Whither the Debt Ceiling?

Though this blog has mostly featured excerpts from my cross-country bike trip earlier this summer, I promised sundry other topics and, aside from the odd post about Tottenham Hotspur, future posts will probably be more heavily geared to economic policy and politics.

The threatened shutdown of the federal government in less than four days is currently occupying much of the media's attention but just weeks later a much more problematic threshold awaits: the debt limit. The debt limit restricts the total borrowing of the US Treasury, and after October 17th, absent Congressional action, the Treasury would no longer be able to pay all the bills of the government.

This clip from the West Wing pretty well captures the political norms around the debt ceiling under previous presidents - in particular, using the debt ceiling as leverage to achieve other policy ends was considered far too dangerous. However, in the 2011 debt ceiling fight, this norm was violated as President Obama and House Speaker John Boehner negotiated deficit reduction linked to raising the debt ceiling. As discussed in this post by Matthew Yglesias and echoed by Jonathan Chait, Ezra Klein and others, this decision to allow the weaponization the debt ceiling may prove to be the costliest in Obama's presidency.

Given the threat posed by using the debt ceiling as political leverage, Obama has pledged not to negotiate again over raising the debt ceiling. Speaker Boehner, in an effort to get past the immediate government shutdown deadline, has pledged to his caucus that he will extract significant concessions from the president in exchange for raising the debt ceiling. Moreover, a fraction of the House Republican caucus has expressed the view that breaching the debt ceiling would not be interpreted as a default since incoming cash flows more than cover interest payments on the debt.

So how does this game end? Each party appears to have backed itself into a corner, and it certainly would be the case that clean debt ceiling increase (Obama's preferred outcome) would have the votes to pass the House (and Senate) if brought to the floor. However, such a capitulation would likely cost Boehner his job.

One option might be to make a token concession to Boehner, but it's hard to imagine what such a concession might be that would still preserve the Obama's credibility. Paradoxically, the best way to resolve the debt ceiling may be a government shutdown next week. The shutdown would build political pressure for a resolution without risking a default and financial crisis. Concessions won on the budget would allow Boehner to claim victory while Obama could argue that he compromised over the budget, not the debt ceiling.

However, a shutdown averted this week while leaving the debt ceiling unaddressed increases the possibility of a debt ceiling breach. It's difficult to know the consequences of a default (which in the immediate days following Oct. 17 would result in delayed payments) - certainly financial markets would sell off, but a commitment by Obama to fully pay interest on the debt could be enough to head off a sharp rise in borrowing rates. A week of airports closed, soldiers and Social Security recipients going unpaid, and agencies shuttered would force Congress to raise the debt ceiling.

The Departed

Three weeks into the new season and a day before the end of the transfer window, the North London derby came early this year. Tottenham Hotspur have spent better than 100 million pounds buying players versus nothing for Arsenal, but in today's match at the Emirates Stadium, Spurs were yet again outdone by their neighbors. Arsenal's narrow win had as much to do with Spurs lack of a cutting edge as with Arsenal's superior creativity in the midfield.

Olivier Giroud with the match winner

The absence of any creativity in the side can be attributed to the departure of Gareth Bale. After today's match, Spurs announced the sale of Gareth Bale to Real Madrid for a world record transfer fee of 86 million pounds, eclipsing the fee Real paid for Ronaldo from Manchester United five years earlier. In the second half of last season, the Welsh wizard nearly single-handedly dragged Spurs into the Champions League places with late game match winners against West Ham, Southampton, and Sunderland. In two years, two of Tottenham's best creative and skillful players have left to Real Madrid: Luka Modric and Gareth Bale. A Spurs fan is only left to wonder where their team may if they remained. My fandom of Spurs began three years ago by watching these two work their magic.

At multiple points today, Spurs could have used the services of either man. While Spurs retained superior possession, they had a hard time finding their way through the Arsenal midfield and creating clear cut chances. Delivery from wide areas was poor with Tottenham showing little threat from outside the box.

The truth of the matter is that Spurs have bought almost an entirely new team this offseason. It will invariably take time for players to develop chemistry and adapt their talents to the English game. The new creative players that Spurs have signed - Eric Lamela and Christian Eriksen - just arrived and hardly featured in today's match. Moreover, in days of Modric and Bale, Spurs were overly reliant on scoring goals from outside the box - soccer's version of the low-percentage shot. Time will tell if this new team can score more "cheap" goals from set pieces and drawing penalties. But, Modric and Bale brought flair and style to the team. It may be early days, but the play of this more muscular side is damp squib in comparison to last year's team and Spurs under Redknapp.

Many Spurs fans evince a good deal of optimism about what this new team can do, and perhaps they are right. But I will certainly miss the Spurs of old . . . and sheer talent and class of Gareth Bale.