For months, Wall Street has been warning Washington not to play politics with the debt ceiling – the economic ramifications are just too great. Today, we got a glimpse of the doom and gloom to come if the debt ceiling isn’t passed: Standard & Poor’s lowered its U.S. credit outlook from “stable” to “negative.”
As Adam noted, “Treasury bond interest rates are still low and a political problem is only as hard to fix as the obstinacy of political actors.” Enter the political actors.
Almost immediately after S&P’s announcement, Majority Leader Eric Cantor put out this statement:
“Serious reforms are needed to ensure America’s fiscal health, and today S&P sent a wake-up call to those in Washington asking Congress to blindly increase the debt limit. Today’s announcement makes clear that the debt limit increase proposed by the Obama Administration must be accompanied by meaningful fiscal reforms that immediately reduce federal spending and stop our nation from digging itself further into debt. For decades, Washington has blindly increased the debt limit while doing little to stop spending money that it doesn’t have, a dangerous pattern that must end. As S&P made clear, getting spending and our deficit under control can no longer be put off for another day, which is why House Republicans will only move forward on the President’s request to increase the debt limit if it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington.”
Followed soon after by this statement from House Minority Leader Nancy Pelosi:
“Today’s announcement is yet another reminder that financial markets are closely watching efforts by the President and Congress to reduce the deficit in order to promote economic recovery and create jobs. Both Democrats and Republicans must participate in the process initiated by President Obama last week to demonstrate our commitment to reducing our deficit through shared responsibility. I have appointed Assistant Democratic Leader Jim Clyburn and Congressman Chris Van Hollen, Ranking Member of the House Budget Committee, to the bipartisan, bicameral negotiations on deficit reduction, which will be chaired by Vice President Biden. House Democrats will enthusiastically participate in these crucial discussions with a full commitment to growing the economy by creating jobs, strengthening the middle class and responsibly reducing the deficit.”
These arguments sound very similar: both acknowledge the importance of finding a solution on the debt ceiling. Both say they want to engage constructively in the process. But both dog-whistle to their respective bases.
Cantor’s conditions are blunter: “House Republicans will only move forward on the President’s request to increase the debt limit if it is accompanied by serious reforms that immediately reduce federal spending and end the culture of debt in Washington.” Translation: We won’t pass this unless you cut a boatload more than the $38.5 billion we just forced you to lop off of the 2011 budget.
Pelosi’s is more subtle: “House Democrats will enthusiastically participate in these crucial discussions with a full commitment to growing the economy by creating jobs, strengthening the middle class and responsibly reducing the deficit.” Translation: We agree that some spending needs to be cut, but we are civilized and capable of using a scalpel, not that axe you’re offering us. And we will ferociously defend investments that we consider critical to job growth like education and science and technology.
In other words, everyone is still playing politics with the debt ceiling. This shouldn’t be that surprising: we’re months away from a deal and now is the time to draw lines in the sand. But the S&P’s bleak outlook should serve as a warning: The next two months of public negotiations could have real repercussions on the markets.