Opinion

Felix Salmon

Obama’s position on the debt ceiling

By Felix Salmon
July 6, 2011

In today’s Twitter town hall, President Obama answered a question from Dexter Smith about the constitutionality of the debt ceiling. It’s a good question for Obama, not least because he used to be a professor of constitutional law: he knows this stuff.

Obama ducked the question, saying that “I don’t think we should even get to the Constitutional issue.” Certainly that’s the first-best solution. But he left it there, saying that he expected “that Congress makes sure that our full faith and credit is protected.”

But clearly Obama is not happy with the way this Congressional debate is evolving: later on, in response to Nick Kristof, he said that “never in our history has the United States defaulted on its debt. The debt ceiling should not be used as a gun against the head of the American people to extract tax breaks for corporate jet owners.”

I’m not sure Obama’s right about the “never in our history” bit — I think he’s forgotten about 1933. But his bigger point is clearly right: the full faith and credit of the United States is not kind of political football to be kicked around in the pursuit of tactical gains for some special interest or other. If Republicans and Democrats can ever agree on anything, they should surely agree that keeping Treasury bonds risk-free is the easiest no-brainer of all: the country derives trillions of dollars of value from that risk-free status, in the form of international capital flows and decreased borrowing rates, and it costs us nothing at all. Artificially inserting politically-driven credit risk into Treasury bonds is the legislative equivalent of poisoning a crucial reservoir.

Giving bondholders a constitutional guarantee that they’re going to be paid in full and on time makes a fair amount of sense. But that doesn’t mean that the president, if push comes to shove, should invoke the Constitution and override a recalcitrant Congress. Personally, I’d be more inclined to keep on paying Treasury coupons out of tax revenue — there’s more than enough money coming in to do that — and to immediately cut back on everything else, including Congressional salaries, so violently that the Republicans end up crying uncle pretty quickly.

Treasury’s position is that such actions would constitute a default, since the US government is just as obliged to pay salaries as it is to pay bond coupons. I don’t believe that for a second — cutting back the primary budget is the standard way to avoid default, it’s not “default by another name.” Yes, it could trigger another recession, if it went on for too long. But it wouldn’t have the catastrophic consequences of a payment default on Treasury securities. And, for better or for worse, there’s no need to invoke the Constitution in order to make immediate drastic spending cuts.

Comments
7 comments so far | RSS Comments RSS

> immediately cut back on everything else, including Congressional salaries, so violently that the Republicans end up crying uncle pretty quickly.

Forcing the government to “cut back on everything else” is precisely what the anti-government radicals want. If you think Congressional salaries matter, you’re deluded; if push comes to shove, there is more than enough private sector cash to make up the difference.

Posted by seewhydee | Report as abusive
 

The pay that matters is military pay and Social Security pay. They vote and congress would cave.

Posted by MyLord | Report as abusive
 

I’m a republican, but anyone who can’t respect Obama as a great political tactition is badly underestimating the man… as usual he has the high ground. He can and will pay the principal and interest on our outstanding debt first. Then comes the pain for congress.

All federal salleries revert to minimum wage with departments tracking the delta from current levels to be made up after a deal.

Medicare and Medicade announce jointly that all non-lifesaving treatment including preventive care will not be paid for until further notice.

National parks, momunents, and the Smithsonian are closed and forcably evacuated in the middle of the peak summer season.

And Obama is on TV every morning noon and night ripping the republicans for a completely manufactured mess.

The best part for Obama is draconian entitlement cuts were going to happen on his watch anyway. This way they get done and he gets a walk from the left wing of his party saying look I fought like a dog for us and made the best deal there was to be made with the barbarians at the gates.

Posted by y2kurtus | Report as abusive
 

I’m opposed to any solution to the debt ceiling issue that doesn’t begin with raising revenue through tariffs on imports. It’s our idiotic trade policy that has given away a big chunk of our economy to foreign interests tax-free that has left us short of revenue and with big budget deficits. Put the burden where it belongs – on the parasitic economies who have been feeding off of our market for decades.

Posted by Pete_Murphy | Report as abusive
 

This is uniquely an executive function and decision, when those responsible to establish a budget are irresonsible. THe president here has a claim of right under the law and American Morals to line item pay those debts most important to the constitution [as he determines, inasmuch as Congress had degfaulted on its sworn duties] as outlined in its preamble. “To privde for the safety, health and welfare of this country’s people”. When Congress fails to perform it assigned task, the executive must take over. He can line item payments, e.g. treasuries, military personnel and remove them from theater, social security and medicare recipients who have paid [System review for those who have not paid] Since Congress is not doing its job, no pay, furlough congressional police, furlough not necessary government personnel, stop paying those corporations bellied up to the government trough….. If this is unacceptable to those screaming in Congress, the only alternative is to raise interest rates on mooneys lent to banks at the Fed to raise revenue, THIS WILL KILL THE ECONOMY, devalue the economy,destroy job hopes, eliminate borrowing, and cause the country to fall further into decay. Isn’t a shame the wealthier people are able to hire Congress so that they paya lower percentage tax then the commoner…..Ah yes, we are back to the Royals and the Serfs

Posted by educationfan | Report as abusive
 

It is entirely possible to not raise the debt limit and not default on our bonds/debts. It is only Obama and his political appointees and the liberal press that have made the debate about “DEFAULT”. Stick to your guns repubs, don’t let these crooks have any more money to waste. Force them to cut all the wastefull dupicative spending we have now and don’t allow them to steal any more money from the taxpayers.

Posted by zotdoc | Report as abusive
 

I don’t know about your last paragraph. What about the Anti-Deficiency Act? Can the President decide not to spend already appropriated funds? Nixon tried, there were challenges, and, IIRC, the SCOTUS ruled against the POTUS. And this was before the ADA, which was enacted as a reaction to Nixon’s attempts.

Posted by Gnash | Report as abusive
 

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