GOP Posturing on Debt Ceiling Could Lead to Economic Disaster

Consider two figures: $38.5 billion and $352 million. Even casual consumers of the news will recognize the first figure, the amount the last-minute compromise cut from the current fiscal year's spending to avert a government shutdown. Hard-line conservatives condemned it as a "hollow victory," while progressives bemoaned President Obama giving Republicans more than the $32 billion they had originally proposed.

The second figure reflects the spending deal's fine print. According to the Congressional Budget Office, the deal only cuts actual spending by $352 million. The gap lies in the difference between how much less the government is permitted to spend over fiscal year 2011 versus how much less, net, will actually go out the door before fiscal 2012 starts on October 1.

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The numbers offer insight into the tacks taken by major players as the great fiscal 2011 shutdown showdown becomes prologue for the next big spending event: the debt limit debate. The deal gives a good indication, for example, of the optics each side wanted. The GOP looked tough while Obama assumed his favored position of adult in the room. The fine print shows that the White House team is more resourceful than it gets credit for—it seems "they pulled a fast one" on House Speaker John Boehner, says one Senate Democratic aide—while the GOP is less uncompromising than advertised. Those tensions between perception and reality could prove problematic moving forward.

During the spending debate, the GOP used what my U.S. News blogging colleague Susan Milligan has called the "government suicide bomber" approach. It involves one camp being "prepared to bring us all down to advance a political mission," and willing to hold hostage for political leverage a policy outcome that all sides agree is needed.

The stakes in the debt ceiling debate are higher than in the shutdown confrontation. A shutdown could have slowed the economic recovery, but failure to raise the debt ceiling could end it. Here's why: The government will reach the debt ceiling by May 16. The Department of the Treasury can buy a few weeks of wiggle room by moving money around, but by July 8, the government would no longer be able to pay for its operations or its maturing debt.

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This would put the government into default. While some fret that our deficit puts us on a path to a Greek- or Irish-style economic collapse, failing to raise the debt limit is a fast track to that fate. Interest rates would go up, affecting anyone with a credit card, loan, or mortgage. Globally, such a default would roil the world economy (to put it in terms conservatives can understand, think American exceptionalism—the United States being the worldwide benchmark for creditworthiness). It would, Federal Reserve Chairman Ben Bernanke said last month, be a "recovery-ending event." It could trump the 2008 financial collapse.

That's why Boehner said in January that failing to raise the debt limit is not a "question that's even on the table" because it "would be a financial disaster, not only for us, but for the worldwide economy." But his tune has changed with the apparent success of the budget terrorism strategy. Speaking to party donors recently, Boehner bragged that, while Obama wanted a "clean" bill to raise the debt ceiling—one unencumbered with partisan add-ons—there's "not a chance" he'll get one. House Majority Leader Eric Cantor said last week that the House will not act before the country reaches the debt limit in May, but will do so before the July doomsday date. Why? He told Fox News Sunday that times like the debt ceiling debate are "leverage moments" for the GOP, which they can use to force policy concessions. Some people see the brink of economic catastrophe; Cantor sees a "leverage moment."