Masked Desperation?

The jumping off point for this piece is an observation that the GOP is articulating two equally wrong, though directionally opposite arguments to advance its debt limit strategy.

The first is that raising the debt limit is some huge cession of power to President Obama, rather than a perfunctory exercise in authorizing payment on bills Congress has already racked up. The second is that not raising the debt limit might not be so bad.

These arguments interact elegantly.Start by claiming that raising the debt limit is a big ask to create a rationale for demanding a price. Then downplay the consequences of failing to act, so that Republicans keep their nerve, and the administration looks petulant for not agreeing to horse trade.

But both arguments are so unmoored from reality, you wonder why the GOP would bother making them if they didn’t recognize that their real play here is so politically noxious. “Cut Medicare benefits or we’ll gratuitously destroy the economy” isn’t a big winner.

But as much as they’d like to pretend otherwise, even the best-case-scenario post-debt limit breach would be hugely damaging to the economy.

If February comes and goes and the debt ceiling issue isn’t resolved the government won’t necessarily default right away. It almost certainly won’t, actually. But even if Treasury makes every effort to prioritize paying bondholders over other obligations, we’ll suddenly be facing a situation in which we can’t finance a huge amount of government spending — about 40 percent of it — overnight.

Or look at it another way. If this year’s deficit is a trillion dollars, and suddenly the administration can’t finance deficit spending with borrowed money, it will have to cut expenditures in some way by $80 billion or so a month. That’s $80 billion a month out of the economy. Perhaps six percent of GDP. By comparison, the sequester’s automatic spending cuts amount to about $120 billion over the course of a year.

This is all back of the envelope math. But it illustrates the fact that the best case scenario if we breach the debt limit is still highly recessionary. The numbers are actually mind boggling. Not a few furloughs and long grass on the national mall. Republicans like Pat Toomey and John Cornyn know this. But if they explained it plainly, the public, and maybe even some rank and file members, would recognize the unsustainable nature of the threat, and the whole strategy would fall apart.