The New Republic

Right - good piece. The whole obsession with raising revenues rather than focusing on investment is a Republican win all around. They've already won this whole debate with that alone.

- WandreyCer

January 7, 2013 at 3:35pm

This is a superb piece! In my opinion, it gets all the elements right, succinctly, in one place. Absolutely the best analysis yet, by far. I would only wish that the VSPs in the White House will read this three times a day, every day, while plotting their tactics.

- roidubouloi

January 7, 2013 at 3:41pm

Agreed. With all above. The problem is BHO "These lessons call for a degree of toughness in Obama we have not yet seen." [In over 4 years.] "He should not only refuse to negotiate with the Republicans on the debt ceiling, he should evoke all the extraordinary powers at his disposal—including platinum coins and a creative reading of the 14th amendment—to make that position credible in even the most dire circumstances. He should actively seek to get Republicans to show their cards on cutting Social Security and Medicare, rather showing them his. He should put the need for growth and jobs front and center, rather than the elite-led drive to fix the debt. And in all this he should be unafraid of, indeed welcome, the opportunity to take his case to the public and contrast his priorities with those of his opponents." And if he doesn't, what do you and other tnr readers say and do ?? In statements past, he has gratuitously rejected the 14th amendment argument [Can you imagine in similar circumstances any current Repub or LBJ, FDR, HST doing so??] When do we finally agree that Dems have to start openly opposing those Dems who do not support the Democratic Wing of the Democratic Party -- and openly supporting those Dems that do.

- drofnats1

January 7, 2013 at 4:10pm

I agree, drof. But, leaving aside whether to support Obama for re-election, a decision now behind us, how do we do this? As far as I am concerned, Elizabeth Warren could replace Obama as president tomorrow, but that isn't about to happen. What do we do that is within our reach, other than criticize Obama and the party when necessary, something I am not at all shy about doing?

- roidubouloi

January 7, 2013 at 5:05pm

Write to Congress. The Democrats in Congress need to feel what their constituents are thinking, which is, c'mon already, President Obama! We didn't elect you to be GOP Lite. Honestly sometimes I think The Fix Is In:(

- Sophia

January 7, 2013 at 5:31pm

I believe that any debate over the debt ceiling must be limited and avoid all discussion of past government spending. I refuse to watch any debt ceiling debate that lasts more than twenty-four hours. I will call my cable company and protest should any debt ceiling debate become extended. A large bonfire debate, however, could be held over the "sequester". After all, the issue there is essentially one of future government spending.

- Doug12

January 7, 2013 at 7:28pm

I think the better route is for the Fed to keep paying Treasury checks upon presentment rather than the Treasury issuing securities without statutory authority. Then there is no issue about interest rates. See the long argument here: http://www.tnr.com/blog/plank/111609/the-beltways-normalization-hostage-taking#comments

- roidubouloi

January 7, 2013 at 8:19pm

It is an intuitively appealing argument, but not the way laws are construed. That is but one argument among many available. When statutes are in seeming conflict, as are the enacted appropriation and the so-called debt ceiling, courts have to reconcile them. They don't simply assume that one or the other takes precedence, as both you and peterpalys do. The context, in which a congressional minority is attempting "by the backdoor" to impose its will so as to frustrate the already enacted decision of both houses of Congress, signed into law by the president, matters a great deal, as does the language of the statutes in question. If the conflict can be avoided by construing both statutes literally, there is a tendency to do that rather than reach for more expansive interpretations that bring them into conflict, as would be the case here.

- roidubouloi

January 7, 2013 at 8:58pm

There is no constitutional issue. It is a question of statutory interpretation. If the Treasury is authorized by Congressional appropriation to make payments, it can issue checks. If it is not so authorized, it cannot. Not much question that it can do so, because Congress has authorized and directed it to spend appropriate funds. It is well-established law that the executive may not impound spending appropriated by Congress because that would in fact encroach on the legislative power. Then there is the question what happens to the checks. Your bank can choose to accept such for deposit in the expectation that it will ultimately be paid, or I suppose it could refuse (although I think there are some regs requiring banks to accept Treasury checks form customers, not sure, but let us assume not). However, if the bank is going to receive Federal reserve credit in the ordinary course, then it certainly would accept your deposit. This pushes the question back, not to one about executive and legislative authority, but to the extent of the authority granted by the Congress to the Federal Reserve Banks. I think the Federal Reserve Banks explicitly do have this authority, but it is discretionary with the Fed to the extent that the Treasury does not have sufficient funds in its account at the Fed. I don't think that a court challenge is particularly relevant. If the Fed offers to make payment against Treasury checks presented to it, something I think it has the authority to do, who has standing to challenge that? Not you or I, surely. And not a bank not presenting any checks. And not a bank presenting checks. Maybe the executive does, but obviously would not do so. Maybe some members of Congress do. The courts could consider it a "political question," to be determined by additional legislation if at all. If members of Congress did bring a suit, the courts will in the first instance defer to the Fed, the agency in question, as to matters of statutory interpretation within its professional expertise. Then, there is the overwhelming likelihood that the matter goes on until the budget cycle ends, at which point the question is moot. If Congress then ceases to appropriate money for the government, it shuts down and there are no more payments. There might be an adverse market reaction, but it would surely be a lot milder than the market reaction if the Federal government furloughs 25%-35% of the government. Do you think that a minority of Congress has constitutional authority to prevent the implementation of a law, appropriations, adopted by both houses of Congress and signed into law by the president? That would be a very perverse constitutional outcome.

- roidubouloi

January 7, 2013 at 10:47pm

Personally, i would count on it. If the Treasury writes checks, banks take them and give deposit credit, and the Fed gives reserve credit to the banks, no one but Tea party wackos and Republicans bent on destroying the government is going to give a damn. Why should they? Just "because?" Or because they are spending nights reading the arcana of the Federal Reserve Act?

- roidubouloi

January 7, 2013 at 11:22pm

It is called printing money to pay bills and has a long pedigree and a fancy name, seigniorage. Unfortunately, the amount printed between now and the end of the budget cycle likely would be far too little to lift inflation, which would help the economy. The whole thing would be a non-event, except for the political types and blustery congressmen.

- roidubouloi

January 7, 2013 at 11:24pm

"Third lesson: Economic growth is much more important than deficit reduction." Economic growth is the only thing that's important in America now. With it we get tons of new revenue, like we did under Clinton. But Obama doesn't appear to have the brains or the guts to pursue this as an overriding policy. He should be getting together with business leaders and going to the American people with the mantra of "jobs, Jobs, JOBS!" It's obvious that Republicans don't care in the slightest about Americans being employed. In fact, they don't want any new jobs at all while Obama is in the White House. They are economic terrorists. Obama is not afraid of Al Qaeda terrorists, but he is obviously afraid of Republican ones. The American public would love to see their president on tour, fighting for jobs for them and leaving the GOP terrorists in the dust behind him. But he just hasn't got it in him. Business leaders obviously don't have the courage to do anything about jobs, even though they have over $2 trillion in the bank. They are now more afraid of Republicans than they are of Democrats. With their nuclear-option politics, the GOP could wreck capitalism, too. If Obama doesn't get out on the road and start calling out Republicans and business leaders on job creation, we're headed for permanent economic stagnation or even collapse. Then we will end up with the GOP's worst nightmare--socialism, along with a national debt larger than the Milky Way. Anarchy will not be far behind. Learn to love it, GOP terrorists. You can start the process by shutting down the U.S. government, like you're promising to do. Go ahead, end our day.

- magboy47.

January 8, 2013 at 1:09am

Obama has found the cohones to say he will not negotiate, so now is the time to prove it. I think it makes no difference whether he mints coins or prints checks that draw on FRB, a la Roi. Either way, the money moves, the economy inflates, and Congress is shown to be the obstructive ass that it is.

- IowaBeauty

January 8, 2013 at 8:01am

Superb piece, and some great comments here. On the judiciary potentially overturning Treasury actions that circumvent the need for Congressional approval of raising the ceiling: I wouldn't ignore the political dimension, which could very well favor Obama if he decided to circumvent Congress. Especially if Obama and the Dems hammered home the point that imposing the debt ceiling would be catastrophic (along with other arguments about it being an illegitimate tactic), it could generate tremendous pressure on the Supreme Court to either steer clear of the issue or rule in Obama's favor.

- Thunderroad

January 8, 2013 at 10:26am

Who's against economic growth? Nobody. Now, if the polling question about economic growth is tied to public spending (more spending, more economic growth), I suspect a high percentage of Americans would oppose more public spending. And while most Americans are opposed to cuts in Medicare (I'd argue that the public's high level of support for Medicaid is the result of the confusion about the distinction between Medicare and Medicaid), most Americans support elimination of waste in public spending including on Medicare. My point is that the polling data is all but useless in the coming debate over the debt ceiling. Framing is key, and we know from experience that Obama isn't too good at framing. Of course, Obama may not have to be good at framing: the crazy Republicans may do the framing for him.

- rayward

January 8, 2013 at 10:27am

I think each of the last four comments is excellent. I particularly agree with rayward on the Democrats' apparent complete inability to frame the debate, beyond yelling Social Security and Medicare in a crowded theater which doesn't provide an adequate basis for political success. I get a stream of e-mails from national democrats and most of them are moronic to the point of being offensive. Recently, I wrote back and told them to leave me alone because the terrible job they are doing is too distressing. I write political communications for local political campaigns and have had great success in doing it. 11 victories, 3 defeats, in a town with a balanced party enrollment. The national Democrats stuff really stinks. It is mostly breathless accounts of the latest Republican perfidy larded with pleas for money. __________________ Returning briefly to the technical subject, I thought of another way to respond to malahat. There are three, and only three, ways in which the Federal government can finance itself, taxation, borrowing, and seigniorage. Seignorage is a fancy word for printing money, and, at least in the short-term, yields the excess of the face value of the money over the cost of production. In our society, the cost of production of most money, bank deposits, is effectively zero. Spending, taxation, and borrowing are all under the direct control of Congress. Nothing is spent, taxed, or borrowed without Congressional authorization. But seigniorage has been give over to an independent agency, the Federal Reserve, outside the immediate control of the executive of the Congress. (The Treasury has an almost trivial ability to engage in seigniorage through coinage, but most coins cost more to produce than the face value, because they are intended to circulate for a long time, and there can be no trillion dollar coin because the denominations permitted are specified by law and limited to the few we are familiar with. Even if there were some excess of face value over cost, the Treasury couldn't possible mint enough to scratch the surface.) The repeal of the provision for direct borrowing by the Treasury from the Fed was in the service of placing control over the money supply and seigniorage completely in the hands of the Fed, with no Treasury participation. And so it is today. My proposal that the Treasury keep writing checks for spending appropriated by Congress does not change that at all. What I am suggesting is that, in the absence of the ability to borrow sufficiently to finance authorized spending, the Fed has the power to make up the difference through seigniorage, printing money. Although avoids the crisis that the Republicans are attempting to manufacture, this is not at all at odds with the institutional structure. Absolutely to the contrary. The extent of seigniorage is the discretionary determination of the Fed in its twin roles of preventing excessive inflation and maintaining employment. If the Fed decides that financing the Federal shortfall with seigniorage -- printing money by giving Federal reserve credit in exchange for Treasury checks -- is in the interests of the country, which would include preventing deflation and unemployment, it is squarely within its mandate to do so, without deferring to Republican threats. That's why the Fed is an independent agency. Admittedly, the mechanics are unusual. Normally, the Fed accomplishes its task by buying Treasury bonds, bills, and notes. The Treasury issues them, borrowing, but then the Fed monetizes them, removing them from circulation and substituting Federal reserve notes or bank deposits for them. The Treasury thus borrows from the Fed, but it is the Fed that decides how much or little and the timing, not the Treasury. There is no need or reason for the Fed to acquire US obligations other than bonds, bills, and notes because the float of these is enormous (although in its QE programs it has acquired a lot of instruments other than those that are US obligations, something it is also empowered to do). However, the Federal Reserve authority is explicit that the Fed can acquire any obligations of the US. Notwithstanding the kvetching of peterpalys, Treasury checks are the direct obligations of the US and hence are eligible to be acquired by the Fed. Whether the Fed acquires a check for its face value and then debits the Treasury account and cancels the check, or whether the Fed acquires the check and keeps it in its portfolio, as it does with Treasury bonds, bills, and notes, is of no interest or importance whatsoever to the public cashing checks or to banks paying them. The seigniorage function is the Fed's business. Of course, if we financed excessively with seigniorage, the result would be inflation, eventually hyper-inflation. That's why we don't. But the short-term risk is completely negligible. Fact is, we could use some inflation, but the roughly $300-400 billion that the Fed would have to print between now and the end of the budget cycle, when the Republicans have the absolute power to shutdown the government by declining to appropriate funds, isn't enough to matter. Further, as I have pointed out, the Fed has ample ability to neutralize even that by selling other Treasury instruments from its portfolio, soaking up the dollars printed. It is the decision of the Fed to make, because the structure of the system commits that decision entirely to the Fed, not to the executive, the Treasury, or the Congress. Those are the laws we have on the books. If astute use of them allows us to avoid a crisis manufactured by a Republican majority taking hostages, that is all to the good, and I don't believe any court in the United States would assume the responsibility of standing in the way based on expansive and unncessary readings of the laws we have.

- roidubouloi

January 8, 2013 at 11:19am

"The national Democrats stuff really stinks. It is mostly breathless accounts of the latest Republican perfidy larded with pleas for money." Great point, roid. I get the same crap in my e-mailbox. It's more whining and begging than anything else.

- magboy47.

January 8, 2013 at 11:51am

Yup. Useless as political communication for building public support.

- roidubouloi

January 8, 2013 at 12:04pm