StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Lord Voldemort Debt Ceiling Options Increasingly Becoming Speakable

29 Jul 2011
Posted by Stan Collender

House Speaker John Boehner (R-OH) failure to get enough votes yesterday from the Republican caucus to pass the deficit reduction/debt ceiling legislation he drafted has the federal budgeting world scrambling today for new options. 

With only four days left before the August 2 date on which the Treasury says the federal government will begin to turn into a fiscal and financial pumpkin, two options that up to now were said must not be spoken -- the Lord Voldemorts of the budget -- are starting to be discussed very openly.

The first would be a decision by Boehner to work with House Minority Leader Nancy Pelosi (D-CA) and Minority Whip Steny Hoyer (D-MD) to come up with a bill that 100 or so Democrats will support.  They'll need that many because any bill that attracts Democratic votes will mean that Boehner will lose more Republicans than the 25 or so that yesterday reportedly could not be moved to vote for the bill.

It would also mean, however, that Boehner would be completely isolated from the GOP tea party wing and most or all of his 87 first-termers.  These Republican House members distrusted Boehner before; working will Democrats -- what they consider collaborating with the enemy -- will push them over the edge.  If Boehner worked with Democrats to get this bill passed he likely will have to collaborate with them on every other major policy initiative the House considers the rest of this session because the tea partiers may refuse to join with him on general principles.  Boehner would also  probably be challenged in a primary for the 2012 election and, if he isn't deposed as speaker before then, almost certainly would be challenged for the GOP party leadership slot after the next election.

The second would be a decision by the White House to go it alone, that is, for the president to claim the unilateral authority to deal with the situation if Congress is unable or unwilling to do so.  The president would rely on Section 4 of the the 14th amendment to the U.S. Constitution or any other theory he wants to do this, but it essentially would have him ordering the Treasury secretary to borrow to protect the economy, the federal government's credit, etc. even if Congress doesn't raise the debt ceiling.

Like the Lord Voldemort option facing Boehner, this one would come at significant personal political peril to Obama.  There almost certainly would be a number of attempts to use the courts to stop the president's actions.  More important, however, there also would be the strong possibility of impeachment proceedings beginning in the House against both the Treasury secretary (assuming he carries out the president's orders) and the president himself.

Impeachment proceedings

Impeachment proceedings against Obama for not allowing the nation to default would likely assure his reelection.

It's very hard to see how

It's very hard to see how Obama's invocation of the 14th Amendment would rise to the Constitutional standards for impeachment, those being treason, bribery, or other high crimes or misdemeanors. Nothing in that language speaks to dubious interpretations of Constitutional language. Which means that the impeachment would be revealed as yet another right-wing effort at the political assassination of a Democratic president, the second in a row no less, and one all the more transparent because it lacks even the veneer of legitimacy provided by Bill Clinton's allegedly heinous crime of lying under oath about sex. The result is that GOP reveals itself to be nothing more than a free-range lunatic asylum. And, aside from the carefully walled-off lunatic asylums that are the DC broadcast media and right-wing Christianity, almost no one will be able not to see the GOP for what it is.

In other words, from Obama's and the Democrats' perspective, invocation of the 14th Amendment as a desperate last-ditch effort to save the country's financial system in the face of GOP intransigence, followed by impeachment (rather than "laser-like focus on job creation") by the same fools who were the source of that intransigence, might lead to the effective destruction of the GOP as a political force in the country. Two impeachments of Democratic presidents in 15 years on specious partisan grounds, George W. Bush, and bringing the country to the brink of insolvency ... sounds like a plan for political suicide to me.

Dricey, I wish you were right

Unfortunately, there are so many ignorant people in this country it is overwhelming to think about it. Trust me. The GOP could do all those things plus much worse and find a significant number of people still willing to vote for them. Bigots, religious fanatics, war-mongers, and anti-tax zealots will have nowhere else to turn. Third parties have no chance in this country.

Political Destruction

That would be in a sane world. What we have instead is, as Paul Krugman noted in the Friday NYTimes, a "balanced" world. That is, the news media will always report that "both sides" do/are doing it, even when only one "side" actually is. It's not the fault of the Republican Party that they won't accept "yes" to all of their demands - the Democrats have failed to compromise sufficiently.

Then there's the "steno" requirement to print, unchallenged, all utterances of the ultra right. So, Bo(eh)ner and McConnell can state, on the record, that "Obama has never offered ANY PLANS at all" - and never have their lies challenged by the reporter, or called on this statement in later analyses.

If the news more accurately reported what has been going on, sure - everyone would reject the wackazoid reactionary Republicans. But it doesn't, and worse - it puts an equal or greater blame on Democrats. Meanwhile, the Tea Baggers have been elevated as the greatest political movement since Paul Revere rode forth, waving his Uzi and ringin' that ol' Liberty Bell, to tell the British that WE had the Second Amendment, by gawd!

Or the President could direct

Or the President could direct the Treasury Secretary to mint, as needed, high denomination platinum coins for deposit with the Fed. This would honor both the debt ceiling limit, passed by Congress, and the current appropriation, passed by Congress. Brad DeLong thinks that the President may already have violated his oath of office, to see that all the laws be faithfully executed, in failing to order this.

But that does have the feeling of Voldemort-squared.

Platinum coins are the realistic solution ...

... which is the reason that no one with a hidden agenda wants to have them. The Republicans saw in the debt-ceiling vote a way to extract concessions from the Democrats, with the majority of voters on their side; and the administration saw a way to polish their centrist credentials by cutting a bit of Social Security and Medicare in a Grand Bargain under the pressure of a debt ceiling. Coining the money would have simply removed all leverage from those attempts.

Why does it have a feeling of Voldemort-squared? As long as the output gap is as large as today, the danger of inflation is small.

I agree that the objective

I agree that the objective risk of inflation ought to be small. But I also think that people would be spooked by it. That might be less likely if this had been publicly mooted by the President and the Treasury Secretary months ago, so that people were familiar with the idea. At this late hour, to pull a few dozen hundred billion dollar coins out of the hat, as Prof. DeLong has suggested, would look very strange. Maybe an irrational panic flight from the dollar would ensue? I don't know enough to have an opinion, but it looks spooky to me, at least on such short notice.

Much better, I suspect, would be to run an overdraft with the Fed, as Felix Salmon has discussed.

On the other hand, after we get past the current crisis and the discussion (please, please) turns to employment, this could be a way of funding a massive Federal "employer of last resort" expenditure without raising taxes or borrowing.


How much of physical space will be required to keep $ 2 Trillion , in the denomination of platinum coins only?

The relevant part of the US

The relevant part of the US Code does not specify how much metal must be in the Platinum coins (unlike coins made of other metals, which are required to have more metal, at present prices, than the face value of the coin). So Treasury could mint coins of physically modest size and arbitrarily large face value. Professor Delong, in the post at his weblog, suggested 10 pounds of metal for a $100B coin, perhaps the size of a dinner plate, depending on the thickness. Not something one could carry around in one's pocket or purse, but not hard to store.

It sounds like a crazy option, but it is right there in the law. It would be fascinating to know the legislative history of this provision. Did the writers of that part of the US Code deliberately leave the metal content and denomination of the Platinum coins unspecified in order to allow Treasury at some future time to fund Keynesian stimulus without the cooperation of an obstreperous Congress? It kind of looks to me like perhaps they did.

My impression is that the

My impression is that the politically better route for Obama to act "unilaterally" would be for him to assert that he is following the long-standing principle of statutory interpretation and obeying a more recently passed law--the 2011 fiscal year appropriations law--that contradicts an older law--the current debt limit. This means that Obama's action is fairly characterized as simply obeying Congress according to standard principles of statutory interpretation, rather than disobeying Congress by deeming one of its laws unconstitutional.

That only buys time and sets up a bigger fall

That would solve the problem until Oct 1 and then, being ~ $0.25T over the debt limit, means that the US is in true default since we can't even roll over old debt.

Combination of both?

Would it be possible to combine both ideas? Obama takes us past the debt ceiling on the basis that the 2011 budget supercedes the debt ceiling law. Once our total debt IS past the debt ceiling, claim that the debt ceiling law is unconstitutional under the new circumstances.

The idea would be that the law was constitutional as a deterrent, legitimately ordering public officials not to borrow beyond the limit. However, it is NOT constitutional insofar as it attempts to nullify any existing debt.

Note: I haven't read the actual wording of the debt ceiling law (and am not a lawyer in any event), so there's a good chance I'm way off base.


It looks like Boehner is taking the high road and will add a balanced budget amendment to the bill in order to get support from the tea party. I guess his pride it too big to fail and refuses to ask for help from the Democrats.

Trying to get a majority out with just 54% of the reps

seems to have failed. Perhaps Boehner should open congress to proposals that include some of the other 46% of its members.

One might be reminded exactly how foolish a balanced budget amendment that includes a supermajority requirement for any increase of taxes would be simply by noting the current GOP congress can't find a simple majority to approve spending the last two months of this fiscal year's spending which they themselves approved in the spring.

Sell t-bills put the cash in

Sell t-bills put the cash in the treasury and retire OPM retirement system special treasuries.

The depositis of funny money into the retirement trust funds of the civil service and military were suspended 1 May 11.


They raiseing cash to pay those annuity checks from T bills, might accelerate it now.

Graphics back, Excellent!

With this political lunacy, and the economic woes of this country, I don't see how we can avoid a downgrade. Once again, something those outside the Beltway - can you say "Main Street" will have to suffer the consequences of stupidity and arrogance elsewhere. Excellent article in today's WSJ about another economic consequence - overseas, "JIT" workforce or temps - another reason why LT US unemployment #s aren't going anywhere soon. Can you say "structural"? Ergo, neither are budget deficits. El-Erian hopes that all this will lead to Americam politicians getting serious about making important changes - NOT, particularly in what is essentially already an election year (or Boehner wouldn't be so freaked by the "Tea Party"

I wonder if sheer disgust will bring non tea-partiers to the Republican polls - apparently, Mitt Romney is staying above this ridiculous fray, and focusing on jobs et al

I like Comrade Physioprof's

I like Comrade Physioprof's suggestion. It is so obvious. Obama could do what lawyers do and offer that legal basis, and offer the 14th Amendment in the alternative.

Of course with this president, that would not be reaching out across the aisle and reaching consensus. It also would be a gutsy move, so probably out of the question.

Bill that does nothing but raise the debt ceiling

At this point, Mr. Boehner needs to introduce or amend a bill that would do nothing but raise the debt ceiling. It would pass the House, the Senate, and the president would sign it. Basta. But I guess that's too obvious.

Exucutive Branch War Powers

It seems to me that everyone is forgetting that we are in War Times and during war, the executive branch has expansive powers to take necessary action to protect the nation. I am not completely sure where the analysis comes out but it seems to be a really good time to start talking about. Can't be any worse than considering the 14th Amendment "solution."

More important, however,

More important, however, there also would be the strong possibility of impeachment proceedings beginning in the House against both the Treasury secretary (assuming he carries out the president's orders) and the president himself.

Even MORE importantly: Would it even work? Would the primary dealers be willing to bid in an auction that was not blessed by Congress?

Seems to be they would, in effect, be purchasing securities to which they would not hold clear title. That's a lot of risk -- even for Goldman Sachs.

It's not an economic issue

What Washington is suffering from is a marketing crisis.
They can't find the right mix to sell the American people

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