Obama must kill the debt limit
The Washington Post, November 15, 2012
Everyone assumes the president has the leverage this time because if he does nothing the Bush tax cuts expire and he can propose fresh ones for 98 percent of the country.
But everyone's forgetting one thing: the debt limit.
Amazingly, no one asked about how it would affect the coming fiscal talks at the president's press conference Wednesday. But we're slated to hit the debt ceiling early next year, meaning it will be a central part of the kabuki dance that begins Friday at the White House. So the only way President Obama really has leverage is if he decisively removes the debt ceiling as a source of power for the Republicans.
Recall it was reckless GOP brinksmanship with the debt limit last time (and Obama's timidity in the face of it) that scared markets, gave us the United States' first-ever downgrade, and left the president looking weak.
For Obama's own sake—and for the sake of stable governance for future presidents of either party—the president can't let the GOP hold the country hostage via the debt ceiling again.
The question is whether Obama has learned from experience and has the stomach now for what's required. Bob Woodward's book "The Price of Politics" had some cautionary detail on this question that hasn't gotten the attention it deserves.
The so-called 14th Amendment option—which Bill Clinton suggested pursuing—was discussed in the Oval Office in July 2011 as the crisis peaked. The amendment reads in part that "the validity of the public debt of the United States, authorized by law . . . shall not be questioned." Could this let Treasury issue debt beyond the statutory limit? Woodward reports that everyone in the meeting, Obama included, "agreed it would not work. There would be lawsuits. The new bonds would be immediately downgraded. It would be a mess."
Imagine that. The lawyers had concerns.
Woodward pressed Obama about the matter in a later interview.
"I am not prepared to put the country in a position in which a miscalculation results in default," the president told Woodward, recalling his sentiment about the 14th Amendment option at the time. "[T]he world financial markets, having already gone through trauma two years earlier, cannot afford to have uncertainty about what the world's reserve currency and its Treasury notes are worth in this environment."
Well, neither can world markets afford to have the debt ceiling of the world's most important economy be a recurring source of blackmail and volatility. Now that the GOP has shown it's willing to cross that line, it's a matter of choosing your poison.
The White House attitude last time reminds me of Al Gore's refusal during the Florida recount to challenge military ballots. Gore said he'd be savaged in the press for such a move and wouldn't pursue it. I recall thinking that Clinton would have had the exact opposite reaction. "If throwing out some military ballots will help us win, then do it," Clinton would have said. "I'll deal with any PR fallout as president."
This is about presidential will. And a readiness to do what the situation demands.
The president knows he can't let the precedent established last year become the new normal in budget talks. He knows the debt ceiling is a weird relic that no other country (save Denmark, sort of) possesses. In most nations, the act of the legislature passing a budget simultaneously authorizes its treasury to borrow whatever debt that budget contains. That's only common sense.
If Ben Bernanke can press the limits of legal authority to save the economy, and Obama himself can press these limits to approve a "hit list" for drones, then defanging the debt ceiling should be child's play by comparison.
It's a Reagan air traffic controller moment. The country can't be held hostage by unreasonable people. The public will be with Obama once he explains.
Here are two ways the president can proceed.
The first—call it the Clinton approach—would be to announce (in a major speech) that the debt limit is an unconstitutional anachronism that, when combined with proven GOP recklessness, poses unacceptable risks to every American. Obama would say that by executive action he's declaring it inoperative. And if Mitch McConnell and John Boehner don't like it, he'll see them in court.
What I think of as "the LBJ option" is cheekier. Obama would inform the Republican negotiators—as early as Friday, or in another meeting soon—that he won't allow a repeat of their debt-ceiling blackmail. He'd say we're all going to lock arms, go outside now and tell the press that we won't rattle markets this way, so everyone can be assured.
Then when they're in front of the cameras, Obama would say that to avoid spooking markets, and to do so in the most bipartisan way possible, congressional leaders have agreed to raise the debt limit immediately by $5.7 trillion dollars—the amount of debt added over the next decade by Rep. Paul Ryan's budget passed by the House last year. "Mitch, John, you're with me on raising the limit for now just by what it takes to accommodate the debt every Republican has already voted to add, yes?"
I'm sure the White House can cook up variations on these themes, but you get the point.
Time to remove the fiscal appendix, Mr. President. For sane governance to live, the debt limit must die.