Playing with Armageddon: The Politics of the Debt Ceiling
by Patrick Lester, 6/12/2013
Although federal budget deficits are on the wane, Republicans in Congress are still playing politics with the debt ceiling. House Speaker John Boehner (R-OH) has demanded additional spending cuts as a condition for another debt ceiling increase.
Are we really on the road to another debt ceiling crisis? How serious is this?
One of the best sources of insight into the thinking of those who will face this decision is Bob Woodward's book, The Price of Politics, which provided a behind-the-scenes account of the debt ceiling crisis in 2011.
That crisis may seem like a long time ago. But while the year was different, the players were the same and the stakes were just as high. According to Woodward's account:
Bruce Reed, Biden's chief of staff, thought it felt like a modern-day Cuban Missile Crisis. But instead of the fate of the planet being at stake, it was the fate of the economy. It was harrowing. Reed, a Rhodes Scholar, former chief domestic advisor to President Clinton, and executive director of the Simpson-Bowles fiscal commission, was soft-spoken and known for his calmness. But he wasn't calm this day. They didn't dare tell anyone on the outside how bad it looked, he concluded, but it looked pretty bad. He felt they were staring into the abyss with no idea what the outcome might be.
A task force was created at the Treasury Department to work out how a default would work. They called it the "Armageddon Project."
Despite the stakes, President Obama felt like he was being pulled in two directions.
Even at great political cost, he was going to have to be responsible, be the adult.
There was the chance that the economy would go under. If that happened, it would be on his head. The Republicans would bear some responsibility, but the headlines and the history books would record unambiguously that the economy sank during the Obama presidency.
[White House advisor David] Plouffe had been sitting in on the pre-briefs. There was no more important business. He agreed with the president's constant assertion, "We can't default."
But the president's instincts to be the "responsible adult" ran in two directions. The issue was not just about the economics, it was also about the presidency. After weighing his decision, the president met with his budget and economic team in the Oval Office on July 13, 2011 and told them unequivocally that he would not buckle under a debt limit threat.
"I want you to understand, I am not going to do it. This is altering the presidency. I am not going to take a short-term extension, no matter what. I want everyone to understand it, and I want it to be in all your body language when you talk. Because you need to understand: I have made a decision. I am not going to do this."
People, Republicans, anyone can criticize us, he said, they can fight, they can shut down the government. He would not permit the Republicans or anyone else to hold the creditworthiness of the United States hostage, to threaten to put the country into default as a budget or political tactic. "I am not going to do it. This hurts the presidency."
Obama knew that if he gave in, Republicans would keep using the tactic again and again. It would not end until he brought it to an end. When the final deal was struck on the Budget Control Act that year, Obama turned to his White House staff and told them, "We're not going to negotiate on the debt limit ever again."
The president's hard line seemed to pay dividends early this year when, faced with another debt ceiling standoff, Boehner decided to shuffle the deck, shifting the fight to sequestration and the possibility of a government shutdown.
Despite this decision, however, the fight may not be over. The reason? Former Treasury Secretary Tim Geithner had insights about this from the fight in 2011. According to Woodward, Geithner felt that too many members of Congress do not fear a crisis, they want one.
Republicans, Geithner said, some in the Senate and many in the House, did not understand the risk of default. Some of these people talked openly and publicly about how a default was the only way to get Washington to change, and how a downgrade in the nation's credit would be good.
On the one hand, Geithner knew from his contacts on Wall Street that Boehner himself was not willing to go that far.
As the former New York Fed president and current treasury secretary, he had direct pipelines to Wall Street. The current masters of the universe there reported to him that Boehner was making calls to reassure the markets--and the Republicans' growing campaign base--that everything was going to be fine.
"Boehner was calling New York," Geithner reported to his senior staff. "They were calling all the guys in New York who were f--king tearing their hair out saying, 'Don't worry, it's just a bunch of politics. We're not going to take it to the edge, and we're not going to default.'"
On the other hand, Boehner did not control his caucus. "Get your ass in line," Boehner told them in a closed-door meeting before an important budget vote that year. "I didn't put my neck on the line and go toe-to-toe with Obama to not have an army behind me."
But his troops did not listen and Boehner had to pull the bill. When the Budget Control Act finally passed the House, it needed support from Democrats to cross the finish line.
Boehner's weak hold on his own caucus became most apparent last December when it refused to back his plan to avert the fiscal cliff, dubbed 'Plan B.' Embarrassed, he pulled that bill from the floor, too, and has retreated from direct negotiations with the president on the budget ever since.
Ironically, given his weakness, another face-off over the debt ceiling may actually be a no-lose proposition for Boehner. Either he will win the showdown, extracting concessions from the president, or he will lose, which may chasten Republican hard-liners and bolster his control.
Meanwhile, although Senate Republican leader Mitch McConnell (R-KY) may have more sway in his chamber than Boehner, he may also be more willing to flirt with a default. In 2011, Bruce Reed, Vice President Biden's chief of staff, heard word that the Senate Republican leader was willing to push the envelope.
[McConnell] thought it might be to his and the Republicans' long-term advantage to rattle the financial markets. That was why they only wanted a short-term debt limit extension. A shock to the markets, according to this reasoning, would strengthen their hand in the second debt limit negotiation.
Would the Republicans in Congress really be willing to push a debt limit crisis to the brink? Would the president face them down, with both the economy and his position in history at stake? Perhaps, but there is at least one other factor worth considering.
While austerity may be falling out of fashion among economists and many budget wonks, the president is still committed to deficit reduction. One White House source who spoke to Woodward about the president's policy predispositions was the vice president's former chief of staff, Ron Klain.
Klain, 49, saw the president's economic philosophy as technocratic. It seemed to him at times that Obama was seeking mathematical answers to questions that did not always have them. The president was a progressive but he clearly had a Blue Dog streak. He saw the perils of unsustainable federal spending.
David Plouffe, another White House advisor, agreed. "He is, in his gut, a fiscal conservative. There is a Blue Dog streak in him."
If another debt ceiling showdown happens this fall, it may not come down to power politics and who has the upper hand. It may just come down to who wants the deal. The president may yet cave in to Republican demands, not because he has to, but because he wants to.