The whole idea of the upcoming debt limit showdown enrages me-- after all, it's inherently contradictory and hypocritical on the part of Congress to first pass laws mandating certain spending, and then refuse to give the Executive branch the means to spend what Congress mandates that they spend. The Republicans are openly trying to convince everyone that they're willing to blow up the economy in a big way simply because in their minds, anything bad that happens will be blamed on Obama regardless of how much the Republicans are to blame for precipitating the situation.
But I've thought of a way the Democrats might be able to handle this situation. This assumes that the Treasury department can avoid default simply by prioritizing payments to bondholders. That is, even without an increase in the debt limit, all bondholders can continue to be paid if Treasury uses what cash it does have (and has hoarded) to pay them first. Hence the threat of default is taken off the table.
It's other people who are owed money by the Federal Government who do not get paid. Doesn't Treasury get to choose which people these are? Here's where Obama can use the Republicans' refusal to increase the debt limit against them.
GOP: Nice country you got there. It would be a shame if something happened to it.
Basically, my proposal is that the Treasury Department first stop paying the following
1) Congress's salaries. Hit 'em where it hurts. Since they don't want the government to pay its bills, the most rational bills not to pay is those owed to congress themselves.
Us: Nice salary you got there. It would be a shame if something happened to it.
2) Congress's staff salaries. Most Congresspeople don't need their $174k salary, but they do need their staffs, and I bet a lot of their staff actually do need their salaries. I bet some Congresspeople care about their staffs and would be hurt if their staffs couldn't pay their mortgage.
Us: Nice staff you got there. It would be a shame if something happened to it.
3) Pork barrel projects and other federal spending in Republican congressional districts. Got a lot of agribusiness in your district? Oops, the federal government can't pay your subsidies this month... or next month... or ever... until the debt ceiling is increased. Got parks in your district? Oops, they're closed. Got construction projects in your district? Oops, not any more. Got military bases in your district? Oops, your veterans aren't getting paid.
Us: Nice district you got there. It would be a shame if something happened to it.
4) Entitlements for people living in Republican districts. This one really twists the knife, but when we hit the debt ceiling, by all accounts we'll be in a legal grey area. Treasury will be mandated by law to pay out entitlements, but at the same time it won't be able to. So which peoples' entitlements get cut off first? Those living in Republican districts. Remember the "take your government hands off my Medicare" guy? Yeah, entitlements are actually more popular among a lot of Republican voters than the tea party would make it out to be.
Us: Nice entitlements you got there. It would be a shame if something happened to it.
Basically, why can't Treasury use the Republicans' refusal to raise the debt ceiling against them. Cover our flanks by taking default off the table. Then use the increased freedom that the legal gray zone has created to selectively pressure the Republicans to the table.