At the top levels of the negotiations, it doesn’t appear we’re in any different a place than we were 24 hours ago despite another day with meetings among the principals. See our latest report from the Hill.
At the staff level, there are rumblings about various scenarios that could couple steep spending cuts now with some promise of tax reform down the road and avoid default. But there have been rumblings like that for days, and whenever they have advanced into concrete plans the principals on the Republican side have been unable to commit. Why? Boehner doesn’t have the votes. Pure and simple. He can’t deliver his caucus. The President seems to think Boehner wants to deliver, but simply can’t.
But we have a wildcard about to enter the political equation that could change the calculus pretty dramatically.
It could come as early as midday Sunday when the markets in Asia open. It will definitely come by Monday when markets in Europe and the U.S. weigh in on the political deadlock. As Steve Clemons notes, the reports that Speaker Boehner is looking to send some reassuring signal to the markets before they open Sunday in Asia primes the markets to react negatively if no such assurance comes. (Although in fairness President Obama’s press conference Friday evening after the markets closed had a similar catalyzing effect.)
Regardless, as each day ticks by without a deal, the real world market consequences begin to manifest themselves. Keep in mind also that the ratings agencies probably won’t wait until default formally occurs to downgrade U.S. debt.
Both sides profess to be fully aware of the economic consequences that await, but theoretical ramifications don’t clear the mind the way actual ones do. We’re entering uncharted territory now, politically and economically.
