The Melbourne Globalist – On the Precipice: Congress’ Dance with Default

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As President Barack Obama struggles to build consensus in Congress for a resolution authorising a military strike on Syria and Bashar al-Assad’s regime, he must simultaneously brave himself for a new round of fights with Congress over raising the debt ceiling. This ongoing battle, which has permeated Obama’s first term and a half, will surely last the remainder of the President’s second term. Key to any successful increase to the debt ceiling – the legislative cap on the amount of national debt that can be issued by the U.S. Treasury – is House Speaker John Boehner, who has been beleaguered by internal divisions amongst his colleagues over strategy and policy as they seek to engage the President to further curb the ballooning budget deficit.

In late August, Boehner predicted a “whale of a fight” over raising the nation’s debt ceiling this fall, despite Treasury Secretary Jack Lew’s assertions that the President wouldn’t negotiate on the point before the mid-October deadline. Failure to pass legislation to raise the debt ceiling by this deadline would cause irreparable harm to the American economy, according to Lew. Adding weight to Lew’s claims, the likes of Matt Yglesias and Ezra Klein suggest that breaching the debt ceiling would firstly result in the federal government being unable to meet all its obligations, and would thus require shutting down most parts of its operations in order to maintain payments to those on welfare, in the military and repay the interest on the existing national debt. Concurrently, there would be chaos in the financial markets, as U.S. government debt is considered to be the safest investment in the world, and thus used as a benchmark for various other financial instruments. From here, the American economy could fall into a sharp recession that would effectively eliminate any gains in GDP and employment from the sluggish but steady economic recovery since the GFC in 2008.

In political terms, this would be a stunning failure, attributed to not just Obama or Boehner alone, but America’s political system itself; whilst the Speaker has shown a willingness to negotiate a ‘grand [deficit reduction] bargain’ with the Obama Administration, he seems to be reverting to his attitudes in the latter stages of 2011 Debt Ceiling Crisis, demanding the re-adoption of the “Boehner rule” which requires spending cuts equal to the amount of the debt ceiling increase.

This more hardline approach from Boehner stems from deep-seated frustration at the government’s inability to compromise, particularly since Obama’s re-election in November.  This is in contrast to his attitude earlier in the year that saw a relatively clean raising of the debt ceiling and harks back to Boehner’s erratic negotiating performance during the Fiscal Cliff Crisis of late-2012. Heading into 2013, there’s been dissent amongst the Speaker’s colleagues, particularly among Tea Party representatives angling for a change in strategy, and even personnel. This division was demonstrated recently as elements of the Republican caucuses in both the House and the Senate advocated for Boehner to demand of Obama, that his key domestic policy achievement, Obamacare, either be defunded or delayed in its implementation to warrant an increase in the debt ceiling.

However it seems that Boehner has found support from his colleagues in the executive of the House Majority, including the likes of House Majority Leader Eric Cantor, who in a memo to his colleagues said Republicans would demand fiscal reforms and pro-growth policies that would put the nation on a path to balance the budget in 10 years, but played down talk of tethering defunding or delaying Obamacare to a deal.

Commentators like Charlie Cook aren’t all that optimistic though. They doubt Boehner’s capacity to bring his caucus into line behind a more conventional strategy to deal with the President over raising the debt ceiling. Cook suggests that it’s unclear whether the Speaker can persuade some of his more ideologically-extreme colleagues to take a pragmatic approach and work toward getting the best deal they can. Further, Cook laments that whilst a deal will likely be reached, “the country could weather some very interesting and potentially traumatic days, particularly in the financial markets, in the meantime.”

In Boehner’s favour however, is a White House similarly uncertain over the best strategy to adopt in the lead-up to the mid-October deadline. Whilst Yglesias advocates for the Obama Administration to exploit the platinum coin loophole and put the issue behind the country forever, he suggests the most realistic political avenue for them to take is to not negotiate at all with Congress, as Lew outlined recently.

This could potentially leave John Boehner under immense public and political pressure to be the one to offer concessions, in stark contrast to the 2011 Debt Ceiling Crisis. With political careers, legacies and the economy’s short-term viability at stake, it’s sure to make for a turbulent few weeks ahead.

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One thought on “The Melbourne Globalist – On the Precipice: Congress’ Dance with Default

  1. Pingback: Farewell and Thank You to The Melbourne Globalist | Christopher Weinberg

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