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
