Why the (R)s should just raise the debt-ceiling ‘cleanly’ yet continue the shutdown (but won’t)
October 14, 2013, 9:55 pm
Filed under: Uncategorized

As I write this we’re being told that the Senate is working on a ‘deal’ (no word on whether it involves a ‘Gang Of’ some odd number) to raise the debt ceiling and end the shutdown. Presumably what happens next is that they iron out the kinks, almost entirely in a non-Ted-Cruz direction, then hold it in check till the officially-anointed last minute™ and deliver it to the House on Oct. 16 as a fait accompli. With too little time to do the usual ‘amend with an Obamacare-killing poison pill, then pass it & send it back to Harry Reid’ gambit, House leadership will then be faced with a choice of either passing the Senate ‘deal’ or being singlehandedly blamed for causing a default. Since default is unthinkable™, they’ll pass it. The ‘base’™ will howl, but Boehner & co. will finally have cover to say that they Tried Their Hardest, Honest They Did but had no choice under the circumstances because DEFAULT. The base, angry but dejected, will withdraw into silence, go back to listening to Rush Limbaugh in their comforting state of impotent frustration.

So there’s your analysis. You’re welcome. I could like totally be a pundit or whatever. Put me on the McLaughlin Group. “PREDICTIONS! Crimsonic?” Cuz that’s basically what’s gonna happen.

But what this post PRESUPPOSES is: maybe it isn’t?

Here then is an Alternative Universe scenario. In this particular Alternative Universe, the (R)s are slightly less stupid. That’s the only difference. Well, that and the word for lunch is ‘dinosaur’, but that’s not really important here.

So what happens in this AU? Since the (R)s are not as stupid, they have properly recognized and priced-in the fact that they have nothing to gain – as of the current starting-point, anyway – from ANY ‘deal’ that doesn’t at least visibly put a dent in Obamacare. (As I’ve said before, they’d have been better off not to have entered this loser game of chicken in the first place, but that bridge has been crossed.) No even-remotely-clean ‘deal’ on CR nor even on the debt ceiling is, strategically, in their political interest: they stand nothing to gain. Nothing at all. To be sure, that’s as true in our universe as it is in the AU, but the difference is, the AU-(R)s realize it. So, they stand their ground. They go all-in on full-on NIHILISM, since it’s their least-bad strategy anyway. The Senate still does their thing but Boehner cites the ‘Hastert Rule’, or whatever it is, and the deal dies in the House.

Oct. 17 arrives. Everyone holds their breath and tweets joke-tweets waiting for the official ‘default’. They watch their TVs expecting to see (what exactly? not clear. A big yellow graphic saying ‘DEFAULT!’ presumably.) Somewhat surprisingly to all, 11:59pm ticks forward to midnight and it still doesn’t happen. (R) supporters, stupidly, feel vindicated. “See! We told you it wouldn’t be armageddon! They even lied about the deadline!” That’s not really true – it was just a fuzzy deadline all along, and meanwhile Treasury had been able to juggle things a bit to buy themselves a few more days. But either way, the (R)s still stand firm on no-deal and rightly or wrongly after Oct. 17 they feel even better about it.

Only to be blindsided mid-gloat when inevitably, not very much later, say Oct. 22 or early Nov at the latest, an actual cash crunch does come. So what happens then? Certain payments are not paid. What IS paid: all the things you’d expect. Debt service. Social Security. Medicare. But some other things are not. So it’s like shutdown-squared. And it’s a big pain in the ass. Now, few will notice that this is actually ‘prioritization’ and they won’t even call it that but that’s what it will be, in all but name. All the pre-shutdown Smart pundit talking-points about how they inexplicably ‘don’t have the technical capability’ to prioritize will be quickly forgotten and none of those pundits will apologize to me.

By mid-November though even this will not suffice as giant coupons come due and politically-impossible choices arise, boiling down to: do we stiff the seniors or do we stiff the bondholders? This is a bridge too far for the administration and so they finally call forth the big gun – no, not the coin, and NO, not the super-coupon – but the 14th amendment. “Congress has given me incompatible instructions: to live up to our promises to our senior citizens, but not to raise the debt ceiling. I cannot obey both, but honoring our debts is enshrined in the Constitution.” He therefore unilaterally instructs Treasury to issue ‘red’ debt in spite of the debt ceiling. He is deliberately violating the law which has, after all, the shakier foundation and support: the now-obviously-vestigial debt ceiling law, which has basically never been operative in the breach anyway. The debt sells fine, as the market fully expects the bonds to be blessed post-hoc.

The AU-version of me supports him in this choice, by the way, because after all, I have already publicly advocated Splitting The Difference™, an approach involving the executive violating not only the debt ceiling laws but all the spending laws as well. Indeed in a way, Obama will have backed into my Split The Difference™ solution without knowing or intending it.

Of course the Tea Party right screams bloody murder and calls for impeachment. Sarah Palin holds a rally. It gets absolutely nowhere though because, as none of these people realize, for all intents impeachment is no longer a part of our political system. Indeed, Congress even goes the other way & passes a resolution (ironically/weirdly) pledging to honor the ‘red’ above-ceiling bonds as full faith and credit if & when a new sufficient debt ceiling passes.

So Split-the-Difference seems to hold, enough so that a bond default has been averted. Notice, though, that the government is still shut down. Entitlements only. No new spending has been authorized.

And that’s where (R)s start to gain the upper hand. Because now the only issue is the shutdown. And with the DC gravy-train shut down, guess what? It’s now mostly (D)s and their wards feeling the pain. This is also where the targeted spending bills can really do some damage: oh, the military isn’t getting paid? Let’s pay ’em! Obama & Reid & co. can only swat these down as ‘tricks’ for so long. Because now they can’t be passed off as pre-shutdown gambits. They’re, instead, the only ways on offer of getting this or that up and running during a shutdown. (And this or that donor will really really want his thing back up and running.) Meanwhile, Obama has no ’14th Amendment’ or ‘platinum coin’ style tricks to fight them. So the pressure mounts to just approve the funding the (R)s hand him even if it’s piecemeal. Over time, various things are funded in this way, and meanwhile the focus of dispute seems to be getting smaller and the (D)s start looking more and more petty – all while it’s mostly the (D) base who is suffering.

Ultimately – say 7 or 10 months later, as the first wave of DC contractors starts getting seriously enough delinquent on their mortgages to worry about foreclosure – Obama caves but in a deal constructed to save him maximal face. Not just the medical device tax is gone. Individual Obamacare mandate is delayed (but in a disguised way). That sort of thing. Later, when the dust has settled, the debt ceiling is quietly raised and all the ‘red’ bonds are back-blessed.

And so one morning we all wake up and ask what has happened. “We WON”, the Tea Party replies in their best Heisenberg voice.

A shorter, less painful way to get here is for the (R)s just to concede on the debt ceiling and pass a clean debt ceiling-raise from the get-go, since (according to my game-theorying of this dispute) that’s gonna effectively happen anyway. May as well just get that out of the way and proceed to the more favorable shutdown/line-item-funding phase of the game. But either way, that’s how it plays out in the Alternative Universe: the Tea Party wins.

Not here, though, don’t worry. Back in our universe, the (R)s will cave on the last-minute combined deal on Wednesday and that will be that. But now you know how it could have been otherwise. What the (R)s could do is try to be less-dumb and just, per the above analysis, pass the clean-ceiling only – but let the shutdown continue, and watch as over time the terrain inevitably shifts in their favor. But they’re not gonna. After all, they’re not called the Stupid Party for nothing.

12 Comments so far
Leave a comment

After all, they’re not called the Stupid Party for nothing.

I think it’s time to kill this idea.

They’re not the Stupid Party.

They’re the fake opposition. The last thing the fake opposition wants to do is win – that’s dangerous.

Comment by Steve Johnson

not mutually exclusive. plenty of both in R big tent

Comment by Crimsonic

My husband has been shouting at the TV news every night that the Republicans should agree to a brief debt-ceiling increase but stand firm on the shutdown all the way through the next elections, if necessary.

Comment by texan99

Which is indeed the correct strategy. I deduce he is not a member of any R leadership..

Comment by Crimsonic

And with the DC gravy-train shut down, guess what? It’s now mostly (D)s and their wards feeling the pain.

If only that were true. See: Farmers, defense contractors, veterans, etc.

Comment by joshuah

I didn’t say ‘only’. But yes, you are right.

Comment by Crimsonic

Yeah, the DC gravy train is open for business right now, everything important has been declared “essential”. Your plan will only cut mostly ineffective discretionary funding without touching entitlements.

Comment by Dave

My plan doesn’t require it to touch entitlements (nor would I really want it to). It hurts a small class of DC-connected and -reliant. But that’s enough.

Of course, it’s all moot. The Rs are caving just as I said they would.

Comment by Crimsonic

Indeed. Mr. Boehner’s quote is: “We fought the good fight; we just didn’t win.” You were close.

Not only that, they are going to cave on the shutdown too. I’m pretty sure Steve Johnson above is correct – it’s the fake opposition party, designed to dupe people into thinking that there is a real opposition party in Washington.

The Republican party is like the Washington Generals basketball team – a team which is designed to give the regular folks a good show as the Harlem Globetrotters beat the crap out of them. If you don’t like the Globetrotters – you can always root for their opponent!

In this way, Republican political support from the Midwest is transmuted into support for the government-academic-media complex.

Note, I’m not asserting some strange conspiracy is going on here. I think that when otherwise well-meaning and principled Republicans (not many to start with) get into power, they are immediately co-opted by the power of Washington. They can either sit lonely and powerless on their principles, or compromise their principles and thereby gain admission to “The Club”.

Comment by Dave

Did you see Fitch’s downgrade? “The U.S. risks being forced to incur widespread delays of payments to suppliers and employees, as well as Social Security payments to citizens — all of which would damage the perception of U.S. sovereign creditworthiness and the economy”

Seriously? What US bond investor gives a crap if some social security recipient or contractor feels shortchanged?

And the remedy – to borrow “money” freshly printed from the Fed is the sound and prudent course?

These guys must be working on Hillary’s campaign or something.

Comment by Dave

I’m with you. *If anything*, as a bondholder I’d be *happy* to see a sovereign delay payments to suppliers/employers (to prioritize debt-service). After all, their fiscal situation is what it is. At least if they prioritize that shows they’re willing to prioritize me. That is a *positive* for bondholders, all else equal – or should be.

A rational credit model would treat news of possible ‘prioritization’ as credit-*positive*. Before, you didn’t 100% know the sovereign was willing to prioritize, and now you do.

Comment by Crimsonic

Indeed. The Chinese are not impressed. Totally biased, unofficial ratings agency in China thinks that printing money to pay off bond interest is a terrible idea.

Comment by Dave

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