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Please begin with an informative title:

U.S. President Barack Obama hosts a bipartisan meeting with Congressional leaders in the Roosevelt Room of White House to discuss the economy, November 16, 2012. Left of President Obama is Speaker of the House John Boehner. &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; &nbsp; REU
President Obama and Speaker of the House John Boehner.
As Gary Norton noted earlier this week, President Obama has said about the debt ceiling that:
"There are no magic tricks here, there are no loopholes."
The president may be right, but I'm not sure it was wise to say so now, especially if House Republicans do not raise the debt ceiling. What then? Norton argues that:
[T]hese determinations made clear he will not circumvent the debt limit law by the use of one of several tactics that, while arguably legal, would be viewed by some as gimmicks, or that could develop into a significant Constitutional crisis. Moreover, he understands that the use of any of those options would merely delay the final day of reckoning. The debt limit must be increased and it is Congress' responsibility to do so.
This sounds nice but again, what if the moment comes and the debt ceiling is not lifted? Will the president merely allow an economic catastrophe to unfold just to be able to say he did not use a gimmick or a loophole? I would hope not.

The argument goes that by not providing House Republicans an escape hatch, they will be left no choice but to raise the debt ceiling. Norton presents the argument as follows:

The President did not choose the first two options because, whether or not one thinks he has the legal authority to issue a platinum coin or issue script, the President knew that both internationally and domestically taking either of those actions would be viewed as a gimmick, a magic trick. More importantly, either of those actions would merely be kicking the can down the road. They would be giving the Congress an excuse to not raise the debt limit because the President would have continued to keep the country operating and the Republicans would have been let loose to fight the President in the courts and through impeachment hearings.
This is reasonable and logical. But reason and logic do not always help us predict how the House Republicans will behave. Admittedly the signs have been good—many Republicans are already shying away from the debt ceiling fight. But certainly there won't be enough of them to satisfy the Hastert Rule.  So this solution posits that the Republican House leadership will break the Hastert Rule for the third time in 2 months in order to raise the debt ceiling. This could very well happen. But can we count on it?

I'll discuss this scenario and other "magic tricks" and "loopholes" related to the debt ceiling, a government shutdown, Congressional appropriations, entitlement payments and much more on the other side.


You must enter an Intro for your Diary Entry between 300 and 1150 characters long (that's approximately 50-175 words without any html or formatting markup).

The federal government is fast approaching a sort of triple witching hour. The following events are moving fast upon them (and us): (1) The debt ceiling has been reached and very soon, certain Treasury "gimmicks and loopholes" (like not funding federal employee pensions) will run their course to the point that direct out of pocket payments will have to be foregone if Treasury is not permitted to raise more debt. (2) The continuing resolution appropriating federal government spending is scheduled to expire in March 2013. (3) The spending cuts from the sequester will kick in on March 1, 2013.

To avoid these economically detrimental results (yes, an understatement to be sure), the president and the Congress must reach agreement on (1) Congress' willingness to raise the debt ceiling without condition, (2) eliminating the automatic sequester (even if replaced by some other type of more modest and targetted spending cuts) and (3) agreement on the continued funding and appropriation of federal spending to replace the expiring continuing resolution.

If the president does not change his mind on "gimmicks" and "loopholes" with regard to the debt ceiling, then we must count on House Republicans permitting a vote to raise the debt ceiling. (For the record, I do not agree that acting to be in compliance with section 4 of the 14th Amendment to the Constitution is a "gimmick" or a "loophole." For more detailed reasoning, see this and this.)

For now, let's assume the debt ceiling gets raised (even if for a short period), what of the other two pending events—the expiration of the continuing resolution and the sequester? How do these get resolved? And if they do not, what then?

Let's first discuss the sequester. If no agreement is reached, then the spending cuts, at least in terms of categories, are specified. Half of the cuts, $600 billion over 10 years ($60 billion in the coming year), go to defense. The other $600 billion comes from Medicare (though limited), Medicaid and other social safety net programs. Social Security is exempt from the sequester.

House Republicans are now signalling that this will be a line in the sand for them:

Republicans appear to be willing to avoid a showdown over the debt limit and instead use the sequester as their main negotiating lever in upcoming fiscal fights with the White House and Senate Democrats.

House Budget Committee Chairman Paul Ryan, R-Wis., said Republicans at a closed-door retreat in Williamsburg were weighing a short-term increase in the country’s borrowing limit, giving all sides time to work on a broader fiscal plan in March that would include substantial spending cuts.

This appears to be a signal that the sequester and the continuing resolution issues will be rolled together. However, these two events do not have the same drop dead dates. The sequester will kick in on March 1 and the continuing resolution provides for government funding through the end of the March. I suspect the sequester could be rolled over to the end of March 2013.

So now, let's consider what the president's options and responsibilities would be if no deal is reached by the end of March. This part seems pretty simple—the government shuts down. What does that mean? It depends.

If we look to our previous experiences in 1995 and 1996, when President Clinton vetoed Republican passed budgets (the Republicans controlled the House and the Senate at the time) we can get some clues:

The United States federal government shutdown of 1995 and 1996 was the result of conflicts between Democratic President Bill Clinton and the Congress over funding for Medicare, education, the environment, and public health in the 1996 federal budget. The government shut down after Clinton vetoed the spending bill the Republican Party-controlled Congress sent him. The federal government of the United States put non-essential government workers on furlough and suspended non-essential services from November 14 through November 19, 1995 and from December 16, 1995 to January 6, 1996, for a total of 28 days.
What "non-essential" services were shut down?` Here is Congressional Research Services' 1999 report on the subject:
There have been Attorney General opinions holding that the Antideficiency Act (31 U.S.C. 1341, et seq.), as amended, prohibits the federal government from spending during lapsed appropriations, entering into contracts or other obligations, and providing government services and employees beyond those essential "to emergency situations, where the failure to perform those functions would result in an imminent threat to the safety of human life or the protection of property."(3) Emergency situations under which federal employees may work, without compensation, do not include ongoing, regular functions of government, the suspension of which would not imminently threaten the safety of human life or the protection of property (31 U.S.C. 1342).
That explains why the government shut down. Now what parts of the government were considered "essential"?
Essential Services and Personnel

A 1980 Office of Management and Budget (OMB) memorandum defines "essential" government services and "essential" employees as those:

    providing for the national security, including the conduct of foreign relations essential to the national security or the safety of life and property;
    providing for benefit payments and the performance of contract obligations under no-year or multi-year or other funds remaining available for those purposes;
    conducting essential activities to the extent that they protect life and property, including:

-- medical care of inpatients and emergency outpatient care;

-- activities essential to ensure continued public health and safety, including safe use of food, drugs, and hazardous materials;

-- continuance of air traffic control and other transportation safety functions and the protection of transport property;

-- border and coastal protection and surveillance;

-- protection of federal lands, buildings, waterways, equipment and other property owned by the United States;

-- care of prisoners and other persons in the custody of the United States;

-- law enforcement and criminal investigations;

-- emergency and disaster assistance;

-- activities that ensure production of power and maintenance of the power distribution system;

-- activities essential to the preservation of the essential elements of the money and banking system of the United States, including borrowing and tax collection activities of the Treasury; and

-- activities necessary to maintain protection of research property.(5)

During the 1995-1996 shutdown experience, policymakers substantially followed these definitions. Pursuant to that memorandum and White House directions to agencies through OMB, agencies are required to determine which jobs fit these definitions and enumerate them in agency shutdown plans. Those employees rated "essential," although guaranteed to be paid retroactively, did not receive compensation until funding for their agencies was enacted.

What was considered "non-essential"?
The long shutdown that began in December 1995 had ripple effects through all sectors of the economy. A few examples, taken from congressional hearings, press and agency accounts, follow:

    Health. New patients were not accepted into clinical research at the National Institutes of Health (NIH) Clinical Center; the Centers for Disease Control and Prevention ceased disease surveillance (information about the spread of diseases, such as AIDS and flu, were unavailable); hotline calls to NIH concerning diseases were not answered; and toxic waste clean-up work at 609 sites stopped, resulting in 2,400 "Superfund" workers being sent home.

    Law Enforcement/Public Safety. Delays occurred in the processing of alcohol, tobacco, firearms, and explosives applications by the Bureau of Alcohol, Tobacco, and Firearms; work on more than 3,500 bankruptcy cases was suspended; cancellation of the recruitment and testing of federal law-enforcement officials occurred, including the hiring of 400 border patrol agents; and delinquent child-support cases were suspended.

    Parks/Museums/Monuments. Closure of 368 National Park Service sites (loss of 7 million visitors) occurred, with local communities near national parks losing an estimated $14.2 million per day in tourism revenues; and closure of national museums and monuments (estimated loss of 2 million visitors) occurred.

    Visas/Passports. 20,000-30,000 applications by foreigners for visas went unprocessed each day; 200,000 U.S. applications for passports went unprocessed; and U.S. tourist industries and airlines sustained millions of dollars in losses.

    American Indian/other Native Americans. All 13,500 Department of Interior Bureau of Indian Affairs (BIA) employees were furloughed; general assistance payments for basic needs to 53,000 BIA benefit recipients were delayed; and estimated 25,000 American Indians did not receive timely payment of oil and gas royalties.

    American Veterans. Major curtailment in services, ranging from health and welfare to finance and travel was experienced.

    Federal Contractors. Of $18 billion in Washington area contracts, $3.7 billion (over 20%) were managed by agencies affected by the funding lapse;(6) the National Institute of Standards, was unable to issue a new standard for lights and lamps, scheduled to be effective January 1, 1996; and employees of federal contractors were furloughed without pay.

If the debt ceiling is taken off the table, as all indications seem to point, we are in fact going to be dealing with a more "conventional" showdown—one involving a government shutdown of "non-essential" functions. This should not place U.S. debt obligations in peril, though some delivery of pension payments, Social Security, Medicare reimbursements and other payments that require processing would be affected.

This scenario does not appear to threaten violation of Section 4 of the 14th Amendment or any existing federal laws.

What it would be is a major political showdown.

In 1996, President Clinton, with seemingly less favorable political terrain, won the standoff. President Obama though has much less favorable economic terrain. Unlike in 1996, the economy today is very fragile. A government shutdown of the duration of the late 1995-early 1996 shutdown would threaten a recession.

In any event, it appears that all the discussion about platinum coins, the 14th Amendment and the debt ceiling is probably now moot.

Instead, it is time to consider the potential government shutdown of 2013.


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