Debt Talks Turn Dire
A week ago, political leaders were on a glide path to a $4 trillion deal that would have slain sacred cows in both parties and set the nation on a sustainable fiscal path for the first time since two wars, two rounds of tax cuts, and an unpaid prescription-drug plan blew through the budget surplus left from the 1990s. Then House Speaker John Boehner got the vapors, pulled back from the negotiations, and the unthinkable became the faintly possible: that Tea Party purists would prevail and there might not be a deal in time to meet the August 2 deadline to avoid defaulting on the nation’s debt.
By the time the latest talks ended Wednesday, the divide between the two parties appeared even more acrimonious, with President Obama reportedly telling Republicans not to call his bluff and try to pass a temporary solution to the debt deal that he has promised to veto.
The stunning lack of progress as the clock ticked down prompted the venerable Moody's investor service to announce it was beginning a review to consider downgrading the nation's credit rating, and it had both parties contemplating the political implications of a default. Senate Minority Leader Mitch McConnell poked his own party in the ribs, suggesting Republicans would ensure Obama's reelection in 2012 if they failed to reach a deal.
The political back-and-forth is a great sideshow for cable television, not as good for ratings as the Casey Anthony trial, but full of intrigue nonetheless. Will Boehner survive the machinations of his No. 2, the wily and power-hungry Majority Leader Eric Cantor? Who’s up, who’s down, and what about McConnell’s plan to give Obama the authority to raise the debt limit on his own multiple times before the 2012 election?
“More theater,” says James Dinegar, president and CEO of the Greater Washington Board of Trade.
Dinegar has had enough of the posturing, and he’s got lots of company. The powerful Business Roundtable sent a letter signed by more than 470 CEOs to every member of Congress and the White House urging action on the debt ceiling and expressing support for deficit reduction. Global markets have been remarkably stable while the politicians dither, but time is running out. “It’s a dangerous assumption to believe there’ll be a stay of execution at the last minute,” says Dinegar. “Even if we get a deal, the hit to our reputation could be irreparable. Everybody is watching, and you do lose the confidence of the Chinese at a time when confidence is everything.”
When some 100 CEOs with the Business Roundtable met in Washington in mid-June, the debt ceiling and deficit reduction were on the agenda and members were beginning to sound the alarm. Fast-forward to this week, with the negotiations at an impasse, and "there was a strong feeling among the CEOs that we needed to weigh in,” says the Roundtable’s Johanna Schneider. “We’re not going to comment on each volley, but we’re trying to make it clear there is no other path [other than raising the debt ceiling]. Any movement in Europe, any kind of banking problem, any credit diminution could easily begin a chain of events that could be very, very negative to the economy at a time when economy watchers aren’t sure which side of the swing we’re on—up or going down.”
The White House has tried everything—the small deal, the big deal, the Biden talks at Blair House, the Gang of Six, public pressure, private talks—all kinds of permutations when the policy need is straightforward. The debt must be increased; everything else is important but not urgent. Because of the paralysis of the political system and the opportunity that Republicans and Democrats see in the maneuvering, the governing class looks to the world as if it can’t get its act together. McConnell’s eleventh-hour offer appears especially cynical. He showed his hand right after Obama took office when he said his duty as a Republican was to defeat Obama. What he introduced on the Senate floor Tuesday evening, backing away from any meaningful deficit deal, has nothing to do with policy, and that’s why, to their credit, conservatives denounced it. They ran on deficit reduction, and they don’t want to let the moment pass.
The Republican Party’s internal fissures are exposed, with Cantor’s maneuvering transparent as he aligns himself with the Tea Party. “What I tell people about Cantor,” says Larry Sabato, who directs the Center for Politics at the University of Virginia, “if he’s ever your ally, always keep him within eyeshot and your back to the wall. If he wants to go somewhere you are, your life is in danger.”
Boehner survived the coup d’état during the Gingrich era and has a broader horizon than Cantor. Everybody says Boehner wants to do the right thing but is a weak speaker who doesn’t command the loyalty of his troops, especially the 87 freshmen swept into office by the Tea Party and courted by Cantor.
Obama on a political level has done a good job of cornering the Republicans, but his grade will depend on whether he gets a debt-ceiling deal that is good for the country. His demeanor has been steady and statesmanlike, though sometimes too quick to make concessions in the eyes of his supporters, but always looking like the grown-up in the room.
For both sides, going into an election year, these negotiations have the potential of shifting the political landscape much as the economic crisis in October 2008 established Obama as a credible leader while John McCain appeared clueless. The Republicans have shaken the business community’s faith in their ability to govern, and while Obama must take his share of the blame for letting the situation get this far, the politics in a fluid situation favor the White House for now.