The Politics of the Debt Ceiling Increase
As negotiations continue, albeit haltingly and amidst a lot of ideological rancor, between the White House and the Republican Congressional Leadership over increasing America’s current debt ceiling, ominous warnings of strangulating, calamitous consequences should the US Congress fail to act abound.
The Federal Reserve Chairman, Ben Bernanke, this week ratcheted up the debate when, alluding to the fragile state of the economy and the fact that the “Treasury security is viewed as the safest and most liquid security in the world,"he declared that the economic fall-outs from a default could not only be “catastrophic” but “self-defeating” and “dire.”
As it stands right now, barely three weeks away from the August deadline for a deal, with tempers flaring(Obama reportedly had an ugly spat yesterday with Eric Cantor, the GOP House Majority Leader), we are not any closer to an agreeable arrangement than we were several weeks ago when direct negotiations began between Democrats and Republicans.
If anything, it appears both sides have retreated into irreconcilable ideological cocoons; they, unfortunately, seem entrenched to a point where they may have inadvertently pinned themselves into inextricable corners. Such that, when and if a pact is finally reached, each side may have some explaining to do to their core bases.
There’s a lot of talking and cheap shot-taking at the opposition but not much else going on in terms of meaningful negotiations.
GOP Leaders have been adamant about their opposition to any form of tax increases. In fact, many signed pledges while running for office emphatically and categorically promising not to raise taxes.
The White House and the Democratic Leaders have equally been insistent, even obdurately unyielding, to any arrangement that does not include significant increases in revenues (tax receipts). President Obama further exacerbated the liberal position when early this week, he denounced any attempts to run out the clock and present a short term compromise (a 30, 60 or 90-day extension) for his signature.
Unsurprisingly, each side is accusing the other of not negotiating in good faith.
Congresswoman and GOP presidential aspirant Michele Bachmann accused President Obama of "holding the full faith and credit of the United States hostage so that he can continue his spending spree."
Also, this week, the Republican Senate Minority Leader, Mitch McConnell of Kentucky assailed Democrats for attempting to lure Republicans into what he called a “legislative trap.” He then charged Democrats with seeking to capitalize on the impending crisis to surreptitiously push through indefensible tax hikes for promises of spending cuts later that are grandiosely fleeting or ephemeral.
Dismissing Obama administration officials as “not serious about cutting spending or debt,” McConnell declared that Americans wanted "real cuts and real reforms now."
Interestingly, in spite of McConnell’s foregoing mulish stance, he continues to witness recriminations within his party. Some Republicans are publicly accusing him of capitulating to Democrats!
This may understandably cause McConnell, at least in the short-term, to then try to be ultra-resolute and unbending in his position as a way to assuage the interests of the conservative Tea Party wing of the GOP which is currently beholden to more popular, conformist candidates like Bachmann.
Meanwhile, the White House is continuing to be on the offensive. It has maintained its original position that any proposal that does not include serious increases in tax revenues is dead on arrival. President Obama remains committed to ensuring the tax code’s progressive bent; he is not deviating from the requirement that higher-income Americans, millionaires and billionaires, should be assessed higher taxes.
After reassuring Americans, especially Republican lawmakers fearful not to alienate more conservative sections of their constituency, that none of the proposed tax increases would actually take effect until 2013, President Obama reiterated the potential for some consensus around the more than $1.5 trillion in spending cuts that resulted from previous negotiations led by Vice President Joe Biden.
But the president’s efforts have garnered an appreciable interest/support from neither the Republican leadership nor the rank and file.
The stakes are much too high this time. The White House and Republican Congressional Leaders must cease from playing high-stakes poker with our lives and the global economy.
Bernanke indicated that should Congress fail to act by Aug 2, 2011, the country would lose its pristine credit worthiness and, perhaps more importantly, the US Treasury Department will not be able to pay in excess of 40% of its bills including expenditures on both Social Security and the military.
Since the Treasury takes in $125 billion less than it actually needs to pay the government’s operating costs, it would not be able to borrow new monies to bridge this gap.
Millions of hard-working, average Americans simply won’t be paid and hundreds of thousands of businesses traditionally reliant on that steady flow of cash for sustenance may go under.
It is also widely speculated that not extending the debt limit would wreak havoc in the investment world--- a variety of doomsday scenarios await the bonds, stocks, money and commodities markets.
So, I end by joining a cross section of the business community in calling on both sides to eschew their current partisan hard-line positions. In a letter to Obama and lawmakers released Tuesday, the Chamber of Commerce, the Business Roundtable, the Financial Services Forum, the National Association of Manufacturers and the Partnership for New York City encouraged them to “pull together rather than pull apart," “act in the nation’s best interest,” and “agree to a plan to substantially reduce our long-term budget deficits with a goal of at least stabilizing our nation's debt as a percentage of GDP (gross domestic product) -- which will entail difficult choices."