Debt ceiling panic is back. But why?
House Speaker John Boehner (R) says raising the debt ceiling will require “a whale of a fight.” He says, “I’ve made it clear that we’re not going to increase the debt limit without cuts and reforms that are greater than the increase in the debt limit.”
He now says he wants the cuts on the mandatory spending side: That is, Republicans won’t raise the debt ceiling without big, cost-cutting changes in Medicare, Medicaid and Social Security.
All this saber-rattling has our Executive Editor Joe Weisenthal very nervous. He’s worried, again, about the economic damage that could come from either hitting the debt ceiling or Republicans extracting major austerity concessions in exchange for raising it.
He shouldn’t worry. Republicans are full of it — just as they were in the winter, when they threatened to hit the debt ceiling if the President did not agree to another big round of spending cuts.
Do you remember what Boehner’s spokesman Michael Steel was saying in December 2012? It was the same line: “Any debt limit increase would require cuts and reforms of a greater amount.”
Of course, in January 2013, House Republicans voted overwhelmingly for a debt ceiling increase that came with no such cuts. All they got was a pledge that the Senate would pass a non-binding budget resolution, which would not even have to be reconciled with a House budget or become law. When Steel said Republicans wouldn’t raise the debt limit without spending cuts, he was lying.
The reason Republicans caved in January is simple: Hitting the debt ceiling is a political disaster for them. It would cause all the problems of a government shutdown — disruption of government services, angry constituents, economic contraction — plus the risk of a crisis in the Treasury bond markets. It is an even less viable political strategy than a shutdown, which Republicans are openly admitting is politically unviable.
Worse, Republicans cannot figure out what to demand in exchange for raising the debt ceiling. The House GOP does not have consensus on a package of entitlement reforms. The party is lukewarm on the idea of cutting Social Security and Medicare. They just spent two election cycles attacking President Obama for cutting Medicare. Rep. Greg Walden (R-Ore.), who heads the House Republicans’ campaign committee, has been vociferously attacking President Obama’s “chained CPI” proposal to cut Social Security benefits, which many other Republicans favour.
If Republicans were to stage another debt ceiling showdown over entitlement reform, they would have to (1) threaten to cause an economic crisis unless (2) they are given a package of reforms that many Republican officials don’t even want, which (3) would also happen to be hugely unpopular with voters.
This. Is. Never. Going. To. Happen.
So why is Boehner making debt ceiling threats again? Well, for one thing, it’s August, and in August, Republican House members go to town halls filled with rabid conservative constituents who need red meat. A lot of Republican activists think rendering the government unable to pay its bills is just what the country needs.
But also, the debt ceiling won’t hit until mid-October, while a government shutdown must be averted by September 30, and Boehner needs an explanation of why he won’t back efforts to shut down the government unless Obamacare is defunded. Focusing on the debt ceiling allows him to make a case for not shutting down the government. With the restive GOP caucus, it’s always one step at a time.
But once they get to the point of having to push the country over the debt brink, and suffer the political consequences of that, Boehner and his caucus will cave, just like they did in the winter, for exactly the same reasons they did in the winter.
I have personal experience with being wrong about this. In fact, Joe and I were both wrong about it in January, when we were urging the Obama Administration to mint a trillion dollar platinum coin as a gimmick to effectively raise the debt limit to infinity.
At the time, we thought the coin was a necessary strategy to neutralize an economic doomsday machine that Republicans were intent on misusing. But the Obama administration knew better, and on a cold, cruel Saturday and January they killed Joe’s and my platinum dreams with a statement saying the Federal Reserve would not accept a platinum coin as a valid deposit.
Eleven days later, the Republican-held House had passed a debt ceiling increase. Republicans saw that with the coin gone as an option, their choices were to give up a “clean” debt ceiling increase or take the blame when the government stopped paying its bills and the economy tanked, and they blinked. Ignoring Joe’s and my (and Paul Krugman’s) advice is the smartest economic policy decision the White House has made all year.
Their instinct was right then and it’s right now. The platinum coin isn’t needed. All the White House needs to do is exactly what it’s doing — say they won’t negotiate the debt ceiling over and over until Republicans panic again.
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