Let me be blunt: if the Republicans threaten to not raise the debt ceiling unless the Democrats agree to spending cuts, they are the functional equivalent of terrorists, holding a gun to the head of the economy and demanding the President give in to their demands.
Here’s why: If the US cannot make payments on money it owes, then our credit rating crashes, our bonds become more expensive, the budget would be made much harder to balance and we could dive into another global recession. You don’t make that a bargaining chip. The President’s biggest first term mistake was to allow himself to be suckered into bargaining on the debt ceiling, thinking he could get a deal. He cannot repeat that mistake.
Note: Congress has already voted to spend this money. It’s not like the President wants to increase debt and Congress doesn’t. This is money the Republican House has voted to spend – it’s a debt they’ve approved. For them to not raise the debt ceiling or to blame the President for the higher debt is objectively wrong. That’s why for the good of the country the President cannot negotiate around the debt ceiling. He should work to make it that neither party ever can.
Don’t get me wrong – there should be real talk on deficit and debt reduction. We need to take a hard look at demographic change and the long term sustainability of so-called “entitlements.” The Republicans are not all wrong in this discussion. You just don’t threaten the life of the US economy in order to get your way.
Last time this came up many people thought that perhaps the President could use the 14th amendment to unilaterally raise the debt ceiling. Coming just before an election year with the Republicans sure to start impeachment hearings by claiming that would be a misuse of that power, that was an option the President could not risk. But his legal team should seriously consider it, the political conditions have changed.
There is also the so-called platinum option. The President does not have the power to print money, only the Federal Reserve can do that. But there is power given to the Secretary of the Treasury:
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.
You see why laws are so complex – if you don’t word them right you can leave enormous loopholes. The purpose of this law is to make it possible for the Treasury to issue platinum collector coins. But what if the Secretary of the Treasury minted a $1 trillion dollar platinum coin and deposited it with the federal reserve? And what if he threatened to keep doing so until the debt ceiling limit was raised? That would keep us from reaching the debt ceiling and thus avoid default.
That might risk inflation – minting trillion dollar coins adds greatly to the money supply. But the Treasury secretary could make clear that those coins would be withdrawn in response to a raising of the debt ceiling. Better would be to abolish the debt ceiling issue — it’s insane to make it possible for a manufactured crisis to threaten the world economy — and at the same time rewrite the above law so the loophole is closed.
If Congress votes to spend money, they are voting to borrow enough money to spend what they want. There should be no secondary ‘debt ceiling’ vote. The platinum option is probably too absurd to be used, but when the global economy is being held hostage it might be necessary.
The President must make this an issue in the State of the Union address – he must call the Republicans out as recklessly threatening the country by holding the debt ceiling hostage as a way to gain leverage. He must take control of this issue, and put the Republicans on the defensive. This should be the first shot in the 2014 campaign – if the Republicans purposefully crash the economy, the public should make them pay. He shouldn’t call them terrorists (though I think that’s what they’d be doing), but he has to crystallize the issue for the country and show leadership.
At the same time he must offer real negotiations on the budget and show his good faith. But those two issues must not be linked, it may take longer to reach a budget compromise and that’s OK. The President wants his legacy to be putting the US on the path to fiscal responsibility, not sky high deficits. The Republicans know it. Risking the economy on a phony issue is insane.
As the debt ceiling deadline nears, if the GOP tries to play that game the White House should seriously explore and discuss options like the 14th amendment or the platinum coin. Given the dynamics in 2011 I think the President was right to go with the sequestration — it actually set the Democrats up for a big win on the fiscal cliff. But for the sake of the country he can’t allow Congress to hold the US economy hostage in order to try to get their way. It’s un-American.