Emergency

Suppose there is no debt ceiling agreement. What then?

But Eric Posner, a law professor at the University of Chicago, said that the meaning if not the words of the Constitution left Mr. Obama with room to act.

“The president has inherent emergency powers,” he said. “It has long been understood that the president should act to protect the country.”

That is the broadest option for Mr. Obama. The second is based on the actual text of the Constitution, though there is a dispute about what the words in question mean. Section 4 of the 14th Amendment says: “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.”

I am reminded of FDR's inaugural in 1933, where he laid out the situation plainly:

But in the event that the Congress shall fail to take one of these two courses, and in the event that the national emergency is still critical, I shall not evade the clear course of duty that will then confront me. I shall ask the Congress for the one remaining instrument to meet the crisis—broad Executive power to wage a war against the emergency, as great as the power that would be given to me if we were in fact invaded by a foreign foe.

And what would FDR have done if Congress had refused to grant Emergency power (which, in fact, it did)? I think he would have governed by Executive Order. I think he would have ignored Congress altogether.

A reader on the Brad DeLong site offers an interesting thought:

The question on my mind is: if the President unilaterally issues additional debt, and that debt ends up being sold at a premium because of legal uncertainty, will that actually help the US economy by devaluing the US dollar, as counter-intuitive as that might seem?

Here's an apocalyptic note from the Department of the Treasury:

Today, the U.S. Department of the Treasury released a report on the potential macroeconomic effects of debt ceiling brinksmanship. The report states that a default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, and U.S. interest rates could skyrocket, potentially resulting in a financial crisis and recession that could echo the events of 2008 or worse. By looking at the disruptions to financial markets that ensued in 2011, the report examines a variety of economic indicators – including consumer and small business confidence, stock price volatility, credit risk spreads, and mortgage spreads – through which a similar episode might harm the economic expansion. The report also notes that if the current government shutdown is protracted, it could make the U.S. economy even more susceptible to the adverse effects from a debt ceiling impasse than it was prior to the shutdown.

I like the way Yves Smith puts it...

The Tea Party is beginning to look like the Wahhabis, a fringe sect promoted by the House of Saud to help secure their position that wound up taking on a bit too much of a life of its own.

(There are those who say that Khomeini's revolution in Iran was another example of this principle. The American CIA knew that the Shah was on his last legs, and considered an Islamic theocracy preferable to a triumph by the Tudeh party, then quite popular.)

I'm guessing that Obama really will have to go for the trillion-dollar coin idea. We've seen quite a few articles lately assuring us that the Coin Trick is impossible. Well...

The idea the Federal Reserve won’t “cooperate” by accepting legal tender from the United States government is ridiculous.

For all the silly nonsense about the Federal Reserve being quasi-private so it can be “independent” in all the ways that matter, it is part of the government. The only reason the Federal Reserve has any power is because it is part of the federal government and backed by the full power of the United States government. Their money only means something because the federal government has the guns make it mean something. If you don’t pay your bills and your taxes the police will take your stuff and put you in jail. Otherwise it is just paper.

If the Federal Reserve even tried to start picking and choosing what legal tender it would take from the federal government it would immediately be destroyed as a functioning concept. The Federal Reserve has no legal authority to defy the government nor any real power to do so.

Obama clearly doesn't like the coin. Hell, nobody really likes the coin. But in the coming emergency, what will his options be?

Ultimately, we need to remake the rules of Congress. Personally, I would prefer to rethink the institution from the ground up -- perhaps get rid of the Senate, in which Alabama has as much power as California. At least get rid of the filibuster-that-isn't-a-real-filibuster. And there can be no further financial challenge to laws passed by Congress.

That sort of extreme do-over will be possible only in an emergency. Looks like the teabaggers are insisting.