House Republicans signaled Thursday they were shifting their focus to duel with Democrats over the country’s debt ceiling—a fight that could put America’s economy and financial markets at far greater risk than a short-term budget shutdown.
Though the possibility of a shutdown isn’t off the table, House Speaker John Boehner downplayed its likelihood. “I do not expect that to happen,” he told reporters Thursday morning.
That will depend, however, on whether Congress can successfully pass a budget extension before Sept. 30. The Senate is expected to pass a stopgap budget within the next day, stripped of the House’s Obamacare defunding provision. Boehner insisted the House wouldn’t accept such a bill, but he also declined to give any details on what they might demand instead. Given the tight timeframe, if the House attaches anything that Senate Democrats find objectionable, Congress could run out of time and trigger at least a short-term shutdown.
Even as Republican Sen. Ted Cruz grabbed headlines for his 21-hour stand against Obamacare over the short-term budget, other members of the GOP’s rank and file have set their sights elsewhere.
Leaving a House GOP caucus meeting on Thursday morning, many members agreed the debt ceiling could be a better negotiating chip than a shutdown, much as Boehner has previously argued. The government is expected to run out of cash Oct. 17 to pay its bills unless the debt-ceiling is raised. House GOP leaders are now finalizing a laundry list of demands for raising the debt ceiling, including everything from an Obamacare delay and the Keystone pipeline to overhauling Dodd-Frank and re-writing coal regulations, according to a outline obtained by the National Review.
Already loathe to touch Obamacare, Democrats will be even less likely to engage over the GOP’s extravagant list of demands, many of which would do little to curb the deficit. But within the House GOP caucus, there is new enthusiasm about using the debt-ceiling as the major vehicle for change. “All you have to do is look at the polling on it,” said Rep. Blaine Luetkemeyer, a Missouri Republican. “The American public believes they do not want to shut the government down over Obamacare funding. They would be willing to do the fight with regards to the debt limit.”
A new Bloomberg poll shows that 61% of Americans believe it’s “right to require spending cuts when the debt ceiling is raised even if it risks default,” contrary to President Obama’s demand for a “clean” hike without conditions attached. By contrast, a CBS News/New York Times poll shows that 80% of Americans oppose using a government shutdown to negotiate.
Fear of ‘black swan’ economic devastation
A default, however, would be far more devastating to the country’s economy and well-being than a shutdown. While the country has been through 17 shutdowns in its history, it has never defaulted in this way over Treasury debt—and neither has any other advanced, industrialized economy in the world. That’s struck fear in the heart of economists, financial analysts, and others who warn the ripple effect of a default would be severe and dangerously unpredictable—a “black swan” event, as one former Republican budget staffer put it.
Republicans, however, are downplaying the risks of breaching the debt ceiling. On Thursday, some denied that a default would even be possible, arguing that the president could simply prioritize the most important payments over others to avoid damaging the U.S.’s credit. “There’s no chance of a default. We have over $1.5 trillion in revenue, and our debt obligations are in the neighborhood of $250 billion in interest,” said Rep. Mo Brooks, an Alabama Republican elected in the 2010 Tea Party wave.
Brooks believes a House-passed bill to prioritize payments to creditors and Social Security beneficiaries would protect the U.S. economy if the debt ceiling were breached. ”That would enhance our credit rating and make us stronger amongst the world’s creditors because they know we are giving priority to them, and that makes their risk less and makes them more secure when they lend money to America.” Treasury Secretary Jack Lew has already rejected the idea that prioritization could stop a default—a view echoed by Tony Fratto, a former Treasury official in the Bush administration.
Other Republicans argue that it would be worth the risk of default to put a halt to Obamacare and accomplish the party’s agenda. “There’s never any compromise until the stakes are high in our society. That’s the nature of Democratic government,” said Rep. Dana Rohrabacher, a California Republican. ”There’s never progress without risk.”
Even within the Republican caucus, the path to a showdown over the debt ceiling remains murky. While the party seems to be edging away from a shutdown fight, GOP members aren’t entirely united behind the debt-ceiling bill that Boehner is proposing. Brooks, for one, points out that the debt-ceiling does little, in fact, to reduce long-term spending—a point that Democrats are likely to hammer home as well.
“It doesn’t address the underlying cause of the problem which are the deficits. It doesn’t address spending, in the long term,” he said. “It kicks the can down the road.” Unlike in 2011, the bill doesn’t specify a specific dollar number for cuts, he pointed out. As such, the bill could expose the risk of having a debt showdown over Obamacare—an issue that Boehner only recently agreed to attach to this fiscal fight.
Such divisions could make it harder for Boehner to unite his own party behind a debt-ceiling bill in a legislative standoff, forcing him to work with Democrats and more moderate Republicans to raise the debt ceiling. The GOP leadership’s debt-ceiling wish list could simply be a bluff that Boehner knows will fail—but perhaps not before moderate Senate Democrats have to take hard votes on tough issues like coal and the Keystone pipeline.
But President Obama has continued to hold a firm line against negotiating over the issue at all, which means the brinksmanship could go to the 11th hour: Both sides expect the other to one to fold, we could default if either party refuses to budge.
Whatever happens, one thing is clear: If there is a huge fight over the debt ceiling, it will come at a cost—even if we avoid default. In 2011, the debt-ceiling brinksmanship cost the government $1.3 billion in higher borrowing costs, and consumer confidence took a hit.
But for many Republicans, the prospect of continuing the status quo would be far worse—even if their party can’t agree on how to go about changing it. Brooks believes the real threat to the United States’ solvency isn’t breaching the debt ceiling, but out-of-control spending. ”Personally I prefer uncertainty and perhaps some success, over a known certainty of bankruptcy, which is where we are headed,” he concluded.