Tuesday, October 08, 2013

Obama's latest non-negotiation negotiating on the debt ceiling

I should probably open any post on the debt ceiling with: 14th Amendment, platinum coin, yes we can!

Video of President Obama's press conference today (more than an hour long):

"There is no silver bullet," President Obama said in hisPresidential press conference today. "There is no magic wand that allows us to wish away the chaos that could result if, for the first time in our history, we don't pay our bills on time." No silver bullet. But there is the platinum coin option. And the 14th Amendment option.

Except the President, which his newfound Constitutional scruples, is sounding like he's ruling them out:

And I know there's been some discussion, for example, about my powers under the 14th Amendment to go ahead and ignore the debt ceiling law. Setting aside the legal analysis, what matters is -- is that if you start having a situation in which there -- there's legal controversy about the U.S. Treasury's authority to issue debt, the damage will have been done even if that were constitutional, because people wouldn't be sure. It'd be tied up in litigation for a long time. That's going to make people nervous.

So -- so a lot of the strategies that people have talked about -- well, the president can roll out a big coin and -- or, you know, he can -- he can resort to some other constitutional measure -- what people ignore is that ultimately what matters is, what do the people who are buying Treasury bills think? And again, I'll -- I'll just boil it down in very personal terms.

If you're buying a house, and you're not sure whether the seller has title to the house, you're going to be pretty nervous about buying it. And at minimum, you'd want a much cheaper price to buy that house because you wouldn't be sure whether or not you're going to own it at the end. Most of us would just walk away because no matter how much we like the house, we'd say to ourselves the last thing I want is to find out after I've bought it that I don't actually own it.

Well, the same thing is true if I'm buying Treasury bills from the U.S. government, and here I am sitting here -- you know, what if there's a Supreme Court case deciding that these aren't valid, that these aren't, you know, valid legal instruments obligating the U.S. government to pay me? I'm going to be stressed, which means I may not purchase. And if I do purchase them, I'm going to ask for a big premium.

So there are no magic bullets here.
Joan Walsh reminds us of the Obama White House's negotiating approach with the Republicans just a few months ago in GOP cowards face biggest test of their self-inflicted mess Salon 10/08/2013:

Let’s hope the White House doesn't undercut Reid the way it seemed to on the fiscal cliff deal at the end of 2012. You’ll recall: Reid thought he could hold firm on revoking the Bush tax cuts for those who made more than $250,000, and either postponing or lifting the sequester cuts that settled the 2011 debt-ceiling crisis; Biden came in and reached a deal with McConnell that raised the higher tax rate threshold to $450,000 and only extended the ugly sequester cuts two months – and of course, they then kicked in. While there's no certainty Reid could have gotten his deal, it's clear he felt undercut by Biden, who’s been conspicuously missing in the current government shutdown/debt ceiling debate.

Yes, progressives continue to worry about the possibility of the president cutting a deal with GOP extremists, while hoping we’re wrong. We've hoped we were wrong before, but we've been right. (Here are my takes on the 2011 debt ceiling "deal" and the fiscal cliff deal.) The myth that we have GOP "moderates" is strong in the media, but one thing that prevents the emergence of meaningful GOP moderation is the perception that the White House will, in the end, cave to the extremists' demands. That can't happen again.
Joan is actually being a bit generous to the White House here. The Bush tax cuts were set to expire on December 31. Doing nothing would have let them expire. Then the Democrats could have restored the reduced rates for middle-class taxpayer and dared the Republicans to vote against it.

As I've said before, it's not irrational for the Republicans to think they can get more out of Obama by holding fast on the debt ceiling until the bitter end. Because they think they get big concessions out of Obama by doing this. And they do.

On the topic, see also Digby, Let's not kid ourselves. It's all one negotiation. Hullabaloo 10/08/2013 and Charlie Pierce, The President Finally Speaks His Mind Esquire Politics Blog 10/08/2013.

Obama got a little cute, unintentionally in this case, in his Presidential press conference today:

In the same way, members of Congress, and the House Republicans in particular, don't get to demand ransom in exchange for doing their jobs. And two of their very basic jobs are passing a budget and making sure that America's paying its bills. They don't also get to say, you know, unless you give me what the voters rejected in the last election, I'm going to cause a recession.

That's not how it works. No American president would deal with a foreign leader like this. Most of you would not deal with either co- workers or business associates in this fashion. And we shouldn't be dealing this way here in Washington.
Actually, American Presidents including Obama have been known to deal that way with foreign leaders they don't like, and worse.

For better or worse, he laid it on pretty thick about the danger of a financial disaster, not neglected to invoke St. Reagan:

If Congress refuses to raise what's called the debt ceiling, America would not be able to meet all of our financial obligations for the first time in 225 years. ...

Now the last time that the tea party Republicans flirted with the idea of default, two years ago, markets plunged, business and consumer confidence plunged, America's credit rating was downgraded for the first time, and a decision to actually go through with it, to actually permit default, according to many CEOs and economists, would be -- and I'm quoting here -- "insane, catastrophic, chaos" -- these are some of the more polite words.

Warren Buffett likened default to a nuclear bomb, a weapon too horrible to use. It would disrupt markets, it would undermine the world's confidence in America as the bedrock of the global economy, and it might permanently increase our borrowing costs which, of course, ironically would mean that it would be more expensive for us to service what debt we do have and it would add to our deficits and our debt, not decrease them.

There's nothing fiscally responsible about that. Preventing this should be simple. As I said, raising the debt ceiling is a lousy name, which is why members of Congress in both parties don't like to vote on it, because it makes you vulnerable in political campaigns. But it does not increase our debt. It does not grow our deficit, it does not allow for a single dime of increased spending. All it does is allow the Treasury Department to pay for what Congress has already spent.

But as I said, it's always a tough vote. People don't like doing it, although it has been done 45 times since Ronald Reagan took office. Nobody in the past has ever seriously threatened to breach the debt ceiling until the last two years. And this is the creditworthiness of the United States that we're talking about. This is our word, this is our good name.

This is real. In a government shutdown, millions of Americans face inconvenience or outright hardship. In an economic shutdown, every American could see their 401(k)s and home values fall, borrowing cost for mortgages and student loans rise, and there would be a significant risk of a very deep recession at a time when we're still climbing our way out of the worst recession in our lifetimes. [my emphasis]
And he bragged about one of his proudest accomplishments, that during a depression, "Our deficits are falling at the fastest pace in 60 years."

And, just to show what a swell guy he is, he generously offered to cut benefits on Social Security, Medicare and Medicaid again, his treasured Grand Bargain, aka, "entitlement" reform:

And by the way, if anybody doubts my sincerity about that, I've put forward proposals in my budget to reform entitlement programs for the long haul and reform our tax code in a way that would close loopholes for the wealthiest and lower rates for corporations and help us invest in new jobs and reduce our deficits. And some of these were originally Republican proposals, because I don't believe any party has a monopoly on good ideas. So I've shown myself willing to go more than halfway in these conversations, and if reasonable Republicans want to talk about these things again, I'm ready to head up to the Hill and try. I'll even spring for dinner again.
Awesome. Cut Social Security! Cut Medicare! Cut Medicaid! Lower corporate taxes! This is our a Democratic President is offering to defend us against Republican austerity mania. Did I mention that Obama is a Democrat?

He added another homey metaphor equating family budgets with the national economy, showing he hates moochers and losers, too:

And so when I read people saying, now, this wouldn't be a big deal; we should test it out; let's take default out for a spin and see how it rides -- and I -- I -- I say, imagine, in your private life, if you decided that I'm not going to pay my mortgage for a month or two. First of all, you're not saying money by not paying your mortgage. You're just a deadbeat. And you can anticipate that will hurt your credit, which means that in addition to the debt collectors calling, you're going to have trouble borrowing in the future.

And if you are able to borrow in the future, you're going to have to borrow at a higher rate.

Well, what's true for individuals is also true for nations, even the most powerful nation on earth. And if we are -- are creating an atmosphere in which people are not sure whether or not we pay our bills on time, then that will have a severe long-term impact on our economy and on America's standard of living. [my emphasis]
From Joe Stiglitz, Five Years in Limbo Project Syndicate 10/08/2013:

Other problems have gone unaddressed – and some have worsened. America’s mortgage market remains on life-support: the government now underwrites more than 90% of all mortgages, and President Barack Obama’s administration has not even proposed a new system that would ensure responsible lending at competitive terms. The financial system has become even more concentrated, exacerbating the problem of banks that are not only too big, too interconnected, and too correlated to fail, but that are also too big to manage and be held accountable. Despite scandal after scandal, from money laundering and market manipulation to racial discrimination in lending and illegal foreclosures, no senior official has been held accountable; when financial penalties have been imposed, they have been far smaller than they should be, lest systemically important institutions be jeopardized.
Maybe that's why Obama's Administration has done so little to address problems of millions of individual homeowners hurt by the mortgage disaster and the depression: he literally thinks that if you miss a mortgage payment, "You're just a deadbeat." That sounds like a real Freudian slip. As well as another of his "Is this guy really a Democrat?" moments.

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