The Huffington Post reports that, in a private meeting, Tim Geithner told congressional Dems that the Fourteenth Amendment "constitutional option" is off the table in debt ceiling talks.
This is a horrible tactical blunder by Geithner and the administration.
Now, of course, the administration would rather negotiate some sort of bargain than invoke the Fourteenth Amendment -- the constitutional option has never been without significant attendant risks. I have little doubt that this is the reason for Geithner's statement -- to communicate to Congress more fully the urgency of finding a deal.
But the Fourteenth Amendment, even if left untouched for now, serves two important purposes. For starters, it's the administration's only significant leverage over Republican negotiators. As long as it remains on the table, Republicans have to worry about pushing their demands too far and forcing the president to ignore the debt ceiling altogether.
Maybe more importantly, the Fourteenth Amendment gives the administration a legally cognizable escape hatch if negotiations fail. There is, as Felix Salmon points out, little chance that Treasury is even capable of halting all payments in time to meet the August 2 deadline -- too many computers to reprogram, too little time. Even if it could, the administration would then be forced to begin withholding Social Security checks and military wages in order to keep up interest payments. You might call that default or you might not, but it's kind of the same thing either way: the US government failing to meet its fiscal obligations. Markets would react accordingly. If this option is preferable to default that's only a commentary on how very bad a default would be.
This nightmare scenario is now less than one month away. No one seems to know how Congress could reach an acceptable, plausible budget deal. The administration needs a plan for the worst-case scenario, and it apparently just took its best option -- the option that goes the furthest towards preserving the status quo, ending the standoff, and preventing anyone from getting stiffed -- out of the game. In the meantime, Obama, rather than searching for an exit, is significantly raising the stakes of the deficit deal.
One final thing: it is worth noting that Geithner's comments came in private, and was intended to prod Congress into action. It probably wasn't meant for public consumption and it's probably not an official statement of administration policy. Now that his statement has escaped into the wild, it does significant damage to the administration's negotiating position going forward, but it hardly precludes Obama from reversing course and declaring the debt ceiling unconstitutional. I wouldn't completely write off the Fourteenth Amendment just yet, if for no other reason than because, come August 2, the administration might have precious few options left.