JONATHAN CHAIT JUNE 30, 2011
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.