GOP In Weak Position On Debt Ceiling

When the Republicans won control of the House of Representatives they thought they had been handed a position of power. They set out to block anything the president wanted to do, and said they would not cooperate until the president and Democrats agreed to their demands for draconian cuts to social programs and massive new tax cuts for the rich and corporations. They wanted to force a return to the failed "trickle-down" economic policies of Ronald Reagan and George Bush.

They had some limited success in doing this with the fight over the 2011 budget. They were able to force some cuts (even though they were cuts the Democrats really didn't have much problem agreeing to). But that limited success made them even bolder -- and that boldness has led them to make a couple of blunders.

The first blunder was the House approval (almost unanimously by Republicans) of the Ryan Budget Plan. This was the plan that dictated abolishing Medicare and Medicaid and throwing the poor and the elderly to the mercy of private insurance companies (who are known for their lack of mercy). This budget plan has proven to be very unpopular with the voting public. The House Republicans have been verbally attacked in their Town Hall meetings and are showing a significant drop in the polls, and this has given Democrats an issue to take into the next election.

The other blunder is the one they are currently in the process of making -- opposition to raising the national debt ceiling. They seem to think they can use their refusal to raise the debt ceiling as a club to beat more budget cuts out of Democrats (like they did with the 2011 budget process). The problem is that the two things are not the same.

While shutting down the government would cause some discomfort to government employees and delay some benefits for some Americans, refusing to raise the debt ceiling would be far worse in its consequences. It would mean the U.S. government would default on its debt payments and that would send economic shock waves throughout the economy and around the world -- throwing our economy (and possibly others as well) into a full-blown depression.

They might have the approval of the teabaggers to play this game of chicken with Democrats (but even that would disappear once the economy nose-dived), but they don't have the approval of another important segment of the party -- businessmen and financial investors. Wall Street and corporate CEOs have been lobbying against a refusal to raise the debt ceiling or even a threat to do that. They are making huge profits in the current economy and know they would be negatively affected by a government default.

This puts the Republicans in a position of weakness. If they carry through on their threat to not raise the debt ceiling they will anger the people who fund their campaigns. They have already angered the elderly (a group that has generally supported Republicans recently). They really can't afford to also alienate the business and financial communities.

Even the economic icon of the Republican Party, the late Ronald Reagan, would not have supported the current position of the Republican House on the debt ceiling. In 1983, when the same kind of battle was being fought, Reagan said:

The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.

And again in 1987 Reagan commented:

Congress consistently brings the government to the edge of default before facing its responsibility. This brinksmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the Federal deficit would soar.

All the Democrats need to do is stand firm because the Republicans have put themselves in a no-win situation. They cannot follow through on their bluff (and that's all it is). The Republicans will fold. They have no choice (especially since they don't have the support of their masters on Wall Street). To follow through on this threat would be an even greater blunder than supporting the abolishment of Medicare.

I hope the Democrats realize they have the power position in this silly political game. They have knuckled under to Republican threats in the past, but they would be incredibly stupid to do it this time. All they have to do is wait. The debt limit has been reached, but the government can wait until about the first of August before defaulting on any debts. That means the Republicans can bluster and threaten for a little while longer -- then they'll have to fold.