A Debt Limit Q&A

Deal? Default? The 14th Amendment? ... let's take a look at how the debt limit fight may play out. Also, stick a fork in Meatball Ron.

I’m Michael A. Cohen, and this is Truth and Consequences: A no-holds-barred look at the absurdities, ’ absurdities, hypocrisies, and surreality. If you were sent this email or are a free subscriber and would like to become a paid subscriber, you can sign up here.

(No Zoom Chat tomorrow. I’m traveling for the holiday weekend. I’ll see you back next week).

I have a whole mess of random, disconnected thoughts about the current debt limit negotiations that I thought it best to do a Q&A on the topic … so here it goes.

Will the US default?

You never want to say never in this business, but I’d be stunned, shocked, and amazed if a default happened. There is a growing sense that President Biden and House Republicans will reach an agreement. If they don’t, I expect the president to act unilaterally to prevent default. The third (temporary) option is that the Treasury Department will figure out a way to delay the government running out of money. Bottom line: default would be a disaster for President Biden’s reelection, and I don’t see any way he lets it happen.

Will Biden and House Republicans strike a deal?

I’ve been skeptical for months that Biden and House Republicans could find common ground. Yet, I was never entirely convinced that Biden would act unilaterally because I struggled to believe he would do something so gimmicky and risky. But, for all the logic of unilateral action, I had this nagging feeling in the back of my head that Biden really doesn’t want to do it, and both sides would see the benefits in reaching an agreement and moving on.

Perhaps I should listen more closely to the back of my head.

And there’s more … via Punchbowl.

It’s hard to believe that for all the sturm and drang over the past few months, we end with a deal as underwhelming as this one … but it might just happen.

The biggest reason many people thought a deal wouldn’t happen was the belief that McCarthy would not be able to get a deal through his caucus and save his job as Speaker. But it’s worth testing that assumption. First, McCarthy got a major win in forcing Biden to negotiate over the debt limit (which Biden said for months he wouldn't do). That almost certainly earned him some points with his detractors in the House GOP caucus. Second, there have been no rumblings from the House GOP that McCarthy is in danger of getting ousted. It doesn’t mean no one is plotting, but it’s striking that we’re not hearing anything about it. Third, even if jihadist Republicans push for a vote to replace McCarthy, they have the same problem they had in January — no obvious person to replace him. Fourth, McCarthy has been fairly solicitous to the far right of his caucus. Do they really want to start a public and embarrassing fight to remove him?

I sense both sides are exhausted and would prefer this issue to disappear. Neither side appears to be scoring a political advantage over it, and most Americans aren’t paying attention. So a deal makes sense, and the intensity with which Republicans are pursuing it would suggest that McCarthy isn’t all that worried about the fallout from inside his caucus.

Is Biden getting rolled?

Here’s something I tweeted yesterday to dramatize the challenge facing President Biden:

One thing that all the critics of Joe Biden's handling of the debt limit should more readily acknowledge is that he's negotiating with people who not only are willing to kill the hostage ... but WANT to kill the hostage.

I’m only partially joking. Donald Trump has basically said that he thinks a default would be a preferable outcome. There are likely plenty of folks inside the House Republican caucus who want a default because they believe the subsequent economic recession will harm Biden politically. So he’s not exactly negotiating with the most rational set of actors.

I’ve advocated for Biden to go the unilateral route and invoke the 14th Amendment, but that path is hardly a panacea. It would likely roil financial markets and could potentially be overturned by the Supreme Court. So Biden has bad choices and worse choices. That some Democrats are criticizing him for trying to find some way out of a crisis he didn’t create is the circular firing squad personified.

If Biden can get a deal — even after he said no to negotiations — that avoids default, doesn’t give too much away to the GOP, and makes this issue go away, he deserves praise, not brickbats.

Is a deal with Republicans bad politics for Biden?

From a political standpoint, getting a deal with Republicans (even a suboptimal one) is the best political outcome. Most Americans will not care about that details, and it’ll reinforce the positive public perception of Biden as someone who can work across the aisle. Except for terminally online liberals, that’s what most Americans - even Democrats - find appealing about him.

And let’s go back and look at the potential deal.

I’m not sure what Republicans have won here or why Biden wouldn't leap at this. None of his domestic initiatives are touched, there are no work requirements on safety net programs, which had allegedly been a McCarthy red line, the spending discussion can gets kicked down the road, and this likely means we avoid a government shutdown next Fall.

Here’s another way to think about this: If the GOP passed a clean debt limit today, would an eventual budget agreement look remarkably different from what is being negotiated right now? I doubt it. But that budget deal would likely come after a protracted government shutdown. So with this outcome, Biden gets a relatively normal budget deal with a Republican-controlled House but avoids default and a government shutdown in the Fall. That’s a huge win.

Will House Democrats kill the deal?

No. Not every House Republican will vote for the deal because enough of them will claim to be philosophically opposed to raising the debt limit. So a final deal will rely on some House Democratic votes. And plenty of House Democrats will grumble and complain, but if Biden signs off on the deal, enough of them will vote for it. They’re not going to undercut the president on this one. It simply won’t happen.

Is the 14th Amendment still in play?

It’s absolutely in play, but it appears less likely as the two sides inch closer to a deal. One can’t dismiss the possibility that the two sides ultimately can’t reach an agreement, and Biden will have no choice but to act unilaterally to avoid default. Of course, there’s always the chance that both sides are engaged in Kabuki theater and don’t want to compromise, but that doesn’t seem to be the case.

However, the one thing to remember is that the only way Biden can use the 14th Amendment successfully is if he plays that card as a) after exhausting every option, b) appearing to do everything he can to reach a deal, and c) in such a way that he puts maximum pressure on the Supreme Court not to upend it, for risk of a full-fledged economic disaster. If he goes unilateral, it has to be right before the Treasury Department runs out of revenue. That way, he puts the issue of default squarely in the lap of the Supreme Court and hands them the option of upholding his actions or sparking a cataclysmic and immediate economic disaster.

#DeSaster