Beware the Defaults of March

If only we knew if miscalculations by both Obama and Republicans will lead to catastrophe on the debt ceiling.

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When he was navigating the Cuban missile crisis, President John F. Kennedy would recall the book The Guns of August and its description of the precipitous rush into World War I. A former German chancellor asked his successor, "How did it all happen?" The response: "Ah, if only one knew." JFK wanted to ensure that no one would write a "Missiles of October" with the same question and answer. Having commenced the countdown to the next manufactured fiscal crisis, we have to wonder if we can avoid a "Defaults of March," with a similar bewildered exchange amid global economic ruins. "How did it all happen?" "Ah, if only one knew."

President Obama and congressional Republicans have started a game of chicken on the debt ceiling: GOPers insist it will only rise in conjunction with a pound of spending flesh; Obama stated last week that he will not negotiate with Congress on the issue—period, full stop.

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Here are four questions that will help determine who, if anyone, blinks before the next showdown comes to a head, as early as the middle of February.

Who defines "balance"? Many conservatives see the fiscal cliff deal as a "complete surrender," as winger columnist Charles Krauthammer put it on Fox News last week. He and others cited a Congressional Budget Office scoring of the deal that it had a 41 to 1 ratio of tax hikes to spending cuts. This, they say, means that more tax revenue is now off the table.

Obama and his allies see the deal as part of a continuum. As the liberal group Americans for Tax Fairness notes, including the $1.5 trillion in spending restraint enacted last year, the ratio has been more like $2.50 in spending cuts for every dollar of tax increases. And the Center for American Progress released an analysis yesterday showing that of the $2.4 trillion in deficit reduction enacted since the start of fiscal year 2011, three quarters has come from spending cuts.

[See a collection of political cartoons on the budget and deficit.]

Obama has owned the concept of a balanced approach. The extent to which he can retain it—and convince the public to see the fiscal cliff agreement in the broader context of several budget deficit deals—will dictate how much public opinion leverage he and the GOP have in February and March.

Who defines default? The conventional view of failing to raise the debt ceiling is that it would be, in the words of Federal Reserve Chairman Ben Bernanke, a "recovery-ending event." It would not only make federal borrowing more costly, but also slow or freeze the private capital markets. The debt ceiling crisis of the summer of 2011 cost taxpayers $1.3 billion, according to the Government Accountability Office, and $19 billion over a decade, according to the Bipartisan Policy Center; it caused the stock market to plunge; and it led to a downgrade of the U.S. credit rating. And that was the cost of merely flirting with default.

The problem is that the conventional view isn't necessarily the popular one. How well the public understands the debt ceiling remains unclear. Many—with the help of irresponsible or ignorant right-wing pols—conflate raising it with authorizing new spending. In fact, it's paying bills already accrued.

[See a collection of political cartoons on the Republican Party.]

The big question, then, is which view of the dangers of a debt ceiling crisis do voters take over the next couple of months? If the experience of 2011 has stuck with them, Obama has the advantage. If they haven't learned the lesson, he won't have the public support he had in the fiscal cliff fight.

And there's a complicating factor: In order for their debt ceiling demands to be credible, Republicans need to seem to actually be willing to refuse an extension. So even GOPers who know better must parrot the extremist view that not raising the debt ceiling would be little more than an overhyped government shutdown. They risk painting themselves into a political corner if they downplay the consequences of default and then have to scramble to avoid it.