Boehner's Gamble on the Debt Ceiling

An interesting strategy:

Many House Republicans, including some key leaders, have decided they can live with a government shutdown but not with the threat of default. In the hours ahead, look for the GOP to seek a deal with President Obama and Democrats on at least a short-term increase in the debt limit, while standing firm on their requirement that a continuing resolution to fund the government must contain some significant measure to limit Obamacare. The bottom line: Republicans have discovered the world did not end when shutdown became a reality — but they’re not willing to risk it with the debt ceiling.

And, I think, a reasonable one.

When you have an opponent with whom you have multiple conflicts, it’s always good to step back and prioritise your agenda in view of your long-term goals.  This also puts your opponent on the defensive, especially when a) your opponent doesn’t understand you and b) because of (a), your opponent doesn’t expect you to make such a move.  Both are true in the case of Barack Obama.

Also, to some extent conceding on the debt ceiling is a throwaway concession, because the President has the constitutional authority to continue borrowing to ensure the financial integrity of the government.  The fact that the current Occupant of 1600 Pennsylvania Avenue is too chicken to go through with that is his problem.

2 Replies to “Boehner's Gamble on the Debt Ceiling”

  1. Don,

    One interesting thing about default is that it could conceivably have the result that the Tea Party say, inaccurately in my view, they want. It might increase the responsibility of the US government.

    American national debt is about 60% owned by Americans, the rest largely in the hands of the Chinese and Japanese banking systems. All of these would suffer huge portfolio losses if the dollar goes the way of the Weimar Mark. On the other hand a portfolio loss is not necessarily tomorrow’s breakfast. China and Japan will still have rice surpluses, and as long as they can keep inventing or making amusing electronics, they can still buy oil to make more ammonia, to grow more rice.

    The only importance of the 40% being owned by foreigners is that they could, if they wanted to, cut off their noses to spite America’s face, sell it all and drive down the value of the dollar. Since this would ruin the possibility of their exporting to the US, it ain’t gonna happen.

    If the US defaults, however, it will still need to borrow. It just won’t be able to borrow in dollars any more. It will have to issue bonds denominated in Euros, Renminbi or Korean Yuan, or Yen. No more of the 99% seigneurage that comes with putting paper dollars around, and no more of the safety blanket of being able to inflate the dollar away, the way Hamilton paid for the Revolution with kneeplasters before the 1789 Constitution.

    Now that would put a crimp in loosy-goosy American government spending.




    1. There are many angles to this whole situation.

      I agree with you that the possibility of China and Japan selling off their US Dollar debt is slim.

      I think that the only way to bring responsibility to the US government fiscally is to end “dollar hegemony”, which is what you’re talking about in your penultimate paragraph. That will happen when the Fed loses control of the currency. What I mean is that, in their endless easing, they so flood the market with dollars that same market figures out what they are worth. To balance that interest rates go up, and with the US’s sizeable debt servicing same at a higher interest rate will be difficult if not impossible. Once dollar hegemony ends the US will be in the same situation vis a vis the world that Greece and Portugal are relative to Germany (the Euro is now, in reality, the old D-mark on steroids).

      As long as we have dollar hegemony, this country will find ways of living beyond it means. Once that’s over with, it’s back to life after credit.

      The whole situation of dollar hegemony, FWIW, was first brought to my attention by Asia Times Online’s Henry C.K. Liu.


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