Groundhog Day: The 2013 US Debt Ceiling edition

Groundhog Day: The 2013 US Debt Ceiling edition

Most people remember a funny film titled Groundhog Day starring Bill Murray, Andie MacDowell - and, of course, Punxsutawney Phil, the groundhog. With the current shenanigans in Washington, recalling the government shutdown nearly two decades ago, and the squabble over the debt ceiling two years ago, Washington is beginning to look rather like Punxsutawney, Pennsylvania, the town where the groundhog checks his shadow every year in early February to see if winter is over - and which was the site for Murray’s character to keep living through the same day over and over again until he gets his head straight. Oy, what a mess this one is, now. But who in Washington is playing which Punxsutawney character? J. BROOKS SPECTOR tries to puzzle out whether there will be six more weeks of governmental winter, or, just possibly, the bright sunshine of an early settlement.

As if the current scrum over a federal government budget continuing resolution (with or without a “defunding” of or a year’s delay in the implementation of the Affordable Care Act, or Obamacare) that has produced a dramatic government-wide shutdown because of the absence of a federal budget wasn’t enough, there is now the looming threat of a failure to increase the government’s debt ceiling.

Double trouble. Or maybe triple trouble. As all this was going on, there was even a shooting incident at a Senate office building that produced a temporary “seek shelter in place” lock-down on Capitol Hill – thoroughly fraying some already jittery nerves in the city.

To recap, the Republican-controlled House of Representatives, under the lash of the Tea Party contingent of the party’s caucus, has passed numerous versions of a budget continuing resolution that would fund the government for a month or two until a larger budget settlement could be achieved.

The cost, of course, has been either the defunding of the administration and management of the actual operations of the bureaucracy needed to carry out provisions of the ACA, or, latterly, a one-year delay in the implementation of the ACA. The Tea Party folks, of course, see the ACA as a budget buster or some sort of creeping socialism – or the evil machinations of that well-known Kenyan, communist, Muslim fundamentalist who is masquerading as the American president. But the Senate would not go along.

The majority of the Senate’s members are from the Democratic Party. So far, at least, they have remained solidly in support of the president’s position: no defunding; no year’s delay in Obamacare; no partial continuing resolution for just the most popular parts of the federal government like the big museums and monuments in the nation’s capital; only a clean continuing resolution that funds the government in its entirety until full budgets can be achieved.

On Wednesday, the Republican Speaker of the House, John Boehner, and President Obama spoke to their respective positions on what must be done to break the stalemate and avoid even more difficulties ahead.

News reports say that Boehner has been telling his Republican colleagues he will do whatever he has to do to avoid a federal debt default – relying on House Democrats to help pass a debt ceiling extension, according to Republican staff aides. However, he has also been restating his position that he does not plan to allow a vote on a continuing resolution that does not, simultaneously, include ending or delaying parts of the ACA, some of whose key provisions – like the state insurance exchange web-based access have just started to kick in.

However, congressional observers say that Boehner’s presumed strategy of relying on many Democratic members of the House of Representatives, and less than a majority of his Republican caucus to vote favourably on a debt ceiling extension could easily incense the most conservative members of his own party. It would follow a strategy Boehner made use of to pass other legislation earlier this year – at a certain cost to his leadership authority.

Boehner’s spokesman, Michael Steel, wouldn’t confirm any details to a media contingent desperate for information, but he did say, “Speaker Boehner has always said that the United States will not default on its debt, but if we’re going to raise the debt limit, we need to deal with the drivers of our debt and deficits.  That’s why we need a bill with cuts and reforms to get our economy moving again”.

Meanwhile, President Obama used his remarks at an event in the Washington suburbs on Thursday to say, “As reckless as a government shutdown is … an economic shutdown that results from default would be dramatically worse.” If on Wednesday Obama had directed comments towards the country’s financial sector, warning that this time around the debt ceiling renewal debate was substantively different than the go-round on the debt ceiling in 2011, and that a default was an actual possibility, in his Thursday remarks he tried to explain how that default would recoil through the entire economy – and not just Wall Street.

Obama explained, “In a government shutdown, Social Security checks still go out on time. In an economic shutdown, if we don’t raise the debt ceiling, they don’t go out on time. In a government shutdown, disability benefits still arrive on time. In an economic shutdown, they don’t. In a government shutdown, millions of Americans – not just federal workers – everybody faces real economic hardship. In an economic shutdown, falling pensions and home values, and rising interest rates on things like mortgages and student loans, all those things risk putting us back into a bad recession, which will affect this company and those workers and all of you.”

Stating his position with some visible anger, according to reporters covering the event, Obama went on to say the failure to raise the debt ceiling “would be the height of irresponsibility. And that’s why I’ve said this before, I’m going to repeat it: there will be no negotiations over this. The American people are not pawns in some political game. You don’t get to demand some ransom in exchange for keeping the government running.”

Then he put the blame squarely on the shoulders of the Republicans – and especially their House of Representatives leader. He called for Boehner to allow a vote on a “no partisan strings attached” budget bill to bring the shutdown to an end.

He said, “My simple message today is: Call a vote. Call a vote. Put it on the floor. Take a vote, stop this farce and end this shut down right now. The only thing that’s keeping the government shut down … is that Speaker John Boehner won’t even let the bill get a yes or no vote because he doesn’t want to anger the extremists in his party.” Obama’s comments came a few hours after a meeting with congressional leaders – including Boehner – that, charitably, could be best depicted as not particularly successful.

It may well be that this public politicking is beginning to have the desired effect with some Republicans. It appears that more than twenty House Republican members have indicated a willingness to support a continuing resolution without any restrictions or delays on the ACA. If these members were to vote for such a bill, and all Democrats supported it, the bill would pass in a vote in the House and then it could go to the Senate where it would almost certainly be approved as well – if the Republican leadership would allow it to come to a vote in the first place.

These now-wavering Republicans may well also be responding to polls that say the public now believes Congress is primarily responsible for the shutdown – and that it is Republicans in Congress who, to a considerable degree, deserve the largest share of the blame for the current mess.

The continuing resolution snarl represents a fight by Republicans to reverse a law previously enacted and confirmed as constitutional by the Supreme Court several years ago, by holding the entire federal budget to ransom in pursuit of their aim. The debt ceiling is another thing entirely.

Historically, of course, Congress has routinely approved debt ceiling increases (i.e., lifting the upper limit under which the government can legally borrow in order to pay for its previously authorized government expenditures). But in recent years, like Obamacare, that routine debt ceiling measure has become yet another Tea Party-style litmus test of the philosophical and programmatic purity of spirit of Republican legislators in their zeal to whack away at what they see as a federal budget beast gone rogue.

Failure to pass that test means being labelled one of those dreaded RINOs – Republicans In Name Only. That would make them legitimate targets for attacks by the shriller members of the right-wing media and advocacy groups – as well as turn them into fair game to face a challenge in the next primary by a contender who offered more commitment to the cause.

If the inhabitants of Punxsutawney on the Potomac fail to reach an agreement on the debt ceiling, that would raise the spectre of a federal government default on its sovereign debt – or at least some portion of it as it came due, as a result of the imbalance of government revenue versus expenditures. While various American towns and cities have flirted with or actually undergone controlled defaults in history, the federal government has never done so since the day Alexander Hamilton convinced the new government to assume all Revolutionary War debt, back at the beginning of the American republic.

Accordingly, the repercussions of such a default are unknown for certain, but it is reasonable to assume, at a minimum, there would be a serious drop in the value of the currency (making imports dramatically more expensive), roiling chaos in financial markets, as well as a sharp rise in the interest rate that would have to be offered in order to successfully sell any future treasury issues in the bond market. Scarier scenarios include decisions by foreign bond holders to dump their US treasury bond holdings – putting further pressure on the interest rate necessary for new issues.

In examining this baleful scenario, the Treasury Department has released a six-page report entitled, “The Potential Macroeconomic Effect of Debt Ceiling Brinkmanship,” to nudge House Republicans to vote to raise the debt ceiling, before a deadline of October 17.

The report begins with the extraordinary words, “The United States has never defaulted on its obligations, and the U S. dollar and Treasury securities are at the center of the international financial system. A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.”

Treasury goes on to say, “Even the possibility of a default could lead to sharp declines in household wealth, increases in the cost of financing for businesses and households, and a fall in private-sector confidence…. In the event of a default, the U.S. economy could be plunged into a recession worse than any seen since the Great Depression.” It seems to be saying the government version of, “Ok now, are we all clear on the ramifications of this kind of playing with fire?”

At this point, there is an increasingly active dialogue among policy makers and academics (left, right and radical centre) over whether or not the president must adhere to the debt ceiling in the first place, or if there are measures besides an increase in that limit that would meet the country’s legal obligations.

Some academics argue that anything the president would do in those circumstances would be a violation of the law – and so he must pick the least harmful illegal act, i.e., choosing between allowing a default or authorising spending beyond the debt limit, but in conformity with the legal obligations to spend money already authorized for government programs.

Still others have been recommending rather wilder schemes like issuing new mega-million dollar currency bills, and offering to exchange those for foreigners’ bond holdings – thus issuing what would effectively be promissory notes that might look rather too much like Weimar Germany currency (or the last days of the Zimbabwe dollar).

Yet others, of course, insist that allowing a default would wring out the excess fat in the American financial system and government expenditures – regardless of any short-term pain to investors and just plain folks – thereby reminding bond holders that any investment, at its heart, carries risk. Still, failing to authorize the increased debt ceiling and letting the chips fall where they may is one heckuva way to set up a laboratory to try out every economist’s more eccentric ideas, on the theory something might work.

There is, of course, also the whisper of a rumour that behind all the machinations, huffing and puffing, and ritualized anger by political leaders, a grand bargain may just possibly be in the offing. This would be a deal that would bring together a settlement on the continuing resolution, the actual budget for the new fiscal year, the scythe of the next stage of the budget sequester, the upward bending curve of spending on Social Security, Medicare and other mandatory spending programs, as well as the debt ceiling.

Barack Obama and his congressional co-party members could probably be held to such a deal – but it is still a real gamble that John Boehner could keep his Tea Party brawlers in line for such a big step. But maybe the public anger over the government shutdown and the real threat of a federal debt default would finally concentrate the minds of Republicans sufficiently to allow a deal to be struck – even if they begin to mutter darkly about retribution against some in the Republican primaries for the 2014 congressional election. This one is definitely “to be continued”. DM

Read more:

  • President Obama ties debt ceiling to Social Security at
  • Boehner telling colleagues he won’t allow debt default at the Washington Post
  • Shutdown in 3rd day with bigger trouble looming at the AP
  • Boehner Tells Republicans He Won’t Let the Nation Default at the New York Times
  • Wall St. Fears Go Beyond Shutdown at the New York Times
  • Revisiting Sovereign Bankruptcy at the Brookings Institution
  • Treasury Says Mere Prospect of Default Endangers Economy at the New York Times
  • The Morning Plum: Republicans and their voters are stuck in 2011 at the Washington Post
  • On Day 3 of shutdown, focus turns to debt-ceiling deadline at the Washington Post
  • The US and its debt ceiling of doom (our own analysis of the last time the debt ceiling provoked controversy in 2011)
  • Government shutdown: Is a grand bargain the only way out? At

Photo: Mr Punxsutawney Phil and Mr John Boehner.


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