(AXcess News) 1. Default,sequester,and government shutdown – oh my!
While the 2011 debt-ceiling showdown stood alone,the 2013 debt battle comes amid battles over automatic spending reductions known as the “sequester” and the need to pass a federal budget.
So instead of just facing the prospect of default on the nation’s debt,there’s also $1.2 trillion in spending cuts over the next decade (the sequester) and the specter of government services grinding to a halt unless a budget or temporary continuing resolution is passed.
This may change the politics of the debt ceiling. Former House Speaker Newt Gingrich (R) suggested that the debt ceiling is not the most useful issue on which to make a stand,saying Republicans “have two wonderful,clear,and far better fights available in [government funding legislation] and the Sequester bill.”
“The debt ceiling involves the faith and credit of the United States. It can not be held hostage because the crisis impact of failing to pay the government’s debts would be immediate,worldwide,and shattering,” Gingrich wrote on one of his websites. “If Republicans fall for the debt ceiling trap they will once again be isolated in a corner,identified as negative extremists,and ultimately forced to back down with maximum internal conflict and bitterness among conservatives and Republicans.”
Mr. Obama has vowed not to negotiate on the debt ceiling,a shift from 2011,when he and House Speaker John Boehner (R) of Ohio tried to negotiate a large deal before eventually giving way to congressional and White House players.
The trio of issues will come to a head between Feb. 15 and the end of March.
2. Democrats have the momentum
In 2011,a newly minted Republican majority in the House set up the debt-ceiling fight as the first and best moment to flex its fiscally conservative might. With the president and House Democrats getting “shellacked” in midterm elections,as Obama put it,the wind was at the back of conservative lawmakers pining for spending cuts.
The debt-ceiling standoff of 2011 ended with more than $1 trillion in spending cuts in the way of caps on future government spending and an undefined $1.2 trillion in further spending reductions that Congress still hasn’t found (the sequester). But the solution to that crisis was what Republicans wanted – spending cuts.
In 2013,it’s Democrats who are on the upswing with a reelected president,a wider Democratic majority in the Senate,and a smaller Republican majority in the House.
More Americans identify as Democrats (47 percent) than Republicans (42 percent),according to a Gallup Poll released Wednesday,breaking an even deadlock in party identification in 2010 and 2011.
And in the most recent confrontation over the “fiscal cliff,” not only did the solution come entirely in the form of more than $600 billion in higher taxes,a Democratic demand,but Democrats appear to have won the public-relations battle. A majority of Americans (52 percent) approved of the president’s handling of fiscal cliff negotiations,while only 31 percent approved of Speaker Boehner’s performance (versus 51 percent disapproving),according to a Washington Post poll.
Moreover,House minority leader Nancy Pelosi (D) of California told reporters Friday that the fiscal cliff deal set the stage for how the sequester should be handled: It shouldn’t be all cuts,but half new tax revenue. The comment points to Democrats’ confidence heading into this debt-ceiling fight.
Debt Ceiling 2013 has its own mini-meme: platinum coins. US law governs the circulation of paper money and gold,silver and copper coins – but not platinum coins. As such,the idea goes that the US Treasury could order up a couple of platinum coins,value them at $1 trillion,and deposit them at the Federal Reserve. The Fed could then transfer that value to the US Treasury,which could use the money to pay the government’s obligations.
Effectively,the move would use the Fed’s monetary powers to defuse Congress’s fiscal time bomb without,some say,inflationary issues related to printing money because the Fed is helping to continue current levels of spending,not fueling higher expenditures.
In the Twitterverse,the econo-dweeby set has even given this whimsical proposition its own hashtag: #MintTheCoin.
The downside? The president will have financed the budget of the United States with a massive gimmick that could face all sorts of legal challenges. If America’s credit rating took a ding from 2011’s debt-ceiling debacle,what would happen if the actual solution took the form of platinum coins?
The president has said it’s a no-go – could you imagine Obama flashing a couple of platinum coins at a press conference,making Boehner spit out his Cheerios in the Capitol? – but even the discussion has raised hackles among Republicans. Rep. Greg Walden (R) of Oregon introduced legislation to ban such a possibility.
“Congress has the responsibility and the sole authority to raise the debt ceiling,” White House spokesman Jay Carney told reporters Wednesday,“and Congress must do it’s job.”
4. Like déjà vu,all over again
The 2012 elections didn’t shake up political leadership in Washington,meaning all the same players are in place in 2013 as were there in 2011.
When Republicans went to the debt-ceiling barricades in 2011,they were doing something that was somewhat novel – today’s GOP leadership,as liberal group Think Progress noted,voted for debt-ceiling hikes without a peep during the Bush presidency. (That was the same period in which then-Senator Obama was calling a vote to raise the debt ceiling a dereliction of leadership,so both sides’ ability to twist the issue for their purposes is well-established.)
But while economists warn a default on the nation’s debt would be hypothetically disastrous,we now know what the costs of a debt-ceiling fight are.
First up,lawmakers endured a downgrade of the nation’s credit by Standard & Poor’s in part because of political brinkmanship.
Next,they presided over falling consumer confidence,a hit that took consumer sentiment lower than it was in the aftermath of 9/11.
Third,the president’s approval rating sank,but Republicans saw their favorability absolutely plummet as Americans soured on all parts of Washington.
Fourth,the Government Accountability Office estimated the debt-ceiling scuffle of 2011 cost the US $1.4 billion in additional borrowing costs that year,because anxiety over the crisis led to a temporary increase in interest rates. The US will have to pay some bonds issued during that time during the next decade,so the Bipartisan Policy Center calculated more than $18 billion in higher interest costs to the US government over the coming 10 years.
In other words,all parties know what’s at stake. Or,at least,they should.