With the passage of a nonsensical debt ceiling bill by the House and the near instantaneous defeat of the same bill by the Senate leaves the debt ceiling lifting prospects foggy at best. There is growing buzz about a “14 Amendment” solution including a reluctant Kent Conrad (D-ND) saying while not preferred it is possible on NPR tonight. Within the context of the release of seriously bad economic data today the country cannot afford the serious contraction afforded by default.
How bad is the Boehner Bill? Not only did it include the tortured path to lifting the ceiling but included PASSING a constitutional amendment for a balanced federal budget. One that forces a 2/3 vote for tax increases. This is the sort of system of budgeting and revenue that has worked so well for California. The House vote garnered no Democratic support and 20 Republicans voted against Boehner’s plan. In the Senate 6 Republicans voted against the Boehner plan, which was voted down in record time.
So we are nowhere. The Senate will go through its own arcane process of cloture to get to a vote by Monday. So negotiation between conflicting bills can occur in some fashion through the weekend but with little hope of a solution until Tuesday. But where will the votes come from to get something passed in the House? There are none, just not possible short of some kind of revelation amounting to the Republican’s Emily Litella moment.
So the President will need to come forward and lead us out of the situation. He will direct the Secretary of the Treasury to issue debt to insure the obligations of the government are met. He will justify his actions on the basis of the 14th Amendment; perhaps use the black letter law argument that the budget trumps the debt limit ceiling. It is even conceivable he will have Geithner and Ben Bernanke, Chairman of the Federal Reserve collaborate on a platinum coin deal which wouldn’t technically involve debt. Politically, the actions will be seen as strong but they will send the Tea Party people over the edge. They will launch impeachment proceedings and further alienate the American electorate. The President’s approval ratings will soar.
Then September will come.
We will be right back into it with the House since there is nothing even vaguely like a budget agreement for fy 2012. Remember that the budget plan passed by the House was the one constructed by Paul Ryan (R-WI). This is even worse than the debt ceiling deal. There are no rabbits to be pulled out of the hat on this one. The only hope is that the soaring popularity of the President by taking decisive action on the debt ceiling will force the hand of some Republicans, maybe enough to scrimp into fy 2012.
The context however is worse than we thought. The BEA released economic data today that indicated that the economy was far weaker than we thought. The decline in the GDP during the depth of the recession was worse than previously reported. The rate of growth this year slower. We shouldn’t have been surprised because we have been getting solid indications for some time that the economy is weak. Unemployment is still high; very high by historic recovery standards. The workforce is declining. Consumer confidence is low. The housing market is struggling. But the biggest factor is the contraction of the economy due to rollbacks in government spending. Next Friday we will get a bad unemployment report that will be amplified by the layoffs of government employees at the state and local level.
The last thing we can afford is the withdrawal of more government support for the economy through either a bad debt ceiling bill, the functional default of the economy or a lack of a budget come October 1. One estimate I saw today predicted the withdrawal of $10 Billion per month plus the multiplier if things blow up.