
@Doug Mataconis:
Congress has the power to tax and spend. Why the F*K do I come to OTB?
@al-Ameda: And very likely the reason that CA is doing better is the GOP in California has been castrated.
“Mr. President, this country has a spending problem. And until you address that, we cannot raise the debt ceiling.” Boehnor’s opening salvo, delicately prepared and carefully rehearsed in his office bathroom’s mirror, was delivered with all the confidence the speaker could muster.
The only response he failed to prepare for, though, was the absence of a response. Obama maintained the same position had had occupied ever since the Ohio congressman had entered the oval office: feet on the desk, leaning way back in his leather seat, looking down his nose at Boehnor. The president appeared content to simply stare back, silently.
Boehnor was first to break to unnerving silence. “My caucus is united now. We’re going to put a stop to your tax and spend ways.”
In lieu of a reply, Obama swung his feet down, and he begun to rifle through his desk drawers.
“You can’t keep spending like this. And so we can’t raise the debt ceiling without major cuts,” Boehner said, with less confidence. He couldn’t understand what Obama was doing.
The president fished out a small rectangle of white paper, and laid it on desk surface, smoothing it delicately with his long fingers.
“What’s that?” Boehner asked. Obama made no indication he even heard. Boehner scowled.
“Ok, look, between you and me,” Boehner ventured, “I agree we need to raise the limit. I know we did it for years. It wasn’t my idea to make this an annual event. But I’ve got donors and committees and constituents to answer to. And they want spending cuts.”
Obama pulled out a small round plastic container, with plain white caps and transparent bodies, showing what appeared to be a copious amount of a plant legal only in 2 of America’s great fifty states.
“What… what are you doing?” Boehner asked.
In lieu of of an explanation, Obama just continued his preparations, gently unscrewing the lid and shaking its contents into a neat line along his paper.
“Is this really the time for this?” Boehner’s voice cracked for the first time. “I’m trying to talk the debt ceiling limit here… our economy is on the brink.”
Obama slowly, smoothly began rolling his paper.
“You’re a real SOB, you know that,” Boehner scowled. He crumbled up the proposal to raise the Medicare eligiility rates & social security chained CPI he’d brought with him. “I don’t know why you’re doing this to me.”
The very first hint of a smile appeared at the corner’s of Obama’s mouth when he considered the fine joint he’d constructed. He pulled a lighter from his pocket and took a long, long hit.
“Fine, you bastard, fine.” The first tears began to well in Boehner’s eyes. “I’ll fall on the sword again. I’ll pass your stupid debt ceiling hike with the democrats. And I’ll let the conservatives slaughter me again. I hope you’re happy.”
Pelosi stepped forward for the first time, and gave Boehner a firm slap on the ass. “I knew we’d reach an agreement, tiger.” She let her hand linger on his left cheek, cupping it gently. Boehner sobbed quietly.
Obama’s eyes were fixed on the small flame at the end of his joint. He spoke for the first time:
“Sweet Allah, that’s some good tree.”
“I hate him,” Boehner whipsered to himself. The house speaker and his rival from the other party left the room.
@JWH: We should also do this to Bernanke and Geitner.
Doug: “In the Senate, Democrats led by Harry Reid have rejected any idea of passing Federal Budgets using the mechanisms of regular order, including Conference Committees, and have failed to pass a budget resolution as required by law for more than 1,350 days now. ”
Don’t piss on my leg and tell me it’s raining, Doug. The GOP has been openly running the Senate by fillibuster for years now. It was recently pointed out that the current Minority leader has presided over (IIRC) two-thirds of all fillibusters since there *was* a US Senate.
@Doug Mataconis: The President doesn’t have the power to:
1. spend money not authorized by congress.
2. determine which moneys appropriated by congress he will and will not spend.
3. Draw money on the credit of the United States if that credit has not been authorized by congress.
The debt ceiling would force him to do one of these things. The most constitutionally sound, I suppose, would be continuing to pay only the interest on the debt (as required by the 14th amendment) and nothing more. That does not change the fact that the president is obligated to spend all money appropriated by congress. Forcing him to do one of these things is not a check on presidential power. It is a grant to the president of extraordinary powers. The president cannot simply refuse to fund appropriations he disagrees with, and that’s a good thing. Similarly, he cannot, and has never been able to spend money on the credit of the United States for purposes not specifically authorized by congress.
In a sense, there are two national debts. There is the money owed to holders of United States treasury bonds, and there are obligations created by all laws that require the federal government to spend money. The debt ceiling creates a legal contradiction. Absent the ability to sell treasury bonds and expand the first debt, the government will still have that second debt, and all persons or organizations who are owed money from the government by law will have a claim against the government if they are not paid. To the executive, appropriated money is owed money, no less than borrowed money is owed money (unless a law passes congress rescinding the appropriation, which they are not permitted to do for borrowed money).
The president does not, and never has had the power to unilaterally draw money on the credit of the United States. He does not, and never has had the ability to decide what part of lawful appropriations he wishes to pay and what part he does not wish to pay. The debt ceiling, therefore, is not a check on executive branch power, it is a road block that makes constitutional governance nearly impossible. Congress authorized the spending of money, but not the debt to cover that money. This isn’t a check, it’s a paradox. By eliminating the debt ceiling in this instance, or all instances, congress isn’t giving up their sole power to borrow on the credit of the United States. They are saying that the president has the power to borrow money only for such items as have been appropriated by congress. They will maintain their check on the executive in that he cannot spend money beyond what has been appropriated. Eliminating this legal paradox does not eliminate congress’s sole ability to spend money on the credit of the United States.
Tim,
Again, I am simply speaking to the political reality that, at the present time, Congress is not going to give up the political power that control over the debt ceiling gives them.
@Doug Mataconis: Thanks Doug! It seemed to me that you were conflating the creation of leverage when negotiating with this president (which the debt ceiling does -or seems to- do) with checking the power of the executive branch to act unilaterally (which the debt ceiling does not do). However, I appreciate your quick responses and your willingness to engage with your readers.
@Tim S.: @Doug Mataconis:
Shorter Doug Mataconis: I’m a Republican stooge, so I am immune to your logic and reason.
Give it up Doug. Your party is merely going to alienate the business community again, and all Obama has to do is wait until the big tent of clowns cracks and the ones that want to keep their future lobbying jobs goes scurrying for cover.
You’d burn this country to the ground just to see your party on top, traitor.
@Doug Mataconis: “Very simply, it is the power to power on the credit of the United States. ”
Doug, could you please ask a brand-new associate at your firm to write this so that it (a) makes sense, and (b) answers the original question?
@Tyrell: In the spirit of bipartisanship, I will accede to this compromise.
@David M: “Are the platinum coin, IOU and 14th Amendment options the preferred outcome? No, but it’s hard to see how they are worse than simply not raising the debt ceiling at all. Until this is resolved, those are the people creating the problem. The blame for this artificial crisis has to go to the “let’s crash the economy” group of lunatics, and no one else. ”
What it comes down to is that the dominant faction of the GOP is willing to trash things (so long as they don’t personally suffer). In that event, you need to use any legitimate method of striking back.
@Doug Mataconis:
Doug, guess what else is part of the system as it now exists?
The power of the Treasury to mint a platinum coin or coins of any denomination.
Until 2009, that was no big deal-just like Congress voting on the debt ceiling. Now that Congress wants to make raising the debt ceiling a big deal -and apparently, to make this an annual event- its time for the President to make the platinum coin a big deal. One party doesn’t get to monopolize crazy.
@Doug Mataconis:
There is no political power if they are stonewalled. Their power only comes from the threat of … a suicide pact.
When a girl says “marry me or I jump off this bridge” it is usually not in your long term interest to marry that woman. Talk her off the bridge, and get her help, maybe.
In the interest of political reality and stability all of these things are on the table. Conservatives don’t grapple with history to manhandle it into the dumpster.
doug:
“Control over the debt ceiling” gives them no political power, because everyone knows the debt ceiling must be raised and will be raised. “Control over the debt ceiling” is only giving them the power to look like fools. And that’s what you’re doing, too.
Face it guys. Doug is just another of the bunch who are willing to tear down the government to get rid of the n@@@@r. He just doesn’t want to say so in so many words. He resents the government “confiscating” his money, but doesn’t have anything in terms of suggestions for what to cut from the budget. Where I’m from, we call this an “empty suit.”
Please rescue my comment from the spam filter. Thanks.
Why Republicans think it is a good idea to force a downgrade of American debt, and cause the loss of billions of dollars in the value of investments held by institutional investors and millions of Americans, is really really hard to understand. Even more shocking is the number of Americans who apparently do not understand the consequences of this political temper tantrum. These people honestly do not believe that there are consequences to the Debt Ceiling idiocy that is indulged in by Republicans.
@Barry:
And the voters finally decided to approve a tax increase ostensibly for the purpose of augmenting funding for public education – currently about 50% of state general fund expenses. Even Republicans in the legislature were cheered by the news that there is no projected deficit this year (or at least they were good at faking it).
the fact is that republicans are openly stating that unless we enact an agenda soundly defeated in the 2012 election, they will destroy the world economy. if doug wants to encourage and participate in the economic terrorism of the radical republicans (they are not conservative), he is free to join them. i’m sure doug also always believes in giving kidnappers and muggers everything they ask for.
Doug Mataconis is right. The debt ceiling is the dumbest idea in the world, but Congress is not going to kill it.Just because voting against the debt it´s an easy way to “vote” against the deficit without sacrifice, even if it´s a meaningless vote.
I wonder what the libertarian plan for dealing with California’s deficit was – holding their breath until they turn blue?
If push comes to shove, the Federal Reserve, sovereign wealth funds and the big banks will temporarily and voluntarily forgo debt repayments and interest in the name of keeping the spending behemoths afloat — crisis averted.
By the way, California is experiencing significant revenue shortfalls from its phony balanced budget.
I’m not fond of “tricks” like the platinum coin. It’s not so much that they might not work to avoid immediate spending problems (for some definition of “work”) it’s that they sound politically unwise — they are difficult to explain to average voters and help lower Obama to the Republican’s perceived (by the public) level of unreasonableness/weirdness.
As Tim S. pointed out, if Republicans want to play games with the debt ceiling, it will implicitly give the President a great deal of leeway in terms of how he responds. Interest on the debt should get paid, and Social Security benefits might continue, given some sleight of hand (redeeming bonds from the trust fund doesn’t increase the national debt). Defense spending that isn’t necessary to support our troops in the field is one of the obvious things that can be cut, as are agricultural subsidies and other items that heavily impact Republican constituencies.
I understand concerns that this sort of thing may have some bad (mainly short-term) economic effects. But, the alternative is to have Republicans routinely create these debt ceiling standoffs knowing that the Democrats will be the first to blink.
Doug seems perfectly comfortable with the GOPs doing something crazy, like risking a downgrade of our credit rating, again, or triggering a meltdown of the world financial system in order to take a purely symbolic vote they’ll eventually have to reverse. But he expects the Dems to maintain their probity and not do anything remotely crazy in response. Is this the end of both sides do it?
@stonetools: On the contrary, why should the President negotiate about Congress refusing to pay for spending it voted for? He should get that for free-like every President before him.Congress routinely agreed to raise the debt ceiling every year until 2009.
OK, this needs to be blowed up, and blowed up real good.
A huge amount of this spending was pushed for and pushed for hard by Democrats, with Republicans either going along or being steamrolled on it. S-CHIP expansion, the “stimulus,” Cash For Clunkers, the GM and Chrysler bailouts (more accurately called the “UAW bailout”), unemployment extensions, Green Energy payoffs to donors and allies, a host of others… all paid for with borrowed money and promises of “we’ll pay for it later.”
And the debt ceiling… I find myself agreeing with Senator Obama, who said “The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that ‘the buck stops here. Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.”
That was when Obama voted against raising the debt ceiling from $8 trillion to $9 trillion.
And why should Obama negotiate with Congress? More specifically, with the House? I’d say “because the Constitution says he has to,” but I’ve learned how much respect what used to be the highest law in the land gets from the left. Especially around here.
@Jenos Idanian #13:
Which they did. Which means they need to pay the bill now that it has come. Nothing else matters.
The government is currently spending money under the authority of H.J.Res. 117 (“Continuing Appropriations Resolution, 2013”). Link. This bill was passed by the House on 9/13/12. Link. 69% of the Rs in the House voted for this bill. Explain to us your theory of mind control which makes Democrats responsible for those Republican votes.
The debt ceiling has been around for a long time, and it has been raised many times. Since 1978, it has been raised over 50 times. It was raised 17 times under Reagan. It was raised 7 times under GWB. (And those important facts are related to these important facts: 3/4 of the debt Obama inherited was created under Reagan, Bush and Bush; Reagan tripled the debt and GWB doubled it.)
The GOP supported those debt limit increases under Reagan and Bush. And the Democrats, when they were the majority in either house, never used that majority power to block an increase in the debt limit (as they could have done with Reagan, for example).
What both parties have done is object to debt-limit increases when they were the minority party. The 2006 vote you mentioned is an example of this. The D votes against that debt increase were merely symbolic, because congress was under GOP control. There was nothing new about this. For example, on 4/1/93, all but 2 Rs in the house voted against a change in the debt ceiling. This vote was symbolic, because congress was under D control.
What the GOP is doing now is something the other party has never done: talking about using their majority control to block a debt increase. The 2006 vote you mentioned is an example of something both parties have done. What the GOP is doing now is something only the GOP has done (and it’s not just the second time, since aside from 2011 they did something similar in 1995). That’s why the example you’re raising isn’t comparable to what’s happening now.
Put a dollar figure on it, and then back that up. Then compare it to GOP-pushed policies. What you will find is that you’re full of it.
You find yourself agreeing with a grandstanding junior senator who knew full well the debt ceiling would be raised, and took a consequence-free stance on it. Obama was blowing smoke then. You know it, I know it, and he knows it. Incidently, on the broader topic of deficit spending, there is a difference between running in the red when the economy is down and running in the red during relatively good times.
You also sidestep the arguments you know you cannot counter. The spending has been authorized. Likewise, revenues have been set. The result of those two things is that the federal government needs to borrow. It’s pretty basic math. Having set revenues below expenditures, a faction in Congress now wants to stamp their feet and demand we bounce our checks. You can’t honestly defend that (and neither could Senator Obama back in, what, 2006 or 2007 or whatever it was).
By the way: Congress has to work on appropriations soon. Please explain why that is not the proper time to address spending levels. Please explain why the GOP instead wants to play with matches.
You know, if the Dems want to approach these matters the way the GOP does, they would be drawing up plans for paying only those government bills that they care about. Pay SS, Medicare, Medicaid, aid to the poor, active military ops… but all of a sudden defense contractors working on new weapons systems start getting apologetic IOUs. Obviously this would be bad. Unethical, even! But in Dems-act-like-Republicans land such things do not matter. All that matters is winning.
It could be entertaining to game it out. Semi-publicly. 😉
You know, I’m glad that Laurence Tribe and a few others think these magic tricks are a good idea. But this isn’t an episode of the West Wing. This isn’t a classroom though experiment. This is reality. Using these parlor tricks like the coin and IOU’s is just going to create the same problems. Are you seriously going to suggest that balancing trillions on these parlor games is not going to have an effect on the economy? Are you seriously going to suggest that financing $16 trillion in debt with $15 trillion in bonds isn’t a problem?
If Obama is going to bypass the debt ceiling — and he *has* been given contradicting instructions from Congress (“spend money but don’t tax or borrow it”), he should just issue more bonds. That will cause the same legal and constitutional crisis as the other options but without the tomfoolery. And every second spent debating these legal tricks is a second not spent persuading those that can be of the insanity of the debt limit crash.
This issue just drives home that the veneer of reasonability that the left side of this country always assumes is razor thin. We all know the GOP is crazy. But for God’s sake, listen to yourselves! Platinum coins? IOU’s? The GOP’s craziness does not make Dem insanity good. I realize that the platinum coin would be a nice middle finger to the GOP. But it’s not going to help.
@Rob in CT: You also sidestep the arguments you know you cannot counter. The spending has been authorized. Likewise, revenues have been set.
You know what else was passed and set? The debt ceiling. The “Fiscal cliff” legislation. All with the support of the Democrats, all with the promise of “this much and no more.”
If the Democrats wanted a $20 trillion debt ceiling, why didn’t they ask for that? Or no debt ceiling? No, they compromised and agreed to those limits.
Stupid Republicans. They forgot that “all promises come with expiration dates” isn’t exclusively Obama’s trademark, but the Democrats’. “Compromise” means, to them, “we’ll take part of what we want now, then demand the rest later.”
And Obama’s opposition to raising the debt ceiling… that meant as much as his pledge to not pursue gun control, his opposition to gay marriage, his pledge to keep lobbyists out of his administration, his pledge to close Guantanamo, and a host of other lies he and his supporters pretended to believe.
@Jenos Idanian #13:
Please point me to where in the Constitution it says that the President has to engage in ongoing negotiations with the Congress on spending bills. As far as I can tell, the President’s sole role in legislation is to (a) either sign or veto the legislation, and (b) if passed, faithfully execute it. I was not aware that the Constitution also mandated that the President take an active hand in the legislative process, but perhaps there’s a clause I overlooked….?
Sometimes I think that there’s a real Constitution, and then there’s a fantasy Constitution which exists only in wingnuts’ heads.
@Rafer Janders:
– headline in The Onion, Nov 14, 2009
@anjin-san:
Don’t be stupid. Quite obviously, it was to stamp their widdle feet.
@Rafer Janders:
It’s worse than that. They think the President is “responsible,” and by blocking legislation they can make him “at fault.”
(Republicans really are the psycho girlfriend on the bridge. “If I jump, it’s YOUR fault.”)
@john personna:
And Doug is the psycho’s BFF telling you “she’s like so right, you know! Just do what she wants!”
@Hal 10000: Tribe and Krugman don’t want to do a platinum coin or anything else silly, all they are saying is that it is legal and could work. What everyone wants is for the GOPs to back down.
I haven’t seen any indication Obama is seriously considering any of this, although I expect he will direct Treasury to shuck and jive as best they can through any interim between when we nominally hit the ceiling and when the business community beats the GOPs into surrender. In the meantime, this is great fun, and hopefully helps show the GOPs that there are ways to call their bluff. For their bluff to work, they have to be willing to shoot the hostage. (I think they are not, but I fear they are inept enough to do it anyway.) And if push comes to shove, Obama then has to be willing to shoot the hostage takers, even if it means doing something a bit crazy, like scrip.
Doug, do you seriously believe Obama is just being petulant? Or do you think maybe he has a plan to disarm the GOPs?
@Rafer Janders: My apologies. I presumed people would be smart enough to understand the implied “IF Obama wants anything, THEN” he has to negotiate with the House. I’m sorry I underestimated your stupidity. I’ll try to remember how many people here are complete and utter morons.
Of course, that’s just part of the situation. The House has passed several budgets in the past few years, and the Senate (under Democrat Sleazy Harry Reid) has simpy refused to look at any budgets, because they’re afraid of actually making real decisions.
No such promise was made. It was quite clear to everyone that the fiscal cliff compromise was just a step toward deficit reduction. You are making things up, which you often do.
As for doing away with the debt ceiling entirely, I’d be happy to see that happen. Democrats likely did not propose it because they knew it had a snowball’s chance in hell of it passing the House. It would require the GOP giving up their shiny new weapon, and that wasn’t going to happen, at least not back in 2011 when this first became an issue. Now, after being smacked down pretty hard in the 2012 election and the caucus showing some strain, maybe. We’ll see.
@Jenos Idanian #13:
Oh, that’s just sad. After over an hour of shamefacedly staring at the screen, a hot flush of embarrassment scalding you all over, trying to come up with some way, any way, to dig yourself out of your laughable mistake, that’s the best you can do?
I think we’re all a little ashamed for you.
@Rafer Janders: Congratulations on your developing a second brain cell. Now that first one won’t be so lonely.
My mistake in the first statement was assuming that I was discussing matters with intelligent, reasonable people. (There have to be one or two lurking about.) Your attempt to dodge the issue with absurd literalism caught me off-guard — I simply didn’t think anyone would actually try that lame a ploy.
Alternately, we could simply wait for Obama to decide that he can resolve this through Executive Orders, like he’s considering with new gun bans. Good thing his supporters are totally cool with the Unitary Executive and don’t care about things like the checks and balances in the Constitution…
Conservatives constantly whine about government spending, yet what could they or would they cut? Defense? Social Security? Medicare? Medicaid? Everything else amounts to almost nothing compared to the big four…
That’s rather rich considering Republicans are screaming about cutting spending yet they won’t name actual cuts…
@Jenos Idanian #13:
Just to be clear, is this the fantasy Constitution that requires that the executive take an active role in the legislative budgeting process or the real Constitution? Want to make sure we don’t get them confused.
Doug is right that the House Republicans don’t want to give up their debt ceiling weapon, but wrong about the right response ( “Surrender, Dorothy!”). The Administration has to neutralize the weapon, somehow, or its going to be used continually. The people who like the idea of a debt ceiling showdown are convinced that the Republican hostage takers are bluffing and that if we dare them to shoot the hostage, they won’t. While its true of the Republican leaders, I’m not so sure of the mass of House Republicans. I think the House Republican rank and file are ready to pull the trigger, and that might set off a renewed recession and market panic.
Is teaching the House Republicans a lesson worth a surge in unemployment and more economic pain? I would say no, not on an annual basis. That’s the problem with the showdown idea: it would happen every year, unless the House Republicans are voted out en masse. With gerrymandering, that may take a while-all the way to 2020.
The platinum coin idea works like an instant bulletproof shield: if Republicans fire the gun, the President deploys the TDPC, and viola! the bullet bounces off the hostage’s body.
I think its OK for the President to negotiate as if he is not going to use the TDPC, then pull it out if the House Republicans don’t see reason.
If the President does this a couple of times, the House Republicans will see that their shiny new weapon is in fact useless, and they may want to do a mutual disarmament pact whereby the debt ceiling is abolished in return for the platinum coin statute amendment.
I hope that Doug writes a similar post when the roles are reversed and the Republican President is forced to raise taxes on the rich in exchange for raising the debt limit.
@ Rafer Janders
I think what Jenos is trying to say is “I haven’t been humiliated enough yet for one day – let’s keep going.”
Don’t worry. The GOP will capitulate at the last moment and all of our problems will be over.
jenos:
This might help you (link):
(I say “might help” in a manner of speaking, because I’m well aware that you personally are far beyond any such help.)
I think it was Krugman who said the federal government is an insurance company with an army.
@Rafer Janders: Just to be clear, is this the fantasy Constitution that requires that the executive take an active role in the legislative budgeting process or the real Constitution?
Once again, you’re retreating into absolute literalism to play cutesy games. Yes, in theory, the House passes a budget, the Senate revises it, they hash out their differences, and then the President signs or vetoes it — in which case it starts all over again.
But the president is required by law to submit a proposed budget to the House each year, and the House theoretically uses that as a starting point. It’s all spelled out here, in simple and clear language that even you should be able to grasp.
I have my own idea for the budget. Every year, one single federal department switches over from baseline budgeting to zero-based budgeting. No more assuming that they need every single penny they got the last year, no more automatic increases. In about a dozen years or so, every government agency will be on zero-based budgeting.
Hell, I’ll even offer a compromise. Only one department a year does zero-based, and then they go back to baseline — until it’s their turn in the cycle again. That ought to at least put a little sanity into the budget process.
@Jenos Idanian #13:
Why do you keep bringing up spending but not taxes?
jenos:
English translation: ‘it’s OK if I can’t find it in the Constitution as long as I can find it in my imagination.’
And he has done so. Maybe you didn’t know. So tell us what the law requires him to do that he has not done. You said this:
Tell us precisely what “the Constitution says he has to” do that he has not done.
If the Republicans get their way and Obama capitulates to avoid a financial catastrophe, the Democrats will do the same thing the next time there’s a Republican president and the Democrats control at least one house of congress. The administration has to avoid bargaining with the Republicans over the debt ceiling for the same reason that the US had to avoid bargaining with Iran when the Islamic militants seized our diplomats. Contra Doug M, the use of the debt ceiling in the way Boehner, McConnell, et al intend using it represents a massive and unprecedented power grab by congress. It would permanently alter the American system of government, and not for the better.
One response by Obama would be to allow the Republicans to shut down the government. The economy would then crash and eventually the Republicans would cave under the pressure of the financial community and public opinion. This would be best for Obama politically, but it would be a disaster for the country. It would be an almost equal disaster for the country if he caved, because agreeing to the Republican’s budget plan (assuming it exists) would be a repetition of FDR’s mistaken turn to austerity in 1937, and it would effectively end his authority as president and as the leader of the Democratic party. So, pour faute de mieux (did I get that right, Tsar Nick?), the trillion dollar coin is the least bad alternative.
They have a fantasy Constitution, and they also have a fantasy Obama. It’s an entire fantasy world. Here’s the word normally used to describe this phenomenon: insanity.
@David M: Because, David, taxes going up is a given. They’ve already gone up. In fact, the last deal was for $41.00 in new taxes for every $1.00 in spending cuts. I’m just hoping for a shred of balance.
@Jenos Idanian #13:
Since 2011, the ratio has been $3 in spending cuts for every $1 in tax increases, so if you’re looking for balance then you should be looking to increase taxes.
Good idea. Let’s cut defense spending. We can already kick everybody else’s ass about 20 times over.
When Clinton first balanced the budget spending (as a %) of GDP was 4.5% lower and taxes were .1.8% higher. So 3:1 sounds about right.
In 2011 spending was 24.1% and taxes were 15.4%. In 2013 spending will be 23.3% and taxes will be 17.7 percent. A .8% cut in spending vs a 2.1% increase in taxes. We are moving in the right direction but we have a long way to go.
@David M: I specifically cited the fiscal cliff compromise, David. The one that included $620 billion in new taxes, and $15 billion in spending cuts.
And since you cited “ThinkProgress,” I’m going to assume that “spending cuts” is based on baseline budgeting, where the “cut” is “less than projected or asked for,” instead of “less money than the year before.” Which isn’t a real cut at all.
Doug M has said on at least one occasion that “you don’t raise taxes in a recession”. If so, why should you cut spending? Aren’t the effects the same?
@Stan: Yes, by definition both tax increases and spending cuts reduce financial assets available to the non-government sector.
A tax reduces incomes by removing dollars and therefore acts as a demand drain. A spending cut reduces flows from the government sector to the non-government sector. What makes these relatively straighforward rules complex is that the incomes which government is taxing were and are created by government spending.
The U.S. government is the monopoly supplier of the U.S. Dollar. Tax liabilities in the U.S. are denominated in U.S. Dollars. So in order to pay your taxes you must first get your hands on dollars that can only come from one place. The way government gets those dollars into the public’s hands is to spend the money into the economy, meaning that government must spend before it can tax.
If government cuts taxes it reduces the quantity of dollars it removes from the non-government sector. If government reduces spending it reduces incomes to the privates sector and increases the difficulty of paying one’s tax liabilities.
A lot of conservatives misunderstand that taxation and spending are inextricably linked.
@Ben Wolf: I don’t believe that is true. Removing a dollar from the private sector and giving it back to the private sector is not how money is created. And if you believe in free makets it follows that a dollar in the private sector has more economic value than a dollar in the public sector.
@Scot: You’ve reversed the procedure. Government gives the private sector dollars via spending first, then removes them via taxation. It is impossible for the system to work any other way when government is the monopoly supplier of the U.S. Dollar.
We have to get the dollars from government before we can settle our tax liabilities.
@Ben Wolf: It is my understnding that the government takes in a dollar either through taxes or by selling treasuries before spending it. The government creates money through the federal reserve in conjunction with our banking system. Can you direct me to better information?
@Jenos Idanian #13:
I specifically cited the fiscal cliff compromise, David. The one that included $620 billion in new taxes, and $15 billion in spending cuts.
Looking at a single deal out of several deficit reduction packages isn’t really “balance”.
Since all the deficit reduction usually refers to a timeline of the next decade, you are wrong. There’s no other way to say it, you may not like the fact that reductions in spending levels that increase count as cuts, but in the real world your opinion doesn’t matter at all.