The debt ceiling hasn’t captured the imagination of the public the way the fiscal cliff did. That’s in part because the fiscal cliff was a binary event. It was to take place on a date certain, and the implications were clear. Starting Jan. 1, 2013, taxes would rise on individuals across the board if no evasive action was taken. The debt-ceiling crisis, which started just as the fiscal-cliff crisis was resolved, is more amorphous. There’s no specific date on which the U.S. will be unable to pay its bills–like the cable guy, the best the government can provide is a general window. It’ll hit some time between Feb. 15 and March 1. And there’s no playbook for understanding how events will unfold. Will Treasury stop paying bond interest? And on which bonds? Will the Pentagon stop buying fuel for jet fighters? Will the IRS stop collecting revenues?
Adding to the air of unreality, a fair amount of the debate around avoiding a debt ceiling seemed outlandish. For the last several days, discussion on the better blogs, op-ed pages, and talk shows was dominated by the prospect of the government minting a $1 trillion platinum coin and depositing it at the Federal Reserve. From the outset, the idea that the rationalist, centrist, administration would pursue this path seemed fanciful. And over the weekend, the Obama administration effectively took it off the table. “Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit,” Treasury spokesman Anthony Coley said in a statement.
To a degree, deep-sixing the platinum-coin option marked an increase in the White House’s brinksmanship effort. Obama has said he won’t negotiate over the debt ceiling. No quid pro quos. The framing is that Congress has approved the budgets, the mix of tax and spending measures that are creating the debt, so it should be responsible for paying them. (Note: Had Romney and Ryan won, and if they had implemented the Ryan budget plan, they would have to account for another $6.2 trillion in debt-ceiling increases over the next several years.) “There are only two options to deal with the debt limit,” the White House noted in a statement over the weekend. “Congress can pay its bills or it can fail to act and put the nation into default.”
These actions are heightening the tensions surrounding the debt ceiling and the prospect of default. The notion that Obama would be hyperresponsible and take all sorts of evasive, unprecedented action to avoid a default gave license to Republicans to be more irresponsible. Not that they need it. Politico reported Monday morning the apparent desire by many House Republicans to push for a shutdown and get it out of their system before agreeing to a debt-ceiling increase. It’s as if Republican House members are 2-year-olds who have to exert a certain amount of energy–running around, throwing tantrums–before they can be managed through necessary nighttime routines.
Parents understand that their 2-year-old may have to scream for an hour before going to bed at night. But primal screams can be dangerous and intolerable for the financial markets and for the economy. Judging by the Politico article, Republicans seem to believe they can shut down the government or selectively default on their own terms, i.e., keep paying the interest on the debt and defense while stiffing everybody else. They also presume that the bond market would take such efforts in stride and be comforted by the fact that the government is choosing to pay its interest bills even in extremis.
The problem is that for big business–and even small business–this would be very bad news. Big business hates (wait for it … ) uncertainty. And the standoff over the debt ceiling is a giant uncertainty burger. I’ve been arguing that the only things that will get the House Republican caucus to change its modus operandi will be a revolt of its patrons–the big business lobbies, the large corporations, the coastal moneymen, and the right-wing ideas complex.
That’s finally beginning to happen. Peter King, the Republican representative from Long Island, told New York and New Jersey residents they should reconsider their donations to Republicans, given the foot-dragging on the Sandy relief efforts. Michael Bloomberg, a putative Republican, noted that the general public thinks the GOP is “meshugenah” over gun control.
And it’s happening on the debt ceiling. The Wall Street Journal editorial page, ordinarily an enabler of Republican policy bomb-throwing, advised caution earlier this year. “You can’t take a hostage you aren’t prepared to shoot,” it noted in an early January editorial. As we documented last week, the Financial Services Roundtable, run by Tim Pawlenty, has come out in favor of a relatively clean debt-ceiling increase. “We are in favor of raising it, and we will be encouraging policymakers to increase it,” Scott Talbott, senior vice president for public policy for the Financial Services Roundtable, told The Washington Post. “We will communicate with the entire Congress,” he said. Why? The consequences of failure would be too dire for the Roundtable’s members to bear. The U.S. Chamber of Commerce, generally an arm of the Republican campaign apparatus, has come out and said last Friday that the debt-ceiling drama was a dangerous game. “I think we have to let the folks up on the Hill use the assets they have while at the same time trying to tell them that using the debt is the least desirable of those.”
Slowly, what’s left of the Republican establishment is awakening from its postelection slumber and suggesting that rank and file not play fast and loose with the bond market. Ironically, that is empowering the White House in the ongoing negotiations–or lack thereof.