Good news: Computers might force Treasury to keep making payments even if debt ceiling is reached

Skynet won’t let us nuke ourselves. That’s Skynet’s job.

If Treasury were to decide to delay some payments, one option could be to postpone a disbursement of more than $49 billion to Social Security recipients that is due on August 3.

It would be a politically explosive step but one that could allow the government to temporarily pay bondholders to try to avoid foreign investors dumping U.S. Treasuries and the dollar…

Steve McMillin, a former deputy director of the White House Office of Management and Budget under Bush, said Treasury has options but most of them are “pretty ugly.”

If Treasury were to decide to delay payments, it would need to re-program government computers that generate automatic payments as they fall due — a massive and difficult undertaking. Treasury makes about 3 million payments each day.

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Is there enough time to do that? Doubtful: There’s barely enough time to get a deal passed through both houses of Congress, even if they reach the framework of an agreement this weekend. By Major Garrett’s calculation, it’ll take 16 or 17 working days until it’s passed and ready for Obama’s signature, and that assumes no speed bumps along the way. No failed votes in the Senate, no meltdown in the House because Boehner can’t assemble a coalition of moderate Republicans and Democrats to get to 218. (Pelosi’s drawn the line at cuts to entitlements, so who knows where that leaves Boehner with the Blue Dogs.) No wonder the Speaker’s started to make noise about how default would put us “in an awful lot of jeopardy — and puts our economy in jeopardy — risking even more jobs.” That’s his signal to House Republicans that some of them will have to cast a very tough vote, whatever it means for their primary chances next year.

I think you’ll see two things happen next week if they make a deal on Sunday. First, if Boehner can get Paul Ryan to support the bargain, he’ll roll him out publicly for a media tour to make the pitch to grassroots conservatives that default is simply not an option. Ryan’s made that point in the past, actually — “Will the debt ceiling be raised? Does it have to be raised? Yes” — but endorsing it in the abstract and endorsing it when it comes packaged with a weak entitlements deal that might not be to his liking are two different things. No one has more credibility on spending on the right than him, so if he’s onboard, Boehner’s task with tea-party Republicans will be easier. And he has some skin in this game himself: His own Path to Prosperity would require the debt ceiling to rise repeatedly over the next decade.

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Second, thanks to the horrifying new unemployment numbers, Democrats will be even more insistent on delaying spending cuts until a real recovery has begun. That’s bad, bad news for Boehner, who’s already under suspicion from conservatives for how small the immediate cuts were in the 2011 budget deal. Prominent righties are already warning him, in fact, not to “sell out” the party by agreeing to, among other things, “spending cuts [that] are minor, vague, and pushed off into the speculative future.” For some people, it doesn’t matter what deal Boehner strikes — anything short of $6 trillion in cuts, no tax hikes, a balanced-budget amendment, and defense spending preserved in amber will represent a betrayal, even though it’s a complete impossibility. But after the 1990 sellout on future spending, Republicans will be hugely and rightly critical of gassy promises on spending reductions this time. I don’t know how the two sides get out of that box, but as they fill in details of the agreement next week, that’s going to be a major impasse. An immediate payroll tax cut could act as a stimulus to offset the sort of significant immediate reductions in spending that Keynesians oppose, but somehow I think a “cut taxes and spending right away!” approach won’t go over well with the blue side of the table.

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If they can’t make a deal on Sunday, then instead next week I think you’ll see a renewed push behind the left’s lame “debt ceiling is unconstitutional” argument. The liberal powers that be have been inching away from that, with everyone from Barney Frank to rock star law prof Laurence Tribe dismissing it. According to Geithner, in fact, the White House itself thinks it lacks constitutional power to raise the ceiling unilaterally. All of which is lovely, but those reassurances are easy to make when a deal is still viable; in fact, they’re all but obligatory in order not to spook the negotiations with the threat of a power grab. But if things fall apart this weekend and default starts to look plausible, those considerations will no longer apply. Instead, people will be desperate for a Plan B. Cue the Fourteenth Amendment argument — which, as Tribe explains (and as I’ve argued before), won’t work anyway:

So the arguments for ignoring the debt ceiling are unpersuasive. But even if they were persuasive, they would not resolve the crisis. Once the debt ceiling is breached, a legal cloud would hang over any newly issued bonds, because of the risk that the government might refuse to honor those debts as legitimate. This risk, in turn, would result in a steep increase in interest rates because investors would lose confidence — a fiscal disaster that would cost the nation tens of billions of dollars.

Although an authoritative judicial declaration authorizing borrowing above the debt ceiling might alleviate investors’ fears, obtaining such a declaration is no easy task. Only someone who has suffered a “particularized” harm — not one shared with the public at large — is entitled to sue. It would be difficult to conjure up a plaintiff who has suffered such specific harm from an issuance of debt beyond the ceiling. And even if such a plaintiff could be found, increased interest rates would have already inflicted terrible damage by the time the Supreme Court ruled on the matter.

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The only way out is a deal, whether long-term or short a la the continuing resolutions Congress used repeatedly during the 2011 budget negotiations to keep those going. If Sunday ends badly, expect plenty of talk about the latter next week too. Exit quotation from Boehner: “I don’t think things have narrowed. I don’t think this problem has narrowed at all in the last several days.”

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