There Is Only One Debt-Ceiling Outcome That Could Save the Economy

It’s not a last-minute deal. And it could have bipartisan support.

McConnell: Promises Republican "alternative" on payroll tax.
National Journal
Oct. 10, 2013, 2 a.m.

Sen­ate Ma­jor­ity Lead­er Harry Re­id has a plan to get us out of the debt-ceil­ing crisis. He in­tro­duced a bill Tues­day night that would lift the lim­it un­til Dec. 31, 2014. If that passes, a glob­al eco­nom­ic melt­down would be aver­ted.

Un­til Dec. 31, 2014.

House Re­pub­lic­ans are work­ing on a plan, too. That plan, Na­tion­al Journ­al’s Tim Al­berta re­ports, could be a clean, four-week ex­ten­sion of the debt-ceil­ing to help pro­long fisc­al ne­go­ti­ations. That too would pre­vent eco­nom­ic chaos.

Un­til Novem­ber.

Wheth­er it’s four weeks from now or in one year, there’d be even less reas­on to put faith in a last-minute deal next time the U.S. is up against the debt lim­it.

There’s only one fool­proof way to avoid a fu­ture crisis: Fun­da­ment­ally change the way the debt ceil­ing works. 

This ap­proach isn’t all that rad­ic­al. Sen. Bar­bara Box­er, D-Cal­if., pro­posed a re­form in Janu­ary that would change the debt-ceil­ing mech­an­ism so that Con­gress would vote to dis­ap­prove of an in­crease, as op­posed to ap­prov­ing one. Such a change would lim­it debt-ceil­ing ne­go­ti­ations to a veto-proof ma­jor­ity, while still leav­ing Con­gress with some power.

The most in­ter­est­ing part of this pro­pos­al? It was ori­gin­ally floated in 2011 by Re­pub­lic­an lead­er Sen. Mitch Mc­Con­nell. The po­ten­tial for a bi­par­tis­an deal here that fixes the debt-lim­it prob­lem is real. Sen. Box­er con­tin­ues to ad­voc­ate for the change. Right now though, Harry Re­id’s of­fice says the sen­at­or is not con­sid­er­ing any dis­ap­prov­al mech­an­ism. But that could change as this pro­cess moves on.

Such a plan would be ob­vi­ously good for Demo­crats, as they can get the im­me­di­ate grat­i­fic­a­tion of not hav­ing to risk de­fault in or­der to fully im­ple­ment the Af­ford­able Care Act. But it’d be good for Re­pub­lic­ans too, who could not only avoid the stigma of blame for a de­fault, but also pre­sum­ably reap the rul­ing-party re­wards in fu­ture Con­gresses and pres­id­en­cies. It would also put an im­me­di­ate polit­ic­al tar­get on Pres­id­ent Obama, and Demo­crats by as­so­ci­ation, for be­ing the sole en­tity re­spons­ible for rais­ing the debt lim­it by over a tril­lion dol­lars. That op­por­tun­ity has got to sound pretty good to Re­pub­lic­ans ahead of 2014.

Wheth­er or not a deal is reached this time around, there’s every reas­on to think the na­tion’s next brush with the debt ceil­ing will be more dif­fi­cult. Just look at the most ob­vi­ous op­tions for a more long-term solu­tion to this round.

Op­tion One is that Obama re­lents and gives House Re­pub­lic­ans enough of what they want (likely on Obama­care or spend­ing cuts) to get them to raise the lim­it for more than a month. If that hap­pens, Re­pub­lic­ans would be right to as­sume that, with the pre­ced­ent solidly set, next time they’ll be able to ex­tract more from the pres­id­ent, in­clud­ing on Obama­care. The pres­id­ent, on the oth­er hand, would likely then be even more de­term­ined not to ap­pear his­tor­ic­ally weak.

Op­tion Two is that Boehner re­lents either this month or next and puts a long-term, clean debt-lim­it in­crease on the floor, pos­sibly vi­ol­at­ing the in­form­al “Hastert Rule” and tor­pedo­ing him among the House tea-party con­tin­gency. If that hap­pens, who­ever the speak­er is next time (and it cer­tainly could still be Boehner) will likely be un­der even more party pres­sure from the right not to cave to a lame-duck pres­id­ent this time, es­pe­cially around a midterm elec­tion.

And of course, there’s a third, non-ne­go­ti­ation op­tion aside from de­fault: us­ing the 14th Amend­ment to uni­lat­er­ally raise the lim­it, which poses its own host of po­ten­tial leg­al and eco­nom­ic prob­lems. The pres­id­ent has all but ruled this op­tion out.

Right now, we’re not even clearly near one of those op­tions. Part of that is be­cause the cur­rent debt fight is prov­ing that each suc­cess­ive battle is more dif­fi­cult than the one that came be­fore it. A big reas­on for that is that the 2011 tussle con­firmed what many people already be­lieved: For­get the noise, at the last minute Con­gress will do the right thing and make a deal.

That at­ti­tude is rampant on Wall Street and the world of fin­ance, where the man­aging dir­ect­or and chief United States eco­nom­ist for Mor­gan Stan­ley said that the U.S. “is not go­ing to de­fault, ever,” and War­ren Buf­fett said “we’ll go right up to the point of ex­treme idiocy, but we won’t cross it.” An Aus­tin, Texas, money man­ager at a firm that over­sees $11 bil­lion ac­tu­ally sees a pos­it­ive here, telling Bloomberg that “the dys­func­tion in Wash­ing­ton just makes the Fed more likely to be sup­port­ive of the mar­ket,” and that we shouldn’t “worry about 72 hours in Wash­ing­ton.”

Fin­an­cial ex­perts, and any­one else, could be for­giv­en for their op­tim­ism. That’s how it worked out in 2011, when we went right to the brink of de­fault be­fore strik­ing a deal. But, polit­ic­ally, that’s look­ing way more dif­fi­cult now, and these ex­perts are largely tak­ing a view that as­sumes way more in­di­vidu­al power for Boehner and Obama than they really have. Since tak­ing the House gavel, a debt-ceil­ing ransom has been the GOP’s only real shot at a some form of policy win, from 2011 to the fisc­al cliff. Nearly everything else Boehner’s House has done have been mes­saging bills that died in the Sen­ate. Why would a polit­ic­ally weakened and right­wardly stretched Boehner give that up now?

Obama, on the oth­er hand, is de­term­ined not to firmly es­tab­lish the debt ceil­ing as the bar­gain­ing chip for House Re­pub­lic­ans after his ori­gin­al sin of ne­go­ti­ations in 2011.

The re­l­at­ive sense of calm in the fin­an­cial mar­kets is just help­ing to prop up this polit­ic­al stale­mate. As The New York Times‘ An­drew Ross Sor­kin wrote Tues­day, “the more Wall Street is con­vinced that Wash­ing­ton will act ra­tion­ally and raise the debt ceil­ing, most likely at the el­ev­enth hour, the less pres­sure there will be on law­makers to reach an agree­ment. That will make it more likely a deal isn’t reached.”

If we get an el­ev­enth-hour deal this year, fin­an­cial mar­kets would have reas­on to com­pletely write off the threat next time around, mean­ing mar­ket pres­sure a year from now could be nearly nonex­ist­ent.

The lack of ob­vi­ous mar­ket pan­ic right now is also help­ing to make some Re­pub­lic­an mem­bers of Con­gress skep­tic­al about the im­pacts of a debt-ceil­ing breach. Rep. Ted Yoho, R-Fla., said this week that “I think, per­son­ally, it would bring sta­bil­ity to the world mar­kets.” Sen. Richard Burr, R-N.C., said he’s “not as con­cerned as the pres­id­ent is on the debt ceil­ing, be­cause the only people buy­ing our bonds right now is the Fed­er­al Re­serve.”

Amer­ic­ans as a whole, and Re­pub­lic­ans in par­tic­u­lar, are sus­pect of how ser­i­ous a breach would be, with 39 per­cent of Amer­ic­ans say­ing they don’t think there’d be ma­jor prob­lems, in­clud­ing 54 per­cent of Re­pub­lic­ans. The more the U.S. teeters on, just barely avoid­ing calam­ity, the more likely it is for Amer­ic­ans and politi­cians to think that the threat of calam­ity is over­blown to be­gin with.

The al­tern­at­ive to the doom cycle: Change the law.

If this wasn’t already com­pletely ob­vi­ous, the debt-ceil­ing fight makes every­one in Con­gress look stu­pid. Most likely, most mem­bers of Con­gress would rather be fo­cus­ing on something else. Re­pub­lic­ans are start­ing to ac­know­ledge this now as they pivot to­wards a short-term raise and a big fight over the CR. As Sen. Mike Lee, R-Utah, said on the Sen­ate floor Tues­day, “no one wants to be here.” Re­mov­ing the rolling dead­line from Con­gress’s ar­sen­al should be a win-win.

This is the coun­try’s second lap on a dan­ger­ous — and dan­ger­ously ac­cel­er­at­ing — debt-ceil­ing ca­rou­sel, and un­til there’s a change in the way the law works, no one­time deal is go­ing to al­low the coun­try to get off.

Patrick Reis contributed to this article.
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