Debt deals nearly as old as the coun­try

The Washington Times Weekly - - Politics - BY STEPHEN DINAN

Pres­i­dent Obama says it would be folly for the White House to ne­go­ti­ate with Congress over the gov­ern­ment’s debt — but the na­tion’s founders thought dif­fer­ently.

In­deed, the en­tire rea­son Mr. Obama lives in Wash­ing­ton, on the banks of the Po­tomac, is be­cause of the first great debt deal, struck in ne­go­ti­a­tions by no less than Alexan­der Hamil­ton, Thomas Jef­fer­son and James Madi­son.

Hamil­ton, ever ea­ger to build a strong and fi­nan­cially ro­bust na­tional gov­ern­ment, wanted to as­sume the states’ Rev­o­lu­tion­ary War debt. South­ern­ers, par­tic­u­larly Vir­gini­ans who had done a good job of pay­ing off their debt, said that was a bad deal be­cause it would re­ward the lag­gard states.

But over din­ner, Jef­fer­son and Madi­son agreed that pre­serv­ing the new gov­ern­ment was para­mount. They asked only for a face-sav­ing mea­sure, which was to build a cap­i­tal in the South.

“Hamil­ton wanted to as­sume the state debt, and peo­ple in Vir­ginia weren’t real keen on that, es­pe­cially their lead­er­ship. So they got to­gether over din­ner and made the swap,” said Robert E. Wright, an eco­nomic his­to­rian at Au­gus­tana Col­lege in South Dakota.

That din­ner meet­ing stands in con­trast to the cur­rent sta­tus of talks in Wash­ing­ton, where sit­ting down and ne­go­ti­at­ing has been in short sup­ply on both sides of the aisle.

Mr. Obama has said that hold­ing talks when the gov­ern­ment is poised to hit its bor­row­ing limit is akin to ne­go­ti­at­ing with ter­ror­ists and has adamantly ruled it out.

House Repub­li­cans have only re­cently em­braced ne­go­ti­a­tions on a 2014 bud­get, af­ter re­sist­ing for nearly six months.

Both sides also spar over whether it’s proper to de­mand the kind of face-sav­ing add-ons that Jef­fer­son and Hamil­ton sought in 1790, and that some Repub­li­cans are float­ing to­day in ex­change for vot­ing for debt in­creases or spend­ing bills to re­open the gov­ern­ment.

Repub­li­cans say even re­cent his­tory proves it’s nor­mal to de­mand some­thing in re­turn for a debt vote.

“You can’t say that it’s un­prece­dented to have ne­go­ti­a­tions and re­forms tied to a debt in­crease,” Sen. Chuck Grass­ley, Iowa Repub­li­can, told Trea­sury Sec­re­tary Jack Lew on Thurs­day.

Mr. Lew agreed, but said the cir­cum­stances were dif­fer­ent this time. He said Repub­li­cans are us­ing the na­tional debt as a threat to the econ­omy in or­der to lever­age changes.

“The debt in­crease has al­ways been a hard vote,” he said, re­count­ing its his­tory.

For the first half of the repub­lic, ev­ery is­suance of bonds to cover na­tional debts re­quired a vote by Congress. In 1917, law­mak­ers in­stead set a ceil­ing and gave the Trea­sury Depart­ment the power to float bonds to that level.

“The debt limit was put in place to re­duce the num­ber of times Congress had to vote on debt,” Mr. Lew said, adding that the goal was to make it more rou­tine and less painful. In­deed, in the 1970s and 1980s, Democrats tried to cre­ate a sys­tem in which the House wouldn’t even have to vote specif­i­cally on debt in­creases but would raise the level au­to­mat­i­cally when they voted for pro­ce­dural mo­tions.

Then, dur­ing the 2011 ne­go­ti­a­tions, Se­nate Mi­nor­ity Leader Mitch McCon­nell, Ken­tucky Repub­li­can, came up with a so­lu­tion that would al­low the pres­i­dent to re­quest a debt in­crease. To re­ject the debt in­crease, Congress would have to pass leg­is­la­tion that the pres­i­dent could veto, mean­ing it would take a two-thirds vote in each house of Congress to stop an in­crease.

The U.S. de­faulted on its debt once, in 1979.

The Trea­sury Depart­ment failed to pay sev­eral bills on time, blam­ing a last-minute debt ceil­ing in­crease from Congress and, ac­cord­ing to a schol­arly pa­per in the Fi­nan­cial Re­view, be­cause a word-pro­cess­ing sys­tem failed.

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