Obama Refuses to Play Congress’s Nasty Game

                The GOP’s far-right Frightfuls again are snarling and gnashing their teeth. They’re growling that they will blackmail the President, sayings they won’t raise the debt ceiling unless he yields on their demands that he slash spending on the poor, the sick, children, and the infirm among other cuts.

 The Absurdists insist he must make enough cuts to equal the amount the U.S. is authorized to spend to pay its creditors. That would be $16.4 trillion, and that would be devastating.

                Despite the President’s insistence that he won’t yield and deal as he did in the past, the Fringe Dwellers think he will. They seem to believe he has no choice because the results of failure to raise the debt ceiling are so ghastly and destructive.

                But the President is telling them they’re wrong.  He will not bargain over the debt ceiling.  “They will not collect a ransom in exchange for not crashing the American economy. The full faith and credit of the United States of America is not bargaining chip,” Mr. Obama said at his January 14 press conference.

                Here’s hoping Mr. Obama doesn’t relent. It is Congress’s job to pass enabling legislation to allow payment of the bills Congress has already racked up through its legislation. The legislators must do their job. The President has said he will have the “conversation” about measure to decrease the nation’s deficit later.

                Less zany legislators are, of course, worried. On January 11, Senator Harry Reid of Nevada, Richard J. Durbin of Illinois, Charles E. Schumer of New York, and Patty Murray of Washington, sent a letter to the President. They asked him to take “any lawful steps” to avoid a default on the debt if the Republicans continue threatening to shut down the government.

                In response the President has indicated he won’t take such steps. “There are no magic tricks here, no loopholes. There’s no easy way out.”

                So now the suspense increases. Who will blink first in what economist and Nobel Laureate Paul Krugman calls the ”vile absurdity of the debt ceiling confrontation”?

                There may be a couple tricks—well, possibly one—the   President might use if the Absurdists decide to shut down the government to get their way.

                On the off chance you haven’t heard, here’s what some have suggested.

                Way One:  Mr. Krugman has explains in his New York Times column that the President could order  the Treasury Department to mint a platinum coin (or coins) with a face value of, say, a trillion or so dollars. The Treasury would then deposit the coin at the Federal Reserve. The Reserve would credit the trillion or more dollars to the government’s account, and the government could write checks against that account.

                This gambit is possible because of an arcane law that allows Treasury to mint and issue special platinum coins as commemoratives—as collectors’ items. The number or denomination of such coins isn’t specified. The law allows the President to use what Mr.  Krugman calls a “legal coin trick” to save the country from domestic upheaval and international scorn.

                To those concerned that issuing the magic coin might trigger inflation, Mr. Krugman states:

                “Aside from the fact that printing money isn’t inflationary under current conditions, the Fed could and would offset the Treasury’s cash withdrawals by selling other assets or borrowing more from banks, so that in reality the U.S. government as a whole (which includes the Fed) would continue with normal borrowing. Basically, this would just be an accounting trick, but that’s a good thing.”

                There’s a problem with the coin trick.  The Treasury has declared it won’t mint the coin.  It’s not clear what would happen if the President ordered it to do so. Most say it’s a silly idea anyway.

                Way Two: The President could issue “registered warrants,” meaning script or “IOUs” to the nation’s creditors, especially including federal workers, federal health care providers, contractors, Medicare recipients, and those on Social Security.

The idea comes from Edward D. Kleinbard, a law professor at the University of Southern California and former chief of staff at the Congressional Joint Committee on Taxation. He explains in a New York Times Op-Ed article that the IOUs could be redeemed for cash when the Treasury Department could assure there was enough money available in the general fund to cover the payments. Presumably that would occur when Congress raised the debt ceiling.

In favor of his idea, Mr. Kleinbard, states that the IOUs would not violate the debt ceiling because they, “wouldn’t constitute a new borrowing of money backed by the credit of the United States.”

Furthermore, he notes the IOU gimmick works. In July 2009 California began issuing 450,000 IOU’s, promising to pay creditors $2.6 billion. The IOUs went to aid workers, persons owed tax refunds, government contractors, and others. The IOU holders were in most cases able to sell those registered warrants to banks at face value.

That move by Gov. Jerry Brown broke the deadlock in the California legislature. The lawmakers quickly agreed on a budget.  And on January 10 this year, Gov. Brown announced that California’s famously devastating budget “deficit is gone.” He said, “For the next four years, we are talking about a balanced budget.”

There might be other Presidential options too. But the President is right in dismissing them. He must hang tough, and not let the GOP Nasties blackmail him. He should show he can be as uncompromising as the Frightfuls. After all, they started the fight. And if they decide to bludgeon the nation and its citizens to get their way, they’ll surely regret it later.

                                                                                                                      --Gus Gribbin