UPDATE 2: The president concluded a nearly hour-long press conference in which he stated that raising the debt ceiling was not enough — that Congress must also tackle our long term debts. Obama said he remains hopeful that it can still be done “I always have hope. Don’t you remember my campaign?” he quipped. And he said the two parties must come together and do what’s right for the American people. Obama refused to get specific about entitlement reform, but hinted that means testing for wealthier Medicare recipients might be on the table from the White House point of view. He rejected the notion of a balanced budge amendment or BBA, saying “we don’t need a Constitutional amendment to do what’s right, we just need to do our jobs.” A good wrap of the press conference can be found here and here.
And this bottom line assessment of the presser from Politico 44:
– GOP voters want tax hikes in a deficit plan, Obama argued as he sought to persuade Republicans to make a deal with him. “Poll after poll – many done by your organizations – show that it’s not just Democrats who think we need to take a balanced approach. It’s Republicans as well,” he said.
– Countering stories detailing tense negotiations, Obama said that “this notion that things got ugly is just not true. We’ve been meeting every single day.” (Except today.) He added that he doesn’t care about the “reality TV” reports on “Who said what? Did somebody’s feelings get hurt?”
– What a difference four days makes: Obama said Monday that he was “prepared to take on significant heat from my party to get something done.” Today, he said, “I’ve already taken some heat from my party.”
In other words, the president wants tax increases to be in this deal, and he knows the majority of Americans, including Republicans, agree with him.
McConnell is negotiating now with Sen. Harry Reid for a large-scale package that will allow the debt ceiling to rise unless overturned by a two-thirds vote. If a White House debt-ceiling deal comes through with $1.5 trillion of spending cuts, that will be part of the package. Right now, it’s not completed because enforceable spending caps have not been determined.
The key part of the new McConnell package is a joint committee to review entitlements in a massive deficit-reduction package. Unlike the Bowles-Simpson commission, this committee will be mandated to have a legislative outcome — an actual vote — that will occur early next year. No White House members. Evenly divided between Republicans and Democrats. No outsiders. This will be the first time such a study would have an expedited procedure mandated with no amendments permitted. Also, tax reform could be air-dropped into this committee’s report.
The idea that Republicans would accept a deal that makes them potentially vote to cut Medicare and Social Security in an election year seems incredible to me, but Sargent says he’s hearing the same thing, and Josh Marshall also reports that symbolic votes to calm the House GOP freshmen, including on a BBA, are emerging as a necessary part of any debt ceiling deal.
Lots of analysis on the GOP’s bad negotiating strategy in the National Journal today.
Beth Reinhard on whether McConnell is right about the GOP damaging its brand.
Tim Fernholz on the Grover Norquist deal that’s not yet on the table. Ah, the power of unelected ideologues!
Charlie Cook on why Republicans are going to be blamed for the nation’s debt crisis.
And Ron Brownstein on the GOP’s lost opportunity to tackle entitlements.
From TIME: Democrats’ divide and conquer strategy on the GOP.
Also from TIME, a little truthiness: the U.S. debt crisis really isn’t that bad.
UPDATE 1: House Democratic leaders Nancy Pelosi, the minority leader, Steny Hoyer and James Clyburn just held a press conference in which they called on Republicans to come to the table with a plan that can pass the Senate. Hoyer drew an analogy to the U.S. women’s soccer team, who have come together to win for America, and called on Republicans to do the same. “America expects that of us,” Hoyer said, saying Americans did not expect that “for the first time in our great history we would default on our obligations.” Hoyer said the time has passed for people to “walk out” on debt negotiations, an apparent reference to House Majority Leader Eric Cantor, who walked out on debt negotiations more than a week ago, and who has been leading a volatile House revolt against any deal that included tax revenues. Hoyer and Pelosi indicated Democrats want a “clean” debt limit bill in addition to a larger deal on debt reduction. The three said Democrats stand behind the president, who is pushing for a comprehensive deal to reduce America’s budget deficits.
As Republicans continue to play games with America’s credit rating, Standard & Poors gets serious, opening into a window into why President Obama was seeking that big, $4 trillion deal.
Some Republicans may be having second thoughts, and Eric Cantor may have finally found a way to shut up in the White House meeting, but the debt limit crisis that’s threatening America’s 70-year, AAA rating is far from over.
Standard & Poor’s still anticipates that lawmakers will raise the debt ceiling by the end of July to avoid those outcomes. However, if the government is forced to undergo a sudden, unplanned fiscal contraction–as a result of Treasury efforts to conserve cash and avoid default absent an agreement to raise the debt ceiling–we think that the effect on consumer sentiment, market confidence, and, thus, economic growth will likely be detrimental and long lasting. If the government misses a scheduled debt payment, we believe the effect would be even more significant and, under our criteria, would result in Standard & Poor’s lowering the long-term and short-term ratings on the U.S. to ‘SD’ until the payment default was cured.
Congress and the Administration are debating various fiscal consolidation proposals. At the high end, budget savings of $4 trillion phased in over 10 to 12 years proposed by the Adminstration, (separately) by Congressional leaders, as well as by the Fiscal Commission in its December 2010 report, if accompanied by growth-enhancing reforms, could slow the deterioration of the U.S. net general government debt-to-GDP ratio, which is currently nearing 75%. Under our baseline macroeconomic scenario, net general government debt would reach 84% of GDP by 2013. (Our baseline scenario assumes near 3% annual real growth and a post-2012 phaseout of the December 2010 extension of the 2001 and 2003 tax cuts.) Such a percentage indicates a relatively weak government debt trajectory compared with those of the U.S.’ closest ‘AAA’ rated peers (France, Germany, the U.K., and Canada).
We expect the debt trajectory to continue increasing in the medium term if a medium-term fiscal consolidation plan of $4 trillion is not agreed upon. If Congress and the Administration reach an agreement of about $4 trillion, and if we to conclude that such an agreement would be enacted and maintained throughout the decade, we could, other things unchanged, affirm the ‘AAA’ long-term rating and A-1+ short-term ratings on the U.S.
Standard & Poor’s takes no position on the mix of spending and revenue measures that Congress and the Administration might agree on. But for any agreement to be credible, we believe it would require support from leaders of both political parties.
Congress and the Administration might also settle for a smaller increase in the debt ceiling, or they might agree on a plan that, while avoiding a near-term default, might not, in our view, materially improve our base case expectation for the future path of the net general government debt-to-GDP ratio. U.S. political debate is currently more focused on the need for medium-term fiscal consolidation than it has been for a decade. Based on this, we believe that an inability to reach an agreement now could indicate that an agreement will not be reached for several more years. We view an inability to timely agree and credibly implement medium-term fiscal consolidation policy as inconsistent with a ‘AAA’ sovereign rating, given the expected government debt trajectory noted above.
Further delays in raising the debt ceiling could lead us to conclude that a default is more possible than we previously thought. If so, we could lower the long-term rating on the U.S. government this month and leave both the long-term and short-term ratings on CreditWatch with negative implications pending developments. If Congress and the Administration agree to raise the debt ceiling (with commensurate fiscal adjustments), we aim to review the details of such agreement within the next 90 days to determine whether, in our view, it is sufficient to stabilize the U.S.’ medium-term debt dynamics.
In other words, a clean debt ceiling hike no longer will do. S&P is no longer confident that in the current political climate, significant progress could even be made on a long term debt reduction deal. So now, it’s either get it done now, or risk having the nation’s short and long term bond ratings reduced.
Now you can see why President Obama was pushing so hard for that $4 trillion deal. The White House and Democrats have been talking to the financial markets, and they understand that the expectation of U.S. bond holders was that the debt ceiling hike would not become the conflagration it is, but that the inevitable political tension might enable the U.S. to get it’s debt house in order over the long term. Now that it’s clear that Republicans are ideologically incapable of coming to the table in a serious way — so beholden are they to the ignorant, insane extremists among them, or as the folks at The Economist put it last week, the “economically illiterate and disgracefully cynical” crowd that gets its economic advice from Rush Limbaugh and Rupert “phone hacker” Murdoch’s Fox News, it looks like the grownups on both sides of the aisle are going to have to pull one hell of a Hail Mary to save the U.S. from a downgrade.
With President Obama set to hold a news conference Friday at 11 (but no further meetings with congressional leaders) — the contours of a deal appeared to be emerging from the ashes of Mitch McConnell’s cynical capitulation from earlier this week. As the Wall Street Journal explains:
The so-called Plan B is taking shape in quiet discussions between Senate Majority Leader Harry Reid (D., Nev.) and Republican leader Mitch McConnell (R., Ky.), away from unhappy House Republicans who don’t favor the approach.
It would link a package of spending cuts to a plan Mr. McConnell proposed earlier this week that would give the president the power to raise the debt limit through 2012 in three installments, unless two-thirds of Congress voted to block it. It likely wouldn’t include any tax increases, a senior Democratic aide familiar with the discussions said.
Messrs. McConnell and Reid are also exploring the idea of creating a committee to identify further deficit-reduction measures and force a congressional vote on the package. The mechanism would be similar to the commission once established by Congress to make politically difficult choices to close military bases.
The president apparently has signed on to $1.7 trillion in cuts he would deem acceptable, but he still wants those ethanol, corporate jet and oil subsidies rolled back, something Republicans still wont’ agree to. And the WSJ article contained a few ominous paragraphs about China — the single largest holder of U.S. treasuries — looking to “diversify” its holdings toward European, rather than U.S. debt. Not a good sign.
President Obama emerges in the journal story as open to the McConnell plan, and unconcerned about being saddled with the burden of raising the debt ceiling on his own:
“If Senator McConnell wants me to wear the jacket for that, I’m happy to wear the jacket,” Mr. Obama said, according to the Democratic officials.
Meanwhile, in the Wapo, more news of the talks between Reid and McConnell, and Reid’s increasing antipathy toward Eric Cantor:
Senate Majority Leader Harry M. Reid (D-Nev.) said Cantor “shouldn’t even be at the table” in the White House talks, where Cantor has eclipsed House Speaker John A. Boehner (R-Ohio) as the voice of the GOP in demanding unprecedented spending cuts while rejecting Democratic calls for fresh tax revenue.
Reid accused Cantor of fueling the “irresponsible voices in the Republican Party” who continue to view default as a legitimate option for restraining the size of government.
“More than anything else, he is holding up an agreement at this point,” Sen. Charles E. Schumer (D-N.Y.), the No. 3 Democratic leader, said of Cantor.
Democrats have been kinder to Boehner, who briefly seemed willing to work with Obama to craft a landmark debt-reduction package. But Boehner abandoned that effort last weekend, when it became clear that he would have to convince the House rank and file to consent to a rewrite of the tax code that would raise upwards of $1 trillion in fresh revenue over the next decade.
Dave Weigel, meanwhile, agrees that Cantor is now Democrats’ public enemy number one (he’s also the weasily face of Republican tea party opportunism, since not long ago, Cantor was one of 85 House Republicans to vote for a confiscatory 90 percent tax on AIG and other Wall Street bankers’ bonuses – a bill proposed by no less a Democrat than Charlie Rangel of New York, as pointed out by Lawrence O’Donnell on “The Last Word” Thursday. Actual roll call here. The bill later died in the Senate.) BTW Weigel also thinks the Republicans’ hard line will backfire on them.
If the polls are to be believed, he’s right.
BTW, House Republicans plan to meet too on Friday, I assume to discuss how awesome it would be to tank the U.S. economy to force the government to end Social Security and close the Department of Education… No, actually they’re going to rediscuss their ridiculous “cut, cap and balance” plan and their balanced budget amendment, both of which are going exactly nowhere. But hey, maybe they’ll serve lunch.