11 days until disaster, three options to prevent it
It always feels different in the room. In the room, everyone wants a deal. They want their name on legislation, in history books. They want to do the big things and make the hard choices. Then they leave the room and they learn their supporters don’t want the choices made if they’re going to be hard. They learn their colleagues know their names won’t be in the history books, and so they’re more concerned with making sure their names are on their desks in the next congress.
But you can’t get a deal unless you can get the votes. And what’s been clear for some time is Speaker John Boehner cannot get the votes. If you need more evidence, look at the letter Boehner sent his caucus, which is more about pretending that he supports Cut, Cap and Balance -- an absurd and unpassable policy that includes a constitutional amendment making tax increases nearly impossible and capping spending at levels not seen since 1957 -- than it is about informing them as to what’s happened in the negotiations. It’s as if the president walked away from the table and sent out a letter saying that Boehner wouldn’t agree to single-payer health care, and so the negotiations are over.
But that’s what made the latest round of interest in the $4 trillion deal so peculiar. The policy was essentially unchanged from the $4 trillion deal that Boehner and Majority Leader Eric Cantor walked away from two weeks ago -- a deal that included about half as much in tax increases as Simpson-Bowles or the Gang of Six . When they walked away, it was because they couldn’t find the votes for a compromise, even one tilted towards conservative interests. Despite all the excitement about them returning to the table this week, no one had ever answered the first question that needed to be asked: Had they found the votes? And if so, how?
We now know the answer.
It’s easy to get caught up in the political machinations. It’s easy to begin speculating about the hopes, constraints, and hidden agendas of the players. It’s easy to sound like an insider and say that the House GOP cannot accept a deal until the very last minute, or unleash some long analysis of how the president’s evident frustration will play with the voters, or say that the real story here is the relationship between Boehner and Cantor. But here’s the bottom line: We have 11 calendar days to raise the debt ceiling. Already, there’s some evidence that our dithering is hurting the economy. If we truly fail to raise the debt ceiling, however, we will unleash a market panic that will, at the least, return us to recession, and if it’s not quickly quelled, metastasize into a financial crisis that we will not soon recover from.
Earlier today, I spoke with David Beers, director of Standard Poor’s sovereign debt department. He explained that it wasn’t economic factors that had put America’s credit rating at risk, nor world events. It was credit-rating agency’s increasing fears that our political system was no longer up to the challenges that face it. “What we’re saying now,” said Beers, “is we question whether despite all the discussions and intense negotiations, if they can’t reach this agreement, will they be able to reach it after the election?”
If we convince Standard Poor’s that our political system has failed, they will downgrade our credit within three months. If they do that, interest rates on our debt will spike, perhaps by 50 basis points, perhaps by more. An easy rule of thumb is that if interest rates rise by 50 basis points, we will lose 600,000 jobs in this country.
At this point, there are three serious options on the table. A $4 trillion deal that includes some revenues, a $1 trillion-$2 trillion deal that’s all spending cuts but leaves much of the job until after the election, and a deal in which Republicans don’t come to a negotiated agreement with President Obama but they grant him the authority -- and let him take the blame -- for raising the debt ceiling. Those are our three options, and Congress needs to pick one. Time is running short.
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