How politics have come to dominate the debt ceiling debate -

How politics have come to dominate the debt ceiling debate


Even though we have heard countless references and discussions about the risks associated with rising the US debt ceiling, we should not be surprised that there is still no deal as the supposed deadline of August 2 looms. The debate over a compromise solution has become so politicized both sides are now hardening their positions rather than looking for compromises.

The Republicans have staked their positions: no new taxes and massive spending cuts, in particular to entitlement programs. The presence of a vocal and uncompromising Tea Party contingent makes it difficult for the more moderate Speaker of the House, John Boehner, to deliver votes on a compromise deal with Barack Obama. Consequently, the odds of an historic deal between Obama and the Republicans appear very remote.

Obama, having realized that his re-election depends on capturing a majority of the independent voters and keeping his political base intact, seems willing to go some way on spending cuts, but insists on increasing revenue to some extent. Meanwhile, the Democratic left has grown worried the president’s concessions could upset the Democratic base. At issue for Democrats are the Congressional elections of 2012 and regaining control over Congress.

Recent unemployment figures have complicated matters. Nagging unemployment has proven to be a significant drag on the economy. Like he did with the wars in Iraq and Afghanistan, Obama is now owning the economy. The Republicans have successfully been able to add the debt ceiling debate to the conversation, making the extremes in both parties reluctant to cut a deal.

What, then, will happen with the debt ceiling? Will the U.S. default on its debt, setting the stage for a potential economic catastrophe? Or is the threat of a default just a Democratic ploy to force the Republicans to bend? Considering that the U.S. is still the biggest and strongest economy in the world, and given that the U.S. currency is the reserve currency of the world, a default or the possibility of one should not be taken lightly. It is almost certain a short term compromise deal will occur. One would hope principle will triumph over politics. However, the last few days do not bring encouraging news.

This will be a leadership moment for all concerned. President Obama has modest approval ratings (between 46 per cent and 48 per cent), while support for Congress is hovering around the 20 per cent mark. The president has a bully pulpit and this should be a decided advantage. Moreover, the Republicans have no clear frontrunner to go head-to-head with Obama. How effectively Obama uses those advantages in the days ahead may well determine his fate in 2012.