Tag economy

Debt Ceiling Negotiations Are Now Almost Unavoidable

Danny Vinik 2 Comments

Now that the government shutdown does not seem to be ending anytime soon, liberals are going to have to accept the fact that the debt ceiling is no longer non-negotiable, at least from a messaging standpoint. With both sides digging in, there seems to be little hope of solving the government shutdown before October 17 when we hit the debt limit. That means that any negotiations over a continuing resolution – which will happen eventually – will also have to include a debt ceiling raise. From Politico today:

Reid is highly unlikely to accept a budget deal if it does not increase the debt ceiling, Democratic sources said Tuesday. If the House GOP won’t back the Senate’s stopgap plan by later this week, Democrats are prepared to argue that it makes little sense to agree to a short-term spending bill if Congress is forced to resolve another fiscal crisis in just a matter of days.

A White House official said Tuesday night that the president could get behind Reid’s strategy.

Across the Capitol, House Republicans were quickly coming to a similar conclusion. Republicans were internally weighing including a debt ceiling hike in their demands to convene a House-Senate conference committee to discuss a bill to reopen the government. In the coming days, the GOP leadership is likely to change its rhetoric, with Republicans arguing about government funding and the debt ceiling in the same breath.

The two issues are now inherently connected. The president can maintain his position that he will not negotiate over the debt ceiling, but it will be harder to prove that is the case. In a worst case scenario, Democrats actually do negotiate over the debt ceiling and it becomes a piece in the compromise. That would once against set precedent for the debt ceiling to be used as an extortion device. Senate Majority Leader Harry Reid (D-NV) cannot let that happen.

But even the best case scenario is not very satisfying. In that situation, Reid declares that Congress must raise the debt limit and Republicans acquiesce. Except because of the tight schedule, the two sides continue negotiating over the CR. Eventually, they come to some type of agreement and both sides pass a bill with that includes a debt ceiling increase. In this case, the debt ceiling was never part of the negotiations and was never used as an extortion device, but that’s hard to prove. The media will analyze the deal as if it was part of a compromise. Republicans will head home to their constituents and say that they made the Democrats negotiate over the debt ceiling. They will say they broke President Obama’s no-negotiating position. Democrats will have no way to prove otherwise. It will be their word versus the Republican’s and the final deal will have a debt ceiling increase in it. Once again, the precedent will be set for using it as an extortion device.

There is one way to avoid all of this though: President Obama can unilaterally raise the debt ceiling. Unfortunately, this is highly unlikely to happen. The Administration ruled out using the 14th Amendment again yesterday and minting a trillion-dollar platinum coin seems even more absurd. Nevertheless, this would eliminate the need to raise the debt ceiling and prevent any negotiation over it. If Obama is really determined to not negotiate over the debt ceiling, he will look at both options carefully, because negotiating is now unavoidable.

Americans Still Don’t Understand the Debt Ceiling

Danny Vinik 2 Comments

I don’t mean understand it in terms of what it actually is (though I don’t think they understand that either). They don’t understand the consequences of it. Breaching the debt ceiling would be catastrophic, causing irreversible long-term effects on our debt and economy. That’s not hyperbole. The market doesn’t believe that we will breach the debt ceiling, because it would be too idiotic for John Boehner to allow that to happen. The current government shutdown is a drag on our economy and harms many different aspects of people’s daily lives. But a default is many orders of magnitude worse. Yet, a new Quinnipiac Poll today suggests that Americans are a bit confused about which is more dangerous: breaching the debt ceiling or a government shutdown.

Raising the debt ceiling is non-negotiable.

Raising the debt ceiling is non-negotiable.

The poll finds that by 72% to 22% margin, Americans do not want Congress to shut down the federal government over Obamacare. That’s good. However, a smaller margin (64% to 27%) do not want Congress to default over Obamacare. It’s good that in both cases Americans understand that it’s not acceptable to use a fiscal crisis as leverage to extort the opposite party. But these polls demonstrate that more Americans are OK with that extortion when the hostage is the debt ceiling than when it is government funding,

That’s backwards and needs to change. Part of the reason for this may be because this poll was conducted over the weekend, right before a government shutdown, while a possible default is still a few weeks away. Nevertheless, the media must do a better job explaining the consequences of a default to the American people. There should be no pretense that there will be negotiations over the debt ceiling. That’s not how this works. President Obama screwed up in 2011 by negotiating over it, but that was an outlier. It did not set a precedent.

Speaker Boehner will raise the debt ceiling, because if he doesn’t, it will go down as one of the single worst actions a legislator has done in the history of the United States. Once again, that’s not hyperbole. We need to stop treating this as a back-and-forth game, trying to guess what the speaker will do, and start calling it what it is: a foregone conclusion. Boehner will raise the debt ceiling, because it would be apocalyptic not to. The American people need to know that as well.

Wall Street Isn’t Falling For The GOP’s False Debt Ceiling Premise

Danny Vinik 7 Comments

The Washington Post’s Greg Sargent has a great post today on the inherent contradiction of the Republican Party’s debt ceiling position. On the one hand, Republican leadership has said that the debt ceiling must be raised. The U.S. cannot default. On the other hand, they are demanding concessions from the president for doing something they know they have to do. As Sargent said on Twitter, “if Rs concede debt limit MUST go up to avert econ disaster for all, why are they entitled to something in return for it?” The answer is that they aren’t entitled to something in return. Here’s Sargent:

The second argument made by Republican sympathizers is that, okay, Republicans will raise the debt limit in the end, but they don’t want to, so it’s still a concession on their part. But why don’t they want to raise it, if they know it must happen to avert economic disaster? The only conceivable answer is that staking out a posture of reluctance to raise it gives them leverage to extract concessions.

This gets to the core truth about this debate: As long as it’s an open question whether Republicans are prepared to allow default, the claim that Republicans are threatening to do extensive harm to the country in order to extort concessions from Dems that a radical faction of their party is demanding is 100 percent right.

On the other hand, if it is not an open question that Republicans are prepared to allow default — that in the end, John Boehner will definitely raise the debt limit with support from Democrats when it comes down to it, because he knows it must happen — then why are we even having this discussion at all?

These are very important points. The media is fueling Boehner’s negotiating strategy by buying into the premise that Republicans are actually willing to breach the debt ceiling. It’s unclear how many House Republicans fall into that camp, but we know that Boehner isn’t one of them. As the speaker of the House, he can bring a bill to the floor that will raise the debt ceiling and it will pass with plenty of Democratic support. If Boehner holds true to what he said, there is no story here. The House will raise the debt ceiling. Period. Any talk about concessions or negotiations supports the House Republican’s false premise that we could actually breach the debt ceiling.

While the media may be falling for Boehner’s trick here, Wall Street isn’t. There’s been a lot of reporting on the fact that the bond markets are calm and investors don’t seem particularly worried about a default. That’s because they understand that Boehner will raise the debt ceiling. They read the coverage of the debt ceiling. They see Ezra Klein write that he’s “scared of the debt ceiling” and Jonathan Chait say that the “debt-ceiling showdown is the fight of Obama’s life.” They see congressmen worry that they don’t know how this will end. They see and read all of this.

And they don’t care.

They know there won’t be any negotiations and that Boehner will raise the debt ceiling eventually. There isn’t a freak out in the markets, because there is nothing to freak out about. Unlike the media, the market isn’t buying into this false Republican premise.