Monday, July 25, 2011

Lateral thinking. What to do about the US debt ceiling.

1. Declare there is no ceiling. Brad DeLong

The Treasury's lawyers should simply announce at 9 am Monday morning that (a) since the Constitution prohibits questioning the validity of the national debt, and (b) since the continuing resolution that mandates spending through September 30 was passed later in time than the restriction on borrowing, that (c) the debt ceiling is a dead letter. This is so by the oldest of the principles of black-letter law: a law inconsistent with a previous law is deemed to repeal the previous law even if it does not do so explicitly.

An administration that can find lawyers to say that Libya is not "hostilities" and that wanted to reassure markets and reduce economic uncertainty by solving the debt ceiling kabuki theatre debate would have no problem at all with finding lawyers to advance and justify this well-grounded and wise legal interpretation.

The structure of Tim Geithner's testimony to Congress defending his additional borrowing is:

. The Constitution forbids me from even thinking about default.

. You ordered me to spend.

. A previous Congress told me not to borrow, but no Congress can bind its successors, and those of you who are in this Congress here now ordered me to spend.

. I'm just doing what you told me to do--and what the Constitution directly and explicitly tells me to do.

And then we should move on to the people's business. This episode of kabuki theatre has done nobody any credit. If I had previously had any respect for or confidence in Republicans, this would have shredded it. And each day it continues it further shreds my respect for and confidence in the executive branch.

2. Call the Republicans bluff. Doc G

What needs to be done is for the Democrats in the Senate to present a plain vanilla bill that simply raises the debt limit and NOTHING more. No more wheeling, no more dealing, no more offers hoping for counter-offers that are never ever offered. In other words all the Dems need do is invite their opponents to show their hand. Are they or are they not willing to raise the debt limit? That's ALL that's needed, just that one simple bill. It should have no trouble passing in the Senate, since the Dems have the majority and no Republican in his right mind would dare risk being held responsible for economic catastrophe by filibustering.

Once the bill is passed it's handed over to the House, which will be a moment of truth for the Tea Party. As I see it, there's no question as to the outcome. They will fold.

Wonderful, you say? Not really. Because the Democrats are in total disarray. It's unlikely any of them can see clearly enough to offer up the simplest and most effective solution. After all their failed attempts they will most likely go down to the wire with one lame offer after another, which is exactly what their opponents expect. Holding NO cards at all, the Republicans will continue to bluff, offering nothing in return ever. If the Democrats then hold out, and they might, the "disaster" will be upon us. Checks won't get mailed, the markets will tumble and -- just as with the TARP -- congress will have "second thoughts," the Democrats will act "responsibly" (what a laugh) and totally capitulate to all Republican demands. At that point, the debt limit will get raised. And that will be the death of the Democratic Party.

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