The Government Shutdown and Debt Limit Fights Are Merged

President Obama reiterated today that he will not negotiate over the debt limit. This has been his stance for the past couple of years after the disaster that was the 2011 negotiations. Using the debt limit as extortion is not acceptable. It’s not how our government works and Obama cannot give in to Republican hostage-taking. The problem is that Obama may not have a choice.

We are currently in day eight of the government shutdown and Treasury will breach the debt ceiling sometime in the next two weeks or so. The only way for Obama to demonstrate that he really means it when he says that he won’t negotiate over the debt ceiling is by forcing Speaker John Boehner (R-OH) and House Republicans to raise the debt limit with zero concessions. And guess what? Boehner would reluctantly bring such a bill to the floor at the last minute, because he understands how catastrophic a default would be. Obama knows Boehner understands this and will wait him out if necessary.

The problem comes with the government shutdown. If the two parties come to an agreement before the debt ceiling deadline, that agreement would very likely include a debt ceiling increase. Boehner knows that even if tosses it in there without receiving any concessions, he can still turn around and tell his members that he broke Obama’s pledge not to negotiate. At the same time, Obama can’t reject that.

If the two parties don’t come to an agreement over the government shutdown by the deadline, it will force Boehner to surrender and raise the debt limit without concessions. This would be embarrassing for the speaker and would infuriate his conservative members. He would also lose significant leverage in the government shutdown negotiations. From his comments today, the speaker understands all of this as well.

That’s why I’m confident that a deal will be reached by October 17, the approximate date that the government won’t be able to pay all of its bills. It will take until the 11th hour so that Boehner can return to his conservative members and say he got everything he could out of the president. Both sides will also ramp up the rhetoric and partisan attacks as the time goes by in order to gain leverage in the standoff. Boehner is still hoping that Obama is bluffing, although he knows that is highly unlikely. Obama is still hoping that Boehner will cave and raise the debt ceiling with a clean CR, also highly unlikely to happen. Yet, neither side is going to let go of those hopes and that will force these fights to continue until the last minute.

But they will come to an agreement. It will include a new CR with a debt limit increase and some minor concessions (a new non-binding supercommittee, repeal of the medical device tax, etc.) to placate the Tea Party. Unfortunately, that means Boehner can return to his members and tell them that Obama negotiated over the debt limit. When we hit the debt ceiling in the future, we’re going to go through this entire process again and conservatives will claim that Obama negotiated in 2011 and in 2013. It won’t be true, but it won’t matter. Hopefully then there won’t be a government shutdown fight to muddy the waters. Unfortunately, right now there is.

Why I’m Skeptical About #MintTheCoin

The big conversation topic over the past week has been about whether or not President Obama should instruct the Treasury to mint a trillion dollar platinum coin, deposit it in the Treasury’s bank account at the Fed and thus avoid a nasty debt ceiling fight with Republicans. Steve Randy Waldman has more technical details on it. It’s an incredibly interesting idea and at first, I was on board, but over the past few days, my mind has changed.

I still believe its legal and would not have any economic impact outside of avoiding a default. It wouldn’t cause massive inflation. And of course the coin doesn’t need to be actually made out of a trillion dollars worth of platinum.

But, I’m skeptical about it for two reasons:

1. Right now, we have two parties in this country: one crazy (Republicans) and one sane (Democrats). Think about what would happen if we actually minted the coin:

Republicans would probably file a lawsuit against the President, claiming its illegal. And then they would spend the next four years making the President’s life as hard as possible. Forget about new gun regulation. Forget about immigration reform. Congress is inept right now, but it can get a lot worse. Mitch McConnell can bring the Senate to a stop. John Boehner can spend the next two years only passing bills to repeal Obamacare. It wouldn’t surprise me at all if House Republicans tried to impeach the President for such a move. The government would grind to a halt. And, we also need to pass a new Continuing Resolution for the federal budget in March so that our government is actually funded. How do you think that would go if Obama mints the coin?

2. It also sends out an image to the rest of the world that America’s government is fundamentally broken. I know – our image is already in the garbage since we’re debating whether we should pay our own debts. Bear with me for a second.

Congress may be incompetent, but the President actually did accomplish a lot in his first term: the ACA, Dodd-Frank Act, ending the war in Iraq, etc. House Republicans can spend all the time they want opposing everything Obama proposes but it doesn’t mean nothing happens. Bills still do pass (even if it’s at the slowest rate ever) and laws are signed. Believe it or not, Congress can actually do a lot less. Other countries, international companies and foreign investors know this. They may also hit the panic button if we mint the coin. Who wants to invest in a country where they need to mint a trillion dollar coin to not default? Who would have any faith that that country could accomplish anything? I’m not sure if the international world would finally lose faith in America, but it’s a risk that I’m unwilling to take.

However, there is a big caveat here. If the option is between going over the debt ceiling and defaulting or minting the coin, I’m on #MintTheCoin’s side. Defaulting is still worse than McConnell and Boehner shutting Congress down. It’s still worse than the international world losing all faith in America’s political institutions.

But right now, there’s a third option: negotiations.

I know the President has said he won’t negotiate over the debt ceiling, but he doesn’t have a choice here. The negotiations aren’t going to be fun. Republicans have the leverage and are going to use it. Some are crazy enough that they actually want us to default. However, Republican leadership understands how horrible that would be. They know they can’t let it happen. They also know that their image is a disaster and the public will largely blame them if we default. They have a number of incentives to negotiate and work towards a deal.

It’s a terrible, horrible standard to set, but we don’t have a choice. Get ready for an ugly couple of months.