WASHINGTON -- Minutes before House Speaker John Boehner delivered a prime-time address in which he framed his latest deficit-reduction deal as a silver bullet for the nation's economic uncertainty, reports surfaced that the plan being crafted by the Ohio Republican would potentially lead to a downgrading of the AAA credit rating of the United States.
In an address that immediately followed the president's own, Boehner argued that if the president were to merely sign into law his latest deficit-reduction bill -- which slashes more than a trillion dollars in spending before requiring a second tranche of cuts and a second vote -- "the 'crisis' atmosphere he has created will simply disappear."
It was a fairly bold selling of a plan that -- in terms of both the size of cuts and structural reforms -- fell far short of what the Speaker had been negotiating with the White House prior to those negotiations ending this weekend. It also was delivered with an unfortunate backdrop. Just minutes before Boehner spoke, CNN's Erin Burnett relayed word from her sources on Wall Street that the newest Republican plan would not satisfy the credit rating agencies, which have soured on the idea of a short-term solution to the debt ceiling debate. Rather, it was Senate Majority Leader Harry Reid's approach (padded by counting the savings from the drawdown of troops from Afghanistan and Iraq) that would calm their nerves.
"I think it is important to emphasize that most people think both of the plans are really Band-Aids and don't deal in any significant way with the spending and cost issues in the country," Burnett said. "The issue was that Speaker Boehner's plan does not cut enough spending right away. Harry Reid's plan would cut about $2.7 trillion. Just because it is bigger than Speaker Boehner's plan is really the reason the Boehner plan may still trigger a downgrade."
Burnett was far from equivocal. At one point she added that, per a conversation with an investor, "in the short material, either deal will probably be enough." But then she went back to waxing skeptically at the Boehner approach.
"Really interesting this afternoon, when I was talking to an investor who had met with the ratings agencies at Standard & Poor, talking about the potential of a downgrade -- which by the way could raise interest rates the same way a potential default could -- and they said the Boehner plan probably wouldn't hit the hurdle to prevent a downgrade," she added. "Even if that deal was reached, you could still get a downgrade. It is unclear whether that would happen for sure, but that would be a real possibility. Whereas the Reid plan, even though a lot of the parts of that are seen by many as gimmicks, probably would pass that hurdle and you wouldn't get that immediate downgrade. That's an interesting distinction."
In actuality, the distinction is rather bland. The crux of the difference between the Reid and Boehner approaches is that one would last through the 2012 election by counting the so-called peace-dividend while the other one would require another vote as well as a (likely-to-fail) vote on the balanced budget amendment. Beyond that, they are fairly similar -- each using the cuts agreed to during talks organized by Vice President Joseph Biden, each setting up a powerful congressional committee to find additional deficit-reduction measures.
Clearly, however, the market isn't enamored with going through the same political drama once more. As The New York Times' Nate Silver noted, the Dow Jones futures dropped sharply during the course of Obama's and Boehner's speech.