How you know the negotiations have truly failed
The best advice I’ve gotten for assessing the debt-ceiling negotiations was to “watch for the day when the White House goes public.” As long as the Obama administration was refusing to attack Republicans publicly, my source said, they believed they could cut a deal. And that held true. They were quiet when the negotiations were going on. They were restrained after Eric Cantor and Jon Kyl walked out last week. Press Secretary Jay Carney simply said, “We are confident that we can continue to seek common ground and that we will achieve a balanced approach to deficit reduction.” But today they went public. The negotiations have failed.
“The primary goal of President Obama’s presser, which just wrapped up, was obvious,” writes Greg Sargent. “He was clearly out to pick a major public fight with Republicans over tax cuts for the rich.” That’s exactly right. But he didn’t want this fight. He wanted a deal. And he wasn’t able to get one that the White House considered even minimally acceptable. After putting more than $2 trillion of spending cuts on the table, they weren’t even able to get $400 billion — about a sixth of the total — in tax increases.
The conventional wisdom is that now this fight moves to the people. I’d put it differently. Now this fight moves to the consequences. Neither side is going to give in the face of purely rhetorical salvos. The White House is expecting Republicans to accuse them of wanting to raise taxes. The Republicans are expecting the White House to accuse them of putting the interests of large corporations and wealthy donors in front of the needs of seniors, children and the poor. Both parties have seen the poll numbers behind their positions. If a few news conferences were going to be sufficient to end this, it would never have started.
What the two parties are really doing is trying to position themselves politically to survive the consequences of their failure. We don’t yet know if we’ll get to the point where the market will panic, but it could. We’re very likely to get to the point where we have to stop funding certain government services, which could mean as little as delaying payments to military contractors and hospitals or as much as halting Social Security checks. Either way, the public is likely to ignore the political breakdown until the consequences begin. At that point, both parties are hoping they will have framed the debate such that the electorate’s fury falls squarely on the other’s shoulders. That’s what today’s news conference was about.
But this isn’t a fight to look forward to. As the parties battle this out in public, their bases will polarize and compromise will become even more difficult. Think it’s hard for Republicans to vote for taxes now? Wait till Fox News and the Tea Party spend two months defining this as the definitional vote for both the Republican Party and its leadership. Think it’s hard for President Obama to give up revenues now? Give him two months to sell his base on the idea that it’d be immoral to make a deal that doesn’t include revenues. And the more the two sides lock into their positions, the worse the consequences will have to be before one side or the other buckles and takes a deal.
All in all, this might be a good time to follow Eric Cantor’s lead and hedge your exposure to treasuries.