Ben Bernanke vs. the Tea Party

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A big early test of the power dynamic within the new Republican Party will come this spring (or possibly in early June) when the U.S. runs out of borrowing authority and Congress will have to vote on whether to raise the federal debt limit. Some Tea Party-backed conservatives in Congress, many of whom ran have vowed to end Washington’s borrowing and reel in the debt, insist they will oppose raising the debt limit–even though economists say failure to do so could create chaos in the financial markets, and  even top GOP leaders are warning that Congress has little other choice.

I’m not aware of any Republicans who actually want to see the U.S. default on its debt. But it is common to hear conservatives–including the likely 2012 GOP presidential candidates like Tim Pawlenty–any debt limit increase should be leveraged into simultaneous major spending cuts. That argument got a big kick in the shins yesterday, however, in the form of public remarks by Federal Reserve Chairman Ben Bernanke:

The Federal Reserve chairman, Ben S. Bernanke, warned Congressional Republicans on Thursday not to “play around with” a coming vote to raise the government’s legal borrowing limit or use it as a bargaining chip for spending cuts….

Though he called on Congress and Mr. Obama to confront “daunting fiscal challenges,” Mr. Bernanke said the debt ceiling should not be used as a negotiating tactic, warning that even the possibility of the United States not being able to pay its creditors could create panic in the debt markets.“I think this is very remote, but it’s not something you want to play around with — the United States would be forced into a position of defaulting on its debt,” Mr. Bernanke said. “And the implications of that for our financial system, for our fiscal policy, for our economy would be catastrophic.”

He added: “So I would very much urge Congress not to focus on the debt limit as being the bargaining chip in this discussion, but rather to address directly the spending and tax issues that we all have to deal with if we’re going to make progress on this fiscal situation.”

Let’s see what Republican leaders have to say in response.

P.S. Few people on Capitol Hill seem to think that the debt limit won’t be raised eventually. One Democratic aide told me this week he expects to see a “sane caucus,” with members of both parties, will grin and bear the brunt of the tough vote–much as they did after the House failed to pass the TARP bailout in late 2008, watched the stock market plunge nearly 1000 points, and then staged a successful do-over. Although, to be sure, many a member of both parties came to regret that vote….