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Risks To Boehner In Debt-Ceiling Brinkmanship

Although John Boehner and the Republicans are coming off what is widely being scored as a victory on the argument over the 2011 budget, they risk overconfidence as Congress turns its attention to the next debate, which is the fight over raising the federal debt limit.

Perhaps the most important piece of reporting that you’ll read on the debt limit debate is this one, from The Times’ Jackie Calmes:

The Republican leader, Senator Mitch McConnell of Kentucky, has privately urged the conservatives not to filibuster, without success, say three people familiar with the talks. He argued that if Republicans did not filibuster and just 50 votes were needed for passage, the Republicans could try to force all the votes to come from the 51 Democrats — including 17 who are up for re-election. But if 60 votes are required because of a filibuster, ultimately some Republicans would have to vote for the increase lest the party be blamed for a debt crisis.

Mr. McConnell is discouraging his colleagues from filibustering a vote to increase the federal debt limit because he knows that, if push came to shove, some of his colleagues would almost certainly have to vote yea. He’d rather it pass in a 51-vote environment, where all of the votes could come from Democrats, than in a 60-vote environment, where at least seven Republicans would have to agree to a cloture motion. 

Although Mr. McConnell’s remarks were made privately, other prominent Republicans have said as much publicly (including Mr. Boehner, who has said that a failure to raise the debt limit would create a “financial disaster,” and the G.O.P.’s designated budget hawk, Paul Ryan, who has remarked that the debt ceiling must be raised and will be raised.)

That doesn’t sound like much of a negotiating position. How to reconcile it against comments from other Republicans, such as Eric Cantor, that the debt ceiling vote will provide Republicans with “leverage” to extract additional policy compromises from President Obama and the Democrats. The obvious answer is that Republicans are running a bluff.

If the Congress does not vote to increase the debt ceiling — a statutory provision that governs how many of its debts the Treasury is allowed to pay back (but not how many obligations the United States is allowed to incur in the first place) — then the Treasury will first undertake a series of what it terms “extraordinary actions” to buy time. The “extraordinary actions” are not actually all that extraordinary — at least some of them were undertaken prior to six of the seven debt ceiling votes between 1996 and 2007.

But once the Treasury exhausts this authority, the United States would default on its debt for the first time in its history, which could have consequences like the ones that Mr. Boehner has imagined: a severe global financial crisis (possibly larger in magnitude than the one the world began experiencing in 2007 and 2008), and a significant long-term increase in the United States’ borrowing costs, which could cost it its leadership position in the global economy. Another severe recession would probably be about the best-case scenario if that were to occur.

A second recession would almost certainly hurt Mr. Obama’s re-election chances, regardless of how articulate he were about trying to pin the blame on the Republicans. But it would also hurt virtually every other incumbent, including the Republicans (and likely also the Democrats) in the Congress.

While it’s hard to know exactly what the political consequences might be — a debt default has never happened before — some combination of the following might occur:

1. Mr. Obama would be significantly less likely to win a second term;

2. Mr. Boehner, Mr. Cantor, Mr. McConnell and other Republicans would have more difficulty retaining their leadership positions in the Congress;

3. All incumbents would have more difficulty winning re-election, both because of the magnitude of the policy disaster and because the debt default (in addition to hurting the poor) would have a large impact on wealthy individuals and corporations, who are key to fund-raising;

4. Similarly, all incumbents, including Mr. Obama, would become significantly more vulnerable to primary challenges;

5. The two major parties would be significantly discredited and might fracture, possibly leading to the rise the rise of a credible presidential candidate from a third-party, or a spin-off of one of the existing parties;

6. A Constitutional crisis might ensue, because the Treasury has contradictory obligations in the event of a debt default with few clear rules (and no precedent) to guide them;

7. The challengers that were elected in 2012 would have significant difficulty retaining their seats in 2014 and 2016 because the fiscal crisis brought on by the debt default would probably last for several years and would lead to extremely unpopular austerity measures — so any immediate-term gains by either party could prove fleeting.

In short, this as close as you can get in American politics to mutually assured destruction. No matter how Machiavellian your outlook, it’s very hard to make the case that any politician with a significant amount of power would become more powerful in the event of a debt default. They also would be harmed personally, since many Congressmen have significant investments in credit, stock or housing markets, all of which would be adversely affected.

A lot of the reporting I’ve seen on the debt limit vote, especially in those publications that focus more on politics than policy, has portrayed it as a zero-sum game. That’s the wrong characterization. In contrast to a government shutdown — which could have some negative consequences for incumbents of both parties, but not ones so large that they couldn’t be outweighed by strategic considerations — a debt default would be a bigger emergency by at least an order of magnitude. Its consequences are also much less linear and much less predicable than those of a government shutdown: you can’t partially default any more than you can be half-pregnant.

Now, that doesn’t mean that Republicans won’t be able to extract any concessions at all out of the Democrats. It’s possible that the White House — which has been risk-averse in recent months as it has focused on Mr. Obama’s re-election — might not be willing to take the chance of something going wrong. It’s possible that the White House could give the Republicans some concessions that they viewed as minor, inevitable, or actually desirable from a political and policy standpoint.

But Mr. Boehner may face just as much risk as Mr. Obama, if not more. He has promised his more conservative members that he will extract significant concessions from the Democrats before he agrees to an increase in the debt limit. A White House that was willing to play hardball could put him to the test, and perhaps cause a substantial loss of face.

I don’t know that this particular (and rather cautious) White House is likely to do that. But the equilibrium outcome is probably some fairly token concessions — enough to provide Mr. Boehner with some cover with the Tea Party but not much more.

That’s assuming, of course, that both sides play the “game” optimally, which is far from assured. If Mr. Obama is a good poker player, he’ll know not to disregard Mr. Boehner’s earlier rhetoric, which gave away the vulnerability of his hand. And he’ll recognize Mr. Boehner’s more recent and more confident rhetoric for what it is: the oldest “tell” in the poker book, a show of strength betraying the ultimate weakness of his position.

By: Nate Silver, Five Thirty Eight, April 11, 2011

April 12, 2011 Posted by | Congress, Conservatives, Constitution, Corporations, Debt Ceiling, Debt Crisis, Democrats, Economic Recovery, Economy, Elections, Federal Budget, GOP, Government, Government Shut Down, Ideology, Lawmakers, Politics, President Obama, Republicans, Right Wing, Tea Party, Voters, Wealthy | , , , , , , , , , , , , | Leave a comment

What Actually Happens If The U.S. Hits The Federal Debt Ceiling?

Are you just now recovering from the migraine induced by months of partisan feuding over the 2011 federal budget? Looking forward to a lengthy reprieve before Congress tackles next year’s budget? Sorry, but you’re in for a rude awakening. (And you might want to reach for some aspirin.) Treasury Secretary Tim Geithner warned Congress last week that the United States — currently liable for more than $14 trillion of debt — will collide with the federal debt ceiling around May 16. Once the government hits the current limit of $14.3 trillion it will be legally prohibited from incurring any additional debt; problematic since the U.S. only takes in around 60 cents for each dollar it spends.

Congress has raised the debt ceiling 74 times since 1962. Ten of those increases occurred in the past decade. It’s a routine vote. However, the political calculus has shifted in the newly anointed “age of austerity.” House Speaker John Boehner acknowledged that a failure to raise the ceiling could have calamitous implications. However, congressional Republicans appear unlikely to authorize an increase in the debt limit without significant Democratic concessions, setting up yet another high-noon scenario on Capitol Hill. 

This poses the question: What would happen if the U.S. hit the debt ceiling?

In the immediate aftermath of such an event, the Treasury Department can impose “extraordinary actions” to help pay the bills. Those measures include, “suspending investments in a savings plan for federal workers and pulling Treasury securities out of a trust fund for two federal retirement plans. In such cases, the Treasury must make the funds whole again once the ceiling is raised.” However, such stopgap measures would prove ineffective before long, and the government would have to either authorize an increase in the debt limit or cut $738 billion in federal spending in the span of six months, with severe consequences for the economy. Notwithstanding such a massive curtailing of government spending, the U.S. would default on some of its debt obligations. And the implications are frightening: 

For one, the government would grind to a halt — cutting off military salaries and retirement benefits, along with Social Security and Medicare payments. Worse still, default would also plunge the U.S. back into recession. Interest rates and borrowing costs would surge, while the dollar would plummet. In a worst case scenario, the markets would go into a death spiral as investors distanced themselves from the U.S.

At the very least, defaulting would call into question the true value of U.S. Treasury bonds — heretofore the gold standard of the bond market. Additionally, such an event would damage the country’s credit rating, and significantly hamper its ability to generate revenue necessary to keep government running. A default on government debt obligations could conspire to undermine the United States’ preeminent position in the global economy. Needless to say, all of this would swiftly end the recovery, as Federal Reserve head Ben Bernanke pointed out.

As for the political repercussions, Nate Silver at the New York Times’ FiveThirtyEight blog argues that the failure to raise the debt ceiling would equate to nothing less than political ruin for virtually every elected federal official.

This as close as you can get in American politics to mutually assured destruction. No matter how Machiavellian your outlook, it’s very hard to make the case that any politician with a significant amount of power would become more powerful in the event of a debt default.That in mind, it seems unlikely that the ceiling won’t be raised. It’s just a matter of when, and how, we get there.

By: Peter Finocchiaro, Salon, April 11, 2011

April 12, 2011 Posted by | Congress, Conservatives, Debt Ceiling, Democrats, Economic Recovery, Economy, Elections, Federal Budget, GOP, Government, Government Shut Down, Ideology, Lawmakers, Middle Class, Politics, Republicans, Right Wing | , , , , , , , , , , , , | Leave a comment

Echoes Of Ayn Rand: How The GOP Came To View The Poor As Parasites And The Rich As Our Rightful Rulers

Last week the Republican Party sounded two distinct voices. First we heard the angry demands of the Tea Party, speaking through its hardline conservative allies in the House, pushing the government to the brink of a shutdown. But then emerged the soothing tones of Paul Ryan, the House Budget Committee chairman, who fashions himself the intellectual leader of the party, unveiling a budget manifesto he calls the “Path to Prosperity.”

Ryan portrays his goals in reassuringly pecuniary terms—he’s just the friendly neighborhood accountant here to help balance your checkbook. “I have a knack for numbers,” he chirps. ABC News compared him to a character in Dave, the corny 1993 movie about an average Joe who mistakenly assumes the presidency and calls in his CPA buddy—that would be Ryan—to scour the federal budget and bring it into balance. If he has any flaw, he just cares too much about rescuing the country from debt, gosh darn it!

In fact, the two streams—the furious Tea Party rebels and Ryan the earnest budget geek—both spring from the same source. And it is to that source that you must look if you want to understand what Ryan is really after, and what makes these activists so angry.

The Tea Party began early in 2009 after an improvised rant by Rick Santelli, a CNBC commentator who called for an uprising to protest the Obama administration’s subsidizing the “losers’ mortgages.” Video of his diatribe rocketed around the country, and protesters quickly adopted both his call for a tea party and his general abhorrence of government that took from the virtuous and the successful and gave to the poor, the uninsured, the bankrupt—in short, the losers. It sounded harsh, Santelli quickly conceded, but “at the end of the day I’m an Ayn Rander.”

Ayn Rand, of course, was a kind of politicized L. Ron Hubbard—a novelist-philosopher who inspired a cult of acolytes who deem her the greatest human being who ever lived. The enduring heart of Rand’s totalistic philosophy was Marxism flipped upside down. Rand viewed the capitalists, not the workers, as the producers of all wealth, and the workers, not the capitalists, as useless parasites.

John Galt, the protagonist of her iconic novel Atlas Shrugged, expressed Rand’s inverted Marxism: “The man at the top of the intellectual pyramid contributes the most to all those below him, but gets nothing except his material payment, receiving no intellectual bonus from others to add to the value of his time. The man at the bottom who, left to himself, would starve in his hopeless ineptitude, contributes nothing to those above him, but receives the bonus of all of their brains.”

In 2009 Rand began popping up all over the Tea Party movement. Sales of her books skyrocketed, and signs quoting her ideas appeared constantly at rallies. Conservatives asserted that the events of the Obama administration eerily paralleled the plot of Atlas Shrugged, in which a liberal government precipitates economic collapse.

One conservative making that point was Ryan. His citation of Rand was not casual. He’s a Rand nut. In the days before his star turn as America’s Accountant, Ryan once appeared at a gathering to honor her philosophy, where he announced, “The reason I got involved in public service, by and large, if I had to credit one thinker, one person, it would be Ayn Rand.” He continues to view Rand as a lodestar, requiring his staffers to digest her creepy tracts.

When Ryan warns of the specter of collapse, he is not merely referring to the alarming gap between government outlays and receipts, as his admirers in the media assume. (Every policy change of the last decade that increased the deficit—the Bush tax cuts, the Medicare prescription-drug benefit, the wars in Afghanistan and Iraq—Ryan voted for.) He is also invoking Rand’s almost theological certainty that when a government punishes the strong to reward the weak, it must invariably collapse. That is the crisis his Path to Prosperity seeks to avert.

Viewed as an effort to reduce the debt, Ryan’s plan makes little sense. Many of its proposals either have nothing to do with reducing deficits (repealing the financial-reform bill loathed by Wall Street) or actually increase deficits (making the Bush tax cuts permanent). It relies heavily on distant, phantasmal cuts. During the debate over health-care reform, Ryan insisted that Medicare cuts used to finance universal coverage might add up on paper but they’d never stick—they were too far down the road, and Congress would just walk them back when people complained.

But Ryan proposes identical cuts in his own plan. What’s more, he saves trillions of dollars from Medicare by imposing huge cuts on anybody who retires starting in 2022. So not only has he adopted the cuts he claimed would never come to pass because they’re too harsh and too distant, he imposes far harsher and more distant cuts of his own. Indeed, Alice Rivlin, the fiscally conservative Democratic economist who endorsed an earlier version of his Medicare plan, called his new plan unrealistic. (Ryan nonetheless continues to imply that she supports it.)

Ryan’s plan does do two things in immediate and specific ways: hurt the poor and help the rich. After extending the Bush tax cuts, he would cut the top rate for individuals and corporations from 35 percent to 25 percent. Then Ryan slashes Medicaid, Pell Grants, food stamps, and low-income housing. These programs to help the poor, which constitute approximately 21 percent of the federal budget, absorb two thirds of Ryan’s cuts.

Ryan spares anybody over the age of 55 from any Medicare or Social Security cuts, because, he says, they “have organized their lives around these programs.” But the roughly one in seven Americans (and nearly one in four children) on food stamps? Apparently they can have their benefits yanked away because they were only counting on using them to eat.

Ryan casts these cuts as an incentive for the poor to get off their lazy butts. He insists that we “ensure that America’s safety net does not become a hammock that lulls able-bodied citizens into lives of complacency and dependency.” It’s worth translating what Ryan means here. Welfare reform was premised on the tough but persuasive argument that providing long-term cash payments to people who don’t work encourages long-term dependency. Ryan is saying that the poor should not only be denied cash income but also food and health care.

The class tinge of Ryan’s Path to Prosperity is striking. The poorest Americans would suffer immediate, explicit budget cuts. Middle-class Americans would face distant, uncertain reductions in benefits. And the richest Americans would enjoy an immediate windfall. Santelli, in his original rant, demanded that we “reward people [who can] carry the water instead of drink the water.” Ryan won’t say so, but that’s exactly what he’s doing.

By: Jonathan Chait, Senior Editor, The New Republic

April 11, 2011 Posted by | Class Warfare, Congress, Conservatives, Corporations, Deficits, Democrats, Economy, Federal Budget, Financial Reform, GOP, Government, Government Shut Down, Health Reform, Ideologues, Income Gap, Journalists, Media, Medicare, Middle Class, Politics, Rep Paul Ryan, Republicans, Right Wing, Social Security, Tea Party, Uninsured, Wall Street, Wealthy | , , , , , , , , , , , | 1 Comment

Mangled Mandate: How Paul Ryan And The GOP Are Misreading The American People

As with any election, there are competing narratives about what message the voters were sending last November when Democrats got routed in the mid-terms. Each party has offered a view on the meaning of the election. In the Democrats’ view, an economically anxious electorate was focused on jobs and repudiated Obama’s party for not delivering on job growth. In this telling, voters did not reject a liberal agenda but saw health care and other issues as diversions from their immediate pressing economic concerns. And there is some evidence to support this view: Nearly two out of three voters picked the economy as the single most important issue in deciding their vote, and Republicans won that vote. Republicans, on the other hand, argue that voters threw out Democrats in record numbers because they recoiled at incredible levels of government spending. And, indeed, some exit polling showed that voters registered their opposition to a more activist federal government: 56 percent said the government is doing too much, while only 38 percent said the government should do more to solve problems. Meanwhile, 40 percent of voters favored deficit-reduction.

Now, Republicans are intent on using their interpretation of the election to achieve their policy goals. They are offering a budget blueprint that slashes spending on Medicare and Medicaid and other government programs. Representative Paul Ryan’s plan dramatically cuts services to the middle class. As my colleague Jonathan Chait has pointed out, these cuts would be made by lowering taxes on the wealthy and corporations. The whole proposal, in other words, represents a giant redistribution of wealth away from the middle class toward the rich. As the Congressional Budget Office notes about Ryan’s plan for Medicare, for example, “most elderly people would pay more for their health care than they would pay under the current Medicare system.” What Ryan is really saying, then, is in the middle of this recession, after a decade of declining wages, the real problem in our country is that middle-class Americans have too many services and the rich have been too put upon. And he seems to think he has public support to back him up.

But are Ryan and other Republicans about to walk over quicksand, fooled by the illusion of firm ground beneath their feet after the November elections? Do Americans really want slashes to programs that serve them? Evidence suggests not—meaning Paul Ryan is teetering on the edge of a cliff, threatening to take all House Republicans down with him.

Even the Tea Party movement, whose momentum was built on outrage at government spending, seems to be waning somewhat; the movement’s rallies that once boasted huge numbers now bring only hundreds to the Capitol. As poll analyst Charlie Cook has pointed out, independents have also shifted to being more neutral toward government intervention in the economy over the last few months—from 60 percent saying the government was trying to do too much in October to only 47 percent agreeing with that idea now. (Or, seen from another angle, in the same time frame, people saying the government should do more has risen from 38 percent to 51 percent). And, perhaps even more ominous for Republicans, according to a recent Kaiser poll, 56 percent of Americans do not support any Medicare reductions, 35 percent support minor reductions, and only 8 percent support major reductions. The story is the same with Medicaid: 47 percent do not support Medicaid reductions, 39 percent support minor reductions and 13 percent support major reductions.

Dress it up as he likes, Paul Ryan is proposing to do just what polls show the American people don’t want—to shift more costs shift to individuals, including middle-class Americans. And many House Republicans agree with him, although, already, a few members are refusing to embrace the Ryan budget proposal. Politico has reported that several more vulnerable Republican members, including Blake Farenthold, Sean Duffy, and Ann Marie Buerkle, have called the plan bold, yet not embraced the details.

After every election, the victors try to define and act on their mandate. As Ryan and other Republicans rush through their effort to slash spending, however, they would do well to ask themselves whether it’s what the public really wants—or whether they’re woefully misreading the voters, and setting themselves up for disaster in the next election.

By: Neera Tanden, The New Republic, April 7, 2011

April 11, 2011 Posted by | Conservatives, Democracy, Democrats, Economic Recovery, Economy, Elections, Federal Budget, GOP, Government, Health Care, Ideology, Jobs, Lawmakers, Medicaid, Medicare, Middle Class, Politics, Populism, Public Opinion, Republicans, Right Wing, Tea Party, Voters | , , , , , , , | Leave a comment

The Hostage Crisis The Next Time, And The Next Time, And The Next Time

The federal government survived the hostage crisis created by House Republicans, but emerged staggering from the deal struck Friday night. The compromises were damaging, the amount of money cut from a sickly economy was severe, and the image of Washington as a back-alley dogfighting garage will not soon fade.

The Republicans set the terms of the debate at every point, and learned that they can push the fumbling and fearful Democrats far to the right. Within hours, they began revving up to create the next crisis.

Although much of the final deal has not yet been made public, it is clear it could have been far worse. The White House refused to accept many of the most radical cuts in the original House bill, including deep reductions to Head Start, AmeriCorps, Pell grants, public broadcasting and competitive education programs. Financial and health care reform will continue but with reduced money. The worst right-wing demands were dropped, including a cutoff of funds to providers of abortion and family planning, and an end to regulation of greenhouse gases. And nearly half the cuts came from a side of the budget that will do less harm to the economy and the most vulnerable.

Nonetheless, the Republicans did far better than they could possibly have imagined when the process began, winning $38.5 billion in cuts, more than even the House leadership had proposed. That’s on top of the $40 billion in additional spending that President Obama had originally proposed for this fiscal year, which was dropped. About $13 billion will be cut from the departments of Labor, Education, and Health and Human Services. The State Department and foreign assistance will lose $8 billion.

Key investments in roads, rails and other vital public works will again have to wait, and because these cuts will change the spending baseline for future budgets, may never be restored to their proper levels. (Defense spending will go up by only $5 billion over the next six months, not the $7 billion Republicans wanted.)

Democrats also agreed to the ideological demand of House conservatives that the District of Columbia be banned from spending any money for abortions, a cruel blow to the poor and largely African-American women who need those services. The ban was lifted in 2009.

The worst aspect of the deal, however, was the momentum it gave to Republicans who have hoodwinked many Americans into believing that short-term cuts in spending will be good for the economy. After the agreement was reached, President Obama actually patted himself on the back for agreeing to the “largest annual spending cut in our history.”

He should have used the moment to explain to Americans what irresponsible cuts the G.O.P. demanded just to keep the government open. Now, having won the philosophical terms of this debate, the House is eagerly anticipating the next and far more serious showdown: the need to raise the federal debt ceiling by May 16.

If it is not raised, the government will go into default, which could have a disastrous effect on the credit markets and the economy. House Speaker John Boehner said after the budget deal that there was “not a chance” the Republicans, who like to pretend they are the fiscally responsible party, would agree to raise the ceiling “without something really, really big attached to it.” He may be pandering to his Tea Party members, but the threat is real.

Mr. Obama will speak this week about a plan to reduce the long-term deficit, and aides are already making it clear he will finally demand that taxes for the rich must go up. The fight next time will be rougher and the principles need to be stronger. The Democrats’ message must be far more convincing than it has been, and their counterattack against Republican irresponsibility far more powerful.

By: Editorial, The New York Times, April 10, 2011

April 11, 2011 Posted by | Abortion, Class Warfare, Congress, Conservatives, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideology, Middle Class, Politics, President Obama, Republicans, Right Wing, Tax Increases | , , , , , , , , | Leave a comment

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