Ezra Klein writes today that the debt limit may indeed be unconstitutional, but this would be a bad time to test that proposition. He says that “layering a constitutional crisis over political gridlock” would have a similar effect of sapping the market’s confidence in the US political system, which is at the root of the debt limit debate. If the market decides that US debt is no longer a good investment, they will pull out, whether the reason is a reaching of the debt limit or a court battle over whether the debt limit exists or not as a check on paying federal bills when they come due. He adds that “The debt ceiling needs to be resolved in a way that assures investors that America’s other economic problems will be resolved, too. A court case that affirms the executive’s right to rack up more debt and the political system’s inability to agree on a reasonable deficit reduction package is the precise opposite of that.”

I’m pretty sure I don’t agree with him on that last point, considering that gridlock is the PATH to a sustainable budget future, not an impediment to it. If there’s no solution, the deficit problem takes care of itself. So a court case that affirms the executive’s right to rack up more debt without strings attached would put the political system in a healing kind of gridlock that brings the budget into primary balance. I don’t see the problem.

But stepping back even more, the issue is not really whether or not to invoke this Constitutional option; it’s whether to do it as an alternative. An alternative to what? An alternative to this:

Social Security payments to millions of retirees and people with disabilities could be threatened if President Obama and Congress can’t agree to increase the government’s debt limit by Aug. 2, a new analysis shows.

Although the Treasury Department likely could avoid delaying Social Security checks, the analysis by the Bipartisan Policy Center points up the depth of the cuts that would be needed if the $14.3 trillion debt ceiling isn’t raised.

It shows that in August, the government could not afford to meet 44% of its obligations. Since the $134 billion deficit for that month couldn’t be covered with more borrowing, programs would have to be cut.

Or this:

Mark Zandi, a prominent economic forecaster, says the US economy will gather steam in the second six months of 2011 – unless Congress fails to raise the government debt limit. In that case, “we go into recession, and my forecast would be blown out of the water,” he said Tuesday at a Monitor-hosted breakfast for reporters […]

“If we get to August 2 and there is no debt ceiling limit, and there has to be significant spending cuts – even if Congress and the administration reverse themselves days later, I think the damage will have been serious, and we probably would be thrown into a recession,” Zandi said.

Or this:

The International Monetary Fund said today global markets will suffer if the U.S. Congress fails to approve an increase in the $14.3 trillion debt ceiling and cautioned about the risk of a downgrade in the country’s credit rating.

“The federal debt ceiling should be raised expeditiously to avoid a severe shock to the economy and world financial markets,” the IMF said in a report on the U.S. economy. The report said a failure to reach a budget and debt compromise could result in a “sudden increase in interest rates and/or a sovereign downgrade.”

So if the choice is to ignore the debt limit or not, maybe you conclude that it’s too much of a risk to ignore it. If the choice is to ignore the debt limit, or to face immediate, massive spending cuts, the delay of Social Security checks, a double-dip recession and a “severe shock to the world economy,” suddenly ignoring the debt limit looks a lot better, right?

But wait, you say, what about the space in between, the space for a deal that will increase the debt limit, “get our fiscal house in order” and bring forth so much confidence that everyone will run right out and buy an extra car and Starburst fruit chews and lead a recovery for the ages? Well, that’s not going to happen. I know because a guy named Ezra Klein told me.

The best advice I’ve gotten for assessing the debt-ceiling negotiations was to “watch for the day when the White House goes public.” As long as the Obama administration was refusing to attack Republicans publicly, my source said, they believed they could cut a deal. And that held true. They were quiet when the negotiations were going on. They were restrained after Eric Cantor and Jon Kyl walked out last week. Press Secretary Jay Carney simply said, “We are confident that we can continue to seek common ground and that we will achieve a balanced approach to deficit reduction.” But today they went public. The negotiations have failed.

If the negotiations have failed, if there’s an impasse where the Democrats won’t accept an all-cuts solution and Republicans won’t accept anything with revenue, if positions have hardened because the President called the GOP out on revenue today (and they have, just look at John Boehner’s statement), then isn’t the least harmful option then one that follows the plain reading of the Constitution and Supreme Court precedent, and allows all bills to be paid on time?

Ezra adds that we should all “follow Eric Cantor’s lead and hedge your exposure to treasuries.” Alternatively we could just remark that there’s another option, and it can be found in the 14th amendment.

UPDATE: I should add that the President was asked if the debt limit is Constitutional today, and he completely dodged the question. It was part of a three-part question, and he only answered the other two parts.

David Dayen

David Dayen