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    Bluffing for Dummies: Republicans Hit Their Heads on the Debt Ceiling

    By Michael Wolraich on Tue, 05/10/2011 - 11:33am | Politics

    Word to the wise: Don't bluff when your cards are on the table.

    (I learned that the hard way.)

    Apparently, House Speaker John Boehner has yet to learn the lesson. On Monday, he truculently pledged, "Without significant spending cuts and the way we spend Americans' money, there will be no debt limit increase."

    But there will be a debt limit increase. John Boehner knows it. Barack Obama knows it. Everybody knows it.

    Let's engage in a counterfactual. Suppose that the Republicans actually refused to raise the debt limit. Sooner or later, once the Treasury ran out of accounting tricks, and it became clear that the Republicans were not just delaying but had no plans to raise it, the U.S. would default on its debts. Then the country--the whole world even--would experience a financial crisis that would make the recent housing crash look like a mild case of the sniffles. The recession would return with horrifying fury. Boehner would go down in history as the Herbert Hoover of the 20th century, and the Republicans would lose their precious majority for years, perhaps even decades.

    There are a few Tea Party nuts in congress who may be delusional enough to go through with it, but John Boehner isn't one of them. He will raise the debt limit. He knows it. Barack Obama knows it. Everybody knows it.

    So my recommendation to the Democrats is to call John Boehner's ill-conceived bluff flat out. Simply state, "No, we will not negotiate." Then let Boehner choose between ruining the country or looking like a fool.

    We all know what he'll choose. Let's get it over with.

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    Could you imagine the global reaction?  Everybody in the bond markets understands that the U.S. has infinite means to pay its debts because it controls the supply of its own currency.  Everybody gets that.  It means that ability to pay is not an issue.  So the only risks a bondholder faces are:

    1) Market prices for Treasuries.

    2) Inflation (if too much money is printed to cover the debt)

    3) Unwillingness to pay.

    Investors accept points 1 and 2.  Point three, they never even talk about.  It's a given that the U.S. is willing to pay, even if its people have to endure inflation as a result, it will pay.  The Republicans are bringing point three into play.  They're telling the world that in some cases they are not willing to pay.  And they're saying it over the stupidest things.  They're saying "we won't pay if they don't unrepeal don't ask don't tell," or "we won't pay if they don't undo the deficit reducting health care legislation."

    Just about any lender can understand that a borrower could fall on hard times and so terms will have to be changed or even losses will have to be endured.  But this is not about hard times.  This is like me loaning Warren Buffett $2.50 for a subway ride and him e-mailing me later that he doesn't feel like sending me the money back.

    This would destroy the global belief in the Treasury's financial honesty and it will make people the world over look at our political system and say that it's so broken that they defaulted when they didn't even have to.

    But it won't happen.  Cantor has already said he won't force an actual default.  They just want to see how close they can get.  Obama shouldn't sweat it. Geithner will have to work some overtime but in the end, nothing will come of this.


    by Michael Maiello on Tue, 05/10/2011 - 11:46am

    I doubt Obama is sweating it too much, but I'm sort of baffled why the Republicans think they have any negotiating clout--and why the Democrats are bothering to negotiate with them.


    by Michael Wolraich on Tue, 05/10/2011 - 12:04pm

    The always-insightful Michael Tomasky had this to say in the NY Review of Books, and I think it's pretty correct:

    "...The political risk here for the White House is that while Republicans may be saddled with much of the direct blame if the country goes into default, the consequences of that default—poor bond ratings, higher interest rates, possible foreclosures, inflation; in sum, an economy in a tailspin—would surely affect the President’s standing in the polls over time, making the outcome far more difficult for him than for any particular Republican member of Congress."


    by brewmn on Tue, 05/10/2011 - 12:28pm

    Obama would certainly suffer. Every congressperson would suffer. Every American would suffer.

    But it will not happen. There is no risk that Boehner will pull the trigger. Therefore, there is no political risk to Obama and no reason for him to negotiate.


    by Michael Wolraich on Tue, 05/10/2011 - 12:41pm

    From what I've read, it seems that the world's economists aren't so worried about the U.S. deficit, but plenty worried about how it's being dealt with.


    by William K. Wolfrum on Tue, 05/10/2011 - 12:04pm

    Pah, what do economists know?


    by Michael Wolraich on Tue, 05/10/2011 - 12:07pm

    Isn't it just theater designed to please the various constituencies (or imagined constituencies).  The Republicans may have miscalculated a bit, but still... 


    by we are stardust on Tue, 05/10/2011 - 12:08pm

    It's theatre....badly written and horribly acted.


    by cmaukonen on Tue, 05/10/2011 - 12:13pm

    Boehner has to walk away with a 'victory' of course.

    I have no idea what that could be.

    Dems have to see a tax increase.

    I just saw that frickin Sessions pontificating on the floor of the Senate this morning. The man is ridiculous!

    Both Boehner & Sessions screaming: NO NEW TAXES.

    it is only through the richest rich that jobs are created.

    Yeah, if you build Yachts in Portugal.

    But this tack is being taken by repub legislatures and govs across the country.

    Wisconsin is rushing to destroy 'the welfare state' knowing the dems will take over one of the two houses in a couple of months on the recalls.

    I am not so sure that this same suicide bomber approach might not be taken by repub leaders in both Houses.

    I know that Wall Street and the oil industry contribute most of the campaign monies to these repubs; so there has to be pressure for the leaders to act responsibly.

    To tell you the truth, I am really confused right now.

    Colorado is competing with Mississippi right now for the award for single worst educational system.

    If Walker has his way, Wisconsin will be in the running. Ohio, Michigan and Indiana might be in that category sooner than later.

    Minnesota would be in the running if it were not for Governor Dayton.

    There is an anger on the right that I have never seen before; not just talking anger but acting on it.

    Brooks--who is supposed to be so reasonable--is writing in the NYT today that Medicare has to be dismantled and corporate taxes erased from the books.

    I really do not see sanity in the cards at all.

     


    by Richard Day on Tue, 05/10/2011 - 12:18pm

    It's just par for the course. The GOP are playing it like political suicide bombers again, just as they did with TARP, with the new START treaty, and so on. Everyone seems to think it is just fine for the GOP to act that way, having their way by threatening to destroy the country. IOKIYAR.

    The only thing that's surprising is the Dems handing them the grenade and pulling out the pin for them. Cue Ezra Klein last december:

    When I asked Democrats about this at the time, they kept telling me that Republicans needed to learn the awful and awesome responsibility that was governing. “Let the Republicans have some buy-in on the debt. They’re going to have a majority in the House,” said Harry Reid. “I don’t think it should be when we have a heavily Democratic Senate, heavily Democratic House and a Democratic president.”

    I don't know what you call a negotiation where one party ... wants to lose.


    by Obey on Tue, 05/10/2011 - 12:43pm

    I't all a load of digos kidneys  as Momi Prins points out here.

    As of April 30, 2011 – the public debt stood at $9.63 trillion dollars and intragovernmental debt at $4.6trillion (68% and 32% respectively of the total debt of $14.24 trillion vs. a debt ceiling, or cap, of $14.294 trillion.)

    In April 2010, public debt was $8.41 trillion and intragovernmental was $4.48 trillion (65% and 35% respectively of the total debt.) In April 2009, public debt was $6.91 trillion and intragovernmental was $4.27 (62% and 38% of the total debt. The debt cap then, was $12.14 trillion.

    In April 2008, just after federal subsidization of the sale (read: hostile takeover) of Bear Stearns to JPM Chase, and before the rest of the big bailout began, public debt was $5.22 trillion, intragovernmental was $4.08 trillion (56% and 44% of the total debt.) The debt cap then, was $9.815 trillion.

    In April 2007, public debt was $4.97 trillion, intragovernmental was $3.78 trillion (57% and 43% of the total debt.) The debt cap was $8.965 trillion.

    Basically, what all these numbers show is that; public debt has nearly doubled since before the big bailout, while intragovernmental debt has increased just 15%.  Some (like Geithner, Bernanke, etc.) may argue that this balloon in public debt was required to save our economy, though there’s little evidence of it doing anything but cheaply floating our financial system, not least because nearly half of the additional $4.4 trillion of public debt that was created is stashed at the Fed as either excess reserves, QE1, or QE2. 

    Now that the Osama drama has died down a bit, and Congress returns to economic discourse with Tim Geithner over not whether, but by how much, the debt ceiling will be raised, the partisan bickering will resume its thunderous levels of inanity.

    No one on the Hill will question the true why behind the debt – because it would lead back to that mammoth fuchsia elephant - we, the elected and appointed, screwed the country to support the power banks, and we’d do it again, in fact, we already are.


    by cmaukonen on Tue, 05/10/2011 - 1:07pm

    Talk about counterfactual, how about the Republicans demanding federal income tax cuts before they raise the debt limit? Sound like a plan their base would support?


    by NCD on Tue, 05/10/2011 - 1:58pm

    We have 2, count 'em, 2, TP nuts (Camp & Upton) here in Michigan who have already gone on record opposing raising the debt ceiling.

    From Eric B, Michigan Liberal blogger:

    If the Democratic leadership had any sand, it would immediately start accusing the Republican Party of putting its agenda before the fundamental fiscal health of the nation. In this case, Wall Street has as much to lose if the country defaults, and it's not going to let its ongoing fleecing of the national treasury be put at risk by money for Big Bird.

     


    by wabby on Tue, 05/10/2011 - 3:53pm

    ...And add to that the TP idiot who said he'd vote to raise the debt ceiling if they put DADT back in place...wtf?

    This country is going nuts at a breakneck speed!


    by stillidealistic on Tue, 05/10/2011 - 8:37pm

    Boehner certianly is an unconvincing novice in the art of political theater. 

    I find it interesting that he takes his 'tax hikes are off the table' stance when he had recently acknowledged that America 'needs revenues'.  I was quite suprised that the media didn't pounce on his having said so after he had so many times said that 'America does not have a revenue problem it has a spending problem'.

    In this clip he says ''we are at a time when the federal government is short on revenues. we need to control spending but we need to have revenues..­.'

    I could only find the clip included in this one at about 1:12

    http://www­.youtube.c­om/watch?v­=fUL_OrT2X­YE”


    by synchronicity on Tue, 05/10/2011 - 7:30pm

    The original version goes like this ...

    Humpty Dumpty sate [sic] on a wall,
    Humpti Dumpti [sic] had a great fall;
    Threescore men and threescore more,
    Cannot place Humpty dumpty as he was before.

    Interesting that a children's nursery rhyme spells out exactly what would happen if the GOPer's in the House refuse to increase the debt ceiling, eh?

    The BRIC (Brazil, Russia, India, and China) are anticipating Bonehead follows thru with his threat...not increaseing the debt ceiling. They are eager to replace the dollar with their own universal currency standard that shifts the global financial power into their court...Sarkozy in France has been beating the drums too. Bonehead would only be facilitating their wishes.  In fact, just riding it up to the finish line before capitulating and going along with a debt increase may give BRIC the leverage they are looking for to usurp the dollars' dominate position in the global financial markets.

    I personal hope he does. It seems the only way to make the GOPer's responsible for their actions is for them to bring the economy down hard. Once done, Obama and the Democrats will have no choice but to publicly place the blame squarely on the backs of the GOP. 

    The Democrats needs to start playing the political game using the same rules the GOPers are using if they want to re-establish their political base with the public.


    by Beetlejuice on Wed, 05/11/2011 - 7:52am

    The fact that we are even talking about debt ceilings, debts and deficits while we are still plunged deep into the pit of an historic economic downturn, and still plagued by massive joblessness and wretched stagnation, is a symptom of the catastrophic failure of the Obama administration to establish a clearly understood and coherent progressive message to counter the reactionary wingnut tea party surge of 2009 and 2010, or to take the golden opportunity offered him by the spectacular flame-out of deregulated, laissez faire, Ponzi capitalism in 2008 to push for real progressive reform organized around a vision of hope, a fair shake and broad prosperity.

    Obama also helped set the political stage for the bizarro world we find ourselves in by appointing that crackpot Deficit Reduction Commission, brainchild of conservative budget hawk Pete Peterson and headed by the most conservative Democrat Obama could find along with the ridiculous vaudeville act named "Alan Simpson."  One take is that Obama is an utter fool and incompetent on the economy.  But, at least where macroeconomic issues are concerned, he's either a closet conservative or the most incompetent liberal in history.  And it's pretty clear he despises the economically progressive wing of the party, and doesn't belive they even deserve a seat at the table when the most momentous decsions are being made on America's economic future.

    The reason the Republicans are even bothering to negotiate over something they have already said they will go along with in the end is because they know that Barak Obama has made a religion out of giving in to Republican desires.  They will get something out of this one too, no matter how weak their negotiating position.  But their position is unfortuantely not as weak as it should be, since Obama himself has helped promote the message that our debt is an impending disaster, and a more important issue than employment and prosperity.


    by Dan Kervick on Wed, 05/11/2011 - 11:51pm