GOP Debt Ceiling Plan

1/18/2013 06:49:00 PM
Several sources have noted that it appears that the GOP has decided to offer a "clean" increase in the debt ceiling, but with two caveats:
  1. the debt ceiling increase would only be enough to finance the next three months
  2. congressional pay would be conditional on the senate passing a budget
Several sources have also noted that (2) most definitely is unconstitutional according to the 27th amendment, which says that changes in pay don't take effect until after the next election. I'd add that it is unlikely to force a deal, as congressmen are already rich, and that it inherently deprives power from those already deprived of power in congress--the less wealthy members. But, whatever. The real ball game is (1).

Here's the thing. Markets hate debt ceilings. They have nothing to do with spending or taxing, and have no other purpose than to increase the risk of government default. This increases private sector risk more than it increases sovereign risk because of the role that treasury bonds play as collateral in the market. By reducing the amount of time between debt ceiling fights from 12 moths to 3 months, the GOP is increasing the cost to the economy from this absurd law. The strategy was, in retrospect, predictable. The GOP knew they had a loosing hand with the debt ceiling, so they wanted a way to cave on it without giving up their bargaining chip. So they've done exactly that--they will pass a "clean" increase, but are really looking to haggle over time-frame. They want Obama to name new spending cuts in exchange for extending the amount of time until the next debt ceiling increase.

I think this is a bad idea, and that Obama should insist on at least a 12 month clean increase. The budget battle should be about the budget, not about whether we honor our debts, and we should eliminate as much as possible even the possibility of government default. A complete abolition of the debt ceiling is the only sane option, and at the very least not decreasing the amount of time between debt ceiling hikes is the bare minimum acceptable choice.