Debt Talks Break Down As Both Parties Go Separate Ways
The debt talks in Congress are moribund now, and both sides are working on their own versions of a plan, again.
Not only isn’t there going to be a plan announced today, but it’s beginning to look like both sides in Congress have given up on the idea of working out a deal:
With no agreement reached by Sunday afternoon, House and Senate leaders appear to be moving in their own direction with competing plans to raise the nation’s debt ceiling, dramatically highlighting the major discord on Capitol Hill with eight days until the United States defaults on its $14.3 trillion debt.
Senate Majority Leader Harry Reid (D-Nev.) began to draft his own legislation Sunday that would slash at least $2.5 trillion to match an extension of the nation’s borrowing limit through the 2012 election, Democratic leadership aides said. Reid and House Minority Leader Nancy Pelosi are meeting with President Barack Obama Sunday evening.
And Speaker John Boehner (R-Ohio) told his colleagues in a Sunday afternoon conference call that a debt deal with Obama is not the way forward. He said on the call that a plan that “reflects the principles” of the conservative “Cut, Cap and Balance” proposal that the Senate rejected will serve as the model for any legislation coming out of the House. The speaker, though, did acknowledge that the plan itself is a non-starter.
“So the question becomes – if it’s not the Cut, Cap and Balance Act itself – what can we pass that will protect our country from what the president is trying to orchestrate,” Boehner said, according to a source familiar with the call.
Boehner and Majority Leader Eric Cantor (R-Va.), according to several sources on the call, implored his colleagues to “stick together” to enact a budget deal that they can support. Boehner said an agreement “will require some of you to make sacrifices.” He told his colleagues that they shouldn’t worry about winning the battles, but rather the war, according to a source on the call.
Cantor said the only way to overcome Obama is to “remain united and insist that every dollar the debt limit is increased, we have equal or more dollars in spending cuts without any tax hikes.”
I am not entirely sure what is going to be accomplished by both parties working by themselves to come up with plans without consulting the other side to see if what they’re coming up with has any chance at all of passing. No, I take that back, I know exactly what it’s going to accomplish. It’s going to allow both sides to put out plans that allow them to say they’ve done something and that it’s the other side that’s being intransigent. Perhaps some good would come of it if, after coming up with their respective plans, the parties sat down, compared them, and tried to figure out where they were on common ground so they could come up with a plan that can make it through Congress and will be signed by the President. Given how things have gone over the past weeks, though, I see no prospect of that happening at this point. We are in full-on partisan sniping mode and the goal now is for both sides to make sure they don’t get blamed if anything goes wrong.
At this point, I think the only prospect for a real deal are if there is a significant negative market reaction, either starting tonight in Asia or later this week. While I was not a fan of the legislation at the time, that’s what ended up being necessary to convince the House to pass TARP back in October 2008. Perhaps a few days of triple digit drops in the DJIA, erosion of the dollar against the Yen and Euro, or massive spikes in the price of gold as investors move to quality will break the inertia in Washington and cause a deal to finally be made. Of course, it’s hard to predict what international stock and bond markets are going to do in reaction to all of this and it’s entirely possible that the reaction this week will be muted. In that case, the hardliners in the House GOP, including those who don’t think the debt ceiling needs to be raised at all, are likely to remain intransigent and the likelihood of a deal before August will diminish.
So far, at least, there are signs of some negative reaction in the futures markets:
S&P futures are falling 1%. Not a crash by any means, but enough to confirm that markets aren’t pleased. Meanwhile, gold is booming to new all-time highs.
Whether it happens tonight or next week, though, the markets are likely to react at some point if Congress and the President are unable to get this deal done, and it’s unlikely to be pretty.
” While I was not a fan of the legislation at the time, that’s what ended up being necessary to convince the House to pass TARP back in October 2008.”
Exactly. The Tea Party and the GOP base do not believe that failing to raise the debt limit will have negative consequences. I dont see them budging unless the markets start to tank.
Steve
@steve: I think they know there will be negative consequences, but either they think they can weather them, the consequences will be less severe than what the pundits predict, or they have concluded that the economy is so bad as to not recover for many years; therefore, paying back debt will be significantly more difficult, so don’t borrow any more.
I still don’t know who to believe on this “default” issue. If we can meet our sovereign debt obligations, but have to postpone or reduce payments to certain branches of government, where is the default? We already have an untenable debt situation, which will eventually lead to default, inflation, or much higher taxes, so why not “get ahead of the curve” and pull the credit card sooner rather than later? Or do you prefer to die a slow death as our moribund economy slowly grinds to a halt resulting in default down the road? There is literally no way out of the debt mess we are in without cutting up the credit card. The world economy is paralyzed by the uncertainties of floating currencies and the uncertainties of government overreach, regulation and inefficiency. We cannot tax our way out of this mess or grow our way out of this mess. Like a family which has lived too high a life and suddenly lost their income source, it is time to start over and it will be painful.
@Pete: Except, of course, by raising taxes. Funny how all Republicans magically forget about that possibility.
@Pete: The main thing to remember is that there is no debt crisis. There is a medium term problem, but not something that we should be panicking about now.
That, and the fact that microeconomics is a terrible metaphor for macroeconomics. In a bad economy, tax revenues plummet at the same time that demand for services increases. Cutting government spending during a recession cuts demand for goods and services of private enterprise — the government is about 20% of the economy, after all. Austerity measures now will destroy an already weak recovery, and cause tax revenues to plummet further.
If we held government spending at a fixed dollar value, we would run deficits during recessions. This would be fine if we ran surpluses during economic expansions. Get rid of the Bush tax cuts, return to Clinton era tax rates, and the deficit will be cut to nearly nothing over the long term. Some targeted cuts to spending, and we can get to surpluses. But to do this during a recession is just foolish. Luckily, it can wait a couple of years, since there is no real crisis.
Not talking to each other, when they know that eventually both parties will have to agree, is just another sign that we’ve elected people who are emotionally – and most likely intellectually – children.
Seriously, they’re honest to goodness morons – its no longer an insult, but is now a plain statement of fact.
Dueling Banjos while Rome burns?
@Pete:
Barring something unforeseen, we won’t default on our bondholders. Failure to increase the debt limit will probably increase the cost of future borrowing (the government will need to borrow money to roll over current debt, even if we do not raise the limit). It will also further strain state budgets and have a noticeable negative effect on the economy ($1 trillion+ dollars of spending was suddenly removed). Many popular government programs will suddenly not be funded. To get some idea of what might lose funding, see:
http://usgovernmentspending.com/federal_budget
and drill down to figure out how to cut over $1 trillion of spending.
Do we need to make these cuts all at once and right now? I don’t think so. Which is why I’ve said elsewhere that Republicans should have taken the best deal they could negotiate in return for raising the debt limit.
Except they are not “cutting up the credit cards” – they are cutting up the bill. A bill Republicans gleefully helped run up. What do they call people who won’t pay their bills? Oh yea – deadbeats.
@Pete:
I agree with most of your post, especially about the need to cut up the credit card, at least metaphorically.
The best case scenario, IMO, would be to raise the debt limit the amount of substantial cuts that are agreed upon. This would at least be a starting point of where we would be staving off layering our debt, by starting the task of shrinking some cemented in debt as we borrowed to avoid an immediate crisis. We would also be satisfying the points of contention, by the rating agencies of meeting this debt ceiling deadline as we sensibly took on reducing our debt.
It’s doable without taxing our economy even more by raising taxes on the very sector we are trying to reassure to grow their business and hire more people.
On another blog there is a poster who has some contacts in DC. This is what was recently sent to him:
I have no sources, it’s just info from a poster. Take it for what it’s worth to you.
First, I have to thank you for creating this essay on Sunday at not exactly the best hour for weekend rest and relaxation. But…….
“I am not entirely sure what is going to be accomplished by both parties working by themselves to come up with plans without consulting the other side to see if what they’re coming up with has any chance at all of passing. No, I take that back, I know exactly what it’s going to accomplish. It’s going to allow both sides to put out plans that allow them to say they’ve done something and that it’s the other side that’s being intransigent.”
Of course you understand it. You are a lawyer. You know the gig, dude. We await the expiring clock………and then all will be revealed.
I think I previously saw a reference to Kabuki….??
Or do you prefer to die a slow death as our moribund economy slowly grinds to a halt resulting in default down the road?
No, Pete. Let’s die a fast death and just bring it all to a crashing halt. If you have problems, the best solution is always to just shoot yourself in the head, right?
lolz:
via Mark Thoma
@Drew:
Got ya Drew. Business leaders are scared shitless about what Obama might do 2 years from now, but what might happen next week is no big.
@Pete:
Out of whose backside does this assertion come from?
@john personna: I tried repeatedly to surrender to the House GOP, but they wouldn’t take even my most abject surrender.
Ugh. This kind of crap just drives me up the wall. It assumes that…
1. There really is no need at all to do anything to get a handle on the long term debt and deficit issue, despite public warnings from the credit rating agencies, and…
2. That being more confrontational with the House GOP would somehow produce a better result than what we have now, without any evidence or even logical theory as to how that would happen.
Mike
I agree with Drew, both sides are playing a game of chicken right now. Obama does not want to cave into Republicans because he’ll have some serious problems come re-election. The Republicans are not willing to cave to the Democrats because then they will look weak to their base which isn’t good for the up coming election.
I don’t know about Drew, but there you go again making this partisan. It isn’t so much what Obama might do, but any politician who is President. If McCain had won I don’t think he’d be doing stuff all that different from what Obama has done in terms of regime uncertainty. Sure the policies might be different, but their implication in regards to investment would likely be the same. Politicians feel that they have to “do something” when the economy is flagging, and especially in this case where the recession was very bad and could have gotten very very bad. So it provided a nice pretext to do whatever the party in power wanted to do, but at the same time such large changes make people nervous about investing. Which slows economic growth.
So, TARP, the stimulus, and other various policies might have helped the economy from becoming very, very bad, but the consequences are now slower economic growth. It is a trade off, we keep the economy from getting very, very bad at the cost of reduced future economic growth rates, or we don’t go through a very, very bad recession and hope to have higher economic growth rates. I’d argue any politician will go for the former, not the latter.
One of the side effects of slower economic growth is that it is going to take considerably longer for unemployment to go down. Economic growth of 1.5% or 2%/year is not going to create as many jobs as 2.5% or 3.5%.
And just because business leaders are worried about what might happen 2 years from now doesn’t mean that what happens next week is no big deal. That part you just made up. Also, there are different types of investment, some are short term others are longer term. So yeah next week matters, but so does what could happen in 2 years.
In other words, all this stupid drama is going to increase regime uncertainty, not reduce it.
@MBunge,
Wouldn’t you have more of a point if the Democrats were not all talking about cuts themselves?
If anything were going to drive me up the wall it would be the incomprehensible transition from “Democrats are tax and spend” and “Obama is a socialist” to “so, cuts are nothing.” We had a huge sea change, which moderates probably accept and see as justified, but which Republicans pretend not to see.
But, I am more sadly, mildly, amused at this point.
@Steve Verdon:
You can assert that, and Republicans can hope that, but that’s not the way it’s polling at all.
Also Steve, never forget:
How the Deficit Got This Big
@Steve Verdon:
lolz. Steve “agrees” with Drew, and “disagrees” with me, and then ends accepting my point.
People are so weird.
@john personna: Wouldn’t you have more of a point if the Democrats were not all talking about cuts themselves?
I don’t understand your point and I’m not sure you do either. You can only construe Democratic support for some cuts as “surrender” if you contend that there is no need for any cuts at all over any time frame.
Mike
The latest headlines from Monday:
Washington Post: White House stokes debt ceiling crisis
Washington Times: Is Obama a pathological liar?
Finally, amidst all the grave talk about what will happen if we don’t raise the debt ceiling (with little talk by some about addressing the debt at the same time), here is how Greece continues to tumble, despite it’s regular infusion of money from others:
Greece rating cut by Moody’s amid default warning
If a country doesn’t bite the debt bullet, default is still a threat right around the corner. That is the bottom line to all this. You can keep calling republicans ‘evil’ and ‘radical’ for bringing up the debt as a huge problem, and the dems the reasonable adults in the room for wanting to give more candy to the screaming child (aka money), but it will only to serve to push the inevitable down the road, enlarging the problem, rather than attempting to shrink it now.
Not having seen the details I’m liking the broad outline of Reid’s plan.
Why?
The two biggest drivers of the debt going forward are the two unpaid for wars that Bush started but couldn’t finish, and the tax cuts he gave to his rich friends.
Reid’s plan takes the savings from hypothetically ending the wars, and it leaves us with the battle of extending the tax cuts or not by not taking them off the table. So basically it all comes back to eliminating the two biggest drivers. Which actually makes sense. Shocking in it’s elegance and simplicity.
@hey norm:
If that’s the broad outline, there’s zero chance it had GOP support.
Their position, stated quite clearly from the outset is: no increased revenue (meaning no new taxes & making the Bush/Obama tax cuts permanent) + deep cuts to entitlement spending *now* (all cuts projected out into the future are deemed “phoney.”).
Given that, this Reid plan or anything remotely resembling it, had to be DoA.
@MBunge,
Maybe you aren’t old enough to remember Democrats when they were real Democrats. You know, when they said they wanted more net spending, not less.
Pfft. This “I’m not sure you do either” stuff. Try history on for size.
I love those links, Jan. They illustrate perfectly who you get your news from.
First, an opinion piece from Jennifer Rubin. Do you known anything about Jennifer Rubin? I’ll give you a hint: she recently made some minor waves by deciding (w/o any facts) that the Norwegian terrorist was a Muslim terrorist and (as far as I know) has yet to make a correction. She’s a RW hack. Note: one can be RW and not be a hack. She’s a hack.
Second, The Washington Times. Again, do you know your source? The Washington Times is a RW paper, through and through. So you’ve now quoted two RW sources, both spinning madly to pin blame on Obama. I’m shocked, shocked to discover this!
Third, a link that illustrates that your position on this is wrong, but you don’t see it. Default, or even the real possibilty of default that is avoided last-minute, has serious consequences. You’ve clearly (finally) gotten that through your head. Here’s the rest:
Tthe GOP manufactured the posibility of defaut, Jan. A clean debt ceiling increase, as has happened about a hundred times in US history, would mean no threat of default. It was the GOP that decided, for the first time in our history, to attempt to leverage this so they could get (immediate) spending cuts + a promise of no tax increases. The brinkmanship was started by the GOP and is being continued by the GOP. That the President has negotiated AT ALL is apparently evidence to you that he’s being a bad guy.
HACK.
@MBunge, Ezra Klein agrees with me:
Republicans have won. But can they stop there?
He opens with this:
Back in my day, Democratic congressmen did not propose $2.7 trillion in cuts (let alone without a tax increase).
It is kinda sad though, because Congress as a whole is not representing:
@Rob in CT:
Being called a “hack,” by someone as ideological driven as you is ok. I’ve read many of Rubin’s columns and she is a good reporter. Because you caught her in an initial reporting error, in knowing the background of the Norwegian terrorist, that invalidates everything she has done?!! Even in unraveling the McVeigh connection, there was lots of finger pointing to muslim terrorism, considering the history of this group, as well as media conjecture of who, why and what happened there.
You are a real nit-picker, Rob. You’re not even trying to have a dialogue are you?
As to the issue of defaulting:
Opinion Oped NY Post: Debt Fight doomsayers
It all boils down to you think the president is a great guy, and that republicans are “awful.” And I think the president is misguided and lacks leadership, and that progressives are over the top in spitballing the blame of this crisis at the party not in power.
But, the prez is becoming more engaged, as he did see fit to cancel 2 fundraiser today.
@john personna:
This morning I read something similar that the playing field is becoming more level, with more people wanting a mixed plan of cuts and revenues to resolve the debt ceiling issue. But, how it is being interpreted is that people are also getting real scared and just want it over, too. So, ‘settling’ for anything is better than settling for nothing, which is just human nature to think that way. BTW, the republicans have gone on record saying they would do a mix like this as long as the revenues comprised closing loopholes with a certain amount of tax reform.
You’re also right that the president seems to be graced more with people not blaming him as much as the republicans for this DC debacle. He is very lucky, and has a wonderful press to watch his back. We’re see how this goes as it unfolds more.
@john personna:Maybe you aren’t old enough to remember Democrats when they were real Democrats. You know, when they said they wanted more net spending, not less.
What I’m talking about is the childish whining from the Left that defines anything except telling the House GOP to go fuck themselves as “surrender”. The Republicans control the House. Nothing can pass without the support of the House GOP. Any deal, and let me repeat that, ANY DEAL will need Republican votes to pass. Which means that the most likely deal will include something that appeals to the GOP.
Of course, we could just let default happen and maybe the consequences of that will be so terrible that the House GOP will just give up and go along with anything Democrats propose. I’m not exactly sure that’s the optimum strategy.
Mike
@john personna:
That is because he hasn’t caved. To completely cave he’d have to give up on tax increases and let Republicans cut willy nilly. He has not done that, yet. Until then to many Obama is fighting the good fight (and to quite clear, his proposals have been more in line with what I’d like to see than anything from the Republicans).
Who knew that fear mongering and exploitation of this tragedy to push for more spending on defense is now classified as a “reporting error”…
Yeah, the party not in power holding the rest of the country hostage so that said party can get their desired policy goals…
Always the whining and victimization…some things never change…
Well, that’s certainly what the House GOP is telling anyone who suggests tax increases should go along with spending cuts…
Doesn’t the same line of thinking also hold true for the Senate and the White House? The most likely deal should also include something that appeals to Democrats…
@MBunge:
I don’t worry about the far left. They aren’t in play. For them to be in play, the moderate wing of the GOP would have to make a deal with the moderate wing of the Democrats, and then they’d have to go for a vote. At that point, we’s see who could bring their fringe in line and who could not.
Obama has moved very far right, from a historic Democratic perspective, to try for that moderate deal.
It is actually tragic, in a big “America’s future” sense, and not just a shallow political sense, that the moderates have such small grip.
(Please free my response to MBunge from the spam filter.)
@Steve Verdon:
Your baseline is off – either intentionally for rhetoric, or because you forget what “tax and spend” really meant.
Imagine what President … Boxer … there’s a good one … would be demanding. The traditional Democratic position would be that all these programs are absolutely essential to the safety of America’s underclass, and the only moral response it to raise taxes to pay for them.
I mean, do you think it’s an accident that Johnson had the marginal tax rates he did?
Or are you saying that to “cave” he has to join the Tea Party? That’s a bit much … though if you compared Obama 2011 to Johnson 1969 … hell, he probably is Tea Party.
Because you caught her in an initial reporting error, in knowing the background of the Norwegian terrorist, that invalidates everything she has done?!!
No. It’s merely a very recent example of her bias resulting in foolish commentary (apparently she walked it back eventually, yay!). If you’ve read a lot of her reporting and you think she’s a “good reporter” I can only shake my head. FYI, I too remember the rush to judgment in the immediate aftermath of Oklahoma City, and it was just as dumb then. So what? In a way, however, it’s useful. It shows you people’s biases, because those biases are all they have to go on until hard info comes in.
Anyway, back to Rubin. First off, she’s a pundit, not a reporter. There is a difference between the two. She writes a blog for the WashPo entitled “Right Turn.” So her ideological viewpoint is right there for you to see. Yet you call her a reporter, and refer to the title of her blog post as a “headline of the day.” You posted a link in which she relayed some info she got from a GOP staffer. In other words, she was simply repeating what a politician told her. This happens all the time, sadly. Pol goes to pundit on his/her “side” and hands over the talking points. Pundit then broadcasts them to the world. It is not an exclusively RW thing, of course. But your sources are all RW. Rubin’s blog, the Washington Times (do you know who the Moonies are? Do you know your source?) and the NY Post (which has been the Conservative Tabloid in NY for as long as I can remember). That NY Post opinion piece you quoted is ridiculous. Obama is using “default” because that is the practical consequence of refusing to raise the debt ceiling. I’m sure he is also against an immediate 40% cut in government spending too (the dig about “devoted his 2 years to expanding government” is also silly, given that it displays absolutely no understanding of context – most of the “expansion” has to do with automatic response to a huge recession – and amnesia about the past). The chaos argument is also ridiculous: the idea that a sitting President wants economic chaos in the runup to his re-election bid is self-evidently loony. Anyone with a functioning brain should see the insanity of that.
And yet, you lap it up.
The GOP picked a fight over the debt ceiling, something that had never been done before, and are willing to risk a major economic crisis in the hope that the President will cave in and give them budget cuts, even though the spending has already been approved by Congress. No amount of spin can make that go away. There would be no crisis w/o the GOPs game of chicken. I understand that you want the President to cave completely, Jan, and give the GOP whatever they want. I, for one, think it’s both bad policy (large spending cuts when we’re still dealing with 9% unemployment = bad idea) and bad politics, as it would simply further embolden the GOP, resulting in more of the same. Especially with the 2012 election looming.
…
As for my thoughts on Obama,
I’m actually pissed off at him for several of reasons (this, however, is not one of them). In the abstract (without considering the alternative), I wouldn’t mind him being voted out. Considering the alternative, however, leaves me depressed and likely to vote for Obama again, despite my disappointment. This debt ceiling thing just ads to the list of reasons why I cannot give my vote to a Republican at the national level.
Heh, I hadn’t seen this when I was composing my last post, but it’s a good illustration of Jennifer Rubin’s hackery:
From Jon Chait in the New Republic (a liberal pundit, as you no doubt know):
In reference to my previous argument about how sheer partisan animus complicates any debt ceiling agreement, consider the sample case of Jennifer Rubin, Washington Post conservative blogger. Rubin is the paradigmatic case of a conservative whose positions on these issues is driven almost entirely by partisan heuristics. Today, for instance, she spits contempt upon Harry Reid’s plan to pair a debt ceiling hike with $2.7 trillion in spending cuts and no revenue increases:
Senate Majority Leader Harry Reid is devising a sham that will never pass muster in the House. A Capitol Hill source with knowledge of the plan tells me: “It includes $1.2 trillion in OCO [Overseas Contingency Operations] savings . . . which was assumed anyway, $1.2 trillion (over $1.1 trillion less than [Majority Leader Eric] Cantor identified in the Biden talks) and $300 billion in interest savings.” A Senate aide says dryly that Reid “has about a trillion in ‘savings’ from ending the war in Iraq that’s already going to end.” And a disgusted House adviser bluntly tells me that Reid’s plan “isn’t real.”
Okay, so her view is that Reid’s plan is phony because it includes savings from drawing own the Afghanistan war. You know who else had a budget that included those exact same savings? Paul Ryan. Here’s Rubin defending Ryan against the accusation of budget gimmickry. Here she is imploring him to run for president.
A couple weeks ago, Mitch McConnell leaked to Rubin a plan to hike the debt ceiling with no deficit reduction at all. Here’s Rubin defending that plan to the hilt.
Sadly, I’m not skilled enough to post this such that the links in Chait’s post (leading to Rubin making conflicting arguments) work here.
Link to Chait’s post: http://www.tnr.com/blogs/jonathan-chait