There’s a lot of hand-wringing over here on the left about how President Obama should handle the debt ceiling situation in his negotiations with Congress. To begin this discussion, let’s lay out the what we know. Our nation is approaching the statutory limit on how much debt we can incur. The debts in question are incured through spending funds that have already been appropriated by Congress. To use the household terminology, this debt is the interest on things we have already spent on our national credit card. It represents or credit card statements. Failure to raise the debt limit, according to just about anybody in the know, would have dire consequences for the entire economy. It would threaten entitlement payments, salaries, and cause a spike in interest rates. The deadline for the limit to be raised is reportedly August 2. Now, this has not been controversial over the years. It’s usually a routine vote, but not this time. The Republican held House is refusing to pass the increase without a corresponding reduction in the budget deficit.
Now, in contrast to the national debt, which can be equated with credit card statements, a budget deficit represents spending more than we bring in. Consumers do this with credit cards or home equity loans. The federal government does this by selling Treasury Bills, regarded as the most secure investment in the world. Now, there is a case for a balanced budget, just as a debt-ridden household can help its cause by stopping use of credit cards and working to reduce their debt, we can balance the budget and reduce our national debt. That’s not a bad thing. It’s actually pretty responsible if done right. While it may be responsible to cut up a credit card, it is not responsible to cut up a credit card statement. That’s what it would mean to default on our national debt.
Now, in an unprecedented move, the GOP is refusing to raise the limit without massive cuts in Social Security, Medicare, Medicaid, and many discrectionary spending programs to offset the debt limit increase. Of course, they are flatly refusing to even consider any revenue increases, not even closing tax loopholes. With control of the House, they have the power to make it stick.
So what’s a President to do?
1) Ignore the debt limit and order Secretary Geitner to issue bonds on schedule. Since all the debt would be on expenditures approved by Congress and not repealed by Congress, President Obama could say that the debt limit is unconstitutional. The bonds would be issued. The courts would stay out of the matter, and Congress would be forced to either suck it up, or to impeach. They would choose the latter and it would get nowhere in the senate. However, impeachment during an election year is bound to suck all the air out of the room politically and threaten Obama’s re-election chances. I don’t see it happening.
2) Make a deal. This would avert the default crisis, probably include some bad fiscal policy, and agravate the Democratic base and people who rely on entitlements.
3) Don’t make a deal and stand firm with the understanding that the House GOP is very capable of letting the economy go off the rails. This would have very bad impacts and probably wreck the economy between now and the election.
As I see it, option 2 is a harm prevention approach. It’s taking a political hit to keep the economy in tact. It’s responsible, but it’s maddening. Option 3 is bold and brash, and it only works politically if Obama could count on the blame for the consequences falling on the GOP where they belong. It amounts to stepping back and allowing the hostage taker to shoot the hostage, even daring him to do it.
There are not very many good options now, so what would you do?