At long last President Obama seems to have run out of patience with the truculent Republicans who have rejected all of his overtures for a budget deal — just as Moody’s and other economic authorities again warned of the potentially catastrophic consequences of a debt default.
On Wednesday afternoon, Obama finally stood up at the bargaining table and walked out of the stalemated budget talks, warning House Majority Leader Eric Cantor (R-VA) that he will “take this to the American people” unless the Republicans showed a real inclination to compromise. Exactly what the president meant is not yet clear, but at least some leading Republicans have begun to realize that their party’s continued pandering to its hardline base could have serious consequences for them as well as the country.
Indeed, political schizophrenia suddenly broke out among the Republicans on Capitol Hill even as Obama confronted them in the White House. In the Senate, a panicked Minority Leader Mitch McConnell (R-KY) proposed a near-complete surrender, with a three-step maneuver that would allow the debt ceiling to rise while permitting the Republicans to pretend that they disapprove. Seeking to justify the abandonment of his own hard-line rhetoric, McConnell told right-wing radio host Laura Ingraham that blowing the August 2 debt ceiling deadline could lead to the same political result as the government shutdowns of the Clinton era – only perhaps worse.
Suddenly, McConnell appears to have realized that an unprecedented Treasury default could not only cause permanent damage to the nation’s credit and the world economy, but might well ruin the Republican Party, too. Noting that President Clinton easily won reelection the year after he faced down a Republican caucus in a budget debate that led to two government shutdowns, McConnell predicted that Obama “will say Republicans are making the economy worse…It is an argument that he could have a good chance of winning and all of a sudden we have co-ownership of the economy. That is a very bad position going into the election.” Letting the country default is a bad idea, he said, because it “destroys the GOP brand.”
In other words, American voters might blame Republican candidates for a worsened recession, caused by their ideological obsession and partisan selfishness. Voters might also grow disgusted with Republican legislators more concerned with demagogues like Michele Bachmann than with experts like Ben Bernanke, the Federal Reserve Chairman who outlined the consequences of default in Congress on Wednesday. The storyline of a default should not be difficult to follow, even for the average politician, as explained by Bernanke, whose Republican credentials are impeccable.
Bernanke told the House Financial Services Committee that default would cast grave doubt on the value of the Treasury bond, which “is viewed as the safest and most liquid security in the world, and the notion it would become suddenly unreliable and illiquid would throw shockwaves through the entire global financial system.” Bachmann may disparage such warnings as “scare tactics,” but the threat that default portends for everyone from grandmothers depending on Social Security checks to the struggling economies of Europe and Japan is real. Indeed, its effects are already being felt.
Where Obama’s frustration will lead remains to be seen. What did he mean when he told Cantor not to “call my bluff”? Although Obama, the constitutional law professor, would prefer not to invoke a controversial 14th Amendment power to overrule Congress and raise the debt by fiat, he could now cite McConnell and many other Republicans in his defense. Should the Republicans in the House seek to impeach him over such a move, he could say that he was responding to a clear and present danger to the nation and the world – and that the leaders of their own party in the Senate agreed with him.
Americans who broadly oppose default – and favor increasing taxes on the rich to avoid it – might well be persuaded by that argument.