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In the hostage negotiations otherwise known as the budget deal, the movement on Thursday, that of the Republicans meeting with Obama and offering the idea of a limited extension of the debt ceiling with some thin conditions attached, is indeed progress. But don’t confuse progress with much progress.
It was critical for the two sides to at least stop posturing and start haggling. But it looks as any way out of this mess is going to be tortured. We look to be about to go European, with looming deadlines producing the most minimal deal required to fend off a train wreck. Securities prices would perk up for a bit, but as Mr. Market savvied up that these patch-ups had a pretty short life, the duration of his happy reactions got shorter and shorter.
In the meeting at the White House today, Republicans pitched the skimpiest solution possible, that of extending the debt ceiling limit for six weeks, till right before Thanksgiving, while keeping the shutdown going. White House spokesmen ‘fessed up that if the Republicans made that proposal “clean”, as in with no strings attached, the President would likely reluctantly accept it. Even though I am highly confident that this Administration would not default on Treasuries even if the debt ceiling constraint kicked in (see Felix Salmon for one good technical discussion as to why), the further damage to the economy of deeper cuts to other spending and probable default on other obligations would still do a tremendous amount of damage.
But even this bare minimum deal is going to take some wrangling to get done, and despite the talk of wanting to get the debt ceiling suspended by early next week, there are a lot of cats to be herded. That means the odds are good of bumping up against or even going a smidge past the big scary October 17 date. For instance, Obama wants only a clean deal, but the Republicans are sure to attach strings. So how clean is clean enough? Politico muses:
Obama may have little choice but to accept House Speaker John Boehner’s offer because it delivers what the president wanted: a debt limit hike with no ideological strings attached.
“If a clean debt limit bill is passed, he would likely sign it,” White House press secretary Jay Carney said Thursday. “The key is they don’t get anything in exchange.”
The big question for the White House and Republicans in Congress is the definition of the word “clean.” It may be that the White House has to look at yesterday’s shirt — presentable, if not just-starched — as clean enough.
The New York Times indicated that the Democrats deemed one provision the Republicans want to include, like keeping Treasury secretary from using accounting devices to forestall default, as a non-starter.
But look at how little relief this stopgap deal provides. It’s only six weeks of respite. The government shutdown remains on, meaning the toll to the economy rises in the fourth quarter, which is critical for consumer spending. Retailers bought for the Christmas season on the assumption the economy was on a slow path of improvement. That was already kicked in the head by the shutdown, and six weeks is going to do even more damage. And that is as good as it might get.
The Tea Party is bloodied but still unbowed. Expect them to try to put a spanner in even the minimal “get us out of the debt ceiling train wreck” deal because they want Obamacare included in the negotiations. The Republican leadership is trying to take that out of the equation, partly because Obama simply won’t accept anything other than the most token fixes, and the party bosses don’t want that to stand in the way of the big prize of the Grand Bargain.
I hate to keep focusing on the same issue, but it bears repeating: Obama and Boehner could not reach a Grand Bargain in 2011. The negotiating dynamics are vastly worse. Both sides have started engaging in low-level personal attacks. Both sides are going into the six weeks of talks (if that indeed is what is agreed upon) tired. The Tea Party is more fixated than in 2011 on sabotaging Obamacare. Now if the result of getting past the debt ceiling cliffhanger shows them to have been sidelined, that would be big progress, but we are far from knowing that. So what happens if we have six weeks of drama and again no Big Budget Deal, but this time the debt ceiling as a sword of Damocles?
So brace yourself for at least six weeks of ugly drama. And no matter how it concludes, there’s no happy ending.