Monday, October 7, 2013
Gimmicks Will Not Save Us
Negotiations over raising the debt ceiling ran awry. House Speaker John Boehner and President Barack Obama are no closer to a deal that they were weeks earlier.
Default is upon us. What can Obama do?
There must be a Plan B. Otherwise, I -- and a lot of people in Washington -- wouldn't be able to sleep at night. The consequences of the United States defaulting on its obligations are simply too terrible to contemplate. Even though it's in his interest to deny it, Obama surely has a way to disregard Congressional action and keep the bonds flowing.
The thing is, it might not matter. Any technique available to Obama on October 18 has flaws -- and will bring uncertainty to the global markets which could conceivably be almost as destructive as a default itself.
People invest in U.S. bonds because they're seen as being the safest investment on the planet. And, despite our recent troubles -- including the first downgrade in our credit ranking, from S&P -- people still do.
But if Obama is forced by an obstinate Congress to disregard the debt ceiling, that certainty will be gone. And not in a general, "What is the fate of the Republic" kinda way -- quite literally, people won't be sure if the bonds they're buying are good or not. They won't be sure what they're buying.
Tell me that won't send shock waves through the global bond markets, and through extension the entire world economy.
There's no loophole. No out. The Constitution clearly and unambiguously gives Congress control over federal spending, taxing and borrowing -- and offers no guidance about what is supposed to happen if one of those responsibilities conflicts with the other two.
Like it or not, the only option--really, the only option--is for Congress and Obama to work this out.
One of the most popular supposed side-steps is the 14th Amendment, which states plainly: "The validity of the public debt of the United States, authorized by law ... shall not be questioned."
If that sounds vague and sort of pointless, well, that's because it's a fix for a problem which has long since disappeared. It's a throw-away line in what is perhaps the most important amendment in the Constitution -- yes, more important than the First -- the amendment which helped mend a broken nation and ensure that universally applied justice was an American goal.
But the part about debt had to do with re-establishing U.S.-government-backed currency as the primary means of transaction -- a very big issue in those days -- and ensuring the the Union could pay back its debts from the war. The potential challengers in question wasn't Congress, it was hucksters across the South.
But, Lord knows, there are plenty of effects of the 14th Amendment its authors never imagined. That's what makes it such an important amendment. But does it works for this purpose? I don't think so.
First of all, the 14th amendment includes the phrase "authorized by law," which seems like it might settle the issue. But others claim there's an implicit obligation to borrow when Congress passes a new spending bill.
So, I suppose, a court might find that the 14th Amendment does indeed give Obama the power to disregard the debt ceiling.
But here's my question -- if so, wouldn't it give him the power to disregard the amounts Congress has allowed for taxing? Or the amount it has appropriated for federal funding? If Congress has allowed X for spending, Y for taxing, and Z for borrowing, but the numbers don't add up, I fail to see a constitutional, legal reason why it's the Z that's changeable -- not the X or the Y.
Others claim they see a reason, but they have yet to convince me.
I tried to demonstrate this here, but let me repeat just for the hell of it -- we're going down a weird, winding path if we decide an obscure, arcane line in the Constitution gives the president the power to defy Congress' clear constitutional prerogatives.
There's another option which is perhaps even more interesting than the 14th Amendment -- that would be, #MintTheCoin.
For those not acquainted with this particular Internet meme, this is the idea that Obama could mint a trillion-dollar platinum coin to avoid running afoul of the debt ceiling.
Here's the concept: even though he technically controls the printing presses, Obama can't arbitrarily decide to print up a few more hundreds to pay bills, at least not without Congressional support.
But some folks have decided that Congress might have accidentally given him the power to do just that -- in the form of a little niche bill which gave the Department of Treasury the ability to print platinum coins for collectors. The crucial part is, Treasury can decide the denomination of the coins.
I doubt the bill's author, former Rep. Mike Castle, R-Del., imagined the denomination would be more than $100. But, at least in the plain language of the bill, there's nothing stopping Treasury from deciding they'd like to make a $1 million, $1 billion, or $1 trillion coin.
Obama could #MintTheCoin, ship it down to the Federal Reserve, get cash back, and fund our debt obligations as normal. It wouldn't cause inflation because it wouldn't increase the overall money supply. It's just a work-around for an obstructive Congressional law.
Or so the theory goes.
This idea hit a certain sweet spot among the intelligent Democratic activists who spend their lives online. It's smart-assy and defiant. It uses a glitch to correct another glitch. The whole business reached a fever pitch in January of 2013, when the Obama administration was forced to officially repudiate the idea.
But was Obama right? Or would this cockamamie scheme actually work?
Let's just say, I'm extremely skeptical.
Forget, for the moment, that clearly Congress in no way intended for the law to work this way. Proponents like to poopoo this sentiment -- "Tough teabags, look at the language" is the rough idea -- but intent is kinda important in law, especially when it involves Congress abdicating one of its constitutional responsibilities. (Right along with spend, tax, and borrow is the power to "coin money." Look it up if you don't believe me.)
This plan still involves the government to cease borrowing. Sure, it'll be able to fulfill its current obligations. But the nation would be very close to its debt limit. Issuing new bonds would be impossible.
Remember, these bonds aren't just important to the U.S. They play a very important role in the world economy -- that's why a default is such a bad thing in the first place. The U.S. can't suddenly stop borrowing money, without drastic effects on the world economy....in a way, mimicking the effects of drastic inflation which the whole money-printing concept seems to imply.
The idea from #MintTheCoin enthusiasts is that this won't matter -- the Federal Reserve could negate the effects of this with its own bonds. Same difference, right?
This is the point where I have to admit my own ignorance, and rely on ill-reported second-hand stories, but I'll go ahead and say it: Based on conversations I've had with folks who seem to know what they're talking about, I don't believe the Federal Reserve can play this shell game for long. At most, a year or two. To say nothing of the disruption and inconvenience from the fact that all of a sudden the world's business will go from running off of A-rated U.S. bonds to....something else.
So, at best this crazy platinum coin idea could work as a delaying tactic, to buy Obama a year or so. Maybe it would be worth it. I don't know.
But regardless, you're left at the same place we started at the beginning of this piece -- the U.S. will be issuing bonds under very dubious legal reasoning, and that dubiousness will cause disruptions throughout the world economy. How could it not?
And that's the rub. It's absurd we're in this situation, it's equally absurd to chart a path out.
Many on the left view the debt ceiling crisis as an ridiculous glitch in our system of government. And they're right. But it's an ridiculous glitch which is rooted in the very basic division of powers our Founders arranged--and for that reason, it is not easily dismissed with a flick of the hand.
Some people like to think the options are there for Obama, if only he was willing to use them. For partisans of any stripe, it's comforting to think this all comes down to guts, balls, cajones, whatever. But sometimes, it comes down to the law. I advise everyone to study it closely. The future of our nation may depend on it.