Slouching Towards Default (But Not Really)

The Politico article from this morning, about how the Congressional GOP is seriously considering national default, is predictably horrifying.  But after having thought about it for a little while, it is somewhat less concerning than it seems initially.  The “default caucus” is rather small, and unlikely to grow.  The GOP can’t survive without Wall Street, and the massive financial shitstorm that the GOP is playing with is pretty unpalatable for Wall Street, to put it mildly.  If the GOP did cause a national default, it’s fairly obvious that their big-money donor support would evaporate pretty quickly.  John Boehner gets that, as do most GOP House members, I reckon.

Furthermore, as I’ve said before, their actual goals are unclear.  While the Politico article has a lot of tough talk about the torrent of spending and putting brakes on Obama, Congress does hold the power of the purse.  If they wanted spending cuts, they could pursue them without creating crisis points like the debt ceiling through the budget process.  And even with these crisis points, the excellent leverage crisis provides is good for nothing if the GOP doesn’t have the will to power to pursue their goals.  If we see the GOP going balls-to-the-wall to secure huge cuts in Medicare, then I might be a little less sanguine about the likelihood of crisis being averted.

One must wonder what an actual default would look like, politically.  According to Ezra Klein, the ability of the Treasury to successfully prioritize payments seems rather limited.  Debt payments run on a separate system, but even so it’s not clear whether payment can be withheld in such a way that the United States will write zero bounced checks.  And I do fully believe that a bounced check from Treasury, even if it’s not on an interest payment, will unleash a complete financial shitstorm.  For Wall Street to continue supporting the GOP after that will be completely untenable.  Frankly, if I were Jamie Dimon I’d already have some tough questions for the Chamber of Commerce after they backed the losing horse in 2012.  If that losing horse blows up the banking system, that’s unacceptable.

The situation really does resemble a hostage negotiation with a single hostage.  If the House GOP shoots the hostage, that has the potential to completely shatter the party.  It will devastate their institutional support, alienate the vast majority of Americans, and of course be completely indefensible on the merits.  I think they’re bluffing, and attempting to dangle the crazy caucus in front of Politico in order to scare the Democrats.  The main danger isn’t John Boehner purposely deciding to shoot the hostage, it’s him miscalculating and taking too long to fold.

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