Friday, July 29, 2011

Techniques to end the US Debt Ceiling Stalemate

It is amazing to watch the US flail about unable to simply agree to pay its legally contracted debts. The US President appears to be unable to lead on the issue, find a compromise, or put pressure on the parties in Congress to come to a resolution.

Funny, Barack Obama found no problem ignoring the War Powers Resolution law in sending troops to fight in Libya. The law clearly states that the President can initiate military action, but must request authorization:
The War Powers Resolution requires the President to notify Congress within 48 hours of committing armed forces to military action and forbids armed forces from remaining for more than 60 days, with a further 30 day withdrawal period, without an authorization of the use of military force or a declaration of war.
As it stands, Obama is willing to flout this law, from Wikipedia:
Although the constitutionality of the act has never been tested, it is usually followed, most notably during the Grenada Conflict, the Panamanian Conflict, the Somalia Conflict, the Gulf War, and the Iraq War. The only exception was President Clinton's use of U.S. troops in the 78-day NATO air campaign against Yugoslavia during the Kosovo War.
But Obama mysteriously is unwilling to take advantage of the 14th Amendment to the US Constitution which begins:
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.
Most legal scholars says that means, if the US has contracted an obligation, it is the President's duty to ensure that the debt is paid. So the "debt ceiling" is in conflict with the Constitution and pretty well every Constitutional lawyer (of which Obama is supposedly one) will tell you that the Constitution has precedence over mere Congressional "law". But Obama refuses to make use of this device.

So here is Paul Krugman on his NY Times blog with other suggestions for Obama to "solve" the debt ceiling crisis:
I think we can safely say that the political process has failed. Now what?

Well, there do appear to be legal loopholes. Jack Balkin gives us the platinum coin option:
Sovereign governments such as the United States can print new money. However, there’s a statutory limit to the amount of paper currency that can be in circulation at any one time.

Ironically, there’s no similar limit on the amount of coinage. A little-known statute gives the secretary of the Treasury the authority to issue platinum coins in any denomination. So some commentators have suggested that the Treasury create two $1 trillion coins, deposit them in its account in the Federal Reserve and write checks on the proceeds.
And he also gives us the exploding-option option:
The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days.
These things sound ridiculous — but so is the behavior of Congressional Republicans. So why not fight back using legal tricks?

And there is the constitutional option. Ronald Dworkin says that it works — or, at the very least, will put the issue into the courts for a while, which is better than destroying the economy next week.

Outrageous behavior demands extraordinary responses. Over to you, Mr. President.
So why is Obama allowing this "debt ceiling" mess to fester and allow the stock market and the debt market to begin to crash? Already the credit rating agencies are saying that even if a "deal" is found, it is too late. They are going to move to downgrade US debt with the result that interest rates for business will rise in the US. In effect this is a "tax" that the Republicans have now imposed on Americans because they supposedly were "against taxes"! With a numbskull political party like the Republicans, the American people don't need enemies. They have have an organized anti-American terrorist organization already burrowing inside America to destroy it: the Republican party.

The Democrats do not need a Republican party to oppose them. They have Obama acting as a Republican simulacrum working hard to achieve the Republican agenda.

The American people have yet one more burden to bear beyond the Bush induced Little Depression, the Home Foreclosure disaster, the endless wars overseas, and a "security state" gone wild. They have a President elected by them on a platform of "hope" and "change you can believe in" who has completely surrendered to the policy platform of the Republican party and is actively in cahoots with the Republicans to deliver the nation a disaster of monumental scope rather than take active measure to counter the mad dog Republican agenda.

From The Atlantic magazine, here is the situation that Obama has delivered to the American people:
While Washington sets itself on fire, the economy is frozen stiff. GDP has grown 1.6% in the last year, a third lower than analysts had thought as early as yesterday. Between January and March this year, it grew by 0.4%, which means it practically stopped. If you're wondering why there are no new jobs, you can probably stop wondering. There is no real recovery.

Meanwhile, Washington is debating whether or not to shut down government borrowing. It goes without saying -- or, I hope it goes without saying -- that there couldn't be a worse time to shut down Washington, fire government workers, or front-load spending cuts. The end of stimulus has already resulted in the firing of so many state and local government workers that total government employment has now declined by more than the private sector in Obama's term.

A national economy is complicated. But what's hurting us is simple. Incomes and spending aren't growing for the vast majority of workers. The San Francisco Fed found that typical consumer is spending $2,000 less this year than he would be if pre-recession growth had continued. The other components of GDP -- business investment, exports and government spending -- aren't strong enough to compensate for that basic, central weakness.

The debate in Washington over the debt ceiling is about improving our fiscal health. But the chief indicator of fiscal health is our debt-to-GDP ratio. Debt as a share of the economy is the only thing that matters. If the economy isn't growing, it does not matter how small your deficits are. The ratio won't decline, and your fiscal health won't improve.

What would be the ideal way out of this mess? The politically implausible, but economically sound, answer is higher deficits today, from more spending or lower taxes (or both). Deficits are a dirty word in Washington, where "borrow-and-spend" has because a slur. But the ability of the government to borrow and spend represents an ability to rake money into the economy, not unlike exporting a good in exchange for cash. The private sector isn't growing, business investment is weak, and exports are a tiny sliver of the U.S. economy. If government doesn't continue to pursue high deficits, we're dooming ourselves to month after month of jobless, "recovery-less" recovery. Which is to say: Basically, we're doomed.
The fact that Obama is unwilling to admit that his policies have failed to deliver growth because his stimulus was too small (and half of it was "tax cuts" and not spending because he wanted to "compromise" with the Republicans!) means that things are bad and not really improving. And now Obama is adding to the misery by doing this two-step with the Republicans whose only political agenda is to destroy America so that voters in 2012 will be mad enough about the mess to vote in Republican crazies.

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