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The Campaign Spot

Election-driven news and views . . . by Jim Geraghty.

Washington’s More Worried About De Fault Instead of Default



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From the midweek edition of the Morning Jolt:

Obama Cares About Default! He Insists Everything Is Default of De GOP.

So here’s the problem . . . 

(Okay, here’s one of the problems. We have a lot of problems.)

Quite a few folks on the Right seemed to think that the approach of a government shutdown would increase their leverage; that faced with a shutdown, President Obama would make concessions he otherwise never would — i.e., a full repeal of Obamacare or a delay in the individual mandate.

The problem is that Obama thinks he “wins” government shutdowns — and in the sense that the public blames Republicans more than him and Congressional Democrats, he’s right. (Less damage is not the same as no damage. See below.) All evidence suggests most congressional Democrats — including red state Democrats! — feel the same way. Check out the Senate: Party line vote, party line vote, party line vote. Right now, there’s not a single Democrat in Congress who fears he’s going to lose his seat over the government shutdown OR Obamacare. They may be whistling past the graveyard, but that’s where it stands.

It’s a similar dynamic with the debt ceiling — the Democrats are totally convinced they “win” if no deal is reached. John Podhoretz is incredulous that anyone would think Obama wants a default*, asking, “What sitting president wants to preside over a fiscal panic?”

(MORNING JOLT IS INTERRUPTED BY DOZENS OF READERS YELLING AT THEIR SCREENS, “JIM, IT’S NOT REALLY A DEFAULT!“)

Yes, the federal government could avoid default for a while by moving money around and using all incoming tax money to pay creditors first, and then maybe having enough to pay for, say, Social Security. The government takes in about $10.8 billion per day and spends about $13.3 billion per day. The U.S. Treasury has about $30 billion in cash on hand.

The problem is that after a few days or weeks of moving money around, you end up not having money to pay for something important:

On Oct. 23, Treasury has to make $12 billion in Social Security payments, and then on Oct. 25 it must pay another $3 billion in federal salaries. Another $6 billion in debt interest payments is due on Oct. 31. If there’s still no deal by then — and Treasury by some miracle has any cash left — the real whammy will hit on Nov. 1. That’s when Treasury has to make a total payment of $57 billion to Social Security, Medicare, the military, and other income-support payments. Game over.

And for what it’s worth, Treasury Secretary Jack Lew suggests they physically don’t have the ability to only write some checks and not others:

We write roughly 80 million checks a month. The systems are automated to pay because for 224 years, the policy of Congress and every president has been we pay our bills. You cannot go into those systems and easily make them pay some things and not other things. They weren’t designed that way because it was never the policy of this government to be in the position that we would have to be in if we couldn’t pay all our bills.

The point is, we can’t count on Jack Lew’s budgetary juggling to stave off a default for very long. And the consequences of default are bad: It becomes more expensive for the government to borrow money, almost certainly a downgraded national credit rating, probably a dip back into recession, and possibly something resembling a run on the banks. Oh, and the markets will take a dive and your 401(k) will take a hit after its recent happy run.

As I noted to Podhoretz, the president probably doesn’t really want a default . . . but that doesn’t mean he’s willing to do much to avoid one. He’s probably confident he’ll win the blame game afterwards — he has good reason to think that! — and this scenario would undoubtedly give him a clear, concise message from here until November 2014: “House Republicans destroyed the economy.” In fact, from November 1, 2013, until January 20, 2017, President Obama would cite his built-in excuse: the U.S. government’s failure to pay money it owes did irrevocable damage to the confidence of investors around the globe, an obstacle that note even his enlightened, innovative, unprecedented, wise and munificent policies could overcome.

This is what happens when you have a bunch of elected leaders who are so convinced they can win a crisis that they aren’t that interested in preventing the crisis. Or that they seem to welcome crises, believing they’re all opportunities in disguise.

This ultimately all can be laid at the feet of the mainstream media, or whatever you like to call it these days: The New York Times, the Associated Press, Time, the network news crews, and so on. They’ve created a political environment of near-zero accountability.

We live in an atmosphere where Democrats aren’t worried about any of their decisions backfiring, because they know the mainstream coverage will always give them the better of the doubt, hammer their opponents, and gloss over or downplay their worst moments. The flip side of the coin is a “Tea Party caucus” (for lack of a better term) that has absolutely no fear of getting bad press — because they feel/suspect/know they’ll get negative coverage no matter what they do. Most of these guys shrug at the Morning Joe panel unanimously denouncing them as fools and unhinged extremists, because they think the only way that panel won’t denounce them as fools and extremists is to stop being conservatives. A lot of those House members feel they might as well vote their principles and draw the hardest line possible — because if you’re going to get bad coverage, you might as well get bad coverage while fighting for a good cause.

This is bad for a lot of reasons, but high among them is that almost no one in Washington has any ability to persuade anyone else in Washington. Republicans can’t persuade the media that they have a point, the media can’t persuade Republicans that they’re taking an awful risk with the debt ceiling, Democrats can’t persuade anyone and they won’t listen to anyone warning them that they’re making a mistake — i.e., when the chairman of the Senate Finance Committee looks at the implementation of Obamacare in April and declares, “I just see a huge train wreck coming down.”


Tags: Government Shutdown , Barack Obama , Debt Ceiling


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