With the government shutdown continuing and less than a week to avert default on U.S. debt, we stand at a critical juncture. It’s conceivable that by Oct. 17 we could be facing the biggest financial meltdown since the Great Depression. Or, just maybe, reason will triumph, and Republicans in the House will accede to a hike of the debt ceiling, putting an end to the shutdown, averting a financial crisis and allowing the slow-but-steady recovery to continue.
It’s easy to overstate the consequences of political fights — heck, Republicans have been putting on a clinic of late with regard to Obamacare — but the outcome of this one could well determine the economy for the next five years or so. Here’s a look at the possible scenarios we’re facing:
Best-Case Scenario: A Punt
Let’s face it: Republicans are probably not going to do the smart thing at this point and just pass a clean Continuing Resolution and debt ceiling hike. The GOP went out on a limb in a very big way by triggering the shutdown, and now thanks to the sunk cost fallacy, they are unwilling to back away and cut their losses. Rep. Marlin Stutzman, R-Ind., framed the GOP position neatly when he said: “We have to get something out of this. And I don’t know what that even is.”
The problem is that the Obama Administration has been absolutely unwilling to give the GOP an inch, and it’s easy to see why. If every debt ceiling and budget fight becomes a hostage situation, America loses. Republicans may scoff, but this could be just as bad for them as the Democrats; Four years from now, Ted Cruz could be president and facing a recalcitrant Democratic Senate, which is demanding an assault weapons ban in exchange for simply passing a budget.
Moreover, Democrats are frankly unwilling to compromise further than they already have. As Speaker John Boehner, R-Ohio, has essentially admitted, there was a deal in place for Republicans to pass a clean Continuing Resolution at sequester funding levels, significantly lower than Democrats would have preferred. Republicans then walked away from this compromise in order to try to stop the Affordable Care Act. Needless to say, Democrats are not very interested in helping Republicans walk away from a mess of their own creation with even a hint of a fig leaf.
So how does this get resolved? Well, the best-case scenario is probably that Republicans agree to pass a very short-term Continuing Resolution and debt ceiling hike. Democrats have signaled that they would vote for a two-month debt ceiling hike in order to avert the present crisis, and then agree to discuss the budget with Republicans.
This would give the Republicans a potential out, and the tiniest of victories; That is, they could win the concession that Democrats would talk with them about the budget and entitlements. They probably would even be able to win a repeal of the medical device tax, which a number of Democrats oppose due to parochial interests. Then, in December, when nobody is looking, Republicans could quietly pass a longer debt ceiling hike and continuing resolution.
This is dysfunctional and requires a lot of kabuki and winks and nods, but it’s probably the best-case scenario right now. It would avert the immediate crisis, get the government opened back up, allow the Republicans to withdraw with a shred of dignity and allow Democrats to stand firm. The problem is that a significant number of conservatives won’t go for it.
Middle-Ground Scenario: Continued Chaos, but No Disaster
A number of House Republicans and a handful of Senate Republicans are dead-set against dealing with the Democrats, unless Democrats essentially cede control of government to them. These Republicans, egged on by the rightest of the right wing, continue to call on Republicans to refuse to compromise and threaten a fight against any who dare to stray.
That said, the potential consequences of failing to hike the debt ceiling are catastrophic, and for the most part, Republicans know it. Oh, sure, there’s the occasional fool like Rep. Ted Yoho, R-Fla., who thinks the U.S. unilaterally defaulting on its debt would somehow stabilize world markets — a move akin to stabilizing your finances by refusing to pay your mortgage — but for the most part, grown-ups in the GOP recognize that failure to pass a debt ceiling hike would be disastrous.
While it may not be ideal, it’s possible that Republicans will decide to pass a clean debt ceiling hike whether or not an agreement is reached on the government shutdown. Of course, this would still leave all the attendant problems of the government shutdown in place, but at the very least, the economy would not completely melt down before Halloween.
Of course, if Republicans weren’t a bunch of Yohos, they probably would have done this already, which means our worst-case scenario is frighteningly likely.
Next page: The worst-case scenario of the debt ceiling fight
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