The Senate plan that was supposed to come together this morning was going to be blocked by feces demon Ted Cruz, apparently. The GOP’s tea-masters wouldn’t allow a vote on the leadership’s plan there, either.
But these were plans that would send things down the road a while. I suppose it’s still possible that a clean debt ceiling increase will pass in time.
So, what do I think will happen?
I think we might default. Because no matter what the ratings agencies say, the United States has the capacity to pay debts denominated in its own currency even without printing money, I don’t think a “default” for political reasons would necessarily cause as many of the consequences as the experts say.
I’m sure it would cause the rates to go up—but what’s the alternative to the dollar? The Euro, which faces actual default problems still? The pound, which is only independent of the Euro in name? There’s no real alternative reserve currency at this point unless this default lasts more than a little while.
So, if we’re a day or two off the mark, I don’t think it’s that big of a deal. But too much longer and the default could cascade sending people who need the money back either from the coupons or the principal to make other payments. They would burn their own credit lines first. (This, I think, opens the door for some kind of Fed action: it could buy all of the bonds seconds before they mature, it could open the discount window to banks who don’t collect on people in this situation, etc. — more bailouts for the 1%.)
That’s not good stuff. The markets may be more than marginally shocked if it actually happens, but I don’t think it will scare people until it gets nearer a week.
The question is how long does the blame fix on the Republicans before the stink of loserdom not sealing it becomes a problem? In other words, where’s the dead-cat bounce in the polls? I worry about that.
The political calculation for the Democrats isn’t often looked at though. For all the talk about palace intrigue in the House, the consequences of this aren’t hard to game out on the other side.
If they capitulate, Obama’s presidency is over. Democratic voters will be alienated and show up in even lower numbers than they did in 2010 next fall. Plus, the GOP will know it can get concessions every time this comes up. He can’t fold. He has to veto at least the first attempt if the wind switches direction and let them fail at overriding.
The Republicans, on the other hand, can pass a “surrender” with only 17 votes right now and let this whip up their base for the next election, blaming their lack of enough of a majority in the house and a senate minority.
It would seem then that the dominant strategy is a GOP fold. But do we have rational actors here?