The right way to handle debt ceiling confrontations

Once again, our debt ceiling problem is bearing down on us. As usual, there are reasons to expect a last-minute resolution to avert any kind of serious meltdown. But this time, our debt ceiling shenanigans are crossed with a chaotic leadership scramble in the Republican-controlled House of Representatives, making the safe outcome seem far less certain. Who knows what the House is capable of right now—and so perhaps now is the time for some bold action from the executive branch to end this cycle of dangerous debt ceiling confrontations once and for all? In a new Brookings white paper issued today, I argue that it is almost certainly not.

For anyone just tuning in, here’s a quick review of our current situation. After having been suspended for most of 2014, America’s debt ceiling kicked back in as of March 16, 2015. On that date, the statutory limit was reset to our current level of debt, north of $18 trillion. Since then, the Treasury Department has been funding America’s deficit spending through a series of accounting maneuvers known as “extraordinary measures.” Those are about to run out, with Treasury Secretary Jack Lew estimating the date as November 3, and warning that a failure to raise the debt ceiling before then could result in a catastrophic default.

Meanwhile, on September 25, Speaker of the House John Boehner announced his intention to resign from the speakership, and from Congress. His presumed successor, House Majority Leader Kevin McCarthy, withdrew himself from consideration for the speakership on October 8, citing his inability to bridge the growing gap between hardline conservatives and the rest of the Republican caucus. It is unclear whether anyone can bridge that gap and therefore unclear when Republicans will coalesce around a new leader. Boehner lingers as a lame duck and has sensibly indicated that he would like to address the debt ceiling before leaving. He will probably be able to cobble together a majority comprising Democrats and around 40 Republicans to raise the ceiling, perhaps as early as this week.

But should we really trust Boehner’s ability to work this out, given the unfolding and nearly unprecedented collapse of his speakership? Even if we feel sanguine on this front, shouldn’t Boehner’s departure make us worry that a future speaker might not steer clear of a crash?

Fear not, the commentariat is ready to ride to the rescue with a clever if unlikely-sounding solution: the trillion dollar platinum coin! By embracing this zany-but-legal statutory prestidigitation, political observers who fancy themselves hard-headed realists are ready to break this current impasse. And if that sounds a little too banana republic-y for you (which it absolutely should), there are some other gimmicks creative ideas at the ready. Bloomberg’s Matt Levine has become a Latin-spewing promoter of super-high coupon bonds, and for the even more esoterically inclined, there are also workarounds featuring Treasury-sponsored special purpose entities or Federal Reserve-sponsored emergency facilities a la Maiden Lane.

All this is fun, and I don’t want to say it is necessarily counterproductive, but these kinds of flashy maneuvers have a serious and largely neglected downside: reaching for any of these possibilities could instantly heat our long-simmering partisan conflict to a boil. Rather than getting the debt ceiling problem out of the way, they would instead escalate it, possibly to the realm of constitutional crisis.

Executive branch officials need a different mindset to find mundane ways to hold the debt ceiling harmless. Although they have incentives to arouse people’s fear as a means of inducing a compromise before their announced deadline, if that deadline were actually to come and pass without an increase, they should quickly change their tune to minimize the significance of the delay. Along with congressional leaders, they should consistently broadcast the Lannister-like message that “The United States always pays its debts,” characterizing any unusual development as a mere malfunction of our separation of powers, not a constitutional paroxysm.

The paper explains why this strategy of de-escalation is less far-fetched than it might originally sound, and far more realistic than the clever ideas. And it considers how it would work in practice, even in a terrible situation in which the Treasury found itself unable to pay all of the nation’s bills on time. Read the whole thing.