Ending the debt ceiling stand-off

Here’s how I’m hoping this might work out.

Let’s begin by reviewing what would happen when the Treasury runs out of accounting gimmicks yet Congress refuses to authorize further debt issue. Aside from deciding simply to ignore the debt ceiling, what options would the President have? One would be to defer payment of coupons and/or principal on outstanding Treasury securities. Of course the holder of these securities could still try to sell them on the secondary market. Flooding the market with sell orders would of necessity generate a spike in interest rates. Depending on how confident people were that the situation would be quickly resolved, in a worst case scenario, selling and asset shifting could turn into an outright financial panic. Effects on financial payment logistics could be pretty scary, and it could easily be worse than what we saw in the fall of 2008. Don’t want to go there.

Or, the President could withhold payments to various individuals entitled to those payments by law, such as government employees and contractors, or social security and welfare beneficiaries. Perhaps these people could be issued federal IOU’s that banks would accept, though the logistics of doing so seem insurmountable. It’s quite plausible to expect that the spending by those affected parties would come crashing down at a time when the economy seems precariously near stall speed. Don’t want to go there, either.

And so the negotiating calculation of each party seems to be, this is such an awful outcome, the other side will surely accede to our position rather than allow it to happen. Jeff Frankel likens it to the cliff race “game” in the movie Rebel Without a Cause.

I also appreciate David Merkel’s advice: don’t play near the edge of the cliff. Holders of Treasury securities are already thinking through what this might mean for them. Nervousness now may make us more vulnerable to problems a few years down the road as the longer-term pressures of Treasury borrowing needs begin to meet with some natural market resistance and the Fed begins its exit strategy. And apprehensions by consumers about how this will all play out could be one factor in this month’s sharp decline in consumer sentiment. That deterioration of sentiment is another development that’s already adding to our economic problems, right here and right now.

Bill McBride has been saying there’s little to worry about:

Congress will probably push this to the brink, but they will raise the debt ceiling before the country defaults. The first rule for most politicians is to get re-elected, and the easiest way to guarantee losing in 2012 is to throw the country back into recession. If that happened, I believe the voters would correctly blame the leaders of Congress, and I think Congress knows that too. Therefore it won’t happen.

But Robert Reich thinks that some congressional leaders don’t see it that way:

I’ve spent enough of my life in Washington to take its theatrics with as much seriousness as a Seinfeld episode. A large portion of what passes for policy debate isn’t at all– it’s play-acting for various constituencies. The actors know they’re acting, as do their protagonists on the other side who are busily putting on their own plays for their own audiences.

Typically, though, back stage is different. When the costumes and grease paint come off, compromises are made, deals put together, legislation hammered out. Then at show time the players announce the results– spinning them to make it seem they’ve kept to their parts.

At least that’s the standard playbook.

But this time there’s no back stage. The kids in the GOP have trashed it. The GOP’s experienced actors– House Speaker John Boehner and Senate Minority Leader Mitch McConnell– have been upstaged by juveniles like Eric Cantor and Michele Bachmann, who don’t know the difference between playacting and governing. They’re in league with tea party fanatics who hate government so much they’re willing to destroy the full faith and credit of the United States.

Senator Mitch McConnell’s (R-KY) counterproposal is one that ought to appeal to any grown-ups on Capitol Hill. Keith Hennessey explains the idea:

  • The President could ask Congress to increase the debt limit by $700 B.
  • The President would have to simultaneously submit a plan to cut spending by more than $700 B.
  • The Presidential request and submission would trigger an immediate $100 B increase in the debt limit, thus giving the Administration the ability to make it into September without having to slow down cash outlays for benefit checks or anything else.
  • The President’s $700 B debt limit increase request would be automatically approved unless Congress blocked it. To block it, a majority of the House and Senate would vote to disapprove. That resolution of disapproval would go to the President, who would presumably veto it. If more than 2/3 of the House and Senate overrode the President’s veto, then the $700 B request would be denied and the original $100 B authorization rescinded. This resolution of disapproval would be governed by “fast track” legislative procedures so it couldn’t be delayed, amended, or filibustered.
  • If either the House or Senate voted down the resolution of disapproval, or if 1/3 or more of the House or the Senate sustained a Presidential veto, then the $700 B would be automatically authorized. In other words, the President knows he will get his $700 B as long as (a) he submits his spending cuts and (b) he knows he can get 1/3 of the House or the Senate to sustain his veto, should it be necessary.
  • This process would be repeated in the fall of 2011 and again in the summer of 2012, with the President authorized to ask for an additional $900 B each time, again matched by a greater amount of spending cuts. The President could begin this process only when Treasury was within $100 B of the debt limit.
  • The authority would expire in early 2013, around the end of this Presidential term.

That sounds to me like the perfect solution. It allows Congress to play the political game the way it likes. A majority of members can vote to “disapprove” of raising the debt ceiling, despite the fact that those same representatives have voted to approve the spending and revenue measures that made additional borrowing unavoidable. It allows the debt to be issued anyway, despite the congressional vote. It might seem to do so in a way that allows Republicans to score some political points, in that by vetoing the disapproval resolution, the President would accept more of the political responsibility for the dreaded symbolic act of issuing more debt. But I think there’s an opportunity for Obama to do so with a speech like this one and end up looking, if I may say so, all the more presidential.

Something for each party to take away from the negotiations, and moving the game a safer distance from the cliff, is the best I could hope for from this situation.

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42 thoughts on “Ending the debt ceiling stand-off

  1. CoRev

    Dr H, all we do is kick the can down to the budget negotiations. Where the threat shifts to shutting down the government. The House already has most of the appropriations bills passed or through the committees, so the attentions shifts to the Prez and the Senate.

  2. Joseph

    Senator Mitch McConnell’s (R-KY) counterproposal is one that ought to appeal to any grown-ups on Capitol Hill.
    I am astounded at your dumbing down of what constitutes “grow-ups.” This is a pure win for Republicans. Once more they dodge responsibility for their last decade of profligate fiscal policies while deferring blame to Obama.
    The grown-up thing to do would be to spend five minutes and raise the debt limit just like the other eight times they did during the Bush administration.
    The debt was created by appropriations and tax cuts. This is just kabuki that you seem to endorse as “grown-up.” What a sad commentary.

  3. Tudor

    I actually like the McConnell plan. Despite the silly politician games, it’s probably the closest we can get to a clean debt limit increase.
    Once the hostage crisis is over, I’d still like to see people start working on a real long-term deficit reduction plan. Maybe get 2-3 alternative plans put together, scored and run through floor votes. Even if none of them pass, it would provide a very clear frame for voters in the 2012 elections.
    If a good plan does go through and the economy doesn’t completely fall apart in the next year, Obama will have easily had the most successful first term in office since at least Reagan.

  4. The Rage

    They can blame O’bama, but that may not work. O’bama can claim he needs the cuts to pay for the Bush tax cuts(finally). Which is what it is all about.
    The Republicans really don’t want to cut spending, oh yeah, freeze a few social programs. Increase DoD to a 2 trillion dollar enterprise and run huge deficits. 3 trillion if they must.
    So they want O’bama to capitulate without cutting anything. O’bama needs the cuts to take to the public durin 12 why the economy is down: The Bush tax cuts. While at the same time, DoD gets slashed and not put back after the Bush tax cuts are not extended.

  5. Anonymous

    On a broader topic but still connected with debts and debts limits as required cash flows and trends will be challenging (Source IMF SDDS/QEDS Cross-Country Tables)
    Gross External Debt Position (Data are in millions)
    2009Q2 2009Q3 2009Q4 2010Q1 2010Q2 2010Q3 2010Q4 2011Q1
    United States 13,454,217 13,671,606 13,767,867 13,917,354 13,984,097 14,392,451 14,456,194 14,825,308
    United Kingdom 9,374,868 9,476,967 9,337,345 9,182,070 8,980,793 ..? ? .. ? ..
    Germany 5,140,407 5,265,740 5,124,906 4,948,217 4,712,230 5,319,023 5,208,039 5,442,082
    France 4,944,113 5,193,954 5,167,460 5,072,090 4,676,987 5,231,614 5,091,260 5,366,839
    Greece 553,003 594,598 587,562 556,707 528,759 585,696 546,060 579,654
    Through the same IMF data,access to the maturity schedule of above gross debts is available.
    Data are in millions 2011 short term
    United States 5,378,957
    United Kingdom 0 0 0 0 0 0
    Germany 1,885,932
    France 2,127,944
    Greece 237,926
    The UK does not transmit its data to the IMF or the IMF does not publish them anymore.Anyway Greece is a problem and “Wag the dog” remains a very good movie.

  6. lxm

    I agree McConnell’s plan is a win for Republicans.
    If the debt ceiling is not raised, then the first to not receive government checks should be congressman, senators and their staffs.
    Nor should they receive IOUs for payment at a later date.

  7. brad

    Perhaps what is most distressing is the refusal by people who know better to admit that what is occurring is not without precedent or that fiat currencies do not collapse. Monopoly money has “real value” as long as everybody plays the game. Major cities don’t starve as long as the food trucks keep delivering mega-tons of food. The facade of civility exists until the lights go out or the transfer payments stop. With apologies to Joseph Schumpeter we may just have destruction sans creative component. That has happened before too.

  8. dwb

    given that we are in a liquidity trap and bernanke-san seems to be in permanant wait-and-see mode with overly optimistic forecasts, my ideal resolution is minting a 2.5 trillion coin and depositing it at the fed. kills two birds with one stone 1)eliminates the debt-ceiling armageddon; 2) pushes the economy out of the liquidity trap in a classic Keynes fashion.
    ok, maybe just a 1 trillion coin, We only need enough to get the economy out of the liquidity trap and fund the government until we get a budget. After that, revenues ought to pick up reducing expected future deficits.
    yeah, i know – inflation, debasing the currency, signs of the utter failure of the political system, blah blah blah. it a left-wing crazy solution. these are not normal times. normal tools and normal models have failed. there are millions of unemployed people. to get back of track we need a solution distictly abnormal.
    http://balkin.blogspot.com/2011/07/obamas-top-secret-plan-to-solve-debt.html

  9. David Penwell

    Dr. Hamilton,
    The problem I see with the McConnell proposal is that there is no time frame around the cuts. They can borrow now, for promised cuts way out in the future. The cuts have to be scheduled, and real, an actual budget that is less than last year’s budget.
    BTW – All the doomsday people appear to be people in the financial sector, the same crowd responsible for Sept. 2008. Why should be regard anything they say? The US is currently the best house in a bad neighborhood. If we do a technical default, (we can pay our bills, we are just saying we are not going to pay some of our bills for a period of time, big difference from cannot pay our bills) maybe this would signal to the rest of the world that we are serious about the fiscal mess, and not raising the debt ceiling could be a positive signal. The front of the house may look messy, but we are undergoing construction for a grand remodeling; instead of being like our European and Chinese neighbors and putting spackle everywhere.

  10. Ricardo

    No one has made a grown-up proposal yet. The responsibility for spending and revenue belongs to congress not the president. The closest we have to a grown-up plan is the Ryan plan that has passed the House but not the Senate.
    None of the “spending cut” proposals are actually spending cuts. They are all years out in the future and the problem is right now. Increasing the debt ceiling without serious current cuts does nothing but increase the problem for a future congress and president to deal with.
    Here is a serious plan that would be resisted by some on each side of the issue.
    1. Secure Social Security and Medicare – Reverse Lyndon Johnson’s mistake of folding Social Security and Medicare with the general budget. Split them out from the budget to stand alone. Then pass a tax increase to make them solvent with a rider for automatic tax increases to keep them solvent. The initial tax should cost every taxpayer around $500 additional tax each year. This would secure Social Security and Medicare and also demonstrate to taxpayers exactly how much they are paying for their retirement program. The tax could be reduced if such things as raising the retirement age was included, but this would not be necessary initially.
    2. Establish a growth commission that will make annual recommendations to congress and the president beginning July 1, 2012 and each July 2 after to be implemented the beginning of the fiscal year the following October 1. The recommendation would not be one to reduce the deficit but the best programs to generate growth. An audit section of the GAO would be established to look at the results of those changes put into place and score them for effectiveness. The programs would be reviewed annually and those determined by the GAO as working to generate growth would be reauthorized while those not reauthorized would sunset. Establish a requirement for the growth commission to reduce the debt by at least 5% every year in real dollars.
    3. To deal with the immediate problem there would be an immediate across the board cut in all government programs (except Social Security and Medicare) equal to the amount that the debt ceiling is increased. That would make 50% of the solution spending cuts and 50% of the solution debt. This would be effective as a stop gap measure. The debt ceiling would return to its 2011 level October 1, 2012.
    This is a plan that includes tax increases, spending cuts, and debt increases. It uses all methods of dealing with the deficit except for inflation which should never be used.

  11. fladem

    I think this may violate the presentment clause of the Constitution (which is why Grahm-Rudman was ruled unconstitutional), though whether the Supreme Court would intervene is another matter.
    If you buy the notion that consumer confidence is being hurt by this crisis, then this plan doesn’t help a lot since it creates more drama down the road.
    At this point you have to ask if the Republicans are deliberately trying to hurt the economy.

  12. Jim A

    ISTM that the exact edge actually IS calculated pretty precisely at this point. A big part of the reason that Aug 2nd is that date is that Aug 3rd is the day that SS checks are due to go out. And even thoght there is always some uncertainty as to projections of daily receipts and outlays, there is a zero percent chance that there will be enough cash on hand to cover all the SS checks. Rather than prioritizing one set of legal payees over another before we get to that point, it appears that the administration’s position is that they are legally obligated to pay everybody the money that they are due so long as there is any money left. Since the government would be sued if they didn’t pay, this seems like a reasonable position, I just wish that they’d be more explicit.
    The Tea Party contingent seems to assign to the president the authority to stiff some payees and unilateraly cut programs authorized and appropriated by Congress. The illusion being that then HE will have to take the heat for cutting popular programs. Truely, this whole mess comes down to the fact that Congress consistantly prefers deficit spending to cutting programs or raising taxes, and passes laws ensuring same.

  13. Brian

    Ricardo — I like your first point. Let’s separate out Medicare and SS from the rest of government, so that everyone can see just where they stand financially. If they are treated as completely independent, transparent entities I’m sure the public would be more willing to go along with the changes needed to make them structurally sound. As they stand now, they’re just another branch of the government, and I don’t think the government deserves one more dime than they get from me now.

  14. Anonymous

    @fladem:
    “At this point you have to ask if the Republicans are deliberately trying to hurt the economy. ”
    But it never occurred to you to ask President Obama that same question since January 20, 2009, after all he (and his willing economic advisors) have done to the economy in just 2.5 short years?
    Yes, yes, it is ALL the Republicans fault, because left-of-center politicians are “more caring”, “more sensible”, “more moderate”, “more understanding”. Never mind the HUGE ratcheting up of the debt in just 2 short years, never mind the HUGE increase in federal spending in just 2 short years (as if that was going to buy us prosperity), never mind ObamaCare with its 2,800 pages that EVEN the President does not understand, never mind the hugely wasteful Cash for Clunkers, never mind all that.
    It is Republicans who really want to hurt.
    It is astonishing.

  15. westslope

    Wow. This the 1970s, Vietnam War Defeat period all over again. Americans dissing Americans.

  16. Rich Berger

    I have a question, related tangentially to the post as it deals with who is responsible for goosing spending up. I was searching for information regarding the evaluation of the TARP program and found testimony by John Taylor earlier this year that the cost of TARP was about $25 billion, which represents the net cost after repayment. I found a Keith Hennesey piece that quoted that the CBO estimated TARP outflows by mid June 2009 to be $439 billion. I don’t know net how much additional was spent in FY 2009 less repayments, to give the final FY2009 outlays. If the net cost was only(!) $25BN, that means the repayments must have hit in the remainder of FY2009, FY 2010 and possibly FY2011. If I am understanding this correctly, the fact that the outlays were frontloaded and the repayments backloaded makes Bush’s last year look worse and Obama’s better than they really were. Can anyone point me to more details or analysis?

  17. AS

    By default, if I read Professor Hamilton’s comments correctly, payment of treasury principal and interest would possibly be deferred, but would still be paid in the future. If my understanding is correct, may this then be a chance for investors to scoop-up treasuries from panicked sellers. There could possibly be some good valuations subject to admittedly unknown future payment dates of principal and interest.

  18. Ricardo

    This “debt ceiling stand-off” is an absolute joke. This morning in Orlando, Florida we had a Saturday Night Live sketch, the only problem is that it was real.
    Transportation Secretary Ray LaHood signed a release of $72million of a total of $600million for SunRail, a commuter rail system being funded by the Obama administration and the state of Florida.
    Here is the joke and I know you will die laughing. The SunRail project will cost $1.3billion for 61 miles of track. Now what private company wouldn’t just jump at the chance to spend $21.3million per mile of track?!!!! This really is funny but for some reason I am not laughing.
    Our government is so brilliant in making their INVESTMENTS. What’s a little default of Treasury security debt when we have a toy train to build?
    And they want us to take them seriously…..

  19. aaron

    I doubt prices would fall enough to make scooping up treasuries worth while, unless you are confident prices will quickly recover and you have enough capital that transaction costs are negligible.

  20. aaron

    I doubt there would be panic selling. People with leverage and cash flow problems could be forced to sell, but no one is going to choose to sell at a discount and likely give up their claim on the deferred coupon payment and interest.
    Of couse, rational investors don’t own much treasuries, only large institutional and foreign investors do. Rules could trigger some automatic selling.

  21. JL

    McBride is right. Script for this Obama show by Axelrod. Obama kills Bin Laden, Obama saves the US, Obama saves the world. Guess, Murdoch is going to be envious. And Cameron, too.

  22. Steven Kopits

    My recollection is that the Republicans got rolled on the last spending bill:
    A Congressional Budget Office analysis of the fiscal 2011 spending deal that Congress will vote on Thursday [April 14] concludes that it would cut spending this year by less than one-tenth of what both Republicans or Democrats have claimed.
    A comparison prepared by the CBO shows that the omnibus spending bill, advertised as containing some $38.5 billion in cuts, will only reduce federal outlays by $352 million below 2010 spending rates. The nonpartisan budget agency also projects that total outlays are actually some $3.3 billion more than in 2010, if emergency spending is included in the total.
    The astonishing result, according to CBO, is the result of several factors: increases in spending, especially at the Defense Department; decisions to draw over half of the savings from recissions; and cuts to reserve funds and and money for mandatory-spending programs that might never have been spent.
    I think the results of the last time out may well cast a shadow over the current negotiations. I wonder whether the Tea Party believes anything Obama is vaguely promising, because they have every reason to believe they’ll be rolled again (with the collusion of Republican leadership, I might add).
    Is the Tea Party looking for a fig leaf to hide behind? I don’t think so. They prevailed in Minnesota; a number of states now have surpluses after making tough choices, very heavily on the spending side.
    I think the Tea Party may well stand firm here, for better or worse.

  23. Steve

    Really tired of the nonsense. We are awash in tax revenues to the treasury. 2.3 trillion is a ton of income. The problem lies in spending and the only way to cut spending is elect people who cannot be bought off. That started in 2010 and 2012 will be a landslide of fiscal conservatives. Real fiscal conservatives, that know you do not spend more than you take in, unless to have infrastructure projects which will allow for a return on investments. Time to kill multiple federal offices, start with energy, education, Obamacare and EEO. Cut defense by 400 billion and foreign aid by 80%. Eliminate SS and Medicare as we know it by adopting the Ryan Plan. Outlaw all withholding taxes from the workers. Institute taxes on transactions and tariffs on imports. For crying out loud, this is not brain surgery. Yes it took us 70 years to go broke, but we have done it. Now let’s use a crisis to do the right thing. Imagine if we turn the People free from the enslavement of taxes on their labor. What a noble concept!!

  24. Gridlock

    Speaking on the need to raise the debt ceiling:
    “Congress consistently brings the Government to the edge of default before facing its responsibility,” he told the nation. “This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility — two things that set us apart from much of the world.”
    ~Ronald Reagan, Sept. 1987

  25. Brian

    there is this deficit reduction plan that nobody talks about: reverse most of what George Bush ever did. End the tax cuts and the wars. Spend short-term to bring down long-term unemployment. We know that 1999 tax rates, 1999 sized pentagon, 1999′s medicare prescription coverage, and 1999′s unemployment rate will produce a large surplus. long-term, the answer is to control health care costs as a size of the overall economy, which at least obamacare attempts to do.

  26. Doly

    “If we do a technical default, (we can pay our bills, we are just saying we are not going to pay some of our bills for a period of time, big difference from cannot pay our bills) maybe this would signal to the rest of the world that we are serious about the fiscal mess, and not raising the debt ceiling could be a positive signal.”
    I simply don’t understand how anyone can believe this argument. Suppose you are in a business, and one of your main clients say: “I can pay my bills, sure, I just want to defer some of my my bills a little until I’ve put my finances in order.” Does that give you a positive signal? Of course not! It tells you that your client’s finances are a real mess. The most likely reaction would be: “Great, I love to hear that you don’t have any immediate financial concerns because you would be approved for a new credit card now that you’ve maxed out this one. Now, go ahead and ask for it, and unfortunately our policy has changed a little, so we’d like a few more bills payed as soon as possible, or we won’t extend you any more credit.”
    Why would it be different when it’s the U.S.?

  27. CoRev

    Brian, waving his magic wand, turns back history to the halcyon Clinton era of 1999. Oh wait, weren’t on the path to the 2001 recession?

  28. ppcm

    In light of above comments,it is interesting to put to task:
    Systemic Risk Analysis Of U.S. Financials Using Dynamic MES
    http://vlab.stern.nyu.edu/analysis/RISK.USFIN-MR.MES
    The level of capital required to replenish the financial system is quite mundane ~760 million usd,the risk associated to volatility is low by historical standard deviation.
    Implications
    Financial markets are confident
    Financial markets are efficient
    Financial markets cannot afford volatility
    There are no markets.
    Financial markets cannot afford

  29. Rich Berger

    ppcm-
    I read your posts and I have no idea of what you mean. Did you used to go under the name calmo?

  30. Anonymous

    Rich Berger
    Answering to your two questions in seriatum order.For this purpose may I sample Gridlock quoting R. Reagan as a logic reflection of the possible chain of events and financial markets behaviours.Financial markets priding themselves to be forward looking, would usually sell on the rumors and buy on the facts.These years or this decade they were more Farinelli than Pavarotti.
    R.Reagan
    “This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets”
    The hereunder link testifies for the great stability of the most interest rates sensitive component of the financial markets,the banks and the financial.
    Systemic Risk Analysis Of U.S. Financials Using Dynamic MES
    http://vlab.stern.nyu.edu/analysis/RISK.USFIN-MR.MES
    A gridlock it is.

  31. Rich Berger

    After I read the final report on TARP, which indicated the net cost (outlays only – ignoring moral hazard effects) was approximately $25BN, I was curious about the effect of the TARP on the budget deficits in 2009 and 2010. I finally found the information I wanted in the Monthly Budget Review produced by the CBO (October 2009 and October 2010).
    According to the statements, outlays for TARP were $154 BN in FY 2009 and -$108 BN in FY 2010 (net repayment). If you assume that TARP was almost a wash ($25 BN being chicken feed to Obama), then the costs were overstated in FY 2009 and the receipts were overstated in FY 2010. Adjusting the reported deficits for TARP, the deficit for 2009 drops by $154 BN and the deficit for 2010 increases by $108 BN, to $1.262 TN in 2009 and $1.399 TN in FY 2010. The official figures are $1.416 TN and $1.291 TN.
    What this means is that instead of the deficit going down during the first full year of the Obama administration, it actually rose by 11%. Sort of puts his spending binge in a sharper focus.

  32. David Penwell

    Doly -
    Have you ever bid on work and gotten it? The big guys always are late paying the subcontractors. (BTW – You can get loans on accounts receivables, they will want to look at who owns you the money). In fact, the government jobs can be one of the worst payors. Money you are currently due in 30 days routinely take 60+, that was before the recession. Now 90 to 120 days can be the norm. And you know what, the next time a job is out for bid, you bid on it, you even bid the guy who was slow paying you, because you have to if you want to eat. If the little guy has to wait to get paid, why not the big bond holder? Also, why not the current crop of SS recipient who did nothing to stop the vote buying, big spending Congresses of the past by continuing to elect the people doing the spending. Let them feel some consequences of their choices.

  33. Tom Shillock

    I think Reich misses the emphasis. Republican Party leaders may be more rational than those in the grandstands but both are fighting the same class war. No one can doubt Republicans are serious about winning. These are not the responsible Republicans of the 1950s and 1960s. These are jihadists engaged in financial and economic terrorism. The globalization of capital has reduced the benefits wealthy Americas wealthy derive from democratic government. If government is not going to continue shifting the fruit of America’s productivity to their pockets as it has increasingly since the Carter regime, then they may be even more eager to drown it in a bathtub than we may think.
    Tactically, their propaganda is far superior to Democratic Party messaging, if such still exists. They have a phalanx of propaganda mills like the American Enterprise Institute waging the fight on the intellectual front and talk radio propagandists like Rush Limbaugh successfully befuddling the lower classes. And Obama largely shares Republican values. After all he got to where he is by carrying water for the power elite. This puts Republicans in a stronger position in the debt ceiling drama because regardless of the outcome they will probably be able to spin it to their advantage and get reelected.

  34. Doly

    “And you know what, the next time a job is out for bid, you bid on it, you even bid the guy who was slow paying you, because you have to if you want to eat. If the little guy has to wait to get paid, why not the big bond holder?”
    I’m perfectly aware that big clients have the pan by the handle, you keep doing business with them even if they screw you, because you have no other option. And the U.S.A. is the biggest client of all.
    But my point was about confidence. If there is a default, no matter how you want to dress it, you can’t seriously believe it will increase confidence. If there’s something that will get people thinking about alternatives to buying U.S. bonds, this is it.

  35. Lord

    Obama should just argue the debt ceiling is a guideline that requires Congressional action to implement, spending, taxes, debt, or some combination thereof, and without that it cannot be implemented, and lay it all at the feet of Congress.

  36. Richard H. Serlin

    “Perhaps these people could be issued federal IOU’s that banks would accept”
    That’s issuing new debt. It could be as illegal as issuing new formal debt without a raise of the debt ceiling.

  37. CoRev

    It appears that we are reaching a preliminary agreement. Whether it will be bipartisan is still in the air, but the form, two steps, was an inevitability.
    From today’s WaPo we have this: “By early evening, the outlines of a ,b>two-stage strategy were emerging. First, lawmakers would vote on a package to cut agency spending by as much as $1 trillion over the next decade and raise the debt limit, currently set at $14.3 trillion, by the same amount. That would give Geithner enough borrowing authority to cover the nation’s bills through the end of this year.”
    The short term step’s content, without the amounts and time frame details were also obvious.
    The next battle ground will be the FY 2012 budget, just heating up. Then we will revisit the debt ceiling issue as the short term frame solution ends.
    Voters elected a cadre of Congress critters with a mandate to cut spending, and in the House they are following it. For all the angst on the left/Dem side, voters are still supporting spending cuts.
    This budget cutting war is far from over, but this debt ceiling battloe is fast approaching an end. That end was inevitable.

  38. Virginia

    President Obama has become president of the Democrats, not of the nation. Perhaps Saul Alinsky prescribed his passive aggressive approach and brinksmanship. Threatening seniors and investors is deplorable and unpresidential. He has had many, many months to hammer out a budget deal and has not.
    When Pelosi said that once the Obamacare bill was passed, we’d find out what was in it, she revealed the irresponisble and arrogant behavior of people in Congress. Obama had the opportunity to say that a 2,000 page bill should not be passed, since no one would know what was in it or the possible consequences of its many mandates. He didn’t. He had no idea what was in the bill like everybody else. We are now governed by Congressional staff and White House czars.
    Now no one knows what is in the various budget bills. This is the tryanny of brinkmanship and is undemocratic.
    Most people I know – the silent majority – are disgusted by the behavior of both parties. Most of them appear to be more interested in their political careers than what is best for the country. What happened to prudence and careful deliberation?

  39. pauline

    I doubt there would be panic selling. People with leverage and cash flow problems could be forced to sell, but no one is going to choose to sell at a discount and likely give up their claim on the deferred coupon payment and interest.

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