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The FT of London Warns That A Sovereign Default Would Be A Defeat FOr The Republicans

October 7, 2013 6:39 pm
Default is defeat for Republicans
Speaker Boehner must save his country from his party
What to do about the lemming wing of the Republican party? As the deadline for a US default inches closer, some hope the showdown will create a split that would convert the Tea Party into a southern rump – never to threaten US creditworthiness again. Others say Republicans could be snapped back to their senses by a stinging defeat in next year’s midterm election. A few even say a US default this month is the only catharsis that would work – if Washington is in a perennial game of Russian roulette, better the gun goes off now than later. All of which is instructive. But it does nothing to fix the dilemma facing John Boehner, the Republican Speaker, who has the power to end this crisis at any time. Yet he knows if he voted with the Democrats, it could cost him the speakership.
US shutdown hits business funding options
China and Japan warn US on default
US consumer confidence hit by Washington shutdown
White House rejects demands to negotiate on shutdown
Moody’s optimistic US will not default

There are two reasons for Mr Boehner to do the right thing even if it earns him the Tea Party’s hatred. First, he should not want to go down in history as the first speaker to permit a US sovereign default. Nor does he want to be the one who helped turn Republicans into pariahs. The occasional US government shutdown is one thing. It is irritating but not catastrophic. Failure to uphold America’s full faith and credit is quite another. Mr Boehner’s unwillingness to stop it would earn him history’s obloquy.
If it comes to it – and it probably will – Mr Boehner should fall on his sword in defence of US national interest. There was a time when Republicans had a strong grasp of what that meant. One hopes Mr Boehner still does.
Second, President Barack Obama rightly refuses to negotiate. The longer the shutdown continues, the greater the risk it fuses with the debt ceiling and ignites. Mr Boehner will get no more concessions from Mr Obama two weeks from now than today. There is no sense in waiting until the last minute to lift the ceiling. It is possible the US could enter technical default for a few days without the markets viewing it as such. Nobody knows.
A 1,000 point drop in the Dow can solve most problems in Washington. In September 2008 a slightly smaller decline was enough to shake legislators from their refusal to approve the troubled asset relief programme. But it would be better for Mr Boehner not to find out. A key wing of his party is prepared to wreck America’s reputation as the bedrock of the global economy. They are Republicans in name only. For the sake of his party’s reputation, Mr Boehner should end the crisis now.
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Political parties by definition see “national interest” through the lens of their ideology, desire for ruling power, and in these days, assumption that the other side is something less than human.

In past years this was sometimes leavened by either a common outside foe, or some natural or economic disaster, or a realization that the current course would hurt future political fortunes. In the 30s, for example, some conservatives backed New Deal programs because they saw ruling classes being wiped out by the Bolsheviks in Europe – and didn’t want that here.

Now, due to gerrymandering into ultra-safe districts and the fervent belief that the current President is the Devil incarnate, a large number of conservatives see a possible default as the lesser of two evils – or in some cases not an evil at all. They have built their own “isolation bubbles” so find their current course a bit more like the upward leg of a really exciting roller coaster.

At some point either the Speaker or the President have to act to save the country from these adolescents running about with loaded guns. I hope both have considered what those actions will be and are ready to pull the rug out from under the zealots in time.
ReportRWalk | October 8 11:54am | Permalink
If you are leading and you have been successfully backed into a corner you have to negotiate. In this position it is not weak leadership to negotiate it is your only route. It also gives the leader an opportunity get all stakeholders to accept reality: The Government has run out of money since last May.
Reportvonclausewitz | October 8 10:23am | Permalink
This time might be different from 2011. Everybody is expecting a last minute agreement.
What if it doesn;t happen? China will not be very happy. The US owes too much money to Eurasia. It’s not sustainable. I wonder if some people in high places think it would serve the US better than kicking the can of debt further.
ReportFC leung Ki | October 8 9:54am | Permalink
Historically, the Parliament or legislature, (in the case of US) the Congress has fought to control the purse string to curb the excesses of the executive either in squandering in military, armament, wanton war expenditures or pork barrelling. Recently there has been liquidity easing and massing printing of treasury bills. Us could virtually keeps on increase its debt without bothering to pay back.
ReportAge Olav Mariussen | October 8 9:11am | Permalink
“Mr Boehner should fall on his sword in defence of US national interest”. The problem seems to be that there is deep disagreement as to what “US national interest” actually is.
ReportThumbscrew | October 8 9:00am | Permalink
A free vote is not possible because of some party political law (which is not part of the Constitution or anything, but apparently unbreakable to the Republicans).
Reportvulpes | October 8 8:36am | Permalink
How about having a “free” vote now ? That would at least give a clearer picture of what the majority of members really think.
Report@daviddenton20 | October 8 8:13am | Permalink
If you owed $16.5tn would you be looking to fund a new national health system – The tea party are mad but not in an English way!
ReportThumbscrew | October 8 8:00am | Permalink
And Boehner is taking self-interest to a whole new level.
ReportThumbscrew | October 8 7:58am | Permalink
The Republicans do not want Obama to negotiate. They want him to capitulate. It would be an awful precedent and make the President for ever at the mercy of a minority prepared to allow the USA to default in order to get their way on anything and everything. Can you imagine the howls of protest if the boot was on the other foot and a Republican President was being held hostage in this way by a Democratic majority House?
ReportJohn Hennessy | October 8 1:08am | Permalink
Well let me see here..Obama, is know for being the first Black President , Obama Care.( help us all) Then the First Black President, he defalted on the U.S. debt…because he won’t talk ? ….History will not remember the Speaker…for this but will ,..remember Obama…for the first Black President to default on the debt!….. Screwball stuff!
ReportApostle | October 7 11:55pm | Permalink
The whisper: Obama is open to negotiation, a temporary extension is welcome, lets look at that fiscal policy.
ReportSSL | October 7 11:37pm | Permalink
Interesting perspective on the issue. Mr Boehner is in an unenviable position. Unfortunately this is where you end up working with questionable parties. They have a light of their own and it will flare out. How the Republican extract themselves from this link-up is hard to tell – but necessary. They will fail otherwise.
It is one or the other. It is their choice.
ReportBurtonshaw | October 7 11:36pm | Permalink
This editorial is spot on. There is in all likelihood a majority in the House (and clearly in the Senate) for a straight-forward continuing resolution re the budget, and also for doing the necessary to increase the debt ceiling. So the Speaker – by running the errands of the Republical radicals – is preventing that majority to be heard, for the reasons outlined in the editorial.

Secondly, as the editorial points out, the key issue is the debt ceiling – which is a nonsensical tool in any case. The debt is the result of earlier congressional budget decisions and should not in a rational world be treated as a separate, free-standing issue.
ReportWorldweary | October 7 11:31pm | Permalink
@c. g. layfield – I’m with Harold Godwinson here (and all the other numerous commentators in agreement with the Editorial).

I’m not to try going over the arguments again, but the Republicans should realise that they have lost the media war on this issue – the world and (I hope) most of the American people understand that this GOP undemocratic intransigence is foolish and misguided.

And btw, what colour flag would you expect the FT to fly? It is the paper’s house colour after all!!
ReportHarold Godwinson | October 7 11:19pm | Permalink
@c. g. layfield
What you say about Obama, whether true or false, is irrelevant. How can he negotiate with the House when the House hasn’t voted and therefore has no position?
Reportc. g. layfield | October 7 10:26pm | Permalink
It is sad to read that such a respected institution such as the FT has flown its pink flag again. The President has shown no leadership in 6 years at all. He has nothing to show for his term other than political chaos and the lack of respect for America…. again due to his lack of leadership and demonstrable uncertainty about which way up is. The Republicans have chosen a difficult path but the President is demonstrating his complete incompetence to negotiate, lead or avoid the precipice. He remains a community in-activist.
ReportOldBostonian | October 7 10:15pm | Permalink
Philip Seaton:
Will look at Niall Ferguson’s article, but the debt ceiling is a separate issue from the rising US debt. There is no current debt ‘crisis’, but there are two crises: (a) gov’t functioning and (b) potential default. Crisis= critical. While rising debt is unhealhy and needs resolution, it has not reached a ‘critical’ stage.
While it is legitimate for Republicans (and, I would hope, Democrats) to wish to address rising debt (this does not bother the NY Times or Paul Krugman whatsoever), it is foolish to damage the economic ship in which you are sailing.
I agree with the tenor of the article: Boehner should put his country before himself. How many American servicemen have been called in recent years to do just that?
ReportArjen van der Woerdt | October 7 10:14pm | Permalink
I agree: I think 500 points down on the Dow will make Wall street wake up the Tea Party as well. Think Berlusconi’s tears.
Does China threaten to sell Treasuries big time?
ReportRazors Edge | October 7 9:55pm | Permalink
PS: Why is the answer cuts in entitlements only? Why does the answer not involve raising revenue?
ReportHarold Godwinson | October 7 9:51pm | Permalink
How can Obama negotiate with the House when no-one knows what the House’s position is, as they haven’t been allowed to vote?
ReportMynoduesp | October 7 9:50pm | Permalink
The situation is so moronic and twisted in the States that I have to admit, I have wondered whether some people posting moronic things in these comments in support of the Republican position receive a $50 gift card for Walmart from the Koch brothers in the post…..
Reportphilip seaton | October 7 9:12pm | Permalink
This editorial, and all commentators writng in the FT., have confused the debt ceiling with the real issue: the debt crisis. Uhfortunately, the republicans are are muddled as the editors and commentators. They attack a program which has been approved by the Supreme Court. There is no further appeal. Let it be implemented and succeed or fail on its merits.

Niall Ferguson has, using the Congressional Budget Office’s projections, in the weekend edition of the Wall Street Journal ( Oct 4th) concisely articulated the problem and the solution, which is a realistic review and reduction in entitlement spending.

One can argue that the proportional deficit reduction should be weighted more heavily towards spending reductions, or more heavily weighted towards tax increases, but something must be done.
Reportnzforest | October 7 8:18pm | Permalink
@KyleW…because the current budget already has a host of concessions on budget issues (spending capped at sequestor levels), Obamacare (ACA) funding is not part of this budget process, because Obamacare was heavily debated in Obama’s re-election campaign and he won. Further it has been passed in to law through both houses and survived a supreme court challenge and to let a small fraction, of one party in Congress, to mess with it would be a travesty of democracy.

Just imagine the model that this would set for the future if the budget process became the mechanism for making laws (or unmaking laws in this case) that couldn’t get passed any other way (i.e. without the threat of a government default).

I don’t think the democrats have done enough to tackle the debt, but that’s a far lesser crime that undermining the greatest democracy on the planet.
ReportMr Billingsworth | October 7 8:15pm | Permalink
@ KyleW – your question can be answered with another question: why should Obama have to negotiate on his health care bill if it already passed as law in both houses?

ACA is good law, no reason to use the budget as hostage to change it… that is truly undemocratic
ReportKyleW | October 7 8:04pm | Permalink
Why is it right for Obama not to negotiate
ReportTJG | October 7 8:02pm | Permalink
The GPO did not just demand defunding of the ACA. They also added other items all of which they had failed to achieve by the legislative process. Included were demands to defund the consumer protection agency, to remove the requirement that insurance polices include contraceptive coverage, to rollback regulation of the financial services industry and to prohibit the EPA from regulating greenhouse gases. The threat was that failure to agree to this set of demands made” in the public interest” would result in the GOP partially shutting down the Government and refusing to raise the debt ceiling yet again. The debt ceiling was actually reached last May and since then the Obama administration has been using extraordinary measures to manage available cash. It has said those measures will be exhausted on October 17 at which point either default becomes a possibility or there have to be an immediate reduction in Government spending that will be so large that many economists believe it will cut 4 % off annual GDP. Since May the GOP has repeatedly refused to negotiate with the administration over the debt ceiling until now when it presented its last minute non-negotiable demands. This is policy making by extortion. For President Obama to accede to any of these demands in response to such threats would guarantee the extortion technique will become a permanent part of GOP strategy. As you correctly state President Obama can give the GOP “no more concessions”. It will be very interesting to see how this plays out.
Reportoceansaway | October 7 8:00pm | Permalink
There is no charade, because the United States isn’t bankrupt.
ReportApostle | October 7 7:38pm | Permalink
Mr. Obama does not need to negotiate, but a duly elected president of the United States ought to negotiate with duly elected Congress.

Our fiscal policy is broken. Badly broken. We are borrowing $23,000+ per year per tax payer who actually pays any taxes. This bubble is bigger, much bigger than the housing crisis. Our reckless fiscal policy is grave and growing danger to our future, the global financial markets.
ReportWhere is the exit ? | October 7 7:37pm | Permalink
So when is the right time to do something ? Just pretend that the US isn’t bankrupt and keep on with the charade ?

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About tatamkuluafrica

I am a man who has lived n 6 of the 7 continents. I first arrived in Africa on April 18, 1981. Africa has been a part of my life since. I spent 8 months living in a Xhosa village in the Eastern Cape Province of South Africa. I was given he nickname Tatamkulu Africa. In Xhosa it means "Grandfather Africa." In April of 1994 I was allowed to vote in the first democratic election in South Africa..I was honored to be part of such a historical moment. It was a beautiful and a magical day.

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