From 1/16/13

The Republicans were taken to the cleaners by the president and his democratic cohorts during the so-called “fiscal cliff” debate. The fact that there was no cliff and that what was passed was worse than if nothing was passed is part of the false narrative that is prevalent in Washington, but that is for another blog.

The fact is that the president, yet again, has shown himself to be the master of tactics, a strong ideologue and has achieved great success for his agenda.

At the same time, Republicans have shown themselves to be amateurs.

I am NOT disgusted with this president. He is what he is. I called him what he is years ago. He lies all the time but that is all part of the “goal justifies the means” attitude that he believes in as a true ideologue. I understand that. I think it is wrong but at least he is consistent and true to his vision and is doing a good job at it. It is bad for the country as he is wrong, but again—that is for another time.

I AM disgusted with Republicans. How many times can you be made to look foolish? How many times can you make the same mistake again and again? How many times can you let the president win his argument not on substance, but based on media savvy, demagoguery, and false narratives, all the while playing into his hands like amateurs?

My conclusion is that Republicans are just that—amateurs. I hope they learned something from the fiscal cliff fiasco. Because if they did not, then this economy is doomed to crash in the next 4–7 years. It will be ugly and really bad.

It is time for the Last Stand. Debt ceiling, sequester, and CR are buzzwords that are all alight these days in the media and every pundit takes their run at using them. This is where the Last Stand will be played out.

Some say that Republicans have the best leverage to get cuts in expenditure by insisting on the sequester. I think they are naïve and wrong. The president has no problem with accepting the sequester. As it now stands, 50% of it goes against the defense budget, which is something he wants to achieve anyway, and as to the other 50%, he will find ways to overcome these cuts to domestic spending programs through specific deals here, there, and everywhere. If Republican think that the president will blink when the time comes to have the sequester take effect on February 28, they have learned nothing and are simply wrong.

And in any case, what do these “experts” who suggest that this is the time to make the stand, suggest? That instead of the $1.2 trillion sequester on the table, Republicans can get the president to agree to LARGER cuts? That is nonsense, of course. The whole idea is that MORE cuts are necessary. So the notion of the “last stand” at sequester is a red herring. Forget it. The sequester needs to go into effect and that is it. Given the devastating effect of the sequester on the military, coming from me—a hawk on foreign affairs—that says a lot.

Some say that the Republicans should make their stand in the CR. The CR is the Washington “speak” for a deplorable fact—this country has no budget.

Until few years ago, if you would say that, it would sound like a banana republic. But the fact is that since Obama became president, this country is running without a budget. It is only based on Continuing Resolutions to fund the government (i.e., take what was there last year, add inflation to it, and there you go for another few months, and so on). Passing a budget is one of Congress’s basic functions, but since Obama became president, they have not been able to do it.

The problem with deciding to not pass another CR is that it means a total shut down of government with the exception of essential lifesaving services. A lot of historic comparisons are made to the mid-90s when the house, newly controlled by Republicans, forced a short government shutdown few times. According to the prevailing narrative, that was a big mistake by the Republicans. Why? Because it cost them few seats in the midterms in 1996. The fact that in consideration of few seats, no loss of control, they were able to achieve the much-vaunted budget deal with Clinton that brought about the surpluses, etc.—that is not relevant to the media narrators. Having said that, it is clearly a blunt instrument. I am not ruling it out but it is far from the best option. It will give the president the opportunity to launch a spin campaign against Republicans blaming them for the total shut down of the government. He will have little else to do as the government will be shut down. By the way, the savings during the shutdown of the government will be huge. That is not all bad. However, I believe Republicans should consider this only as a last resort.

I have not heard ANYONE suggesting that the best place to hold the Last Stand debate is at the debt ceiling stage and that this is the best leverage that Republicans have. The fact that no one has made this suggestion is shocking, and shows the ignorance and naiveté in matters of negotiations that permeate DC. This ABSOLUTELY must be the Republicans’ first line in the sand. Only after that is resolved the CR should be on the table. If they are successful during the debt ceiling debate, there will be no need for a CR standoff. The ignorance of most people regarding debt ceiling issues is astounding.

On the one side, you have those who are saying that not raising the debt ceiling will cause a default of the US on its obligations. In the traditional sense, default on obligations means default on loans—bonds issued by the US Treasury. However not raising the debt ceiling will NOT result in such default. It simply cannot have this effect. The Constitution states that the president MUST pay these loans and it is NOT necessary to raise the debt ceiling in order for the US to be able to pay interest on existing debts. That can be done, MUST be done, and WILL be done from tax revenues that will continue to flow into the coffers of the US Treasury, even if the debt ceiling is not raised. The US has already authorized and indeed must replace existing debt, which comes to maturity with new debt used solely to pay off the old one—no change in debt ceiling is required for that. Therefore there is no problem, and there will be no default on loans of the US. No, the supposed default will be on other government programs. You cannot finance the deficit of over $1 Trillion if you cannot raise new debt. So you need to spend within the limit of your income. Wow that is a unique notion: we will spend only as much as we earn. We maxed-out our borrowing ability. Why not?

The continuing suggestions from leading Democrats such as: “We believe you must be willing to take any lawful steps to ensure that America does not break its promises and trigger a global economic crisis—without congressional approval, if necessary,” (letter from Senators Reid, Durbin, and Murray to President Obama) are both disingenuous and troublesome. Disingenuous in that on the face of it, they are saying that the president should, of course, pay the debts. Clearly that is what I am saying too. But then why even say it? Why say it and at the same time “wink wink” to reporters indicating to them that you are pushing the president to use the 14th Amendment to raise the debt ceiling unilaterally—something that they MUST know is a breach of the Constitution? This is troubling in that their reference to “a global economic crisis” is tantamount to calling FIRE in a crowded hall when there is NO fire. There is no such risk and they know it.

The idea that the US can raise NEW debt (as opposed to debt to replace existing debt) without Congressional approval is so outlandish that even the president, the most imperial of presidents this country has ever had, does not subscribe to it. Although I believe that the only reason he is not going along with this idea is that he is told by his advisors that this is what will throw the world financial markets into a total turmoil and collapse. Can you imagine investors buying US debts that later will be declared unconstitutional by the Supreme Court? I do not think so. If it was not for that, I believe this president would go for it.

That, of course, does not stop the president from demagoguing the issue. His favorite line is that he is not going to negotiate with Congress about funding the expenditure that they already approved. But the problem is they DID NOT approve this expenditure. It goes back to the fact that there has been NO budget for four years now. How can he say that they approved it if there was no budget? By the way, even if there was a budget and they did approve the expenditure, the Constitution is clear that Congress has the obligation to SEPARATELY approve the new debt. And why not? Do you not many times change your spending plans because the revenue level that you expected did not materialize and you do not want to, or cannot borrow? This is ALWAYS a separate discussion, consideration, and thus voting. Hence me calling this demagoguery.

It is my recommendation to Republicans to sit tight and do absolutely nothing.

Let the President sweat this one. Wait for him to send a request to Congress to raise the debt ceiling and then respond simply and succinctly as follows:

The debt ceiling will not be raised until there is:

  • A binding budget approved by both houses and signed into law reflecting significant immediate cost cuts.
  • A law requiring a budget to be enacted every year and rejecting the CR process for more than 30 days at most, except in national emergency.
  • A balance budget amendment to the Constitution (including flexibility mechanism) voted on and approved by both houses of congress with the required 75% majority.
  • An agreement on the framework to a major tax reform that will have to be enacted into law by September 30, 2013, or no budget will be approved for 2014 fiscal year and the debt ceiling will not be raised then.
  • An agreement on the framework to major entitlement programs restructuring that will have to be enacted into law by September 30, 2013, or no budget will be approved for 2014 fiscal year and the debt ceiling will not be raised then.

The Speaker should call a press conference; he should have a short statement to describe the above and to make it clear that Republicans in the house will simply NOT raise the debt ceiling without these pre-conditions being met. He should be accompanied by Mitch McConnell, Eric Cantor, and other leading Republicans of both houses.

Two things are critical here:

  • Unity between all Republicans’ main players and those who are likely to be invited to talk to the media. They have GOT to be untied here.
  • They need to be simple and resolute. Do NOT get involved in talks, in negotiations, and in “deals.” Insist on getting the above conditions before you raise the debt ceiling.

The speaker should also make it clear during such a press conference that the president has the obligation to defend and protect the Constitution, that the constitution calls for the debt of the US government to be unquestioned and that the president has the cash to pay interest and replace maturing debt. Thus should he not do that, he will be in breach of his Constitutional obligation and that articles of impeachment will be served against him.

This is crude and will push the US into another recession almost unquestionably. But it will be less deep a recession than that which will happen for sure in few years if the binge currently going on in Washington, DC, continues. There will be pain but then the economy will recover and be stronger for it, as opposed to the lame economy we now have.

This is the best avenue open to the Republicans. They should DISAVOW the Boehner rule—it is not enough to get $ for $ of spending cuts for a debt ceiling rise. They should be much more ambitious than that. Go for broke here. Not raising the debt ceiling will NOT cause a government shut down, just a severe curtailing of what the government can do. It will be Obama’s problem to define priorities and decide what to cut as a result of not having enough money so let him do that. It is much better than a complete shutdown in case there is no agreement on a CR. At least in a no new debt situation, the government can function to 60% of its current obligations, which is probably 85–90% of what it really needs to do anyway. Obama will be at fault for any decision that he makes on what NOT to spend. He will need to make difficult decisions and justify them to the public. In the case of no agreement on CR, he simply sits there and has nothing to do other than to blame Congress for the complete shutdown of the government.

I believe that the president will crumble very quickly. If he sees that Republicans are holding strong, he will give in. It is a game of chicken but one, the ONLY one, in which Republicans have the upper hand exactly because the government CAN keep functioning, but the president needs to make difficult choices that he cannot escape responsibility for. The media outcry and campaign of vilification of Republicans will be intense. Republicans need to be ready for it and NOT divert from their line. They can explain it, they can defend it, they should aggressively attack the president on his unwillingness to have an approved budget, but they should not hint or agree to any compromise on their five pre-conditions.

The president’s aggressive tone and demeanor in his press conference on Monday, which focused to a large extent on the matter of the debt ceiling indicates that he knows he is weak on this matter.  Republicans’ vote in the house for the pork-laden Sandy relief bill shows a lack of conviction and courage, which is disheartening. The media reports on the lack of decisiveness amongst the Republican leadership about using the debt ceiling as the show-down time is astounding.

One thing is clear, be it at the CR stage or the debt ceiling debate, unless Republicans put a line in the sand, unless this line is deep and meaningful enough, and unless they hold against the barrage of attacks from the president, the Democrats, the media, and from within—they will crumble and will look more foolish than they look now. This country will be all the worse for it.

So devise your strategy, prepare your lines of defense, stake your claim, and stick by it!