Jamie Dimon points the way: 6 out of 7, or the Endgame on the Debt Ceiling

The GOP Leadership has a golden opportunity to advance the best interests of our nation as it negotiates the terms of the increase in our nation’s debt ceiling.

Before laying out the specific policy proposals and messaging that should accompany the House GOP’s offer to raise the debt ceiling, let’s first look at what Jamie Dimon (CEO of JP Morgan and someone who clearly understands financial markets) has to say about the consequences of failing to raise the debt ceiling (h/t WSJ):


“I would hope it gets resolved,” Mr. Dimon said. “If the United States actually defaults on our debt it would be catastrophic… and unpredictable. If anyone wants to push that button… they’re crazy.”

Mr. Dimon said the consequences of failing to raise the ceiling would “start snowballing” in the months and weeks before the Treasury actually defaulted on the U.S. debt, as companies took action, such as selling the U.S. Treasuries they hold.  Mr. Dimon did not specify what steps his company would take. But in general, the growing possibility the federal government could default would throw U.S. Treasuries, the life-blood of corporate financing, into disarray.

“All short-term funding would disappear,” Mr. Dimon said.

“I would have hundreds of [people] working around the world protecting our company from that kind of event. We would get prepared for it way ahead of time. Like, I would be taking really drastic action. It would be really unpleasant,” he said.



For the record, I don’t believe it’s wise to actually have the US Government fail to meet its financial obligations. However it’s absolutely critical to recognize the sheer amount of leverage the GOP has on this particular issue.  Obama is getting advised that the consequences of markets believing this might not get done could be incredibly dire, with some of the damage possibly permanent.

And lest we forget the incentives involved, remember that for Obama it’s all about getting re-elected.  If this was his second term he might draw a firmer line in the sand with regards to what he’s willing to accept to avoid a default on his watch.  Faced with the prospect of causing so much (avoidable) damage to the economy as to imperil his re-election, he’ll fold like a cheap suit.  If, that is, our specific demands are paired together with a very winning message both to him privately, and to the American people.

My specific suggestion is to offer Obama a choice, his choice, of accepting 6 the following 7 policy proposals as part of the same bill that authorizes an increase in the debt ceiling. 

  1. Passage, in both Houses, of a Balanced Budget Amendment with a hard spending cap of no more than 20% of our nation’s GDP.
  2. The Ryan/Rivkin plan for Medicare, a true structural reform that is a first step in bringing market forces back into the health care system, and helping us meet our commitment to future seniors while giving them more choice.
  3. Strong tort reform, including Medical Malpractice reform (this is a big one to include, and not just for the benefits to our economy….see below for why).
  4. A very strong, very broad DEregulation bill.
  5. Defunding the unspent portion of the $105 billion that has already been appropriated to implement Obamacare.
  6. Change the funding for the new Consumer Protection Bureau so that it is NOT automatic based on the Fed’s budget, but rather subject to ongoing Congressional appropriations.
  7. Allow citizens under a certain age to opt out of Social Security by diverting a portion of their FICA withholding into a personal retirement account.

If the President is willing to accept 6 of these 7 policy changes, then the GOP should attach the 6 Obama chooses to a bill authorizing a raise in the nation’s debt ceiling.

I’d like to briefly address a few questions that will naturally come up.  First, why offer Obama a choice at all?  Why not just say, “here’s our list of 6, 7 (or however many) demands”? 

I think there are several benefits to offering Obama some choice in the matter.  First, although the nation would benefit from all of the changes above, some of key Obama political constituencies that would get harmed. These groups (e.g. lawyers) are criical to the President’s political base, so consideration of which ones to choose would lead to a situation where some of his own supporters end up fighting one another to try and be “the one that gets excluded” (not to mention resentment at Obama at those groups he leaves hanging).  Second, by offering Obama a choice it makes the GOP seem flexible and reasonable (more on that below)…or at the very least it makes it harder for Obama to paint them as “extreme” and “unbending”, etc.  Third, and perhaps most important, it boxes Obama in….forcing him to defend unpopular policies in the spotlight of a huge debate with both national and worldwide consequences. 

A second, natural question to ask is: why push these 7 specific policies instead of others? 

Clearly reasonable people can agree to disagree about the specific changes to include in such a list.  A rather obvious one to consider including would be a full repeal of Obamacare.  My take on that is open to debate, but here goes: 1) we have a pretty good chance at seeing Obamacare get repealed by SCOTUS anyway, 2) it helps with the messaging.  For e.g., during media interviews on why this deal represents a reasonable, responsible set of choices, GOP leaders can explain that “we intentionally didn’t include a full repeal of Obamacare, despite the fact that we think its both unconstitutional and awful policy, because we didn’t want to make it near-impossible for him to sign such an important bill as raising the debt ceiling.”  Now how do you argue with that reasoning??

As far as the messaging to the public, I honestly think this is going to be hard even for the GOP leadership to screw up.  Let me give you a mock run-down of how you explan this to the “inside the beltway media” types who will be doing the interviews:

“Well Katie, we clearly can’t have the US default on its obligations. But it would be equally irresponsible to simply keep raising the debt ceiling without making structural changes that will help grow this economy and reduce our long-term liabilities.  And what about these proposals are so radical?  A balanced budget amendment, that would still have to be ratified by 2/3rds of the states to become law after Congress passes it, and after that allows for a 5-year phase-in? 

“Is defunding Obamacare really that radical, Katie?  I’m completely convinced that it’s unconstitutional.  Now, the Supreme Court will ultimately render a decision, but why on earth should we be spending tax payer money to implement something that has a very good chance of being declared unconstitutional?  That’s crazy under any circumstance, let alone a situation where we’re bleeding red ink.  If the Supreme Court declares the law valid, then we’ll still try and repeal it, but we’ll have to fund it.  But we shouldn’t be spending precious tax dollars on it now, when it’s constitutionality is in question.

“Now I understand that other items could be a tough pill for the President to swallow, politically speaking.  For example, lawyers were the biggest backers of the President’s 2008 campaign, and he’s going to need them in his re-election efforts.  Trail lawyers LOVE President Obama…they know they have a friend in the White House right now.  But it’s the right thing to do for the economy, for our entrepeneurs, and especially for our doctors and hospitals.  The President missed a huge opportnity to pass Malpractice Reform as part of Obamacare….he didn’t have to include it because he didn’t need Republican support to pass Obamacare.  So of course he didn’t.  The President would never choose doctors over trial lawyers unless he had to.  But we’re going to insist on it…and not some watered-down version that gives the Democrats cover on the issue politically.  But real, tough tort and medical malpractice reform.

“And even our Medicare proposal, Katie.  Alice Rivlin, co-author of this change, was a senior member of President Clinton’s economic team. This reform was endorsed by Democrat John Breaux in the 90’s.”

“Katie, I’m telling you.  These are critical reforms that are going to help our economy grow, and help address some of the key drivers of our long-term debt issues.  And we’re giving the President some choice here…he can choose which 6 he wants.  If there’s a pill to bitter for him to swallow, if President Obama simply can’t stomach the idea, for example, of reigning in trial lawyers so that our Doctors and hospitals can practice medicine without some “ambulance-chaser” second-guessing their every decision, that’s his decision to make.” 

And…well, you get the point.  This is a very, very compelling media message that will resonate with the public, and which Obama will find it very difficult to argue against lest he appear to be dramatically out of touch.

Finally, I’d like to point out how the GOP should message this to the President himself, behind closed doors:

“Mr. President, I know these aren’t the types of reforms you’d like to see implemented.  But we think you’re missing the bigger picture here.

“You see, we’ve observed you these past few months since the 2010 election, and your actions are a case study in incentives.  We know you value your re-election more than just about anything else on earth, so first and foremost you should appreciate just how positive these specific changes will be for the country.  The economy will grow faster and unemployment will be lower, both of which should increase your chances of getting re-elected.  Poverty and human suffering would also be lower, too, as a result of the increased economic opportunities higher growth would create.

“But that’s just the impact on the economy.  Let’s not overlook the re-branding effect signing this legislation would cause.  This is a very centrist agenda, Mr. President.  As your pollsters are no doubt telling you, more and more Americans continue to see you as the left-wing nutjob you truly are.  We’re offering you a way to change that.

“Further, you’ll still have a chance of seeing Obamacare become the law of the land.  All you have to do is convince the Supreme Court to let it stand.  And although we’d like to see most of Dodd-Frank repealed, you’d get to keep that too, only with a modicum of Congressional oversight (which upon reflection even you must agree would be a good thing…don’t forget, a Democrat isn’t always going to be President).

“And don’t you worry about the left-wing Mr. President.  They’ll scream and howl, but at the end of the day they’ve got nowhere to go.  Your team will be able to whip up their hatred of the GOP in plenty of time for next November.  It’s not your left-wing you have to worry about, sir, but rather the middle of America.  Who you continue to lose, but can get back with this type of grand bargain.”

“In a nutshell Mr. President, if you sign these changes then you get a chance at being Bill Clinton + healthcare + tackling the long-term debt issues.  Not too shabby a legacy, I daresay.”

“But Mr. President, it’s not just the upside to you of implementing these changes.  Also consider the downside Sir…think of the consequences of fighting us.  First, you’re going to be out there defending unpopular, left-wing positions in the brightest of spotslights when that’s exactly the lens through which more and more swing-voting Americans continue to see you with.  Second, the recovery is shaky enough as it is.  Are you really going to risk the nation’s economic well-being by fighting us here?  You’d be risking the nation’s prosperity, literally.

“And you’ll never be able to shift the blame onto us, Mr. President.  Never.  First of all, people are ultimately going to hold the President responsible for the things that happen while they’re in office, good or bad.  Second, your statements and vote on raising the debt ceiling as a Senator are going to continue to come back to haunt you (“failure of leadership”, etc). The downside of not passing these bills, Mr. President, is that you not only become a near-certain one-term, but one who’s legacy is worse than that of Jimmy Carter.

“A two-termer with a shot of leaving more popular than Bill Clinton, or a one-term with a shot of leaving more pitied than Jimmy Carter.  You choose, Mr. President.  You choose.