Why Some Shrug Off The Debt-Ceiling Debate

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ShowdownWhen Standard & Poor’s followed Moody’s Investors Services in warning that the U.S. government’s triple-A credit rating could be downgraded if President Obama and Congressional Republicans didn’t agree on a plan to raise the country’s $14.3 trillion debt ceiling and cut the national deficit, their warnings turned few heads among financial analysts. Indeed, stock markets reacted negatively for a day or so only.

There’s a reason why.

Analysts contend that smart people in Washington and on Wall Street are well aware of the   political and economic consequences if the United States defaults on its debts and that’s precisely why these same analysts are not worried about the outcome of the debt-ceiling negotiations. Even Republicans who openly advocate letting the government default on its debt obligations know that if that were to happen, financial markets would be in turmoil and the economy likely would plunge into a second recession, with interest rates spiking for everyone, the analysts say. The resulting crisis of confidence in the financial and economic health of the United States could take years to shake off.

What’s more, coming a year ahead of the 2012 general elections, voters could punish Republicans for their intransigence, throwing them out of Congressional leadership – national polls show that voters would place more blame on Republicans than on the administration if the debt ceiling is not raised – and President Obama could win re-election in a landslide. It’s an outcome that Republicans on Capitol Hill are not prepared to accept, despite their grandstanding to appeal to their conservative-Tea Party base.

Indeed, Senate GOP leader Mitch McConnell warned his conservative followers about the dangers of overreach and House Speaker John Boehner tried to work out a deal with President Obama before his caucus turned against him. McConnell has already come up with a plan to allow the president to raise the debt ceiling while letting Republicans vote in disapproval. That would let Republicans off the hook by allowing the debt ceiling to be raised, while keeping them from being punished by their conservative base for not sticking it to Obama.

Now, a bipartisan group of six U.S. senators has come up with an ambitious plan that calls for cutting the deficit by nearly $4 trillion while raising taxes. The bipartisan plan, which was sent to President Obama on Tuesday, is modeled on recommendations made last year by a fiscal commission set up by the president.
 
President Obama embraced the plan, calling it “broadly consistent with the approach that I have urged,” and summoned Congressional leaders for a new round of negotiations, expressing hope that lawmakers would rally around it.

But he also noted that Republicans in the House of Representatives were still trying to test the limits of intransigence by scheduling a vote on a separate proposal that calls for a balanced budget Constitutional amendment. The proposal clearly has no chance of getting anywhere because the Senate won’t debate it and President Obama has promised to veto it. House Republicans know this, but their move is designed to allow Tea Party activists in Congress to let off steam before real negotiations can begin.

The deadline for an agreement is set for Aug. 2. Republicans know that they do not have voter support to plunge the country into economic turmoil for a second time in three years.