Politics of default

The Wall Street Journal sums up the politics of the impending US default quite nicely.

Now we’re days from the August 2 default deadline set by the Treasury Department, and the President’s only response has been to blame everybody else for deficient seriousness.

Mr. Boehner reached out to Senate Majority Leader Harry Reid this weekend, only to have Democrats continue to insist any deal include a sweeping debt ceiling increase that provides the White House with political cover through the 2012 election. The Speaker’s goal now should be to get his House members to design a package of cuts—no matter how small—that can pass both chambers, and pair this with a debt ceiling increase that avoids default. Even many Democrats agree with Republicans on a base of about $1 trillion in cuts over 10 years. Mr. Boehner would also be wise to make sure his bill doesn’t include a mandatory balanced budget provision, or any other clause that the White House can label a poison pill.

Mr. Boehner can then toss this fix to the Senate and let Democrats decide if they want to trigger a default. If the bill falls short of President Obama’s and Mr. Reid’s demand for a big enough debt increase to push any further fights until after the election, then let the White House or Senate Democrats take responsibility for killing it on those political grounds.

This fall-back position is far less than many House Republican freshmen, particularly those in the tea party, were hoping to leverage out of this debt fight. It may not even be enough to avoid one or more of the ratings agencies from stripping the U.S. of its AAA rating.

But it is growing abundantly clear that this may be the best Republicans can do with a President who is using these negotiations to finance the blowout spending of his first two years with a tax increase.

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16 Responses to Politics of default

  1. C.L.

    I draft a brief pro-forma for DC to cc to the tipi:

    Dear Barnaby,

    I wanted to acknowledge that you were essentially correct and justified when you canvassed the possibility of an American default. In describing you as unserious and an extremist I, along with others of like mind, was wrong. Please contact my office with any other prognostications you might have regarding the international financial situation.

    Your Obedient Doofus,

    Wayne Swan
    TREASURER OF AUSTRALIA

  2. big dumb fu

    Pretty serious stuff. What else is serious is whilst the US is in serious trouble, their stocks somehow have wildly outperformed ours in the last 12 months. We are supposed to be having a resource boom. Any takers to explain the divergence?

    chart

  3. Infidel Tiger

    God, I hope they default. It’s our last best hope.

  4. Don

    Somehow?

    They have companies that sell things to the emerging middle classes in Asia beyond coal and iron ore. Name five strong Australian industrials, let alone brands?

    We have been over reliant on banking and wasting capital on a property bubble.

    They have a cheap currency and dont have a govt hell bent on removing their comparative advantages with taxes on market leader (mining) profits and air.

    That said, wtf is wrong with these imbeciles? Very hard to do business when this type of ineptitude is on display. Get these clowns out of the road of business ASAP.

  5. Michael Sutcliffe

    Don, I think that sums it up nicely.

  6. big dumb fu

    Spot on Don. Doesn’t match the rhetoric we get fed does it.

  7. C.L.

    Jennifer Rubin at the Washington Post reports that Obama is deliberately scuttling progress.

    A Republican aide e-mails me: “The Speaker, Sen. Reid and Sen. McConnell all agreed on the general framework of a two-part plan. A short-term increase (with cuts greater than the increase), combined with a committee to find long-term savings before the rest of the increase would be considered. Sen. Reid took the bipartisan plan to the White House and the President said no.”

    If this is accurate the president is playing with fire. By halting a bipartisan deal he imperils the country’s finances and can rightly be accused of putting partisanship above all else. The ONLY reason to reject a short-term, two-step deal embraced by both the House and Senate is to avoid another approval-killing face-off for President Obama before the election. Next to pulling troops out of Afghanistan to fit the election calendar, this is the most irresponsible and shameful move of his presidency.

    As for the House, why not pass the deal that Sen. Harry Reid agreed to, send it to the Senate and leave town? Enough already.

  8. wreckage

    Yeah, the current Australian government figures it can screw all other industry as long as mining keeps being so disproportionately important. This is the opposite of sense. We’re in a position where our capacity to survive a hiccup from China is being rapidly diminished.

    Worst case, global crash and China suffers, the US still has an economy. We don’t.

  9. JC

    I really don’t understand the his thinking on this. The rating agencies are dying to down US debt. Dying to. If the agreement doesn’t go through and the downgrade occurs it’s extremely unlikely they will upgrade if and when the resolve the issue.

    With the election next November the punters are going to forget what caused the downgrade and most likely blame him.

    Good luck.

  10. m0nty

    God, I hope they default. It’s our last best hope.

    What does that mean? Default would be disastrous. The only problem that would solve is our two-speed economy, because suddenly the resources sector would be as sluggish as everything else.

  11. m0nty

    Meanwhile, the House GOP has its eye on the important issues.

    The House isn’t ready to give up compact fluorescent light bulbs just yet.

    Lawmakers rejected, 130-283, an amendment to the legislative branch spending bill that would have blocked Congress from buying or installing the energy-efficient light bulbs.

    Amendment sponsor Rep. Glenn Thompson (R-Pa.) said the purpose of the rider is to support American jobs, such as those making halogen incandescent light bulbs. “This amendment does not ban energy-efficient bulbs from the Capitol, but instead makes sure that the energy-efficient bulbs used are mercury free and made in America,” Thompson said on the House floor Thursday night.

  12. C.L.

    To use an LBJ-ism, you have a strange ‘can’t fart and chew gum at the same time’ view of life, Monty.

  13. Capitalist Piggy

    “John Boehner is proposing a deal with about $1 trillion in spending cuts and a short-term increase in the debt ceiling and a bipartisan congressional committee charged with developing a large deficit reduction package that would be immune to amendments and filibusters and would be the price of the next increase in the debt ceiling. Harry Reid is developing a package of spending cuts that Democrats could accept and would reach Boehner’s $2.4 trillion mark.”

    If this is right, the debt ceiling will be lifted. So no CL, the Dems won and the American taxpayer lost. Again.

  14. TerjeP

    Given the size of the US debt along side their unfunded liabilities it would seem there will be a seriously messy day of reckoning sooner or later. It’s hard to fathom why the markets offer the US government such a low rate of interest. Are they really such a risk free investment?

  15. Bryn

    and yet, where is the source of the spending that has led to this? It isn’t Obama- Obama is getting screwed by try to deal with the mess created by the Republicans under Bush. They screwed the banking sector regulation, they spent the money that is now the debt, they cut income will spending more & the “GFC” started on their watch.

    This is interesting: http://www.theatlantic.com/politics/archive/2011/07/the-chart-that-should-accompany-all-discussions-of-the-debt-ceiling/242484/

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