Debt Ceiling Negotiations Are Now Almost Unavoidable

Now that the government shutdown does not seem to be ending anytime soon, liberals are going to have to accept the fact that the debt ceiling is no longer non-negotiable, at least from a messaging standpoint. With both sides digging in, there seems to be little hope of solving the government shutdown before October 17 when we hit the debt limit. That means that any negotiations over a continuing resolution – which will happen eventually – will also have to include a debt ceiling raise. From Politico today:

Reid is highly unlikely to accept a budget deal if it does not increase the debt ceiling, Democratic sources said Tuesday. If the House GOP won’t back the Senate’s stopgap plan by later this week, Democrats are prepared to argue that it makes little sense to agree to a short-term spending bill if Congress is forced to resolve another fiscal crisis in just a matter of days.

A White House official said Tuesday night that the president could get behind Reid’s strategy.

Across the Capitol, House Republicans were quickly coming to a similar conclusion. Republicans were internally weighing including a debt ceiling hike in their demands to convene a House-Senate conference committee to discuss a bill to reopen the government. In the coming days, the GOP leadership is likely to change its rhetoric, with Republicans arguing about government funding and the debt ceiling in the same breath.

The two issues are now inherently connected. The president can maintain his position that he will not negotiate over the debt ceiling, but it will be harder to prove that is the case. In a worst case scenario, Democrats actually do negotiate over the debt ceiling and it becomes a piece in the compromise. That would once against set precedent for the debt ceiling to be used as an extortion device. Senate Majority Leader Harry Reid (D-NV) cannot let that happen.

But even the best case scenario is not very satisfying. In that situation, Reid declares that Congress must raise the debt limit and Republicans acquiesce. Except because of the tight schedule, the two sides continue negotiating over the CR. Eventually, they come to some type of agreement and both sides pass a bill with that includes a debt ceiling increase. In this case, the debt ceiling was never part of the negotiations and was never used as an extortion device, but that’s hard to prove. The media will analyze the deal as if it was part of a compromise. Republicans will head home to their constituents and say that they made the Democrats negotiate over the debt ceiling. They will say they broke President Obama’s no-negotiating position. Democrats will have no way to prove otherwise. It will be their word versus the Republican’s and the final deal will have a debt ceiling increase in it. Once again, the precedent will be set for using it as an extortion device.

There is one way to avoid all of this though: President Obama can unilaterally raise the debt ceiling. Unfortunately, this is highly unlikely to happen. The Administration ruled out using the 14th Amendment again yesterday and minting a trillion-dollar platinum coin seems even more absurd. Nevertheless, this would eliminate the need to raise the debt ceiling and prevent any negotiation over it. If Obama is really determined to not negotiate over the debt ceiling, he will look at both options carefully, because negotiating is now unavoidable.

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.