So Lets Say Obama Ignores the Debt Ceiling Come Thursday

[dballance]

Let's imagine this scenario. It's Thursday and no resolution to the crisis comes along. Then on Friday Obama declares a state of emergency or declares under the 14th Amendment that we have to pay our debts and instructs Treasury to issue bonds despite the lack of approval from Congress. Remember, the debt ceiling limit is a law, the 14th Amendment is the Constitution. There is some grounds for ignoring the law in favor of the Constitution.

So, national and global financial crisis averted. Markets stabilize after plummeting in after-hours trading on Thursday. The GOP House is pissed for having their supposed bargaining chip taken away from them - ostensibly forever now. In retribution for saving the national economy and the global economy the Tea Bagger wing of the GOP House draws up articles of impeachment.

Would those go anywhere? Would Boehner allow them to proceed in the House? Would it actually be a gift to Obama because it could cause the coverage of those articles of impeachment to drag on well into the 2014 election cycle and keep in the national conscience the fact that the Tea Baggers are nuts? This isn't a stain on a dress here. It's the global economy.

I think it would be a gift to Obama and the Dems in the 2014 elections. People are already pissed at the GOP. Impeachment for saving the global economy when people already see the GOP as petulant children bent on only serving their party interestss just might not play well.

[Gore1FL]

1. It wouldn't avert a crisis, however.

The Constitutional crisis that would create would mean that the bonds issues during that time would be of questionable value. For that type of risk the interest rates would have to be pretty high. Our credit rating would still tank.

[Laelth]

3. +1. n/t

-Laelth

[steve2470]

4. we have to have a deal before default arrives, I agree

I really really despise this tactic by the R's because it forces we rational reasonable Democrats to agree to things by default gunpoint that we would not otherwise. Every financial column I've read on the default agrees with you. The trillion dollar coin is not an option either.

We have to suck it up and stop the default. I hate it intensely but there it is. We can recoup our losses later on and hopefully take back the House in 2014, strengthen our lead in the Senate and win the Presidency in 2016.

[dballance]

5. Good Point. /nt

[pampango]

13. I see your point. However, in the long run it may strengthen our bonds and credit rating, if

it is found to be constitutional, by removing congressional politics from the debt limit.

In the short run, you are probably right. Bonds issued without congressional approval of a debt ceiling increase would be affected by the risk that Obama's action might be ruled unconstitutional so the interest rate would have to be (a little, a lot?) higher.

It would definitely be a political gamble - both on how high interest rates would go and on the Supreme Court's ruling on constitutionality - but it may be worth it in the long run.

[Gore1FL]

19. I'd rather them eliminate the debt ceiling altogether after a sweeping 2014 election.

That way, we have both, a chance at the long-term strengthening you describe without the short-term effects including the risk of being the world's standard. I doubt we'd get that back if we lost it.

[Igel]

35. That would put us back where we were in 1917.

Every budget would have to have authorization for a bond issue. It need not be part of the budget bill itself, but if there was a budget deficit a bond authorization bill would be required. If revenues fell short of expectations mid-year, there'd have to be another bond authorization.

In the event of emergency spending, a separate bond issue would be required.

Congress' authorization for debt issuance isn't tied to the 1917 bill. It's tied to the original text of the pre-Bill-of-Rights Constitution.

The debt limit bill was a way of depoliticizing it and streamlining the process.

[grantcart]

29. that's the whole point.

In fact if something isn't done today, I would argue it won't matter.

The lack of confidence will be long lasting.

IF we do head for technical default then 1-3 days after they will fix it and undo the monetary damage, but the lack of confidence will still be there.

The only real hope is that it so undermines Republican support that the Democrats take over the House and a unified government restores public confidence and we have 16 years of Democratic leadership. That is the only real fix.

[cali]

2. yes, they'd go somewhere and yes, spineless blob of orange

would allow it.

yes, it would be a gift to dems but it would be awful for the country.

[Nuclear Unicorn]

6. Any bonds Obama unilaterally issued would be worthless.

The President has no authority to encumber obligations. You might as well suggest Bush could spend for his wars first then ask Congress for the appropriations after the fact.

[dballance]

9. Obama wouldn't be issuing the bonds, Treasury would.

Somehow I doubt that if our treasury issued them they'd be worthless. They just wouldn't have been issued with the agreement of Congress. That doesn't necessarily make them worthless.

You were being sarcastic about Bush right?

On Edit:

The President wouldn't be encumbering new obligations. He'd only be paying for the ones Congress already approved.

[Nuclear Unicorn]

11. Only congress can encumber new debt and that hasn't happened since we have neither a budget or CR

How could Treasury issue bonds at the President's direction (Treasury being an executive department) and then go to Congress to authorize payment? That would leave the President absolutely vulnerable to being stiffed by Congress. They aren't obligated to pay those bonds and any resulting default on those bonds would be the President's exclusive fault. I don't know if it would mean impeachment but it would leave him irreversibly crippled for the remainder of his term.

I know Bush made plenty of appropriation requests but until Congress agrees there is no money to spend and since more useless wars are inevitable we shouldn't set a precedent.

[karadax]

14. While the legal battle wages

On whether it's constitutional for the President to authorize the treasury to issue bonds, nobody would dare buy them. If the courts ruled against the President those bonds are worth zero. The buyers of bonds prefer certainty.

[B Calm]

7. I still think raising the debt limit should not be decided by the people who spent the money, it

should be automatically increased when congress spends it.

[steve2470]

8. I agree, the old 1917 law has to be revised or repealed

http://www.law.cornell.edu/uscode/text/31/3101

I think that's part of the law.

[dballance]

10. I believe when that law was passed this sort of situation was never envisioned.

I suspect that when that law was passed those passing it never could have foreseen a minority in Congress using in this manner. I suspect they thought that a Congress who authorized the spending under law would make good on the debts. Even if those debts were approved by a previous Congress.

The law really needs to go now. It makes no sense.

[RC]

12. Denmark is the only other Democracy that has a debt ceiling.

http://www.democraticunderground.com/?com=view_post&forum=1002&pid=3852034

There is a “weakness in the U.S. budgetary framework” because Congress can approve spending without approving the necessary borrowing to fund that spending. And also that the United States acts the opposite of most countries in that it uses the debt limit to shed light on runaway spending rather than using spending bills to address the growing debt.
In other words we use the debt limit as a weapon against the opposition, as a heavy club, instead of a tool to actually control spending. The US citizens and the world be damned.

[Yo_Mama]

16. Congress hasn't even approved the spending.

So the point is moot.

[RC]

17. Moot, huh?

Then why are we in the contrived "crisis"?

[Yo_Mama]

18. Because Congress hasn't approved the spending and Congress hasn't approved the debt limit increase

But even if the debt limit were increased, Congress still wouldn't have approved the spending.

Some things, like SS & DI, are legally funded and do not increase the deficit by much, so they can go on. But the government shutdown cannot end until Congress approves funding AND the debt limit is raised.

But it will happen this week, because the GOP now expects ACA implementation to be such a nightmare that they are making the political calculation that they should wait several more months to have the blowup become more evident. So it looks like this will go into the first part of next year, at which time we will find ourselves in a very similar position.

[RC]

20. Maybe you ought to re-read my post again.

[BellaKos]

27. Actually, no.

The spending has been approved. That's what makes this whole thing so ridiculous. "Debt Ceiling Limit" doesn't actually describe what this thing is. It should be called something like "Authorization to Continue Borrowing so the Treasury Can Pay the Bills that Congress Has Already Approved."
This is like charging your plane ticket on a credit card and then because you're in a bad mood, you refuse to pay the bill.

[Yo_Mama]

31. It hasn't, we still don't have a continuing resolution much less a budget

Some spending is approved, like that for the Pentagon.

[BellaKos]

32. It's technical.

The budget for next year hasn't been sent to conference yet. That's what they will be negotiating in the coming weeks. The CR would simply extend the spending approved within last year's budget, which includes the infamous sequester. Spending by the Treasury, however, continues on matters considered essential and/or mandatory until the debt accumulates past the point of the previously authorized "Debt Ceiling."

[Yo_Mama]

15. Mr. Market doesn't want those bonds

because they can be legally questioned as not being the debt of the United States.

Since the Constitution states that only Congress can borrow, if new borrowing is not authorized by Congress it is not debt of the United States. Various WS authorities have sought legal opinions on just this subject, and that was the consensus.

What Treasury is talking about is continuing short-term debt coming due one day at a time, which Treasury can do. Sometime in the 70s there was a fuck-up in which some bills weren't redeemed on the due debt, and at that time that's what the eventual outcome was (although I seem to remember that at first Treasury said it wasn't going to pay additional interest, which caused a ruckus).

As long as those issues are still on Fedwire, they function just about as if they had been redeemed and reissued, so that is the current plan - to continue them on Fedwire one day at a time.

[klyon]

21. Yesterday Thom Hartmann said that the Feds could just forgive some of the debt

say 1 trillion or so and we would be under the cap. I don't remember what number he said the trillion was mine. The fed forgives debt all the time that we owe ourselves. Of course we can't forgive debt to real people or foreign governments.

[klyon]

22. Mr. President order the fed to end this now.

Who is advising him? We need better people around him.

[Gore1FL]

23. It's better if it is ended legislatively.

Anything outside of that methodology creates uncertainty. This would, perhaps, be an option after congress fails, but not before. See post #1.

[klyon]

24. Legally the fed can do it, they do it all the time.

or so Hartmann says.

[mattclearing]

25. The long game dictates that Obama hold firm, honor debts and let impeachment drive the midterms.

It will not be great for markets, but neither will making a deal with crazy people whose tax cut and spend policies are responsible for the debt.

The tea party is flirting with electoral suicide here, and it's entirely understandable for Obama to let this play out in order to bring about comprehensive and lasting economic reform after the midterms.

There will be significant pain in the short-term, but it could trigger a backlash severe enough to reverse decades of horrible policies.

[warrenswil]

26. It would cause a THIRD crisis

Impeachment would bring on another crisis: a constitutional one.
Boehner is so scared of the radicals he would cave in a New York minute.
We analyzed this last week in
Constitutional crisis likely to follow default.
Remember, the GOP impeached Bill Clinton over a blowjob, for goodness sakes.
These radicals are much more reckless than Newt (five-wives) Gingrich.
They will stop at nothing.
Then we have a THIRD crisis to deal with.
In the (K)now

[BellaKos]

28. If the President doesn't do anything extraordinary,

on what grounds could they possibly impeach him? Not yielding to their demands?

[berni_mccoy]

30. Obama won't commit an impeachable offense. He will go through the Supreme Court

in order to take action. That is what it is there for.

[Savannahmann]

33. Let me ask you this

Would you buy a T-Bill that may or may not be good depending on the decision of a court several years from now? Would you invest in such a savings certificate if you had to have a Constitutional Lawyer write up a long brief on how he expects the court case to play out?

The answer is no you would not. Neither would anyone else. The only way to sell them would be to jack up the interest rate paid until the risk equaled the gains. Now, that would mean all other interest rates would jump up to cover it. That is what we call inflation. The interest rate on the T-Bills would have to be very high since it would be a coin toss if they were later determined to be junk bonds.

Now, hyper inflation is a phrase many of us may not understand, but it's happened in history. Here is one that is still in free fall. http://en.wikipedia.org/wiki/Hyperinflation_in_Zimbabwe

Trillions of percent inflation. Would it get that bad here? I doubt it, but we don't know because we've never stood on this particular cliff before. So announcing that it would be no big deal to jump off is kind of mixing hope and fantasy with realistic view of the probabilities.



This man isn't rich, he's just paying for dinner in Zimbabwe which is undergoing an inflationary spiral of the kind I'm talking about.

http://www.wealthdaily.com/articles/zimbabwe-inflation-rate/2029

The money is worth less than the paper it's printed on.

[Lifelong Dem]

34. Obama said that is something he will not do

Was that a bluff? Throw the world into destruction to find out.

[tillikum]

36. any extracurricular involvement AT ALL breaks the system

thats the entire point.

this is one of only a few cases where the ends CANNOT justify the means. the message is in the medium.

our global economy is built entirely on petrodollar stability. everything, our food, energy, consumer goods, FIRE, its ALL built on stability backed up by an unlimited and suppressive military deterrent.