Debt Deal May Depend on Obama Staying Silent

Obama Talked His Way Into Trouble on Debt Ceiling

“We got rid of the tax increase, no naked debt limit increase and now we've got a bill that does what we said it should do. Is it perfect, like John said? No, it's not. But it's a good step on spending cuts.”

-- Rep Paul Ryan “On the Record w/Great Van Susteren” rising in defense of Speaker John Boehner’s alternate debt-ceiling legislation

Whether Congress can reach a deal on increasing the federal government’s $14.3 trillion borrowing limit may depend on whether President Obama can stay silent on the issue for the rest of the week.

House Republicans are getting ready today for a high-drama vote on an alternate plan to cut spending and increase the federal credit limit, and the best thing the bill may have going for it is Obama’s opposition.

Most House Republicans are disappointed with the fact that the bill doesn’t take on the main drivers of federal indebtedness, entitlement and welfare programs. The most crystalline conservatives in the caucus oppose it because it actually increases the debt ceiling. They would rather have an immediate 44 percent cut to federal spending than increase borrowing by a dime.

But the fact that White House and Democrats in the Senate keep dumping on the Boehner plan is a dynamite sales pitch for the speaker. As one of the biggest rattlers in the Tea Party Caucus, Rep. Allen West, tweeted: “Boehner Plan is not a perfect bill. However, the fact Pelosi, Reid and Obama hate it doggone makes it perfect enough- where is their plan?”

Senate Majority Leader Harry Reid has a plan, but it might be best described as a double, fake Boehner. The Reid plan is based on the same kitty of cuts as the Speakers’ plan, but rather than running for six months before a mandatory review of long-term spending reform and another vote it would carry the government through the next election.

Reid relies on putative savings from the fact that the war in Afghanistan will not continue until 2022, so he’s basically asking to get the final 12 months of borrowing for free.

Reid likely couldn’t get his plan through the Senate today, as Republicans will certainly give their House colleagues the deference of running their own legislation before Senate GOPers agreed to back Reid’s plan.

If Boehner can get his bill passed today, he will increase the odds that Republicans will get the advantage on the duration of the final debt increase.

While all Senate Democrats said in a letter that they would oppose the House bill, they didn’t say anything about amendments. And that’s what will happen if Boehner can get this duck off the pond. It will go to the Senate, where Minority Leader Mitch McConnell will start working in his wily ways, and produce something that can pass both Houses in an almost orderly fashion.

The question now is whether Obama can remain out of the debate until Congress can finish its work.

Obama has so far managed in speeches and press conferences on the debt debate to hand Republicans a series of big wins and to kill off hopes for a grand bargain.

Each time he scolded or lectured House Republicans on the subject since January, he strengthened their resolve to stand united against his requests for first an unconditional debt-limit increase and then later, tax increases.

As we are seeing repeated now, no matter how much outsiders bemoan and berate Boehner for failing to slay the government leviathan, House members understand that they are less than halfway through a two-year struggle with Obama and the Senate Democrats. Though the bonds may strain, the House GOP can still hang together against Obama.

But that may have been unavoidable. There may have been nothing that Obama could have done to sway the House on small-scale deals on debt. The president’s defeat on an unconditional increase and a tax increase may have been unavoidable. But as we saw with his Monday speech, he has certainly made Boehner’s job much easier.

What was certainly avoidable, though, was the derailment of a compromise plan that traded a debt increase for Obama now for changes to entitlement programs later on.

As one House Democrat told Power Play after the president surprisingly emerged in the White House briefing room to embrace the now-moribund Gang of Six plan: “He probably killed it right there.”

Had Obama stayed silent on the plan, conservative and moderate Republicans already on board would have had time to sell the package to their skeptical fellow Republicans. The same for the Democrats. Obama left Democratic budget hawks no time to work with suspicious liberals to assure them that the cuts were gradual and potentially reversible if the Democratic political position improved.

Obama’s support for the plan was the kiss of death for conservative support and possibly with liberals too. Obama has come to be seen as weak by many on the left. They still support him, but they believe that left unsupervised, the president will give away the farm.

Even with the public, the president has lost his ability to persuade on fiscal issues. Polls show that voters have concluded the president isn’t serious about the subject.

Obama’s endorsement of any plan is no longer a plus, and his opposition only tends to help Republicans.

Perhaps he knows it. After his blame gaming speech on Monday, Obama has mostly stayed out of the fray this week, emerging for a campaign speech to a Democratic Hispanic group and little else. He’s scheduled to talk about his 20-year plan on vehicle emissions and global warming Friday, but nothing that generates much heat on its own.

It’s hard for any politician to do, but to get the deal on debt he needs to avert a disaster, Obama may need to just hush.

Wall Street Starts Taking Washington Seriously

“We know he’s going to turn up the heat soon because fear mongering is the only thing that works for him.”

-- Aide to a senior House Republican talking to Power Play about President Obama

While Power Play has always held that there would almost certainly be a deal on debt, this is not the kind of political note that discounts the possibility of congressional crackups.

Wall Streeters, though, have mostly discounted the idea that a divided Washington would break under the pressure and cause a partial government shutdown when the Treasury runs out of rainy day funds.

As we get closer to the edge, which Treasury insists remains set for Tuesday, investors are starting to get kind of edgy. Because many bottom-line driven investors regard all the ideological differences and abstruse procedural rules of Congress as backwards or antique, they frequently fail to understand that lawmakers are playing for keeps.

Now it’s occurring to them that these people might just be serious.

We should also take care to separate the twin financial threats from the current debate. First, there’s the concern that a government shutdown will ensue and cause a short-term disruption to the already crumbling economy. This isn’t a concern that the U.S. will pay its debts, but instead a concern that federal spending could conk out.

A partial shutdown, aside from depriving contractors and government workers of checks, would also cause deepening anxiety and uncertainty among the capitalists who were anxious and uncertain already. The specter of that, plus some crummy economic news, is helping to keep the securities markets on the bearish tip.

But even if a debt ceiling impasse doesn’t mean that there’s no default on debt, that doesn’t mean there aren’t bond problems and bond-trader worries.

The ratings agencies have been at pains to point out that the looming U.S. credit downgrade isn’t over the debt limit, per se, but that the conflama over the debt limit has demonstrated what they’ve been maintaining all along: The current political climate will not allow the government to change its ways on the long-term debt that is threatening the future health of the nation’s economy.

Entitlement (i.e. Social Security and Medicare) and welfare (i.e. Medicaid and food stamps) programs constituted $2.1 trillion of federal outlays in 2010 – 66 percent of federal spending. There will almost certainly be no change to these issues in the final debt-ceiling plan, except for perhaps some kind of J. Wellington Wimpy solution in which a super committee will come up with a plan. Washington did that last year and has so far done nothing but talk about it.

The U.S. tax code is a rat’s nest of crony capitalist deductions and populist wealth transfers. This problem will go untouched too, save for a promise of future consideration.

U.S. bond ratings will drop not because of the debt ceiling, but the debt ceiling demonstrates the degree of political dysfunction on the subject. That’s embarrassing but not fatal. American debt will continue to look good compared to the fetid heaps of European debt and China’s crackpot jackpot of fiscal policies.

But it is the concerns over a government shutdown and economic disruption that will drive the final deal. As Washington sputters, Wall Street starts listening. And as investors panic, Washington will start listening to Wall Street.

And Now, A Word From Charles

“The reason the ratings will drop -- and I think it will within a year, if not less -- is because one of the two major parties in every argument, every negotiation, every plan that's offered, has been looking for loopholes as a way to appear to cut spending when it doesn't… And that's, I think, the reason why nobody has confidence. It can't happen if one of the two parties is clearly unserious about debt reduction.”

-- Charles Krauthammer on “Special Report w/Bret Baier”

***Today on Power Play w/Chris Stirewalt: Fox News favorite and intrepid reporter for the Weekly Standard Steve Hays breaks down what is likely to happen in the Capitol Hill debt drama. Chris will also talk to Rep. Kevin Yoder and Sen. Tom Carper. Don’t miss a minute of it at 11:30 ET at live.foxnews.com ***