Yep. I realized yesterday as I was chewing over our current state of affairs with a friend, that our 11 dimensional genius has managed to cut off all avenues of political escape. How this yutz ever managed to portray himself as above average is beyond me. Thanks for laying out so clearly how he has ensnared himself in his own hubris. Imbecile. They don’t call it the third rail for nothing…

There is another option that hardly anyone is mentioning, but it may be the ONLY LEGAL option if the debt ceiling is reached. Not mailing out SS checks (i.e., defaulting) would be an illegal action by the White House.

What the White can do that is perfectly legal, is mint platinum coins in whatever denominations it wants (e.g., $500 Billion). Since this may be the only legal option (assuming the constitutional option is illegal), the WH would HAVE to do this to abide by the law.

I wrote a diary on this yesterday. http://my.firedoglake.com/mikediaz/2011/07/11/if-no-debt-limit-deal-is-reached-obama-may-only-have-one-legal-option/

would be ironic if whole thing forced Obama into inflationary money printing, which would help the jobs and personal debt problems.

Obama’s Debt Ceiling Veto Threat Has a Credibility Problem

Fixed it for ya!

Boxturtle (Well, somebody had to say it)

Oh, oh, Jon, you wrote the wrong word: “inflationary.”
Better retract while you can :-)

Yeah, a veto after threatening that SS checks might not go out wouldn’t be too wise.

Please explain to me how $5 gallon gasoline “would help the jobs and personal debt problems”.

From an economic point of view, minting the money is identical to quantitative easing. The prior it is Treasury buying out t-notes, the latter was the fed buying out t-notes. The effect is the same.

neo-classical economist have jumped and screamed for the past three years, that we were going to hit hyperinflation and US borrowing cost would rise. Neither of which has happened, even during QE1 and QE2.

Obama left himself in a very weak position when he threatened to veto any short term debt raise.

All the GOP has to do is pass a short term increase to the debt limit, and then Obama is really stuck.

Either he waffles on his promise to veto, or HE is the one who ends up triggering default–with a clear line of responsibility to him as the person who, by himself, turned down the increase and spurred a crisis.

So, he really painted himself in the corner.

This guy just doesn’t know how to negotiate.

Witness the Bush tax cuts in December, Israel and the Pals further away from a solution than ever, Pakistan now saying they will just stop doing anything on the Afghan border is the threat to stop funding goes through.

“Considering that the primary objective of the Republicans all along has been to damage the President politically in these negotiations, it seems like putting Obama’s veto threat to the test by offering a last minute short-term extension would be an opportunity they could not pass up.”

We must all clap for the GOP, because the moron in the WH, name OBAMA came up with an idea that ended his political career, cutting Social Security, Medicare, Medicade, was OBAMA idea

the GOP can now walk away and laugh at OBAMA

any below avg political adviser knows OBAMA can’t take any heat from the left and win in 2012.

Obama saying he is willing to cut Social Security, Medicare, Medicade, and getting it on Tape? priceless for the GOP

If you haven’t seen inflation where you’re at, please share where that is. Where I’m at, groceries are significantly up, gas prices are way up, and now other things are creeping up (local rents, utilities, etc.)

I wouldn’t define it as hyperinflation, but it’s noticeably more than our “regular” inflation (whatever that is, I think I read sometime that between 1-3% is somehow “good” but I might be misremembering that).

Anyway, I’ve seen inflation. My family members and friends have seen inflation. It’s talked about ALL the time. Particularly after trips to the gas station or grocery store.

The federal reserve adjust interests rates to try to achieve a “target inflation rate” (i believe it is 2%). We have been below that target since the financial crisis.

If you have a 20,000 debt and the value of the dollar drops your debt is less.

Inflation: costs going up, quality going down

Money in circulation that is being used for transactions can if there is too much of it cause inflation. The Fed buying bonds so the country need not fire anyone keeps current levels of transactiuons going – it does not make for new transactions.

So there is no new inflation that causes $5 gas.

But the oil companies do have a goal of $5 gas, so it may happen.

High inflation makes can make current debts less onerous.

One way to see how inflation makes debt less onerous to the debtors is to consider a fixed-rate mortage taken 20 years ago. When you got that debt, that $500 a month payment was onerous, and took up maybe 60% of your pay. But after 20 years of inflation (where the prices of all things went up, including your wages), maybe that same $500 a month now only accounts for 30% of your pay.

At least I think that’s how inflation helps debtors. IANAE so don’t my word for it.

We have been below 2% inflation since the crisis????

Well, then now I’m convinced those inflation numbers (CPI, CPI-this, or CPI-that) are bullshit, because that’s bullshit.

Corporate pricing power means higher prices and profits – which they don’t pay tax on as they claim the “value added” was done overseas in one of their subsidiaries.

I agree food and fuel are zooming up – making the “2%” a joke. But as you note it is not getting out of hand.

The time between capital investment for new production and that production puts dollars into circulation with no additional production, causing a “normal” inflation of perhaps 1%.

Printing money devalues a currency. When you devalue a currency items priced in that currency (all else being equal) increase in price. Particularly when that item constitutes an asset class, such as oil. Speculators can be easily blamed for these price increases but that is only part of the equation. If QE2 had not occurred, oil prices would be 25% lower than they are. Of course, so would the stock market. It’s funny how the Fed takes credit for the latter but not responsibility for the former.

Also, when we’re talking about the influence of “speculators,” remember this. Those “speculators” are the very ones that recieved all of that new money from the bailouts and QE2.

It’s ok to blame “speculators” for part of the inflation we see in commodities, but remember that the reason they have as much money as they do to speculate with is because of all of the new money thrown in the system in 2008/9, IMO.

Not raising the debt ceiling is not defaulting.

If I had a plan B, I would not telegraph it.

Obama’s campaign doesn’t want this issue dragging on over and over from now to November 2012.

He will veto it. But they will dicker over what a reasonable increase in the debt ceiling is.

I view the Social Security checks not going as an idle threat unless it is absolutely clear that the GOP caused the crisis.

And Mitch McConnell has not made his base very happy with his latest tactical move.

It’s a nice theory. The problem with the inflationista argument is that it assumes wages keep up with price increases. They have not been and there is no reason to expect this to change any time soon. When the material input costs of a business increase the first thing the business looks to do is offset these cost increases with cost reductions or by controlling other costs. These other costs are primarily labor related. The workers therefore are harmed on both sides of this.

Oil prices are back to where they were in the summer of 08. In fact, they are still slightly lower. It was a speculative bubble in 08, what makes you think it is any different now.

Despite what the Fed claims, QE2 is generally thought to not have had much of an effect on anything.

Considering that the primary objective of the Republicans all along has been to damage the President politically in these negotiations, it seems like putting Obama’s veto threat to the test by offering a last minute short-term extension would be an opportunity they could not pass up.

Methinks this overlooks the kabuki aspect of this whole charade being played out to benefit the few and worsen the lives of the many.

Generally speaking, I gotta believe the Thugs, Dims N Obama are all in it together.

The end goal is to improve the lot of the wealth and reduce the power of the masses.

I know it’s jingoistic Jon, but when both parties are in it together, an analysis such as above ignores the reality at hand.

We the people are set up to suffer more, while the 20% will improve their lot one way or another as they pick our bones.

It matters not who says what, it’s the rotating villain strategy n NO ONE knows how the script really ends except the script writers.

I assure you, we the people are not consulted on the script, or its outcome . . . but to close on a positive point, thank you for all your tireless work to keep us readers informed.

You and Mr. Dayen do mighty tall work daily . . . and I’m grateful for it even when I scowl n quibble. ;-)

It sounds like you agree with me regarding the affect of creating money.

Yep. Which Ben Bernanke assumed they would just automatically use to loan for operating capital. Wall Street really is intent on destroying the golden goose that makes them rich. Stupidest business executives in history. Folks in 1929 had never seen their stupidity melt down the economy so completely before. This generation has stubbornly refused to learn from that. Absolute overpaid incompetents every one of them.

Warren Buffett on the other hand has recently invested in railroads, manufacturing support companies, renewable energy, and as a hedge, he’s kept his jewelry stores.

I guess, yes. I believe throwing more money into the same system can lead to inflation. I was actually taught this in the few semesters of economics I took back in college many, many moons ago.

But I understand there are many, including here at FDL, that have more economics knowledge in their little toe than I do in my whole fat body that don’t beleive that to be the case. So sometimes I’m not sure.

Ok, here’s a question for both mjocaj and OldFatGuy. Which would be better, for Obama to accept a deal cutting Medicare etc., or for no deal to be reached and for him to be have to pay down our debt by printing money?

I say pay down, because the minted money would be used to pay debts we own, thus lowering our 14.3 T national debt, as well as saving us billions in interest payments.

Mark Haleprin was right. Obama is a “dick.”

Speculative bubbles are fueled by cheap, easy money. If interest rates on a 5 year CD were at 10% these bubbles would all pop. Again, Bernanke has taken credit for artificially inflating the stock market. Maybe he is wrong but I think most stock market investors/traders would agree with him.
Can’t have it both ways (i.e. inflated stocks but not commodities).

Great post phred.

Neither. He should invest in a jobs program.

Seriously. The debt ceiling “crisis” is a cynical fabrication to force austerity on the unwashed masses.

“printing” money is not the usual way the money supply grows

Indeed all of the massive growth in the money supply from the crisis has mainly gone to balance sheet reserves at the banks – not into circulation chasing production creating demand that produces hiring

Indeed that is the problem – we can’t get growth – and inflation – restarted.

Speculative bubbles are fueled by cheap, easy money.

Yes i agree with that. But i do not think we should raise interest rates now (i.e., make money harder to get).

The economy needs more demand now (and more investment), and making money harder to get will do the opposite.

The solution to speculative bubbles, is not making money harder to get, but actually regulating the markets. That is the lesson we learned in the 30s, but have since forgotten. So we are repeating history.

i would love it if that happened. How do you propose we get that through?

He was portrayed by the corporate media and his campaign as nothing less than genius when in reality he has a small mind that lacks vision and imagination. Whatever befalls him as a result of his half-assed “leadership” he has earned and deserves.

Is it just me, or is the kabuki theater around here improving in the quality of its drama? It certainly isn’t the lot of the working class that’s improving, that much I can say.

Oh absolutely, I agree, if those were the two choices, yes.

I wish he would consider that as an option. I also wish he would consider the 14th amendment, which IMO reads like all OBLIGATIONS. And once Congress passes laws and budget fulfilling those laws, then IMO they have become an obligation, or a debt, and can’t be ignored.

In other words, the 14th reads to me like once Congress passes a law that says “Anyone over the age of 65 is entitled to $XXXXX.” And it passes a budget that allocates $XXXX dollars to do that with, then it has become a bonafide debt, owed by the government, to those people.

But IANAL and know most of those wouldn’t agree with me on that either.

I’m not trying to make a political point here. All I’m saying is we have to be realistic and accept the adverse consequences of certain actions. In answer to your question I would say neither. End the bull shit wars and raise taxes on the rich welfare queens who have benefited disproportionately from both monetary and fiscal policy over the past few years. I recently told a friend that the biggest welfare queen in this country is Warren Buffett. He looked at me funny and I was unable to make him understand the concept. I finally gave up.

At this point, the Republicans are going to be blamed if the government defaults. I really don’t see any bill getting to Obama’s desk. The Tea Party crazies are not going to sign on to anything that doesn’t touch entitlements. Now they want a constitutional amendment to balance the budget.

Mitch McConnel today tried to find an escape hatch for the Republican Party. He knows that if a default occurs and the SS checks stop being sent out, it will be the end of the Republican Party. It about time the crazies were sent back to the asylum.

Yep.

And then some.

We can’t because the people in charge of decisionmaking have already made the decision to cut the social safety net and keep taxes low on the top 1 percenters. The whole debt crisis canard changes the subject from the massive upward redistribution of weath to hypothetical fixes that won’t be made because they don’t want to make them.

It all works if they all agree to the grand bargain in the end like some kind of co-conspirators in a fiendish plot or like a troop of actors in a prearranged kabuki play:

Reid folds:

http://thehill.com/blogs/floor-action/senate/171009-in-shift-reid-open-to-social-security-changes-in-debt-deal

Inflation of the economy is the whole idea behind creating additional money in the system. That inflation typically only causes higher prices for things that are at capacity. What has happened is that not only have companies reduced labor force, they have also reduced capacity. As a result, it will cost more to restart production domestically in a recovery. So instead of putting the additional money into plant and equipment, they put it into paper, more credit default swaps and in commodity markets. The putative loss of supply as a result of the Libyan revolution caused a speculative uptick in oil markets that was passed immediately to the pump. Obama’s announcement that he would sell from the strategic petroleum reserves put a pin in that bubble but the prices have not come down at the pump yet. Increase in fuel costs were passed on through food costs, which had been deflated 2008 to mid 2009.

Housing costs are down on average because rents are down. Health care has continued going up but not as fast because people have been skipping appointments.

Some of these do not represent inflation but imbalances in supply and demand.

As state budget cuts begin to hit, we are likely to see prices go down again.

If federal cuts wind up to be draconian as well, we might very well see a deflationary panic.

But our currency will have a high value again, won’t it.

I’m on the fence about the legality of the constituational option. i was all for it, particularly when the Yale law professor came out and said the ‘original intent’ of that section was to prevent the debt from being hijacked for political purposes.

However, as much as i disagree with almost everything Geithner says, i do think he has a point that the amendment refers to current US debt, and does not say it allows the issuance of new debt.

The only way it can possibly be concieved that it does allow that, is if it empowers the president to do anything it takes to pay existing debts, and there is no other options. But there is another option, and it is perfectly legal, and that is minting the money!

If the debt limit is not raised, it would be ILLEGAL for obama to not send out SS checks (i.e., default). So HE MUST print money to pay the bills. (the only way he’ll do that though is if people are aware that is his only legal option).

I agree completely. His political instincts and intelligence are surprisingly poor for a person who managed to get elected President. I am genuinely astonished by his ineptitude. The only thing that has gotten him by thus far is the obsequious behavior of congressional Dems. But perhaps they are too busy hitting up donors to notice how far up a creek without a paddle Billion Dollar O has left them…

Let’s look at the consecuences. One effect that EVERYBODY agrees on if the president mints, say $1 Trillion, to work with nice round numbers, is that the deficit for this year will completely disappear and we will have a surplus to pay down the national debt.

The other consequence that people disagree about is whether there will be inflation. I cover that in my diary here. But me just sum it up this way, most people believe QE2 no effect, but IF IT DID have an effect, that effect would help get us out of a liquidity crisis.

He does speak purdy though. I’ll give him that.

Or did in 2008 at least. Back when I listened to him speak.

I can’t stand to hear his voice now, just like the point I got to with W and The Dick. And just like W and The Dick, you can tell when this asshole is lying. His lips are moving.

Yes, the hard earned savings of people would be worth more and they could get a decent return without speculating/investing in the Ponzi stock market (or, if retired, rely on the government’s SS promises).

“Printing money” is actually two options. (1) Increasing the money supply through normal Federal Reserve actions or actually printing $14 trillion in hundred dollar bills to pay debts. (2) Using sovereign seignorage to leverage on a temporary basis some tangible asset (the current proposal is platinum) to buy back debt from the Federal Reserve.

Option 1 creates massive inflation because it puts money into an economy in which QE1 and QE2 did not create real investment but only rent-seeking actions.

Option 2 is just a temporary swapping of assets that the Federal Reserve holds to manage the money supply. It would not create inflation and might even damp inflation as the economy recovers. What it would do is allow the Treasury to retire the debt that the Fed purchased as part of its efforts to get recovery going. The net effect is to put the Treasury books below the debt limit again without any action on the part of Congress. Which restores the fiscal debate to tax laws and appropriations.

I don’t disagree that the government can partially inflate away it’s debts but in so doing it reduces the value of each outstanding dollar, which to me is a form of theft. Nice talking to you but I’ve got to go.

Sorry, i used the term printing money loosely. I actually specifically mean minting platinum coins (option 2 i guess). Specifically that, because by law Treasure can mint an unlimited amount of coins (there is a limit on paper money that Treasure can mint–but not the Fed) and platinum specifically because the law allows Treasury to mint ANY DENOMINATION of platinum coins that it wants.

So as others here at FDL have suggested, see links in my diary on the subject, Treasury can just mint say a single $500 billion platinum coin, and debt crisis averted!

not inflate away its debt. Actually PAY its debts with the new money.

The administration doesn’t have a Plan B, like invoking the 14th Amendment, to get around the debt ceiling limit if Congress doesn’t act.

If the Administration were really serious about making the Republicans back down, the 14th Amendment would be Plan A. It isn’t, so they aren’t.

the amendment refers to current US debt, and does not say it allows the issuance of new debt.

I believe that is correct. But what it says more importantly is that Congress and the President have the responsibility under the constitution to not default. That the constitution does not permit default in the same way that state constitutions do not permit unbalanced budgets.

Which means that if Congress does not accept its responsibility, the President after the magical debt limit date can step up to the plate and make the deferrals and rescissions necessary to keep the country out of default. And in this circumstance, under law most of the military budget is discretionary and none of Social Security is. Which means that if the President in those circumstances fails to pay Social Security checks, the government can be sued (and it will cost the government a penalty to settle the suit). Of course, that assumes that the courts still operate.

What it does is takes control out of the hands of the Congressional Republican micro-managers.

The President doesn’t have to say anything or do anything for the “constitutional option” to occur. Congress just has to fail to do its duty.

Have not left yet. Who pray tell would accept a $500 billion platinum coin as payment if the platinum of which it consists is not worth $500 billion ? It would have to be an awfully big coin.

It would be deposited to Treasury’s account at the Federal Reserve. By law it is legal tender and they will have to take accept it.

The size of the coin would not have to be proportionate to the value.

I understood the constitutional option as Obama saying “the debt limit violates my constitution obligation to pay US debt, and therefore it is an unconstitutional law”.

However, the debt limit does not violate his ability to pay US debt, because he can still pay it WITHOUT issuing debt. You are right, he can cut discretionary spending, but would that be enough? His only way to abide by his legal obligations would be mint coins. We should hold him to that!

Me, too ; ) I’ve even gotten to the point where I change the radio station if they are playing a snippet of what he says. Like nails on a chalkboard, the man’s voice makes my skin crawl.

You do every day you accept a quarter in change. It is a token that depends on the good faith and credit of the American people, which cannot be questioned by the government because of the 14th amendment. And the Federal Reserve in its chimerical existence is part private banks and part government. Therefore the federal reserve would be as obligated to accept a platinum bar as it is to accept $1 trilion in pallets of $100 bills.

I’m no fan of Obama’s, but perhaps this veto threat is just reverse psychology and he WANTS them to offer a short term that he would in fact sign… just sayin’…

It isn’t like most currency exchange these days isn’t electronic. The treasury generally doesn’t go from bank to bank with dollar bills to actually pay social security or military pay. It’s all electronic.

If cutting $400 billion in discretionary spending would be enough to reach a $4 trillion ten year cut, where could he find $400 billion. Well first of all, he could defer posting the interest payments on the Social Security Trust Fund until some defined event. That would probably handle $40 trillion. Some negotiated deferrals of interest with China–they do want to sell stuff to the US, don’t they–might be possible. Calling in the loans to the banks and using them to cancel bank holdings of T-bills might be a possible way. Accelerating the withdrawal of troops from Iraq and Afghanistan could net what? So maybe you get to $200 billion immediately from all of these moves. Remember that tax revenues continue to come in so you just have to defer or rescind enough to balance each month. (Isn’t that the way a family does it? [ducks]) Now we get to the big stuff. Cut the $100 million that needs to be cut from DoD in the FY 2012 budget right now. There’s (as of Aug 2) two months of rescinded expenditures more on expenditures that would have gone away if Congress had not wanted earmarks. The defer every post office, government building, or project that a member of Congress has earmarked that is not yet in construction — every one. That might net $100 million or more.

Typically the Jun-October period is capital expenditure Christmas in federal budget. Christmas isn’t happening this year. There are some IT, vehicle, building renovation savings. Look we are out of stimulus mode here and into scare the shit out of Wall Street that we might really balance the budget.

Devote more resources to tax collecting and IRS enforcement in the top 2% group. Put doctors under scrutiny for fraudulent Medicare/Medicaid claims. Especially specialists. Explain that the government is having to go through the couch cushions (like a family would do) and sorry for the inconvenience.

Launch investigations into Wall Street for fraud of the government. As an experiment, match up SEC documents and IRS documents to get a list of potential tax cheats.

Pull contracts from companies that store profits offshore to avoid taxes and rebid them to companies that don’t.

Pay Congress and Congressional staff the wages of the median family ($60,000), the rest being deferred. Do the same for all appointed officials in the executive and the judiciary (that should turn some heads). And all of the Senior Executive Service civil servants. Hold harmless government employees whose salaries are less than that of a median family.

Go after the sacred cows. Bring some financial reality into DC. Hit back at GOP’s hidden welfare programs.

After the first months savings, the second saves more, and oh yes, you do a Shock Doctrine of your own on Congress.

That’s how it can be done. I don’t know if anyone in the administration has the imagination to do it.

Well McConnell put the short term offer on the table and the rightwing blogs went ballistic. So there’s no fig leaf for Republicans there.

I think the GOP rank-and-file in Congress want a stalemate. And they might just get it.

Well the Supreme Court in 1935 agrees with you – so those that sell the idea that the 14th Amendment applies only to current outstanding bonds are wrong – indeed Fox and the right are really working hard to ignore the 1935 decision!

Of course debt is read as funding already voted by Congress – the President can not do a rescission on his own.

It is neat to have the Fed with no debt limit!

But if Current law that has been funded by Congress requires new debt, I suggest that new deby must be issued -

however as the Court could say you did not try all options if you did not do the Fed thing, it is safer to due the Fed first.

defer usually does not mean don’t pay for 10 years – so I’m not sure the first years $400 b can be repeated every year for the next 10.

a lot of court cases if attempted.

I’m no fan of Obama’s, but perhaps this veto threat is just reverse psychology and he WANTS them to offer a short term that he would in fact sign… just sayin’…

I think it’s time to stop making excuses.

Just sayin’.

Doesn’t have to be if Congress is different beginning in 2013. Then tax reform could be back on the table.

All Obama has to do is get through the 2012 election. And get a change in Congress.

If it’s rescission of expenditures in order to avoid a situation that violates the Constitution he can. This is a case where it’s “see me in court”. Is a court going to slap down a President who rescinds honest-to-goodness wasteful spending?

I enjoyed this comment very much.
Thanks for it.

Only if there is wage inflation. Actual inflation != CPI != wage inflation.