"The only way to keep the Government out of the red is to keep the people out of the red. And so we had to balance the budget of the American people before we could balance the budget of the national Government."—Franklin D. Roosevelt, 1936
Budget Brinksmanship is Baaack! Yves Smith, Sept. 20, 2013
"....here's a full list of the ways out of this [budget] impasse:
1. a selective default strategy by the Executive, prioritizing not paying for things that Congress needed, and perhaps not paying debt to the Fed when it falls due and working with the Fed to get the $1.6 Trillion in bonds that it was holding canceled;
2. an exploding option involving selling a 90-day option to the Fed for purchasing some Federal property for $ 2 Trillion. Then when Congress lifts the debt ceiling, the Treasury could buy back the option for one dollar, or the Fed could simply let the option expire;
3. using the authority of a 1996 law to mint proof platinum coins with arbitrary face values in the trillions of dollars to fill the Treasury General Account (TGA) with enough money to cease issuing debt instruments, and even enough to pay off the existing debt; and
4. using the authority of the 14th Amendment to keep issuing debt in defiance of the debt ceiling, while declaring that the debt ceiling legislation was unconstitutional because it violated the 14th Amendment in the context of Congressional appropriations passed after the debt ceiling mandating deficit spending.
Since, the summer of 2011, beowulf has offered yet a fifth option for getting around the debt ceiling by issuing consols. Consols are debt instruments that pay a fixed rate on interest in perpetuity, but never promise principal repayment at a maturity date.
The debt ceiling law is written in such a way that what counts against the ceiling is the principal repayment guaranteed by the instrument. Since consols provide no principal repayment, one can have unlimited consol issuance without increasing the debt-subject-to-the-limit.
Of all the items on the list, option 1 looks far and away the most likely, although an Administration with more guts might try a bit of option 2 along with it. Unlike a platinum coin, which just sounds too weird to people who haven't heard about the idea (and the Administration would need to be selling it hard now to see if it could legitimate it in the court of public opinion), options are something the public hears about regularly and sounds less gimmicky. But the larger point is that this budgetary Battle of the Titans is a phony war. Obama can finesse the Republicans if he needs to. But both sides seem quite convinced the other will bear the brunt of the public opprobrium that would result from a government closure (see the Atlantic for a rundown; many of the points it makes are valid, but I disagree about the Clinton margin of victory being a meaningful indicator; Bob Dole ran a world-class terrible campaign).
So hang tight for way too much unnecessary melodrama over the next month. It's another round of watching the two parties play chicken, with each posturing that it won't be the one to steer out of the impending crash. The fact is that Obama really wants his Grand Bargain. All of this high drama is necessary for him to pretend to his base that he was forced to do what he's been trying to do for years: sacrifice old people since he perversely believes that "reforming" Social Security and Medicare will get him brownie points in the presidential legacy ledger. This staged impasse is hard to take it as seriously until there's evidence that this iteration of budget farce really is different from its predecessors.
National Jobs for All Coalition
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