StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

Debt Ceiling: Tea Party Making Life Hell For GOP Leaders

18 May 2011
Posted by Stan Collender

This excellent story by Nick Carey at Reuters about how the tea party folks are making life exceedingly difficult for House Speaker John Boehner (R-OH) and Majority Leader Eric Cantor (R-VA) is well worth a few minutes of your time.

Carey's story provides some important updates my post from March 22 about my experience speaking at the first meeting of the House tea party caucus.  Here's what I concluded back then:

First, after talking with a number of the members of Congress who attended, it was clear that at least some GOP representatives who are tea party supporters were going to vote against extending the CR the next day. Several told me that their leadership’s unwillingness to cut off funding for health care reform was a big problem for them because they were assuming that once it was taken off the table, cutting off funding would never come back.
Second, the tea party folks – both members of Congress and others – do not trust House Speaker John Boehner (R-OH) or Majority Leader Eric Cantor (R-VA) not to sell out their agenda.
Third, as I’ve been saying for a while, compromise is not an option.

Carey's piece indicates that the tea party distrust of Boehner and Cantor I saw and heard first-hand at the caucus meeting has now grown to the point where, as was threatened at that meeting, there is real interest in running someone against them in the Republican primaries in their congressional districts.  It also shows that a voting for an increase in the debt ceiling is not something tea party folks consider acceptable under any circumstances.

The implication of Carey's story for the debt ceiling fight are simple: 

  • Boehner can't...and almost certainly won't...agree to any increase in the debt ceiling until the very last minute.  To avoid or survive the primary challenge he's facing, he has to look like he's driven the hardest possible bargain and agreeing to anything quickly -- even if it was total surrender from the White House and congressional Democrats on health care, spending, taxes, and Dodd-Frank -- would look to tea party types as if he could have gotten more.  In other words, if Treasury says the U.S. has until August 2 before a failure to increase the debt ceiling becomes a critical problem, expect a deal no earlier than August 1.
  • Boehner needs Wall Street to react negatively to the situation so that he has a reason for agreeing to a debt ceiling increase.  You almost have to wonder if he and the White House have worked out an arrangement where Treasury Secretary Tim Geithner and others in the administration will use increasingly dire language about what will happen if the debt ceiling isn't raised just so that Boehner has something that provides a rationale for action on the bill.
  • As I said yesterday here at CG&G, Boehner won't be able to pass a debt ceiling increase in the House without Democratic votes.  The more the tea party pushes Republican House members on this, the more leverage the Democrats will have.

How does this relate to Bruce's May 9 comment?

Based on a May 6 Fiscal Times column, May 9 Bruce had a post about how increasingly difficult it will be for Treasury to pay all it's bills, including payments to Medicare providers, and SSI beneficiaries as I recall, unless a debt ceiling is passed soon. August 2 is calculated as the date of actual default. It sounds like the summer of politics and finance from Hell. And there's plenty of other business that Congress should be doing between its frequent breaks. Our government, from the White House down, seems to me truly dysfunctional. This alone shoud give our creditors oause, the EU and Japan have their problems too, but our government seems much more problemmatic.

The markets seem to be taking

The markets seem to be taking a drastically different view. Treasury yields have been falling steadily for the last 3 months.^TNX&t=3m&l=on&z=l&q=l&c=

seems to me like the market is saying that the investment opportunities/growth prospects in the real economy are so bad that they would rather just lend their money to the Government at rock bottom rates knowing full well that come August 2 the interest payments are at risk.

That's the Point

I think dysfunction is a feature, not a bug. What's it matter if you default on the debt if you know, just know, government is always bad, a priori? This is a manufactured crisis, plain and simple (unfortunately Obama contributed with the tax deal in December). If the Republicans can't gut public services in favor of tax cuts for the wealthy through legislative means, they're willing to crash the government by default to achieve the same. It justifies all the deficit hysteria and screaming about bond vigilantes we've been hearing about for, well, since the bubble burst several years ago. It's a wonderful trick: do everything you can to create a crisis, then offer drastic cuts to the things people care about to resolve the problem you created in the first place.

Frankly, I find it disgusting, almost criminal. After all, is anyone asking what kind of country we'll be after we get rid of Social Security and Medicare? Are we really willing sacrifice middle class benefits to ensure the privileges of the already privileged?

Attendance at Tea Party Rallies is down

Can they really scare the Republican establishment if they cannot get decent numbers to their public events?

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