It’s the GOP Who’ll Hit Their Heads on Ceiling

From “How Obama Can Prevent Another Debt-Ceiling Crisis,” Jack M. Balkin (Yale Law School Professor), the Atlantic:

“Obama’s correct — and constitutional —  response to Republican intransigence is the same as Bill Clinton’s before him:  a replay of the 1995 government shutdown.  If Republicans force that confrontation, they will lose, just as they did before.

“Section 4 of the Fourteenth Amendment provides that ‘the validity of the public debt of the United States, authorized by law, … shall not be questioned.’  Its purpose was to prevent Southern Congressmen and Senators from trying to hold payment of the nation’s debts hostage in order to get their way on Reconstruction policies.  The point of Section 4 was to put this sort of hostage-taking beyond ordinary politics.  The framers of the 14th Amendment did not want future politicians to threaten to destroy the country’s finances by refusing to pay the country’s debts in order to win political concessions from their opponents.  After all, once politicians did so successfully, they would try it over and over again and it would become a normal feature of politics.  This is precisely what we are seeing now.

“If Congressional Republicans are threatening to let the nation default on its debts if Obama doesn’t agree to their demands, they are violating the Constitution.

“[U]nder section 4 of the Fourteenth Amendment the president has an independent constitutional obligation not to allow the validity of the debt of the United States to be put into question.  That means, at the very least, that the president must make sure that interest payments continue on existing federal bonds and similar obligations.

“If the president follows his constitutional obligations, then some government operations will not get funded because payments to the bondholders must come first.  That means a partial government shutdown, with more and more of the government closed as the president continues to pay the bondholders.

“We’ve seen this movie before.  Once government offices close and government checks aren’t issued, the public will complain loudly, the markets will tumble, and Congress will eventually have to give in, just as it did in the winter of 1995.  The public will rightly conclude that Congress is to blame, because it was Congress, and not the president, who tried to hold the nation’s economy hostage.

“The president’s obligation to pay the bondholders first…is how the Fourteenth Amendment helps the president resolve any debt ceiling crisis.  All he has to do is follow the Constitution and he will come out on top.”  Emphasis added.

Maybe when the Republicans hit their heads on the ceiling, it will finally knock some sense into them.

Barry’s Other New BFF

Aside from Bill, Barry has another BFF, Mario.

The head of the European Central Bank, Mario Draghi, announced today that the bank will buy lots and lots of bonds from struggling euro zone countries to help reduce their borrowing costs, especially Italy and Spain.   Draghi in effect drew a line in the sand, saying “The euro is irreversible.”

One country voted against the bond-buying plan.  That’s right — Germany.

Do I think this will save the euro?  No.  But it means there won’t be a big panic between now and our election.

It also seems as if Israel won’t attack Iran between now and November 6, although Bibi is not exactly another BFF.

Looks as if Barry has everything under control.  He just has to get through the debates without checking his watch or sighing and rolling his eyes.

Spain Is the Big Story

I know everyone’s focused on Greece, but today’s big story really is Spain.  For the first time, the interest rate on its ten-year bonds went over the magic number, 7%.  That’s the point at which Greece, Ireland, and Portugal had to get bailouts.  Spain’s economy is bigger than those three combined, so bailing out Spain would be a huge deal.

Italy’s interest rate went over 6% today.  Bailing out Italy, whose economy is bigger than Spain’s, would probably be impossible.  Italy is the third largest economy in Europe, after Germany and France.

Leaders in Europe Ceding Control by Their Inacton

If Europe’s leaders don’t set policy at the top soon, the street is going to take over, and panic and fear will dictate events, not elected officials.

Spain is experiencing a run on its banks (either moving money from weak banks to stronger ones or out of the country entirely) that is only going to gain more momentum, and Spain’s deposit insurance system is bankrupt.  There is still time for Europe to offer European-wide deposit insurance that would quell this run before it becomes a full-blown panic.  Of course, Germany doesn’t want to do this.

European leaders have to decide if they want to cut Greece loose, but try to save other countries like Spain.  That’s the first decision.  Are you going to try to save everyone, are you going to try to save everyone but Greece, or are you going to let the whole thing go to hell?

Europe could offer euro-zone deposit insurance to everybody in the euro zone or dump Greece and offer it to the remaining countries.

Europe could offer euro-zone bonds guaranteeing countries’ debt to everybody or dump Greece and offer them to the remaining countries.

But Europe’s leaders are in a state of paralysis, which in itself is a form of decision-making, an abdication of control and responsibility.

Greece has become an excuse for not addressing the problems of other weak periphery countries, like Spain and Italy.  But ignoring these problems doesn’t make them go away.  Not deciding becomes a decision.

We saw what happened in this country when events overtook our leaders in September 2008, and our entire financial system was brought to the brink of collapse.  We saw Treasury Secretary Henry Paulson go down on his knees, begging Nancy Pelosi to stay in bailout talks after the Republicans walked out.  For Paulson, the arrogant former head of Goldman Sachs and the quintessential Master of the Universe, to be brought to such a shocking state tells you how close we came to tipping over the edge, how close we came to another depression.

Europe is on its knees, and Angela Merkel is on her way out of the room.