The Coming Train Wreck

There has been much speculation in the media about the potential for another fiscal clash in the first quarter of this year, centered around the debt ceiling and the sequester. Much has been already written, and there is plenty more to come. On the heels of my prediction that we would go over the fiscal cliff to protect the House Republican caucus, and my second prediction that the Speaker would not have Republican votes for “Plan B”, I am prepared to offer more by way of predictions.

This post will actually have me agreeing with former Speaker Newt Gingrich, who has been cautioning Republicans against making a budgetary “final stand” around the debt ceiling. Gingrich correctly points out that refusing to raise the debt ceiling is not sustainable, and that Republicans must eventually give way on that. It would be another loss, and would further weaken or destroy Speaker Boehner. Additionally the market disruption it would cause would be substantial, forcing the business allies of the GOP to demand action. In light of that, and despite Boehner’s tough talk on the debt limit he has begun to signal that the debt ceiling may not be the “budgetary vehicle” that Republicans use. In the Wall Street Journal (“The Education of John Boehner”) the Speaker had this to say.

The real showdown will be on the debt ceiling and the spending sequester in March. I ask Mr. Boehner if he will take the debt-ceiling talks to the brink—risking a government shutdown and debt downgrade from the credit agencies—given that it didn’t work in 2011 and President Obama has said he won’t bargain on the matter.

The debt bill is “one point of leverage,” Mr. Boehner says, but he also hedges, noting that it is “not the ultimate leverage.”

Former Speaker Gingrich advocates that Republicans take a tough stand, but build the conflict around the sequester and the need for the House to fund the government through “continuing resolutions”. While I think that such actions will ultimately result (as they did with Gingrich) in a political loss for Republicans it is a far more responsible and justifiable political fight. The full faith and credit of the United States should not be put at risk to score political points, but the Republicans are well within their rights to allow the existing sequester cuts to take place, and to refuse to negotiate beyond what the House passes for a continuing resolution. It may shut down the government, but if the Republicans wish to travel down that road they should take the Gingrich advice.

Will they? I think the Speaker will do his best to guide them there, and ultimately I predict that is where we end up. The Speaker, in that same WSJ article, talks of his supposed leverage with the coming sequester.

As Mr. Boehner tells the story: Mr. Obama was sure Republicans would call for ending the sequester—the other “cliff”—because it included deep defense cuts. But Republicans never raised the issue. “It wasn’t until literally last week that the White House brought up replacing the sequester,” Mr. Boehner says. “They said, ‘We can’t have the sequester.’ They were always counting on us to bring this to the table.”

Mr. Boehner says he has significant Republican support, including GOP defense hawks, on his side for letting the sequester do its work. “I got that in my back pocket,” the speaker says. He is counting on the president’s liberal base putting pressure on him when cherished domestic programs face the sequester’s sharp knife. Republican willingness to support the sequester, Mr. Boehner says, is “as much leverage as we’re going to get.”

So the Speaker can force through the sequester cuts by taking no action. The problem for Speaker Boehner is that nobody takes that threat seriously. The Democrats may not be crazy about it but if you think that they will agree to replace “defense” sequester cuts with non-defense cuts he is crazier than his caucus. The Democrats will allow the sequester to take effect because they are not being offered anything that remotely looks like a deal. Boehner’s position, on the sequester and likely on the funding resolutions, appears to be that either the Democrats accept a partisan Republican solution or the Speaker will hold his breath until he turns blue. What that means is:

1) Sequester, as written and including defense, takes effect.

2) Failure to negotiate changes to House funding resolutions means that the Speaker will, a la Newt Gingrich, shut down the federal government.

Based on what we know of the Republican caucus I believe they will try to make a deal to avoid the defense sequester, but they will fail. They will not even try to make a reasonable deal on funding, so the shut down will be the real flash point between the President and the House Republicans. As Gingrich did the House Republicans will lose that political fight to the President. But it is a train wreck that I think is coming. For a look under the hood of the House Republican caucus the Politico story on the “Hell No Caucus” is worth a read. The influence of outside groups, like the “Club for Growth”, has pushed the Republicans further right, and greatly diminished the chances of reaching any standard political compromise with the House Republicans. The Speaker has thrown in the towel, realizing that his caucus will not be led to anything that looks like compromise. The inmates are running the asylum, and that is why I think that things will get worse before they get better.

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