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.
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.
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."
What do they hope to get with their leverage? Freshman Sen. Marco Rubio of Florida issued a set of demands in a Wall Street Journal op-ed this month, including "a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare, and Medicaid." Oh, is that all?
On one level, this is a bluff. GOP leaders have said the limit will be raised—not exactly a starting point from which to dictate terms. But on the perception level, on which so much in Washington turns, this creates a delicate and dangerous dynamic. Their tough talk and apparent success in the spending battle create dueling expectations: Tea Partyers who thought $38 billion—let alone $352 million—was not enough in the prelude will expect a "real" victory, while politicos who thought brinkmanship was a winning strategy will push it again.
But the debt ceiling brink is more dangerous, and not simply because of the economic consequences. There was great public pressure to avoid a shutdown, but that's not the case with a debt ceiling increase. A recent NBC News/Wall Street Journal poll found that two thirds of voters oppose raising the debt ceiling. This isn't the shutdown replayed; it's TARP, which proved to be an existential vote for many lawmakers.
All of this points to another walk right up to the edge. But the global economy could suffer before it is reached. Why? To again use phraseology conservatives will understand: "uncertainty." The mere prospect that the United States might default could spook global markets. Republicans "don't seem to understand that you can't put everything back in the box," one Wall Street executive told Politico last week. "Once that fear of default is in the markets, it doesn't just go away. We'll be paying the price for years in higher rates."
It is a leverage moment, indeed.
- Check out a roundup of editorial cartoons about the budget and deficit.
- Read the U.S. News debate: Should Congress raise the national debt limit?
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