Reaping What We Have Sown: The Debt Standoff

Robert Laszewski

First posted 7/27/11 on Health Policy and Marketplace Review

On this blog a month ago, I said the politicians were starting to scare me with the apparent eagerness of some to actually take the government to default to make a political point.

For weeks we have heard political leaders on both sides tell us there would be no default.

But the two sides have so backed themselves into opposite corners that they have left no opportunity to meet in the middle. Democrats say they have to have a tax increase, or failing that no cuts to entitlements. Republicans say absolutely no tax increases and they need to see entitlement cuts.

This only gets fixed if somebody capitulates. The consequences for any side doing that might be the loss of their own base going forward.

There isn’t any middle ground here because there is no middle ground left in Washington, DC. The last few elections have seen the replacement of “moderates” by evermore far right or far left senators and representatives. This process has only been exacerbated by the gerrymandering of Congressional districts to ensure they were safe for either side but at the same time leading to their coming under the control of party activists pushing their representatives either far left or far right. It also hasn’t helped that each side is so certain of their cause and only has to dial their favorite channel to be assured of that. Yet, ironically, the last three elections have been decided by where independent voters have gone—not by the far left or the far right.

Obama and his leadership can’t afford to offend their base and Boehner and McConnell can’t afford to offend theirs. Boehner’s biggest problem right now is not Nancy Pelosi, it is his Tea Party wing that, as of this writing, is so far denying him the votes he needs for his debt limit proposal. Already, a few of the Tea Party folks are whispering that they need to get rid of Boehner because of his latest debt proposal.

Both sides also believe a standoff helps them in the next election. I don’t think it helps anybody. My sense is that the first Wednesday of November 2012 neither side will have the votes to unilaterally drive their agenda through.

Many on both sides have recently argued that compromise is what has gotten us into our fiscal problems (and that might be right) and that compromise is now the wrong thing to do. But it will be impossible for either side to “fix” things their way unless they come to dominate the Congress and capture the executive branch–something that is mighty hard to do in the American political system.

The fact is no progress can be made in a divided government without compromise.

But leaders on both sides are all confidently telling us a debt limit deal will get done.

I will tell you that all over corporate America companies are thinking through their liquid cash positions and getting any borrowing done before August 2nd.

I suggest you also be ready just in case.

It looks like we are on the way to reaping what we have sown–not just this month but for some time to come until both sides finally come to the conclusion they will have to work together.

Earlier post: The Debt Ceiling Debate—Some of These People Are Nuts

Bob Laszewski is a health policy analyst based in DC. He writes at Health Policy and Marketplace Review.

2 thoughts on “Reaping What We Have Sown: The Debt Standoff

  1. Actually a balanced article.

    I am not an economics major, but I would like someone to tell me how my credit rating remains top notch if I continue to borrow more than I make, spend more than I borrow, and have no plan whatsoever to get my fiscal house in order?

    Do we have a revenue problem or a spending problem?

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