The stock market plunged over 150 points Monday as Republicans hardened their stance in debt reduction talks with the White House. The sharp drop was a timely reminder that a political failure to raise the debt ceiling would be a body blow to America's already weak economy.
The odds of that happening rose sharply this weekend, as House Speaker John Boehner broke off talks with President Obama because he couldn't get Republicans to support a fiscal "grand bargain" that would include higher tax revenues. That puts Majority Leader Eric Cantor in charge of GOP negotiating strategy -- and on the spot.
Unlike Boehner, who seems to have the quaint idea that voters sent him to Washington to solve problems, Cantor is a faithful medium for channeling the Tea Party's anti-Washington wrath. Rather than prepare his troops for the compromises and shared sacrifices that reducing America's debts inevitably will entail, he's been a zealous enforcer of the GOP's "zero tolerance" dogma on taxes.
Cantor says Republicans can live with closing tax loopholes, as long as every penny saved goes into lowering tax rates. Meanwhile, most House Republicans last week opposed even modest efforts to trim defense spending. So here in essence is Cantor's generous offer to President Obama and the Democrats: You agree to cut domestic programs by about $2 trillion now and we'll vote to raise the debt ceiling by that amount. Oh, and after that, we'll start whacking entitlement programs.
What a deal! Since no self-respecting Democrat would ever bargain on such one-sided terms, it's hard to avoid the conclusion that House Republicans actually want to plunge the nation into a new economic crisis. Do they really hate taxes -- or Obama -- that much? Or maybe in their revolutionary fervor the Tea Party patriots have unwittingly internalized the old Bolshevic slogan: "the worse, the better."
In any case, the public seems to be in no mood for a politically manufactured crisis on top of the steady drumbeat of bad economic news -- and Obama has deftly set up Republicans to take the political fall.
In contrast to the GOP's truculence on taxes, the president has appeared reasonable, flexible and persistent in trying to get Republicans to "yes." To the chagrin of many Democrats, he's offered to cut $3 in federal spending for every $1 in new revenue. Obama is receptive to the idea of lowering tax rates, as long as some revenue is left over for cutting deficits, and last week even gave liberals chilblains by offering to put entitlement reform on the table.
In slapping away the President's outstretched hand, the GOP seems to be in the grip of not one but two mass delusions.
The first is that Americans are groaning under crushing tax burdens that would make Pharaoh blush. But the federal tax take has sunk to just 15 percent of GDP, far below its usual average of 19 percent.
The second delusion is that failing to raise the debt ceiling might have no repercussions. On Fox News Sunday, Sen. Jim DeMint accused Treasury Secretary Tim Geithner of trying to scare Republicans into making a bad deal. "Secretary Geithner has been irresponsible. He's playing Chicken Little here. The fact is that we will pay our debts if it's the last dollar we have... We're not going to default."
DeMint's logic apparently is this: Since tax revenues are sufficient to cover about 55-60 percent of what Washington spends, there will be plenty of money to pay our foreign creditors. There just won't be nearly enough to finance federal programs but, who'll miss them? One possible answer: Social Security recipients, whose checks are supposed to be mailed Aug. 3. Others include military personnel, federal employees, and all those families hoping to visit National Parks during their summer vacation.
When the public backlash comes, Republicans won't be able to say they weren't warned. Geithner broke it down clearly this weekend on NBC's Meet the Press:
"Remember... we have to borrow now 40 cents for every dollar we spend... And every week starting the week of August 2, we have to go out and finance roughly $100 billion in maturing obligations of the government. We make 80 million checks a month to Americans, 55 million people on Social Security benefits, millions more Americans on veterans' benefits, Medicare, Medicaid, people who supply our troops in combat. Eighty million checks a month."
The imponderable here is the markets' reaction to a failure to lift the debt ceiling. There's a serious risk of higher interest rates, plunging confidence in the dollar and an even deeper freeze on job-creating investments in the U.S. economy.
Eric Cantor imagines the public is behind him on taxes. More likely, he's saddling up to lead a fiscal reprisal of Picketts' Charge.
This item is cross-posted at Progressive Fix.