The House of Representatives voted 97-318 against increasing the federal borrowing limit by $2.4 trillion without preconditional spending cuts on Tuesday night. The Republican leadership designed the vote to fail: They used a procedural trick to require a 2/3 majority for passage and convinced every last member of their caucus to oppose it. The idea, they said, was to prove to the world (and to congressional Democrats) that raising the debt ceiling won’t happen without a package of accompanying spending cuts.
Mission accomplished: Even though President Obama has been admitting as much for weeks, the House GOP certainly seemed to make a statement: 236 Republicans and 82 Democrats voted against the “clean” debt limit increase, while 97 Dems voted yes and seven more voted present. But there’s less uncertainty in all this than you might think.
Before the vote, House Democratic Whip Steny Hoyer advised his caucus to join Republicans in voting down the measure. “My advice to them would be not to play this political charade,” he said. Of course, the failed vote was the charade. Congress will raise the debt ceiling by the end of the summer. Tuesday’s failed vote only served to provide political cover for members of Congress who will eventually have to back the incredibly unpopular increase in borrowing capacity.
So, what does the vote tell us? Nothing until financial markets have a chance to react on Wednesday. For the past week, Republicans have been cooing in Wall Street ears, reassuring them that the whole “clean” debt ceiling vote is nothing but a negotiating tool thats failure will improve the country’s fiscal outlook on the whole. Having the assurances of both parties, the markets may well yawn. After all, the treasury bond market didn’t make much of Standard & Poor’s recent chickenlittle-isms about Washington political gridlock and debt.
If a bout of market panic does ensue in the wake of the vote, it will likely cut short congressional brinkmanship in the run-up to the August deadline, when the Treasury Department says it will be forced to stop debt payments if the limit is not raised. Remember, in the dark hours of 2008, the House voted down one version of the Troubled Asset Relief Program, sending Wall Street into a nosedive. That scare was enough to convince some members to bite the bailout bullet. Thirty-three House Democrats and 25 House Republicans switched their votes from no to yes, paving the way for President Bush to sign the measure into law on October 3.
The stakes — global economic well-being, for one — are no less high in 2011, but the current situation is not as urgent. The U.S. won’t default on its debt because Congress won’t let it. Tuesday’s failed vote got one necessary step out of the way. All that remains to be seen is whether the markets must endure some turmoil in the mean time, and what kind of deficit reduction deal will eventually be passed along with the borrowing limit hike. We’ll have a few more answers on both fronts Wednesday, when Wall Street will either ignore or recoil at Washington’s gamesmanship and House Republicans will head to the White House to negotiate directly with President Obama.
Updated at 7:36 p.m.