BusinessWeek: January 22, 1996

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 News: Analysis & Commentary: COMMENTARY

COMMENTARY: IMPEACH BOB RUBIN? FOR WHAT? SMARTS?

In mid-February, the Treasury Dept. will again bump up against the $4.9 trillion national debt ceiling. With budget-balancing talks in limbo, Capitol Hill Republicans are eager for a new chance to squeeze President Clinton by denying him the power to borrow money to run the government. GOP leaders vow that they won't raise the limit until Clinton accepts a plan to balance the budget by 2002. They hope that Clinton will cave in to them rather than allow the U.S. to default on $245 billion in interest payments on Treasury securities.

They might as well forget it. The Treasury Dept. has defused the "default bomb," using tools Congress itself provided in Treasury's statutory authority. The only question now is whether the GOP is going to keep playing chicken with the nation's creditworthiness, looking more foolish with every passing day, or drop the threat. For the good of the country--not to mention their own political prospects--Republicans should let Treasury get on with financing past red ink while negotiators concentrate on preventing future deficits.

NEW OPTIONS. Treasury Secretary Robert E. Rubin neatly sidestepped the default problem last November. By shifting part of two civil-service retirement funds from one ledger to another, he cleared the way to borrow $61 billion and stave off default. Now, with another debt deadline looming, Treasury lawyers are examining new options--and Rubin's bag of accounting tricks is still more than half full. The likely first moves: tapping some $10 billion in Treasury's foreign-currency accounts and replacing bonds held by some civil-service retirement funds with assets owned by Treasury's Federal Financing Bank to free up over $80 billion for new borrowing.

Each step takes the Treasury chief into a new area where the legal authority for his moves is murkier. But there's no doubt that Rubin can keep up the creative borrowing well past the November elections.

That infuriates Republicans, who felt blindsided when the close-mouthed Rubin made his moves in November. The Wall Streeter's financial maneuverings have done more to weaken the GOP's budget leverage than all the posturing of such political operatives as White House Chief of Staff Leon E. Panetta. Now, many Republicans say that Rubin's gambits infringe on Congress' constitutional power to control the national debt, and some pledge to try to impeach him if he makes it through February's squeeze. "This is not an idle threat," warns Representative David Funderburk (R-N.C.).

Maybe not, but it is stupid as political strategy. Treasury bond prices fell a full 1% just minutes after the impeachment threat was made on Jan. 4. How would the GOP explain to millions of bondholders that Congress was going after Rubin for protecting their investments?

Rubin's high-wire act is risky. His performance last year--first decrying the danger of default, then dodging it with apparent ease--created enormous ill will on Capitol Hill. "Treasury is inventing its legal authority to act as it goes along," fumes Representative Christopher Cox (R-Calif.). In a Jan. 4 letter, Reagan and Bush Treasury chiefs Donald T. Regan, James A. Baker III, and Nicholas F. Brady warned Rubin that bending borrowing rules any further would invite Congress to clip Treasury's wings. But these three also had political motives. They were coaxed into the political fray by House Ways & Means Committee Chairman Bill Archer (R-Tex.) and their own memories of Democrats' debtceiling maneuvers. "There's an element of payback here," says a former Treasury aide.

Financial markets had the good sense to discount the default risk in November. That makes it unlikely that Wall Street will deliver the pressure on Clinton that the GOP seeks for a February showdown. If Republicans want to force Clinton to accept their budget priorities, they'll have to do it with hard political bargaining. A debt crisis won't do the trick.

By Mike McNamee
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