Obama has no choice but to refuse to negotiate over raising the debt ceiling.
If the current government shutdown has you feeling glum about the state of our politics, don’t worry, things are about to get much, much worse. The next crisis coming down the pike should arrive in less than two weeks. It’s called the debt ceiling and if Congress doesn’t raise it, it will likely destroy our national economy. To make matters even worse, damaging the fragile recovery might actually be the only way out of this trap.
The debt ceiling crisis is strangely enough a completely self-induced crisis. Under the Constitution only Congress has the power to levy taxes and spend money. All of the money it spends is done in basically two ways. There’s “mandatory” spending that is dictated by laws entitling people to payments from the government. This is things like Medicare, Social Security and some farm subsidies. Then there’s “discretionary” spending that Congress traditionally appropriates to be spent over a yearly cycle. This includes things like payment for FBI agents or computers for NASA. If Congress fails to pass discretionary spending bills the federal government shuts down, much like what is going on right now, but mandatory spending keeps going out no matter what.
Along with spending, Congress also passes laws to collect taxes to pay for all of this. Most of the time money coming into the federal government is less than money going out and when this happens the Treasury fills the gap by selling bonds on the international market. Because of a legal quirk going back to World War I Congress has to authorize these sales by raising the maximum amount of debt the Treasury can have, hence “raise the debt ceiling.”
This is where the current impasse comes into play. Currently the House Republicans are refusing the raise the debt ceiling while they haven’t changed the law regulating how much gets spent and how much gets brought in by taxes. This is what breaching the debt ceiling is all about, Congress has passed laws requiring the government to spend more than it takes in via taxes, but it is refusing to let the Treasury pay for the gap between spending and taxes by borrowing. It is in essence a kind of legal paradox, the government is required to spend money it is not legally allowed to get. Thus if the debt ceiling were to be breached the federal government would have to break the law somehow. Either by not spending money it is legally required to spend, or by borrowing money it is not legally allowed to borrow.
A very dangerous legal paradox as it turns out because global markets hate this kind of uncertainty. In fact according to a recent Treasury report the last time we played this debt ceiling game of chicken in 2011 these were the results, “…consumer and business confidence fell sharply, and financial markets went through stress and job growth slowed. In 2011, U.S. debt was downgraded, the stock market fell, measures of volatility jumped, and credit risk spreads widened noticeably.” Which is the wonky way of saying the economy suffered, and remember that was when we didn’t breach the debt ceiling. If we did reach the point of full on breach, sometime on or after October 17th, nobody really knows how bad things would get, but almost all professional economists predict something very bad happening.
This is why liberals have taken to liking the Republican position to hostage taking. Republicans are basically saying, “give us concessions or we’ll blow up the economy.” In fact back in 2011 the last time we had these types of hostage negotiations Republican Senate Majority Leader Mitch McConnell actually referred to the debt ceiling as, “…a hostage that’s worth ransoming.”
Governing by hostage taking is simply something that President Obama, or any responsible president for that matter, simply cannot accept. After all if Republicans are able to extort concessions, like a delay of Obamacare, from the President now, why wouldn’t they try again in the future? In fact the reason we are in this mess is because Obama foolishly agreed to concessions like creating the so called “super committee” and automatic spending cuts known as the sequester back in 2011 in exchange for raising the debt ceiling back then. If he were to offer concessions now, Republicans would be back next year demanding more in exchange for raising the debt ceiling again.
In short our current Constitutional system of separate co-equal institutions sharing power would be fundamentally transformed into one where Congress can periodically threaten to blow up the economy. While the Presidency is transformed into a rump institution that is forced to constantly negotiate from a weaker position in future budget show downs. And in the end we’d have a debt ceiling default at some point anyway when future negotiations eventually broke down, if only because Obama or some future president did so intentionally to put an end to the practice of hostage taking.
For the good of the country and the institution of the Presidency itself, Obama can’t agree to negotiate over raising the debt ceiling. To do so would be a horrible mistake, and we would find ourselves right back in this exact same crisis next year.
Photo by Carolyn Kaster/AP