Only Mel Brooks had the comic genius to pull off an iconic movie scene that has become a staple of hardball negotiating strategies. And only the president and Congress of the United States could be dysfunctional enough to demonstrate that life really does imitate art, leaving the nation agog at the debt ceiling theatrics playing out on the Washington stage. You should be laughing if you're not already crying.
As President Obama steps up to the inaugural podium to once again take an oath to protect and defend a Constitution that has long become nothing but a minor irritant to those seeking to expand federal power, his words paint a picture of a government on autopilot. Out of control, running low on fuel, leaderless and off course, rival politicians are engaged in a desperate battle not to solve our fiscal problems but to affix blame for a disaster caused by both parties.
"There is no Plan B," says the president. The problem is that his Plan A is to push the country ever Forward toward an unprecedented explosion in government spending, borrowing, taxing, and money printing -- long-term consequences be damned.
Obama's Senate allies are doing their part, refusing to pass a budget since 2009. They even rejected Obama's last-submitted budget proposal -- unanimously. Required by law to submit another budget proposal by February 4, the administration has already indicated that it has no plans to do so, promising to deliver something "as soon as possible." Apparently, the fiscal cliff ate their homework.
And so the president strikes a defiant pose -- the Blazing Saddles Sheriff of Rock Ridge come to life -- mouthing words belied by his actions. Referring to demands that concrete spending reductions be put in place before the federal government can borrow trillions more, he declaims, "What I will not do is to have that negotiation with a gun at the head of the American people." Yet it is he, the Chief Executive, who is holding the gun. In business, this would lead to a company's rapid implosion.
I have worked with many CEOs facing imminent cash flameout. The good ones are a marvel to behold. They halt all unnecessary spending, immediately. They prioritize payables, paying the most essential bills first and on time, as less essential creditors are persuaded to wait. They put long term projects in mothballs, sell off non-strategic assets, renegotiate contracts, and aggressively pursue receivables. They announce furloughs and layoffs impacting all employees not absolutely essential to keeping the business afloat and impose pay cuts for all remaining personnel, starting with the CEO.
Most of all, an embattled CEO will do everything possible to reassure customers, suppliers, and partners. He will not run around telling the world how screwed up his company is and how close it is to falling off a cliff.
As everyone not living in a cave knows, the federal government is four to six weeks away from a serious cash crunch. So how many prudent CEO-like moves are taking place in Washington, D.C., these days? None. Instead, our Chief Executive stands in front of the news cameras with a metaphorical gun to the nation's head, daring Congress not to give him everything he wants so he can proceed with business as usual. Until the next crisis.
To make matters worse, the Republican Congressional leadership is in shambles, torn between the old bulls who have been part of the spending problem for decades and restive new members sent to Washington to slam the brakes on. As befuddled as the citizens of Rock Ridge, they have no idea what to make of this bizarre standoff. Their latest lame response? Kick the can. But no matter how many interim concessions they make, this is not going to end well. So what to do?
Let me offer a modest proposal.
Freezing the debt ceiling and issuing IOUs is a strategy that has a great deal of merit, as it is certainly better than caving in to more borrowing borrowing every time the same doomsday threats are repeated. The IOUs could circulate as a second-tier currency, like a Class A and a Class B stock or secured and unsecured credit instruments. Both traditional dollars and the new Obamabucks would circulate in parallel, just like Abraham Lincoln's Demand Notes (greenbacks) and bona fide Silver Certificates once did. If Lincoln could conjure up a novel fiat currency to finance the Civil War, what's to stop Obama from doing the same to finance Food Stamp Nation?
Whatever bills the federal government couldn't pay in dollars it would pay in Obamabucks, promising to redeem them later. The market would determine the exchange rate between the two, initially set at parity but allowed to float as a barometer of how well the president and Congress are doing in getting the country's fiscal house in order.
If the primary goal is to protect the credit rating of the United States so as to avoid the consequences of soaring interest rates on federal debt--as politicians from both parties claim--then anyone redeeming a federal security should get paid in dollars. Whenever the Treasury Department runs short of dollars, everyone else gets paid in Obamabucks, in essence making them creditors to the government. This includes all federal employees, Social Security and unemployment benefit recipients, anyone on the dole, defense contractors, members of Congress, and Big Bird.
The IRS would be required to accept Obamabucks at par as payment for taxes, creating an acceptor of last resort, but no private company or individual would be forced to accept anything besides dollars unless they choose to. And if any private parties decide to accept Obamabucks, they can discount them as the market will bear. Politicians would naturally accept Obamabucks as campaign donations, assuring that their constituents don't lose precious "access." Finally, businesses that want an escape hatch from the coming inflationary spiral can always bring back the gold clause.
Imagine the educational impact this would have on those who are mystified by the workings of a fiat currency. Picture even our densest citizens shaking off their innumeracy as they begin to ponder: "Hey, the Treasury has always printed as many dollars as it wants. Now it is printing as many Obamabucks as it wants. What's the real difference?"
The frightening answer is: None.
Scoff at the IOU gambit if you want. But if no one calls the sheriff's bluff, our blazing Chief Executive goes on to "win" battle after battle to blow past each debt ceiling, and the Fed proceeds with QE infinity as Ben Bernanke has promised, this is essentially the course the country will be following anyway.
Regardless of how the current debt ceiling circus act plays out, don't be surprised to see what happens to Uncle Sam's credit rating as potential lenders to a government living well beyond its means start figuring all of this out.