House Speaker John Boehner continued on Wednesday to try whipping unruly House Republicans into line to support his two-step deficit-reduction plan. Meantime, the White House and Senate Democrats insisted it would be dead on arrival in the Senate and would not provide the key to breaking an impasse over raising the debt ceiling and averting a first ever default on U.S. debt.
As the debt-ceiling drama continued to play out, the stock market showed some jitters in the late afternoon, although an official of one of the big three credit rating agencies told a congressional committee he didn’t think the government would default on its borrowing and other obligations. The Dow Jones industrial average lost 198.75 points or 1.6 percent, the worst drop since the beginning of June. The S&P 500 fell 27.05 points, or 2 percent, and the Nasdaq Composite slid 75.17 points, or 2.7 percent.
Meanwhile, a few House Democrats are bracing for the worst and suggested today that President Obama consider invoking the 14th Amendment to justify ignoring the federal debt-ceiling limitations next week if the Republicans refuse to compromise.
Boehner, R-Ohio, reportedly used salty language during a meeting with House Republicans Tuesday night to argue that his approach is his party’s last best hope to stare down Obama and the Democrats and push through a plan that would condition any increase in the Treasury’s borrowing authority on two rounds of spending cuts, this year and early next year.
The Washington Post reported that in a closed-door meeting with GOP House members yesterday, Boehner told skeptical conservatives to “get your ass in line” and drop the opposition to his plan to raise the borrowing limit in two stages tied to deep spending cuts. Boehner had planned to bring the bill to the House floor Wednesday but postponed a vote on it until Thursday at the earliest in the face of resistance from Tea Party-allied conservatives, who saw the plan as falling short of the fiscal restraint Republicans promised when they took control of the House in 2010.
But Sen. Chuck Schumer, D-N.Y. declared that Boehner’s plan “is on life support and it’s time to pull the plug and move on” to negotiate a bipartisan deal that can win the support of both chambers and the president. “Our bill is the better bill in every way, even when it comes to spending cuts.”
With no one in Washington able to predict with any certainty how the debt-ceiling drama will end before next Tuesday’s deadline, there was intense speculation over whether Boehner’s plan would even pass the GOP-controlled House, let alone withstand a Democratic onslaught to become the basis of a final deal. Senate Minority Leader Mitch McConnell, R-Ky., is working with Boehner to try to help get his plan through the House on Thursday and has slammed the Democratic alternative as rife with budget gimmicks. With little or no Democratic support for the Republican plan, Boehner, House Majority Leader Eric Cantor, R-Va., and Majority Whip Kevin McCarthy, fought to bring rank and file members into line, especially combative freshmen and Tea Party-allied members.
Boehner earlier this week unveiled his two-stage plan that would allow the $14.3 trillion debt ceiling to rise immediately by about $1 trillion in return for $1.2 trillion in spending cuts. The plan links a second increase in the Treasury’s borrowing authority to the ability of a new congressional committee to produce additional cuts that Congress would sign off on. Senate Majority Leader Harry Reid’s alternative approach would extend the Treasury’s borrowing authority through the 2012 election season in exchange for a total of $2.7 trillion deficit reduction -- including cuts devised by a special congressional committee.
But the two plans ran into trouble when the nonpartisan Congressional Budget Office concluded that both would produce substantially less in savings than their authors contend—which has forced the two sides back to the drawing board to find additional savings. The CBO said that the Senate proposal would slice $2.2 trillion from the federal deficit over the next decade, short of its $2.7 trillion target but far more than the cuts in Boehner’s plan. The CBO said that Boehner’s approach would cut spending by $850 billion during the coming decade, about $150 billion less than the $1 trillion increase in the debt ceiling.
Reid claims significant savings in his plan from winding down the wars in Iraq and Afghanistan. While Republicans have dismissed this as a budget gimmick since the administration has no intention of spending those anticipated savings, the CBO signed off on those savings, which account for more than $1.1 trillion of cuts.
With six days to go before the Treasury says the U.S. will run out of money to pay its bills, analysts at Standard & Poor's said they don’t believe the U.S. will default on its debt. S&P President Deven Sharma told the House Financial Services subcommittee Wednesday that he is waiting to see a final “credible” deficit reduction plan before making a complete assessment.
In previous reports, S&P has said that a deficit reduction plan that includes $4 trillion in savings over the next decade would help stave off a downgrade. Sharma said that wasn’t the magic number but he wouldn’t specify exactly how much was needed in a final package in order to clear the agencies. He said it’s possible that a deficit package below $4 trillion would satisfy S&P analysts.
Sharma said S&P has looked at a number of the different deficit reduction plans that have emerged over the last few days and weeks. “We think some of the plans reduce debt levels and could bring the debt burden in the range of a threshold for a Triple-A rating,” he said. The U.S. has held its Triple-A credit rating for nearly a century, and a downgrade could send shockwaves through the international financial world.
On ABC’s “Good Morning America” chief economist with Moody’s Investor Services downplayed the potential consequences of a downgrade. “I don’t think it’s the end of the world,” Zandi said. “These things aren’t written in stone and we could get that Triple-A rating back if in fact we do the right thing.” He said if the U.S. were downgraded, the current fixed mortgage rate, which is about 4.5 percent, might be around 4.6 percent or 4.7 percent.
In another sign that time is running out, White House press secretary Jay Carney said that the President and Treasury Department officials may soon have to start discussing who will receive payments from the government after the August 2 deadline passes, when the Treasury says it will exhaust its borrowing authority.