Here’s a new video from the Cato Institute that looks at the “Cut, Cap, and Balance” proposal, and analyzes that budget reform in the broader context of the debt-limit fight and America’s looming fiscal crisis.

The video features my commentary, along with the sage analysis of my Cato colleague Chris Edwards. We make two simple points. First, fiscal reforms are necessary because America faces a Greek-style fiscal crisis if we leave the federal budget on autopilot.

Actually, America’s collapse will be worse since we won’t get a bailout from the IMF. Yet this doesn’t seem to bother President Obama, who apparently views the debt-limit fight as an opportunity for class-warfare demogaguery and transparent efforts to seduce the GOP into a suicidal tax-hike deal.

Second, the fiscal reforms that are necessary should be very feasible since they actually involve relatively modest spending restraint. Genuine spending cuts would be preferable, of course, but merely slowing the growth of spending can put America on a sustainable path.

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Someone will have to explain to me how you can simultaneously be the only adult in the room, and yet storm out of such room like a petulant teenager:

“Don’t call my bluff,” the president said. “I am not afraid to veto and I will take it to the American people.”

If Moody’s downgrades the United States, “it will be a tax increase on every American,” he said.

There needs to be a long-term debt extension, the president argued.

“This may bring my presidency down, but I will not yield on this,” he said.

Then he abruptly ended the meeting, saying, “see you tomorrow.”

Apparently the President’s outburst was in response to a suggestion by House Majority Leader Eric Cantor that a shorter-term extension be pursued, reflecting only the $1-1.5 trillion in spending cuts that both parties have more or less coalesced around. With an annual deficit running in the range of $1.5 trillion, this would be enough for an 8-10 month extension.

The President’s reaction is understandable, I suppose, given that this would result in the need for another increase in the debt ceiling during (gasp)…an election year. All things being equal, the GOP would probably prefer to avoid this scenario as well. But if the only other viable options are default, or agreeing to a deal with the President which includes tax increases, I can understand why Cantor would put this option on the table.

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Republicans in Congress are hewing to the best traditions of the founders of the nation, and the founders of their own party, in their effort to keep a lid on federal borrowing. The idea that there is some constitutional bar to their refusal to raise the debt limit betrays Democratic desperation.

The Constitution was established so that a stronger Union would be able to pay its debts. The Confederation government had already defaulted on its Revolutionary War obligations. Thus the new government assured its creditors in the new Constitution, which provided that “All debts contracted and engagements entered into, before the adoption of this Constitution, shall be valid against the United States under this Constitution, as under the Confederation.” The Federalists and their successors paid off the entire national debt by the 1830s.

After the Civil War, the American people settled permanently the possibility of repudiating the national debt. Section four of the Fourteenth Amendment simply says, “The validity of the public debt of the United States, authorized by law… shall not be questioned.” Thus the Republicans foreclosed the possibility that, should the Democratic party return to power, it would repudiate the war debt—or pay the Confederate debt.

While other provisions of the Fourteenth Amendment provoked intense debate, section four did not. “I need say nothing of the fourth section,” said Representative Thaddeus Stevens, “for none dare object to it who is not himself a rebel.”

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There are three reasons why I’m not very hopeful about the outcome of the debt-limit battle.

1. There is no unity in the GOP camp.

Republicans have been all over the map during this fight. Some of them want a balanced budget amendment. Some want a one-for-one deal of $2 trillion of spending cuts in exchange for a $2 trillion increase in the debt limit. Others want some sort of spending cap, akin to Senator Corker’s CAP Act. Some want to mix all these ideas together in a cut-cap-balance package. Others want Obamacare repeal.  And the latest proposal is Sen. McConnell’s proposal to let Obama unilaterally raise the debt limit.

These are mostly good ideas, but the failure to coalesce around one proposal – preferably one that is easy to understand – has made the Republican position difficult to define, defend, or advance.

2. The fear of demagoguery is high.

As I explained months ago, Fed Chairman Ben Bernanke and Treasury Secretary Tim Geithner are trying to spook financial markets with hyperbolic warnings about a risk of default. This is blatant dishonesty and demagoguery, but Republicans are nervous that this tactic might be successful if there is a high-stakes showdown as the government’s borrowing authority runs out.

For those with short memories, this is what happened with TARP back in 2008. The initial bailout proposal was rejected, leading to short-run market gyrations, and many Republicans panicked and switched their votes to yes.

3. Republicans don’t control the Senate or the White House.

I’m stating the obvious, of course, but people seem to forget that any debt limit increase will need to get through the Senate and get signed by Obama.

Imagine you are Harry Reid or Barack Obama. Is there any reason why you would acquiesce to Republican demands? Yes, you need to at least pretend to care about big government, wasteful spending, and red ink, but why not hold firm and then strike a deal based on make-believe spending cuts. That’s exactly what happened during the “government-shutdown” debate earlier this year.

This post, incidentally, is not an attack on Republicans. I’m very willing to attack GOPers when they do the wrong thing, but I’m not sure they deserve to get hammered in this case.

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Seeking to make virtue out of vice, the political Left has launched a desperate, devious and dangerous ploy to prevent the spending cuts that the public demands.

They are laying the groundwork for President Obama to bypass negotiations and to ignore the $14.3-trillion statutory ceiling on federal debt.  They want him to instruct the Treasury to borrow whatever it needs to satisfy grandiose spending designs, by claiming that the borrowing limit is unconstitutional.

If this happened, it would add a constitutional predicament to our economic crisis.  And it would worsen our economic problems.

The Left bases their plan on a dangerous misreading of the 14^th Amendment.  They employ deceptive rhetoric to depict the big spenders as the saviors of the Constitution.  They claim it’s the Constitutional remedy to protect our economy from the supposed alternative Armageddon’s of defaulting on debt or devastating reductions in spending.

The Left adds that this also would save us from the evil Republicans who won’t go along with job-killing tax hikes.

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Don’t believe all of the public fighting by Republican and Democrat leaders over the past week on increasing the debt limit.  My sources on Capitol Hill tell me that many conservatives believe that the fix may be in on a deal to increase the debt ceiling in a manner that allows both sides to save face.

Here is a theory that many believe on Capitol Hill.  The walk out by Senator Jon Kyl (R-Arizona) and Rep. Eric Cantor (R-Virginia) from the Vice President’s debt limit negotiations on Thursday was staged and agreed to by both parties as a means for Republicans to look tough before they cave on increasing the debt limit.

Vice President Biden has been meeting behind closed doors with a bipartisan bicameral group of politicians for weeks in an effort to cut a deal on a package to increase the statutory $14.3 trillion debt limit.  These meeting have been extremely secretive and not many specifics of the negotiations have been provided to the public.  One of the few details leaked was that liberals were putting tax increases on the table as a means to balance the budget.

The Hill reports:

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Some say the world will end in fire and some say in ice.

But in Washington, a lot of people say it will end if we don’t continually raise the debt ceiling.

The statutory debt limit, or debt ceiling, represents the maximum amount of debt the federal government can carry at any given time. The limit was created in 1917 so that Congress wouldn’t have to vote every time the government wanted to increase the amount of debt (which was becoming a more and more frequent occasion). Since then, the Treasury Department has had the authority to issue new debt up to whatever the limit is to fund government needs. Last year, the limit was raised to $14.3 trillion, an amount that is about to reached.

As it approaches, Federal Reserve Chairman Ben Bernanke has said failing to raise the limit would likely mean the U.S. would default on its debt, creating “real chaos” in place of the fake chaos that’s out there now. Treasury Secretary Timothy Geithner has said that failing to raise the limit would be “deeply irresponsible” and and Austan Goolsbee, President Obama’s chief economic adviser, has said that not raising the limit would create “the first default in history caused purely by insanity.”

Eh, maybe.

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