The Mind of a Hack

Scott Armstrong thinks Barack Obama has a secret plot to make the Republicans vote to push the country into default, helping his reelection chances. Seriously:

Allowing the country to go into a default is a risky strategy but the Obama team is desperate and by their thinking has little to lose by going for broke. For the first time in our history the nation would go into default and it would do so under Obama’s watch. However, the White House will count on the mainstream press to be an ally and attempt to lay/switch all of the blame unto the Republicans. So when seniors don’t get their social security checks it will be the Republicans’ fault; when interests rates rise and the markets crash, it will be the Republicans’ fault; when the dollar loses even more value and prices and unemployment rise even further, it will be the Republicans’ fault. In short all of the accumulated damage that has been done to the economy these past two and one half years plus all of the additional default harm will be cast by the White House/press as the consequence of the Republicans’ control of one third of the government for the last seven months.

Dare we imagine this could be their plan? If so,this cynical long shot strategy may pay off for the Democrats. However, enabling the default and following through with the consequences will serve to demonstrate the length the Democrats will go to maintain power and control. It should serve as a shocking display of total callousness towards the public good. Rest confident however, that’s not how the press will play it.

This is so stupid I can’t believe I’m wasting my time with a rebuttal. So be it.

First of all, it’s much more likely that a default would cost Obama the 2012 election.

Second of all, why on Earth wouldn’t Republicans deserve the blame if they failed to raise the debt ceiling and pushed the country into default?  Why would it be Barack Obama’s fault if House Republicans failed to raise the debt ceiling?

Barack Obama is not the obstacle to a deal. He has repeatedly signaled his intention to give away the store to Republicans. He has made it very clear that he is willing to sign a deficit reduction plan that is much more radically tilted toward spending cuts than any in recent history. Republicans are now in the comical position of rejecting their own plan.

What is actually happening is that John Boehner cannot find the votes in the House to raise the debt ceiling under any circumstances, so he cannot agree to a deal on behalf of his caucus.  There are two obstacles preventing Republicans from saying Yes to any plan:

1) they will not accept even a penny in new revenues

2) a plurality of the House Republican caucus simply do not believe that the debt ceiling should be raised under any circumstances.  They have persuaded themselves that there will not be any consequences if we fail to raise the debt ceiling.

It is clear the House Republicans are the only obstacle to a deal.  And yet Scott’s powerful hack mind has twisted itself in knots to persuade itself that the hostage-takers are really the hostages. It is impossible for Republicans to be the hostages, because at any point they have the option of raising the debt ceiling.

Boehner Walks, Obama Finally Gets Angry

It must be infuriating trying to negotiate with people who have no interest in reaching a deal.

Yes, Defaulting on Entitlements is Still Defaulting

Matt Best at PA Water Cooler asks:

Can anyone answer me this question – If we don’t raise the debt ceiling, will that mean we default on our debt? Or will it mean that we simply cannot borrow more money?

Is it true that the government has, as it’s first obligation, to make debt payments? If this is the case, then we shouldn’t go into default. Default is when we can’t make our debt payments. Default is not failure to pay entitlements, right?

Wrong. It’s not future debt, it’s about money we already owe. If Congress does not raise the debt ceiling by August 2, there will not be enough revenue coming in to Treasury to cover our expenses. At that point, Treasury needs to decide who gets paid and who gets IOUs.

Pat Toomey wants to prioritize payments to bondholders and send IOUs to Social Security beneficiaries, doctors receiving Medicare/Medicaid payments, veterans, etc. Toomey claims prioritizing payments would not be seen as a default, but the ratings agencies and creditors disagree. Adam Ozimek explains:

Sane conservatives understand that the ratings agencies will lower our credit rating if we won’t raise the ceiling, and that we have almost $500 billion in maturing treasuries that we need to roll over in August alone which, as UBS argues, is a problem:
“The mistaken view that interest payments to US Treasury-holders could easily be prioritized, avoiding default indefinitely. This view requires that investors willingly roll over their holdings of Treasury debt and does not take into account the sharp increase in interest rates that may result.”

As Lawrence White explains, and S&P agrees, prioritizing payments is a default:

”…if the federal government delays payment to anyone, then certainly in a common-sense sense, the government has defaulted on its obligations….I believe that the financial markets would not be copacetic [if bondholders were repaid but other creditors weren’t]….They would realize that the government was stiffing one set of claimants who are creditors, and the markets would worry that they might be next.”

Defaulting on any of our obligations is still defaulting, and will still ruin our bond rating.

Not a Normal Party

How far to the nutty right is the House Republican position on the debt ceiling? Well to the right of Republican voters. Nate Silver looks at the polling evidence:

If Republicans in the House insist upon zero tax increases, there is a larger ideological gap between House Republicans and Republican voters than there is between Republican voters and Democratic ones.

What Bad Faith Negotiating Looks Like

David Kurtz:

Republicans are insisting that any deal must include spending cuts equal to the additional borrowing authority they grant in raising the debt ceiling. How much is that in dollars? Well, it depends on how much you raise the debt limit.

President Obama wants to raise the debt ceiling enough to give the federal government breathing room into 2013, that way he doesn’t have to face this issue again before the 2012 election. When you do the math, or more precisely when the budget wizards do the math, it turns out you need about a little more than $2 trillion increase in the debt ceiling to last until 2013. So that’s how much in spending cuts Republicans are demanding: a bit north of $2 trillion.

With me so far? Good, because here’s the rich, hair-pulling, you-got-to-be-kidding-me part:

When the parties sat down yesterday at the White House for another round of hashing out a deal, Majority Leader Eric Cantor (R-VA) laid out the spending cuts House Republicans hammered out in earlier failed talks with Vice President Joe Biden aimed at a grand bargain on the long-term budget. Now set aside that there’s an open question as to whether Democrats ever did or ever would agree to those cuts Cantor laid out. And set aside that the deal Cantor is proposing doesn’t offer any compromise to Democrats on the tax side (it’s still spending cuts only).

Set all that aside and guess what?

Cantor’s own numbers don’t add up to $2 trillion!

Let me say that again.

Cantor was unable to put on the negotiating table a list of $2 trillion in spending cuts Republicans would propose that have any chance of passing.

Obama’s Winning the Debt Ceiling Politics, But at What Cost?

Rich Wilkins nicely sums up the state of the politics on the debt ceiling fight:

“Let’s step up. Let’s do it,” the president said at a White House news conference between negotiating sessions with congressional leaders. “I’m prepared to take on significant heat from my party to get something done, and I expect the other side should be willing to do the same thing if they mean what they say.”

Let me translate that. I’m more of a man of principle than them, they’re just nuts. I’ll go past halfway, and give them what they want, for a little of what I want, but they won’t even take that, because they’re a bunch of children, incapable of running this government. Basically, that’s how it got reported today too. The President says he’s willing to make a deal, they aren’t. Now he’ll play chicken with them and begin to probably walk back the terms a little more to his favor as the days go by. Eventually they will either negotiate out a deal, or they will look insane. Oh, and by the way, he’s also making the top Republican in the nation, Speaker Boehner, look incapable of managing his own chamber. Insult to injury.

Rich thinks this shows Obama is a good negotiator, but I’m not so sure. The President may well win the media narrative, but at what cost? I think Economics of Contempt has an important point that Obama is trying to scare Congressional Democrats into accepting a deficit deal that’s 100% spending cuts in exchange for taking Social Security and Medicare off the table. Would that be a win? Absolutely not. Do base Democratic voters care about the deficit at all? I don’t see any evidence that they do. There’s no political gain for the President or the economy in a deficit deal. Maybe accepting a right wing plan will make Obama look like “the adult in the room” to the 7% of Americans who are truly swing voters, but that certainly won’t help his party win more seats in Congress next year.

The whole idea that there should be policy concessions in exchange for raising the debt ceiling is completely insane, but Obama directly enabled this by endorsing the idea of a grand bargain from the beginning. It didn’t have to be this way, and it still doesn’t.

From the outset, Obama should have been threatening to cut Social Security checks and Medicare/Medicaid payments first. Starting today, he can say that the August Social Security checks don’t go out unless the Republicans raise the debt ceiling. That is, after all, what Pat Toomey is proposing. Toomey’s nutty enough to defend the immediate benefit cuts, but the vast majority of the Republican Party will knuckle under within a few days.

"S&P To Deeply Cut US Ratings If Debt Payment Missed"

Reuters:

“If the U.S. government misses a payment, it goes to D,” [Standard & Poor's managing director John Chambers told Reuters]. “That would happen right after August 4, when the bills mature, because they don’t have a grace period.”

See also: 235 economists, 6 of them Nobel Prize winners, are calling on Congress to pass a clean debt ceiling increase right away.