I vote for Calculated Risk's Option #1: 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.
Calculated Risk: Debt Ceiling Charade: The Smart Options: From a pure economic perspective, here are the best options (#1 is best):
Option #1: Eliminate the debt ceiling. The debt ceiling is a joke. It serves no purpose except political posturing. It is not about the deficit - it is about paying the bills, and the U.S. will pay the bills. I've been making this argument for months. Moody's made the same argument last week: Moody's suggests U.S. eliminate debt ceiling….
Option #2: Pass a "clean" bill raising the debt ceiling enough to get through the next election (so the politicians don't have to embarrass themselves again). Congress could do this at any time….
Option #3: The McConnell Option… give President Obama the authority to increase the debt ceiling, and try to blame Obama for the increases….
This charade has been the worst of American politics. I'll be happy when it is over.
Flying back from a wedding in Salt Lake City, I have this to say:
You Washington politicians and pundits may think that the debt ceiling is just more insider dingbat kabuki, and that nobody outside Washington is paying any attention and it is not doing any damage.
You are wrong.
It is certainly the case that Wall Street has not (yet) panicked, and that the flow-of-funds through capital markets and the confidence in asset values needed to keep investment spending from collapsing (again) and unemployment from spiking (again) has not yet happened.
But Wall Street is not all that matters. A lot of small businessmen and women out here in what you people in Washington sometimes call "flyover country" are and have for some time been (a) desperately anxious about the shortage of demand, (b) somewhat anxious about instability in the tax code, and (c) slightly anxious about what their health-insurance options will be come 2014. Now they are very anxious about (d) the prospect of what they call "a U.S. government bankruptcy" on August 3, 2011. If the people I talk to are in any sense representative, this added risk that they perceive has been a material drag on the U.S. economy this year and will continue to be a material drag until resolved.
Shame on Boehner. Shame on McConnell. Shame on Obama.