I'm just back from dual vacations, and I'm tempted to turn right back around.
As readers may have noticed, I've been on a spiritual vacation from writing about the upcoming fiscal madness, including a) the need to fund the government at the end of next month when the fiscal year ends (and the current continuing resolution -- the latest temporary budget patch -- expires), and b) another bump up against the debt ceiling.
I'm also just back from a short vacation up to New England.
And in a nasty case of synchronicity, both vacations just ended. Upon returning home this afternoon, I saw this note from Treasury Secretary Jack Lew telling Rep. John Boehner that contrary to the buzz that we'd hit the ceiling in late-Oct, early-Nov, we're on track to hit it in sooner than that, in mid-October.
Since it would be deeply unhealthy to jump into this mishegoss with both feet right away, I'll share a few initial impressions of what I see going on and get back with more details in coming days.
-- They'll probably avoid a government shutdown by passing a very short patch, freezing spending levels where they are for this year (they've only got something like nine working days in Sept -- I know, nice work if you can get it). That shouldn't ruffle too many feathers and just sets the table for the big fight in October.
-- I wish I could see a way out of this ridiculous debt ceiling fight. Why ridiculous? Because remember, the money that the government needs to borrow in excess of the current debt ceiling is money they've already agreed to spend. They're pickin' their teeth at the end of the meal they ordered and ate, talkin' tough about how they're not going to pay for it.
-- But from (limited) discussions I've had, I just keep coming up with an unstoppable force smacking into an immovable object. There are Republicans who want to make increasing the ceiling contingent on repealing Obamacare. Won't happen. There are other Republicans who want significant entitlement cuts. The president has offered such cuts in the past but only in exchange for revenues, and House Democrats are firmly, and reasonably, ensconced in thatposition:
Van Hollen said Democrats have given the White House three firm principles: no entitlement cuts without tax increases, no boost to Defense spending without domestic spending increases, and no paying ransom for a hike to the debt limit.
And for House Republicans, new revenues strike me as about as welcome as Obamacare repeal is to the president.
Yet, even as my crystal ball is terribly cloudy on this part of the future, I don't think we'll default. Leadership in both parties would like to get past this, and thus the outcome may once again depend on Speaker Boehner passing a debt ceiling increase by violating the Hastert rule (i.e., without a majority of the majority) -- that's the only way these and other sudden-death budget bills have passed in recent years (see figure below). In that regard, this may come down to whether John Boehner is once again willing to stand up to his base, perhaps risking his speakership, in the interest of the nation.
Source: Phillips, GS Research
This post originally appeared at Jared Bernstein's On The Economy blog.