tip off

No deal on debt sends US economy to the brink

The White House debt crisis talks took a turn for the worse in the last 24 hours, as Republican Speaker John Boehner walked away from a $4 trillion spending cut called the “deal of the century”.

There is now nobody from the Republican House leadership team willing to go back to the White House whilst modest revenue increases are on the table. By Sunday morning, the American news media had woken up to the realisation the United States has no legislative paths left to avoid financial disaster on August 2.

The White House plan included significant cuts to Medicare combined with dropping the Bush tax cuts for people earning more than $250,000 and other tax loopholes for the most wealthy, valued at less than 20% of the spending cuts. That modest request was the final straw for the remaining Republicans who didn’t walk out earlier in the month.

Late on Saturday Boehner issued a statement saying the massive deal could not be made, rather, only a smaller reform that includes no tax hikes could get them past the the country defaulting in less than a month. It was in stark contrast to the GOP’s 2010 election rhetoric that promised deep cuts and long-term reform. Even conservatives like The New York TimesDavid Brooks are wondering why Boehner is letting a “psychological protest” faction of his party sabotage an opportunity to put long-term restraints on government.

One explanation floating around the Sunday talk shows is that Boehner — a relative moderate in the party — is fighting off a covert leadership challenge of his own. The number two Republican in the House, Majority Leader Eric Cantor, and the number two Republican in the Senate, Jon Kyl, were the first to walk out of the Joe Biden-led debt talks last month. They made bold statements that no Republican would vote for a plan that included any revenue increase, thought at the time to be a simple negotiating tactic.

But when no compromise ever eventuated, it became clear Boehner’s continued involvement meant very little. The speaker’s capitulation to the party’s protest faction was a worrying sign for economists at the IMF who warned of “nasty consequences not just for the US, but the world” if the country defaults on its debt.

In its own small way, the White House’s media games have contributed to Boehner’s predicament. Shortly before the debt talk breakdown on Saturday “a senior administration official” leaked that Boehner had agreed to letting the Bush tax cuts for the wealthy expire once big Medicare cuts were put on the table. That turned out to not be entirely truthful. Entirely wrong according to Boehner’s camp, who did not need the impression his leadership was willing give up the party’s core commitments in the heat of the moment. But it wasn’t some off-the-cuff comment by a frustrated official, it was an orchestrated effort to undermine the Republican talking points.

The Obama administration has become rather obsessed with that leaking influence as a means of undermining its domestic enemies. During the Obama’s two years while Democrats controlled both houses of Congress no Republican was invited to the White House, a major snub, because frankly they weren’t needed. Nor did Obama pick up the phone to try and entice them to support the health care reforms. Now Republicans may wish that had remained the case. Now, whenever they step foot near the White House, “a senior administration official” has carte blanche to spin the Republican negotiations anyway they want.

Under this administration reporters are invited to call a White House number to hear a background briefing from unnamed officials and usually ask a few questions. I participate in these calls because who would turn down an offer for that kind of inside information? The reporters are given no means of validating any of the information provided and the White House gets to keep deniability.

Inevitably however, the information becomes part of Washington’s so-called ‘belt-way wisdom’ and the targets remain on the back foot. Boehner is caught between a party base that refuses the compromise on its evolving anti-tax ideology, and a White House that is willing to play dirty politics. In that context, Boehner’s statement that he doesn’t hold much hope for a deal is more a desperate plea than an ultimatum.

This time the White House in pulling that stunt may have actually made its own fortunes far worse.

4
  • 1
    Posted Monday, 11 July 2011 at 2:32 pm | Permalink

    Interesting. At least some of Obama’s public statements seem to ‘reach out’ across the aisle. Whatever the White House’s funny buggers, the Republicans’ blocking of a Bill to increase the US feds’ borrowing limit is irresponsible.

  • 2
    michael r james
    Posted Monday, 11 July 2011 at 2:54 pm | Permalink

    Correct but David Brooks on his end-of-week discussion on The Lehrer Newshour (Friday but broadcast here in Oz on Saturday) was asked by Lehrer why Obama and Boehner seemed to work fairly well together, responded with a theory that they are both incumbents and so are more vested in resolving the situation. Whereas the opposite is true for both the majority of Republicans and Cantor & Kyl (and Nancy Pelosi whom Obama has done no favours during these negotiations).
    So yes, one interpretation is that the WH leak was shooting themselves in both feet. Except that it seems more likely to engineer the Republicans taking full ownership of the coming debacle. I’ll buy into the WH having the smarts to devise a fiendish strategy but the Republicans do not seem to have any approach one could call smart, nor historical memory of the Clinton days (except for Boehner who does not want to reprise the role of Gingrich.)
    Incidentally Brooks also strongly believes there will be a deal done at the last minute.

  • 3
    Chess C
    Posted Monday, 11 July 2011 at 3:06 pm | Permalink

    This is a non-news story - just the usual game of political brinksmanship. (Notice the amount of attention financial markets are paying to this? i.e. none) The US isn’t going to default on it’s debt. Remember back in April, the last time this happened. There was going to be a government shutdown, but no, just at the last minute they did a deal. Phew, what a close one. Like last time, Republicans are going to drag this out as long as possible because it generates headlines about US government debt. And then they’ll approve only a small increase in the debt ceiling so we can have the same story again, at least once, before the presidential election, preferably right before the presidential election.

  • 4
    Harley Dennett
    Posted Monday, 11 July 2011 at 3:12 pm | Permalink

    There are very very few people who disagree that blocking a bill to avoid the US government defaulting is gross irresponsibility. But I thought it was important to add context to the last piece I wrote on these talks. Both sides are having a hard time leaving their point scoring at the door, and Obama’s closest advisors are no exception.

Womens Agenda

loading...

Smart Company

loading...

StartupSmart

loading...

Property Observer

loading...