Senate Majority Leader Harry Reid and Minority Leader Mitch McConnell have officially unveiled their agreement to reopen the government and prevent us from breaching the debt ceiling. Speaker John Boehner has finally surrendered and will allow a vote on the bill; it is all but certain to pass with mostly Democratic support. Hurrah! We have avoided committing financial suicide, even if it took us until the 11th hour to strike a deal.
As the House bill fell apart yesterday afternoon, many people began wondering if a default was a real possibility. Fitch put the country on “Credit Watch Negative,” citing the debt-ceiling brinksmanship that has cast doubt on the ability of the federal government to uphold the full faith and credit of the United States.
Ezra Klein has argued recently that confidence in our political institutions may be a bubble ready to burst. In today’s Wonkbook, he cited the Fitch analysis and maintained that our political system is fundamentally broken:
Here’s why it does matter: Fitch is right. Does anyone really want to argue with this statement? “Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default.”
Fitch and S&P aren’t saying anything that the rest of the country doesn’t believe. They’re not even saying anything that Wall Street doesn’t believe. Everyone knows that American politics has become a game of Calvinball played with live ammunition. The question facing traders is when to finally bet that this is the day when someone doesn’t make it out alive.
What you see with the Fitch and S&P calls is that the market price on the U.S. political system doesn’t reflect what market participants are coming to believe about it: that a once capable and reliable system is now dysfunctional and unpredictable.
Derek Thompson says this repeated debt ceiling brinksmanship is “like Groundhog Day, but 720x longer and completely horrible.” Neil Irwin and Matt Yglesias argue that we’ll be doing this all over again in a few months.
They’re all wrong.
Today is the best day for America’s political institutions in a long time. We have permanently disarmed the financial nuclear bomb known as the debt ceiling.
Why do I say permanently? Because the McConnell-Reid deal confirms that Boehner and GOP House leadership were bluffing the entire time. President Obama has called for a clean CR and clean debt ceiling hike for weeks. The final deal is a clean CR, a clean debt ceiling hike and enforcement of existing law in Obamacare (income verification). If Boehner and Co. were willing to cause an international financial crisis, they surely wouldn’t accept this deal. The fact that they’re surrendering reveals that they will never let us default.
Whenever we hit the debt ceiling next, Boehner will have no credibility to threaten a U.S. default if Republicans do not get what they want. President Obama can refuse to negotiate again with the full knowledge that the speaker will cave at the last minute. The world now knows that Boehner will not let us breach the debt ceiling
This is what Democrats have been fighting for this entire time. They have created a new governing norm that eliminates any possibility that the United States won’t pay its bills. Our government may have a number of problems, but for the first time in Obama’s presidency, we can confidently say that the debt ceiling cannot be used as an extortion device. That’s a massive victory for our political institutions.