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Go Home Defusing The Debt Ceiling Bomb

JONATHAN CHAIT JUNE 30, 2011

Defusing The Debt Ceiling Bomb

BY JONATHAN CHAIT

In response to my item advocating that the Obama administration use the Constitutional option, or the Zeitlin Option, of asserting the Constitutional prerogative of paying its debts in the event of a failure to raise the debt ceiling, Ezra Klein objects:

So long as bond traders are calling their political fixers and hearing reassuring things about how they’ve seen this before and this is just how Washington works and there’s no way that Boehner and Obama won’t come to a deal before Social Security checks stop going out, they’ll give us time to work it out. What we don’t want them to do is call their political fixers and, after a long silence, hear, “No. I’ve never seen anything this before. I don’t know how this is going to play out.”...

Bond rates aren’t spiking. The market hasn’t been caught by surprise and forced to dramatically reassess its confidence that this will ultimately be resolved. Now’s not the time to overturn the chess board.

Now? Who said anything about now? I think Obama should try the Constitutional/Zeitlin Option if we're approaching the debt ceiling and there's no deal -- i.e., in circumstances when we'd be looking at a bond market freakout anyway.

Would the freakout be worse if bond markets had to pile the uncertainty of a Constitutional showdown on top of the uncertainty of failed debt ceiling negotiations that have become tied together with Republican anti-tax theology and complicated by conservative default denialism? Maybe yes, maybe no.

But a second point of my item is that the new factor of the debt ceiling being an ongoing opportunity for the minority party to demand policy concessions with the national credit rating as hostage is a large new source of political instability. A deal on the debt ceiling just defuses the bomb until the next time we have to lift the debt ceiling, when the fuse lights again. If Obama succeeds in making the debt ceiling vote meaningless -- that is, putting the U.S. in line with every other country in not requiring a separate vote to authorize the paying of already-incurred debt -- then we defuse the bomb forever.

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17 comments

Let's hear it for the Z Option. This nonsense has to stop.

- liberalref

June 30, 2011 at 1:47pm

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Aug 2nd deadline aside, is there an expected date at which the bond markets simply have to react, regardless of what their contacts on the hill might be saying? Put another way, how much time do we really have until the financial markets start going bonkers?

- Tristan

June 30, 2011 at 2:12pm

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What if they gave a war and someone forgot to raise the debt ceiling on time?

- Nusholtz

June 30, 2011 at 2:15pm

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AS calls Cantor and Boehner economic terrorists: "What you probably cannot do is negotiate with economic equivalent of terrorists. What Cantor and Boehner are doing is essentially letting the world know they have an economic WMD in their possession. And it will go off if you do not give them everything they want, with no negotiation possible. That's the nature of today's GOP. It needs to be destroyed before it can recover." The Republican Party has become the apocalyptic party, extremists aiming the WMD at us. Several years back I said GWB's response to 9/11 reminded me of that line in Hunt for Red October by the junior officer to the captain in the Russian submarine, when the captain launched a torpedo after disabling the mechanism that prevents the torpedo from turning back against the submarine that lauunched it, seconds before the torpedo hits the Russian submarine: "You arrogant ass, you've killed us!" And so it goes.

- rayward

June 30, 2011 at 2:44pm

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Great point. It's so common to only consider the short term, when we're a lot better off if we consider as well the medium and long term, NPV-style.

- RHSerlin

June 30, 2011 at 2:49pm

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I think Chait, and a lot of other people, are overlooking just how politically toxic it would be for Obama to unilaterally do away with the debt ceiling. Raising the debt ceiling has to be done, but it's deeply unpopular, particularly among moderates. If Obama took this to a protracted court battle, that would mean that the two things he has gone to the mattress for in his first term are health care reform (less than a 50% approval rate) and ending the debt ceiling. He would be handing the Republican nominee a powerful bumper-sticker talking point.

- marcellusw101

June 30, 2011 at 3:01pm

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- Why give the courts another chance to humiliate progressives? A defeat or even silence from SCOTUS and the nuts will be talking impeachment. Besides, myths are stubborn and people don't reject them as they approach them. Deniers may reject what is happening after we defaulted as we still have those who blame FDR for making The Depression worse and lay WWII at the feet of Roosevelt and Churchill. Without Republican votes to get beyond this the right will consider any alternative a win. Unlike health care we're fortunate they can't sit this one out, they now have the numbers that make it impossible to be bystanders.

- michaelg

June 30, 2011 at 3:49pm

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I'm with blackie on defaulting. No one wants it, but more and more it seems like the lesser of many evils. The real trick is laying the blame where it belongs. It seems Obama is already making sure CONGRESS is being held accountable; which leaves congressional democrats to point out the snag in the budget process: Republican representatives in control of the House. We'll see what happens.

- GSpinks

June 30, 2011 at 4:42pm

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If the Republicans are so irresponsible, so intransigent, so blinded by dogma, that they're ready to crash the car into the brick wall of default, I think it's better that we find that out NOW when we can do something about it. Having Obama say "I'm just going to ignore the Debt-Limit like no other President ever has, because you MADE me do this" is simply inept. Who's President here? Who has control of the Senate? Where's the balance of powers? Where's accountability? Bottom line -- the Republicans will do nothing but posture and make destructive demands until the 11th hour. Moving the 11th hour into the future (October spending bills are coming, you know) simply lets them posture and be irresponsible that much longer. It's a really bad idea.

- AllanL5

June 30, 2011 at 5:03pm

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Who is "AS", rayward? Andrew Sullivan? Whoever he/she is, I agree wholeheartedly. I made the same terrorist analogy on the prior debt ceiling thread. Spinks, why does default have to be the only alternative to capitulation? If Chait and roidubloi are right and there are ways to game this other than giving in and other than default, wouldn't they be preferable?

- AaronW

June 30, 2011 at 5:04pm

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To answer Chait's question with my unsolicited opinion: Yes, I think a Constitutional crisis would create a greater "freakout." Generally speaking, Constitutional crises create freakouts.

- polcereal

June 30, 2011 at 5:06pm

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- "If Chait and roidubloi are right...". What if they aren't?

- michaelg

June 30, 2011 at 5:18pm

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There are three possibiliities: A. Dems and Repubs reach a genuine compromise on the budget, both making concessions. B. Dems bend over, shut their eyes, think of Mother England, and give the Repubs everything they have sought to extort. C. The debt ceiling does not get raised A may be preferable to B or C, however for reasons I have already articulated, I believe that C is preferable to B, even if C means default.

- AaronW

June 30, 2011 at 5:31pm

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Having the Treasury just issue checks will not create a constitutional crisis as long aaa the Fed honors them. With luck, it might produce some inflation. In contrast, trying to issue debt in excess of the ceiling would more likely roil markets and would more likely provoke a crisis. If we just pay the bills, we will hit the next budget cycle before the courts resolve anything. The Republicans will approve a budget that implies more debt and will have to raise the ceiling. The courts will then dismiss any pending case as moot. If the Republicans go crazy in the next budget cycle, I would step aside. I believe that entitlements don't require annual appropriation so I would refuse to let them touch them. Declare that as the Republicans cannot be forced to approve a budget, the Democrats will not negotiate but will abstain in the House and approve in the Senate and the president will sign whatever appropriations the Republicans make. Deplore them in advance. KTalk about the hardship that the nation will suffer. But acknowledge that in a democracy it is up to the people to repudiate extremists and send a Congress that is willing to act responsibly for the good of the nation. This dares the Republicans to enact their ideology and suffer the consequences. If the cannot touch entitlements, I predict the will blink. But if they don't and enact their ideology, even politically incompetent and pusillanimous Democrats should be able to thrash them at the polls and put an end to the nonsense. Dems have to stop giving the nuts political cover.

- roidubouloi

July 1, 2011 at 12:56am

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There are risks in every direction, michaelg. No avoiding them. The trick is to decide on the best shot and take it.

- roidubouloi

July 1, 2011 at 12:58am

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You can never have enough Dirty Harry references.

- drheingold

July 2, 2011 at 1:33am

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Was that?

- roidubouloi

July 2, 2011 at 4:51pm

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