President Barack Obama made a demand of House Speaker John Boehner near the end of their first White House meeting on the fiscal cliff: Raise the debt limit before year’s end.Yes, I know how badly the debt ceiling debate turned out last time around. Everything about it was terrible—not just the deal itself, but also the process of getting the deal. Nobody ended up looking good, and even though John Boehner said he got 98 percent of what he wanted, nobody was really happy about the final outcome.
Boehner responded: “There is a price for everything.”
And with that exchange, described by sources familiar with the Nov. 16 session, an issue that has been overshadowed by the fiscal cliff showdown moved to the forefront of already complicated negotiations to avert more than $500 billion in spending cuts and tax increases by the new year. With bitter memories of the 2011 debt-limit standoff still fresh, both sides are engaged in another aggressive round of hardball.
But the key thing about the debt limit—and the reason that I'm not freaked out about it now—is that the debt limit will only be a crisis if congressional Republicans and the White House want it to be a crisis. Sure, Republicans might be crazy enough to try to relive the crisis, but President Obama doesn't appear to have any desire to do so—and he has it within his power to avert the crisis entirely—without a single act of Congress.
Remember, the debt limit is simply a statutory cap on the total amount of debt held by the United States government. Assuming Congress doesn't lift the cap, we'll eventually hit the cap because Congress is spending more than we're taking in. When that happens, we'll find ourselves in a situation where congressionally mandated spending is in conflict with the congressionally mandated debt limit. The general assumption has been that in such a scenario, the debt limit should be the controlling law, but that's an arbitrary assumption.
As Yale Law Professor Jack Balkin argued last year, with two conflicting statutes, both of which have a constitutional basis, the president must decide which one of them is unconstitutional. President Obama is nothing if not rational and while he certainly doesn't want to face that choice, it's clear that the best and most logical option would be to obey congressional legislation on spending by continuing to issue debt beyond the debt limit. Balkin also suggested another option: the trillion dollar coin. The president has the legal power to issue an unlimited amount of coinage in whatever denomination he sees fit. He could simply mint a trillion dollar coin and deposit it in the Federal Reserve, giving the government the funds it needs to make good on spending authorized by Congress.
Neither of these scenarios are ideal, but they are vastly preferable to a repeat of the 2011 debt limit crisis, and as long as the president agrees, there's nothing Republicans can do to stop him, at least not before the fact. As Balkin points out, Congress could respond by trying to impeach the president or by suing him, but given that his actions would have just saved the economy from collapse, the public would not have much patience for such actions. The real point of leverage for congressional Republicans would come at the end of the fiscal year when discretionary spending laws expire, but that's a point of leverage they already have.
The only way the debt ceiling will become another economic crisis is if both the White House and Republicans decide to make it one. That's exactly what happened in the summer of 2011, but so far the White House hasn't given any indication that it wants to see a replay of that debacle. And as long as they maintain the option of bypassing the debt limit with one of Balkin's strategies (or some other legal maneuver) the debt limit shouldn't be a big deal in 2013.