Ban Extraordinary Measures

The past 24 hours have seen a mini-breakthrough in the stalemate over the government shutdown and debt ceiling  with House Republicans looking to pass a six-week debt ceiling hike in return for formal negotiations on the budget and a permanent ban on the Treasury Department’s use of extraordinary measures to extend the debt ceiling. President Obama has already come out against the condition of formal negotiations on the budget so this deal is a non-starter. But Boehner could easily downgrade the “formal negotiations” to a mere resolution seeking Democrats to negotiate, something non-binding and not a substantial concession. In that scenario, would Democrats accept a permanent ban on extraordinary measures? I hope so, not just because it will get us closer to a solution to both crises, but also because it makes policy-sense as well.

A quick recap: We actually hit the debt ceiling of $16.999 trillion in May, but the Treasury Department has been using some strange budgetary gimmicks to extend our borrowing authority. However, those gimmicks, known as extraordinary measures, have a limit and we’ll hit that limit next Thursday. After that, we default. An example of these extraordinary measures including delaying payments for public employee pension funds (more info here). That’s what Republicans want to permanently ban.

This makes a lot of sense. The only thing that using extraordinary measures accomplishes is delaying us from officially breaching the debt limit. But the only time Treasury actually has to use them are when one political party is looking to fight over raising the debt ceiling. Extraordinary measures delays that fight a couple of months. Think about it this way: why is having the debt ceiling fight now better than having it this past May? There never is a good time for these fights (and the debt ceiling should be abolished), but extending them for an undetermined period of time is pointless.

Since Republicans have not put forward an official proposal, Democrats haven’t commented on the idea of banning extraordinary measures. Wonkblog’s Neil Irwin offers one possible reason for White House opposition:

Such a step would give this and future administrations less leeway to influence when the debt ceiling becomes a binding constraint, so it won’t be shocking if the Obama administration opposes the idea.

One of the dirty secrets of the Treasury’s cash management function is that very few people on earth understand how it really works, and almost all of those people work for the Treasury. So Republicans on Capitol Hill have felt that they don’t have reliable information on when exactly they really, really need to raise the debt ceiling and when Jack Lew & Co. have more tools in their bag of cash management tricks.

That’s all true, but that doesn’t seem like a good reason to keep extraordinary measures. The minority party should never use the debt ceiling as a hostage, but if they are, it’s better for everyone that they have reliable information on when they need to raise the debt ceiling. If House Republicans want to wait until the last second to strike a deal, they really need to know when that last second is. Otherwise, there is a (small) risk we accidentally default. That’s a risk we don’t need to take.

In addition, it’s much easier for journalists and politicians to explain to the public when we hit the debt limit, instead of when Treasury can no longer use extraordinary measures to stop us from breaching it. It’s an unnecessary complication that confuses the public and simply delays a nasty fight with no real benefits. Let’s get rid of it.

Americans Still Don’t Understand the Debt Ceiling

I don’t mean understand it in terms of what it actually is (though I don’t think they understand that either). They don’t understand the consequences of it. Breaching the debt ceiling would be catastrophic, causing irreversible long-term effects on our debt and economy. That’s not hyperbole. The market doesn’t believe that we will breach the debt ceiling, because it would be too idiotic for John Boehner to allow that to happen. The current government shutdown is a drag on our economy and harms many different aspects of people’s daily lives. But a default is many orders of magnitude worse. Yet, a new Quinnipiac Poll today suggests that Americans are a bit confused about which is more dangerous: breaching the debt ceiling or a government shutdown.

Raising the debt ceiling is non-negotiable.
Raising the debt ceiling is non-negotiable.

The poll finds that by 72% to 22% margin, Americans do not want Congress to shut down the federal government over Obamacare. That’s good. However, a smaller margin (64% to 27%) do not want Congress to default over Obamacare. It’s good that in both cases Americans understand that it’s not acceptable to use a fiscal crisis as leverage to extort the opposite party. But these polls demonstrate that more Americans are OK with that extortion when the hostage is the debt ceiling than when it is government funding,

That’s backwards and needs to change. Part of the reason for this may be because this poll was conducted over the weekend, right before a government shutdown, while a possible default is still a few weeks away. Nevertheless, the media must do a better job explaining the consequences of a default to the American people. There should be no pretense that there will be negotiations over the debt ceiling. That’s not how this works. President Obama screwed up in 2011 by negotiating over it, but that was an outlier. It did not set a precedent.

Speaker Boehner will raise the debt ceiling, because if he doesn’t, it will go down as one of the single worst actions a legislator has done in the history of the United States. Once again, that’s not hyperbole. We need to stop treating this as a back-and-forth game, trying to guess what the speaker will do, and start calling it what it is: a foregone conclusion. Boehner will raise the debt ceiling, because it would be apocalyptic not to. The American people need to know that as well.

Wall Street Isn’t Falling For The GOP’s False Debt Ceiling Premise

The Washington Post’s Greg Sargent has a great post today on the inherent contradiction of the Republican Party’s debt ceiling position. On the one hand, Republican leadership has said that the debt ceiling must be raised. The U.S. cannot default. On the other hand, they are demanding concessions from the president for doing something they know they have to do. As Sargent said on Twitter, “if Rs concede debt limit MUST go up to avert econ disaster for all, why are they entitled to something in return for it?” The answer is that they aren’t entitled to something in return. Here’s Sargent:

The second argument made by Republican sympathizers is that, okay, Republicans will raise the debt limit in the end, but they don’t want to, so it’s still a concession on their part. But why don’t they want to raise it, if they know it must happen to avert economic disaster? The only conceivable answer is that staking out a posture of reluctance to raise it gives them leverage to extract concessions.

This gets to the core truth about this debate: As long as it’s an open question whether Republicans are prepared to allow default, the claim that Republicans are threatening to do extensive harm to the country in order to extort concessions from Dems that a radical faction of their party is demanding is 100 percent right.

On the other hand, if it is not an open question that Republicans are prepared to allow default — that in the end, John Boehner will definitely raise the debt limit with support from Democrats when it comes down to it, because he knows it must happen — then why are we even having this discussion at all?

These are very important points. The media is fueling Boehner’s negotiating strategy by buying into the premise that Republicans are actually willing to breach the debt ceiling. It’s unclear how many House Republicans fall into that camp, but we know that Boehner isn’t one of them. As the speaker of the House, he can bring a bill to the floor that will raise the debt ceiling and it will pass with plenty of Democratic support. If Boehner holds true to what he said, there is no story here. The House will raise the debt ceiling. Period. Any talk about concessions or negotiations supports the House Republican’s false premise that we could actually breach the debt ceiling.

While the media may be falling for Boehner’s trick here, Wall Street isn’t. There’s been a lot of reporting on the fact that the bond markets are calm and investors don’t seem particularly worried about a default. That’s because they understand that Boehner will raise the debt ceiling. They read the coverage of the debt ceiling. They see Ezra Klein write that he’s “scared of the debt ceiling” and Jonathan Chait say that the “debt-ceiling showdown is the fight of Obama’s life.” They see congressmen worry that they don’t know how this will end. They see and read all of this.

And they don’t care.

They know there won’t be any negotiations and that Boehner will raise the debt ceiling eventually. There isn’t a freak out in the markets, because there is nothing to freak out about. Unlike the media, the market isn’t buying into this false Republican premise.