Obama Holds the Cards -- If He Will Play Them Well

Here are a couple of things to keep in mind as the great contrived national debt crisis enters its final week.

First, the Republicans are starting to lose whatever credibility they had with the broad public, as regular people finally start focusing on this story. The economic stakes are very high, President Obama was willing to give them most of the loaf, and they still wouldn't make a deal.

Second, no matter what the White House and Speaker Boehner claim, there is no way to do a big complex budget agreement between now and next week. The details are far too complex. Even the Gang of Six proposal was nothing more than broad outlines.

Third, as this drama goes down to the wire, and financial markets begin to contemplate the possibility that the United States will actually default on its debts, the pressure on the Republicans by their Wall Street allies will only grow.

At some point this week, stock and bond markets will begin to start swooning, and the usual wise guys will begin making high-risk bets at the expense of financial stability as a whole. Credit rating agencies, which should be accorded zero credibility after their role in causing the financial collapse by blessing junk sub-prime securities as Triple-A, could start downgrading the debt of the United States.

And then things will get really interesting. The President of the United States will be revealed to be holding more of the cards -- if he has the nerve to start playing his hand well (for a change).

At that point, there are only two basic choices. Either the Republicans and the White House agree to some kind of short- or medium-term increase in the debt ceiling, in exchange for some kind of deal with details to be supplied later. Or the president invokes the 14th Amendment and declares that the debts of the United States will be paid.

Under the first option, the deal could include a target figure for budget cuts, perhaps with relative tax increases and spending cuts spelled out -- perhaps not. It could also include some kind of "fast track" process for Congress to give the budget deal an up or down vote after the details are filled in.

One of the gimmicks being discussed is for a "super-Congress" that would come back with a long-term deal for the actual Congress to vote up or down -- a kind of mutant hybrid of the Bowles-Simpson Commission and the Gang of Six, on steroids.

I don't trust that end-game, because it gives too much power to all the forces of austerity that have been too dominant in this debate all year. And it creates too much risk of Democrats being stampeded to give up too much on Social Security and Medicare and get too little in the way of tax hikes on the rich in return.

The New York Times had a very instructive chart today, by the indispensable Teresa Tritch, showing that most of the budget shortfall going into the financial crisis was the result of the Bush tax cuts and wars -- and that most of the rest of it since 2008 was the consequence of lost revenues from the recession itself. It had very little to do with public spending. This is the kind of detail that gets lost in the contrived hysteria.

My guess is that the Republicans are so intoxicated with their own negativity that they will not be able to get to yes, even though Obama keeps trying to give away the store. The House Republican Caucus, in thrall to the Tea Party, is just too locked in to the premise of no new revenues under any circumstances

So then we are left with the president's powers under the 14th Amendment, an approach that Obama seemed to rule out last week, but may need to come back to.

The fact is, the ritual of Congress periodically voting to approve an increase in the national debt only dates to the World War I era. Before that, government incurred debt and rolled it over as necessary. Congress, of course, approved legislation to levy and collect taxes, but management of the public debt was the business of the executive branch.

And playing cute with the debt ceiling only dates to New Gingrich in the 1990s. Before that, increases in the debt ceiling, as necessary, were entirely pro forma votes.

The 14th Amendment, in Section 4 provides that "The validity of the public debt of the United States.... shall not be questioned." Although the 14th Amendment was part of a package of Amendments intended to resolve issues left over from the Civil War, the Supreme Court has interpreted the public debt provision as giving the president very broad authority.

The government can go on selling bonds to cover its costs as long as money markets accept them. Lately, the Federal Reserve has been helping that process along. Whether Congress has voted to increase the permissible amount of total debt is a technicality. It's not as if the government runs out of money next week.

If President Obama were to invoke that emergency authority to prevent the economy from collapsing as money markets began shunning U.S. government bonds, it is hard to imagine Republican leaders suing the president... to demand what? That he let the economy go off a cliff? And it is even harder to imagine the Supreme Court, even a Court as partisan and corrupted as the Roberts Court, voting to tie Obama's hands in an economic emergency that -- keep in mind -- is entirely contrived.

Obama, the Great Conciliator, finally showed a bit of irritation and a bit of spine this past week. It would be perverse of him to reward Republican intransigence by agreeing to an 11th hour deal that, by definition, would have to be on almost entirely Republican terms to be approved by the Tea-Party besotted House of Representatives.

Better to show some leadership in an emergency, invoke the 14th Amendment, calm money markets, and leave the Republicans sputtering mad. Obama might even come to enjoy exercising leadership.

Robert Kuttner is co-editor of The American Prospect and a senior fellow at Demos.
His most recent book is A Presidency in Peril.