ANALYSIS:WITH THE US days from defaulting on its debt, the ugly truth is that a significant portion of the Republican Party would rather bring the US and world economies crashing down around them in an economic Samson option than entertain the possibility of compromise.
As the ranking Republican in the Senate, Mitch McConnell, said after last November’s midterm elections, the number one priority for the Republicans is to prevent Barack Obama from being re-elected. If they have to destroy the country in the process, so be it.
In doom laden Washington, it’s the morning after the midterms. The 87 Republican freshmen elected last November, along with a handful of Tea Party cohorts in the Senate, are the hardest of hardliners. The Tea Party’s victory has come home to roost.
At least 60 House Republicans have declared they will not, under any circumstances, vote to raise the debt ceiling. Still more demand that Congress pass a balanced budget amendment first. The holdouts are ignoring advice from the Wall Street Journal, Standard & Poor's rating agency, the US Chamber of Commerce, the manufacturers' association and even Grover Norquist, the Republican guru of anti-tax pledges.
The rift within the American right pits traditional, pro-business moderates against the Tea Party populists who view the government and Wall Street with equal suspicion. The group who’ve come to be known as the Default Caucus seem wilfully and blissfully unaware of the probable consequences of their obstinacy.
A Pew Research Center poll found that 53 per cent of Republicans, and 65 per cent of Tea Party supporters, say they believe the US can glide by the August 2nd deadline without major problems.
They’ve been strengthened in this by the Republican presidential candidate, Michele Bachmann. Reports that the treasury has tens of billions of dollars stashed away and could continue paying bills for several days beyond August 2nd encourage the Tea Party to dig in its heels.
On Monday night, President Obama warned of the risk of “sparking a deep economic crisis” if the debt ceiling is not lifted.
“Our country’s AAA credit rating would be downgraded . . . Interest rates would skyrocket . . . which amounts to a huge tax hike on the American people,” he warned.
Poppycock, says the Default Caucus. They don’t believe Obama or the Treasury, which they see as an arm of his administration.
When outside experts were brought in to Congress to explain the potential consequences of default – including a “death spiral” in the bond market prompted by a loss of confidence – many of the Tea Party intransigents refused to attend.
Six days ago, Speaker of the House John Boehner and Obama neared agreement on a “grand bargain” that would have addressed the two problems which the US must tackle to rein in runaway spending: the dual necessity of raising taxes on the ultra-rich and reducing the cost of social security and healthcare for ageing baby boomers.
Boehner was whipped back into line by the Tea Party, and walked out on talks. By entertaining the possibility of raising the age eligibility for Medicare – the federal system of health insurance for people over 65 years of age and for certain younger people with disabilities – to 67, considering means testing and a re-indexing of social security payments, Obama outraged the left of his own party.
Neither Republican nor Democratic plans for averting a default appear to have enough support to pass. The Senate Democratic majority leader Harry Reid’s plan meets the Republicans’ two main conditions: spending cuts would exceed the increase in the debt ceiling, and there is nothing that could be construed as a tax rise. The Republicans have rejected it.
The fact that neither the Reid plan nor the Boehner plan – which was being redrafted yesterday after Boehner got his figures wrong – include any increased revenue, ie taxes – is in itself a major victory for the Tea Party. At its core, the titanic row over the debt ceiling is about that most basic political and economic issue: social justice.
Obama alluded to this on Monday night, when he said it wasn’t fair to “ask a senior citizen to pay more for her Medicare before we ask a corporate jet owner or the oil companies to give up tax breaks . . . ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than secretaries”.
Wall Street financier Steve Rattner says that the 400 richest Americans pay only 18 per cent of their income in taxes – compared with 30 per cent before – thanks to George W Bush’s tax cuts. It is a great irony of the crisis that lower middle class white people who comprise the rank and file of the Tea Party are fighting to protect the privileges of the billionaires who bankroll them.
By allowing taxation of the rich to drop out of the equation, Obama has probably lost the battle for social justice in his war with the Republicans.
Two pertinent historical precedents have been raised. In 1790, the Founding Fathers faced default on the infant country’s debt. Treasury secretary Alexander Hamilton was in the position of Timothy Geithner today, fearing discredit on world markets. Southern members of Congress were persuaded to allow the federal government to “assume” states’ debts in exchange for making Washington DC a slave capital. The perils of moral compromise are blatantly obvious today.
But compromise is what Obama strives for. In his recent speeches and press conferences, the word appears over and over; never in Republican parlance.
The debt ceiling has been raised 100 times since 1940, so this ought not to have turned into a crisis of global proportions. The 14th amendment of the constitution says: “The validity of the public debt of the US . . . shall not be questioned.”
Former president Bill Clinton has suggested that Obama invoke the post-civil war 14th amendment to unilaterally raise the debt ceiling. This is Obama’s nuclear option, and he’s unlikely to take it. The backlash from Republicans would be horrendous.
“We remember the Americans who put country above self, and set personal grievances aside for the greater good,” Obama said on Monday night. It sounded like a hopeless exhortation to Republicans, and the prelude to his own capitulation.
Lara Marlowe is Washington Correspondent