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Pawlenty Draws Attention With Debt Ceiling Rhetoric, But Sends Mixed Signals On Action [UPDATED]

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TIM PAWLENTY
Associated Press

WASHINGTON -- Tim Pawlenty on Friday joined the Jim DeMint wing of the Republican Party in the debt ceiling debate. Sort of.

Pawlenty argued in multiple TV interviews against Senate Minority Leader Mitch McConnell's plan to hand over primary responsibility of raising the debt ceiling to the president in exchange for no tax increases, saying there has to be structural change to change the federal government's spending patterns.

"It's a Band-Aid on a broken bone," Pawlenty said of McConnell's plan in an interview with Bloomberg TV. "It doesn't solve the problem ... I don't like it."

The former Minnesota governor's charged rhetoric appeared at first blush to align him with Sen. DeMint (R-S.C.) and other Tea Party lawmakers in the Senate and House, who have staunchly refused to consider voting for a debt ceiling increase unless there is a balanced budget amendment to the Constitution, among other things.

“It’s balance or bust,” DeMint wrote in an April fundraising email. “Agreeing on the right policy is not enough to save our country. Republicans also have to be willing to fight to enact that policy, even if it means sacrificing their political careers."

Pawlenty mentioned the balanced budget amendment as a "long term" goal that should be sought, but did not mention what kind of reforms should be sought in the short term. Many Republicans are still pushing for a cut, cap and balance plan that includes immediate spending cuts, spending caps for the future and the balanced budget amendment in the long term.

"This is uncomfortable. It's awkward. I know it's concerning to the markets for understandable reasons," Pawlenty said on CNBC Friday morning. "But if we don't get people in Washington D.C. to take this seriously and actually make the tough decisions -- they always say 'Oh, we're going to make the tough decisions. We'll do it. We'll do it,' and then they never do ... Now is the time. The hour is late, and these problems are big, and the only way you're going to get people to do something tough is to put their backs up against the wall."

Pawlenty aides highlighted that portion of the interview on Twitter. It came amid rising tensions about the consequences of a potential default by the U.S. government on its debts. It appears as though a substantial portion of the Republican base and some of the party's most vocal leaders in Washington are prepared to accept a default if they cannot convince President Obama and congressional Democrats to accept deep cuts to spending levels and sweeping changes to future commitments.

But in a portion of the same CNBC interview that was not promoted by the Pawlenty campaign, the candidate admitted that the debt ceiling will be raised.

"They're going to have to raise the debt ceiling," he said. "But they should get some structural reform."

In the Bloomberg TV interview released later in the day, Pawlenty said, "I don't think there should be a default. We shouldn't default. No, I don't think there will be."

That didn't stop the Democratic National Committee from sending out a press release with the subject header: "Pawlenty Calls For Default."

“Governor Pawlenty is hardly the only Republican who would prefer that the United States default on its debt, but as a presidential candidate, his words cannot be dismissed lightly," said DNC Chairman Debbie Wasserman Schultz.

The two sides define default differently. Republicans generally use it in a narrow sense, meaning a failure to pay creditors and bondholders, and believe this is the key issue to maintaining current interest rates and a stable stock market. Democrats often use it more broadly as referring to failure to pay any obligations, such as federal compensation, payments to vendors doing business with the government, or payments to those receiving government assistance, such as Social Security beneficiaries.

The DNC and others attacked Pawlenty for saying that creditors such as the Chinese should be paid before those in the military or Social Security recipients.

"Pawlenty has shown himself to have a truly sick and twisted set of values by advocating that it’s ok to keep paying foreign countries while cutting off senior citizens from their Social Security and Medicare that literally could make the difference between their life and death," said Eddie Vale, spokesman for Protect Your Care, a liberal organization founded to defend Obama's health care overhaul.

Republicans argue that prioritizing payments would maintain the AAA bond rating that keeps borrowing costs low, but financial analysts have said that there would be substantial negative financial consequences for such an action. Defaulting on Social Security obligations could also conceivably trigger a downgrade.

"Even in a scenario in which Treasury interest payments are 'prioritized,' halving other payments like Social Security or military salaries would drop the U.S. income level by 8-9 percent of GDP in a short period," wrote Steven Wieting, Managing Director in the Economic and Market Analysis team of Citigroup, in a July 11, 2011 report.

Wieting also wrote in his analysis: "The financial implications of an actual Treasury default, even briefly, could represent the largest financial shock in history, potentially creating a domino of defaults."

[UPDATE: 5:31 p.m.] - In another interview Friday afternoon on CNBC's "Kudlow Report," Pawlenty said that Republicans should pass the "Cut, Cap and Balance" plan through the House and Senate so that Obama has to veto it.

"If he vetoes it, then send him the installment plan, you know meter it out to him every couple of months so he has to come back and walk the plank every few months," Pawlenty said.

It appeared to be an admission by Pawlenty that the McConnell plan that he rejected earlier in the day would be the best option at the end of the day. Pawlenty's scenario was overly optimistic as well in projecting the passage of the "Cut, Cap and Balance" plan through the Senate, where Democrats hold a 51-to-47 advantage, with two Independents who caucus with the Democrats.

Kudlow pointed out that the Senate will not pass such a plan, but Pawlenty essentially ignored him, continuing to insist that Republicans force Obama to veto the idea.

"They should send him a bill and challenge him to veto it or sign it," Pawlenty said. "I'd send it to him relatively soon."

Pawlenty did have one suggestion to alter McConnell's plan, which would force Obama to request a debt ceiling increase three times between now and the 2012 election.

"I would make him come back every month, not just give him some six month window," he said.

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