Sunday Opinion: Romney Could Take Down Obama in 2012

Google Images: Mitt Romney could make a splash among voters in 2012

For my Sunday opinion piece, I'd like to quickly expand on a point that I made yesterday, which was that Washington's toxic climate could make presidential re-election very difficult in 2012. 

With debt ceiling talks imploding, and both parties taking significant hits in the polls as Americans go more and more frustrated with the way in which Washington works and the posturing that both sides go through before anything is accomplished, this creates the perfect opportunity for a well-funded republican challenger to step into the spotlight. With Rick Perry not yet declaring (and if he does decide to throw his hat in the ring, declaring extremely late), all indications point to Mitt Romney as the Republican nominee for president in 2012. And a mix of different polls shows that Romney actually has fairly good odds at, at a minimum, taking President Obama down to the wire on election night.

Let's take a look at the polls and see what we can conclude. 

The Polls
Poll #1: Obama vs. GOP General Election Results

fivethiryeight.blogs.nytimes.com

Nate Silver recently released a poll with some rather shocking results.  While Giuliani appears to beat Obama by 1.3 points, the possibility of him getting the nomination is tremendously small. The scarier number for Democrats is against Mitt Romney, where the president only leads by around 2 percentage points. 

Many people say that polling data this far away from 2012 seems hardly useful. And for the most part, I would agree with them, especially in regards to head-to-head polling like the one above. But times are changing, and with Washington spending multiple months, up to a year, on one single issue (like health care or like the debt ceiling currently), those poll numbers are less likely to change significantly. Let me put it another way: It used to be that an incumbent president this far away from the election had plenty of time to discuss new issues and reassure discontent voters by proposing and encouraging the passage of legislation that was important to them. But 2012 could be radically different. After spending more than eight months on health care and six months (and counting) on debt ceiling negotiations, the United States Congress and subsequently, the president of the United States, has very little room to maneuver when it comes to other important issues that could assist in bolstering their election prospects. This could play to the strength of the GOP nominee, who will not be handicapped by what's driving Washington and the the large chunks of time that the president will be using to deal with his presidential duties rather than hitting the campaign trail, fundraising with donors and pushing his message. 

Poll #2: Presidential Approval Ratings

The second piece of polling data that is important to look at when discussing the election in 2012 is the president's approval ratings. While day-to-day polling is important to see, it is also important to look at the general trajectory and try to imply where it is headed. Of course, President Obama began his tenure with huge support and gigantic hopes for a new Washington. Unfortunately, a number of those hopes and promises have gone unfulfilled and Washington remains gridlocked. While President Obama is not fully to blame for the gridlock (especially on the debt ceiling, where congressional republicans continue to hold the economy hostage), voters really only care about one thing: "I voted for Obama because I wanted change, and change did not happen." And the president's approval rating has reflected that discontent, hovering in the mid 40's for months. While in other election cycles, I would argue that the president has plenty of time to raise his numbers, campaigning and promoting his message enough to get a majority of voters, I'm not so sure about it this time. As I previously said, if Obama is stuck in Washington arguing with congressional leaders on the Hill about how to raise the debt ceiling again in eight months, the republican nominee has a huge opportunity to outwork and out-campaign the president.

Poll #3: Debt Ceiling Polling

When asked to whom they would assign responsibility should the limit not be raised, 48 percent of respondents chose the congressional Republicans; 34 percent said they would blame the Obama administration.

These results echo a Pew Research Center poll conducted from June 16-19 which asked the same question as the Quinnipiac poll. According to that survey, 42 percent of respondents said they would blame Republicans in Congress if the debt ceiling were not raised; 33 percent chose the Obama Administration.

Source: Quinnipac Polling

The above poll (and other polls like it) seem to spell good news for President Obama. A large plurality of Americans (48%) would blame congressional republicans if the United States defaulted. Short term, Obama may win the battle. But dig deeper, think long term, and the above polling might not be so cheery for Democratic strategists. If the country does surpass the August 2nd deadline and the US begins the process of defaulting on our debt, this country will see an anti-incumbent sentiment so strong that 2012 could be the largest wave election (i.e. incumbents losing in droves) that we have ever seen. And even though it is the republicans who have largely been holding the economy hostage with these debt ceiling talks, Obama cannot win. Even if he comes out with a short-term victory, voters will view the president as "bad" and congressional republicans as "horrible." Either way, they are likely to start looking for someone new.

Conclusion

Of course, there is clearly the chance that Republicans nominate someone who is too conservative to maximize their opportunity with swing voters. The republican base is becoming more and more ideologically driven and presidential candidates will have to move sharply right in order to attain the party's nomination and quiet and reassure the tea party.  On the other hand, while incumbent presidents are very difficult to defeat, someone like Romney would probably compel a very close election unless the economic recovery picks up its pace next year.

Debt Ceiling Could Prove to Be Major Victory for Republican Presidential Candidate

Google Images: Mitt Romney, the GOP front runner

I feel bad for Republican presidential candidates. They've been trying so hard to get attention recently, with a number of televised debates, campaign stops, and television appearances. But the GOP field just can't seem to catch a break. And Mitt Romney is taking it the hardest.

Romney's problems stem largely from the issues I've addressed with the mass media and the way in which it functions. Why report on Romney's serious economic proposals when Herman Cain is saying that he would outlaw any legislation over three pages, or Michelle Bachmann is reportedly having migraine headaches? The average viewer watches the news for short and interesting tidbits of information, not full-scale political analysis of major issues. This is why PBS, with its lack of flair and dramatics, is so unpopular among mainstream Americans. 

But Romney, who many consider to be the front runner of the GOP presidential race, may have caught a major break with the ongoing debt ceiling crisis happening in Washington. And he did not have to do a single thing.

Analysis: GOP Presidential Candidate Could Profit From Debt Talks
With the debt crisis consuming every single part of Washington, Romney and the other serious presidential contenders (I'm looking at you Rick Perry) have two major things going for them:

• Being outside of Washington, away from negotiations, and away from the possibility of having to vote to increase the debt ceiling, is a major advantage right now. While polls show that the American people are starting to understand the seriousness of the situation if we were default on our debts, they are still fairly evenly split on whether or not we should raise the debt ceiling. While everyone in Washington (I would hope) and those who consider themselves politically active know, it is an impossibility to not raise the debt ceiling. It will be raised, it is just a matter of how long it will take to hammer out some kind of compromise between the two parties. But reality does not matter in politics. Politics is solely driven by perception. President Obama is not only directly tied to an increase in the debt ceiling, but he also has to sign the bill into law and waste plenty of resources explaining why the ceiling needs to be raised to a relatively uninformed general populous. Nominees like Romney and Perry, on the other hand, have no such problem. In fact, knowing that their base is strongly opposed to any raising of the debt ceiling under any circumstances, I would be shocked if you don't soon see Romney railing against raising the debt ceiling, saying that if he was in Congress he would have opposed it. Is this the truth? Of course not. For all the flack that Romney takes, I'm the first to admit that he possesses a very high level of intellect, especially for things related to business. And as a businessman, Romney knows that if the debt ceiling is not raised, the United States could face an economic catastrophe. But that doesn't matter, because he will never have to vote on it in Congress or sign legislation that would raise it (at least through the campaign). 

Google Images: President Obama in the White House Briefing Room

• But that's not the only thing that Republican candidates have going for them. While Republicans like Romney are hitting the campaign trail hard, spending hours a day stumping and fundraising with major donors, Obama is stuck in Washington, dealing with anger from both sides, from Republicans who are vehemently against raising taxes and from Democrats who refuse to accept any entitlement cuts. Romney raised $18.4 million last quarter, far surpassing the amount that all other candidates took in combined. However, Romney still loses out to the incumbent president, who took in a record shattering $87 million dollars. But comparing the two numbers ignores the bigger issue. Romney is out campaigning every day, getting his policy positions out there, crusading against the President and his policies. While Obama's grassroots machine has begun to ratchet up, Obama himself has not had the opportunity to really hit the ground running in a number of key battleground states he needs to take to win in 2012. For all those who say that it's too early to even think about the President campaigning, consider this. According to the latest Gallup poll, the president's approval rating sits at 43%, far from the 52.9% that he took in the general election. These poll numbers are worrisome because his approval is down among his own base. If the President wants to rally his base and reassure independents by making sure that they don't just sit out on election day, he needs as early of a start as possible. With the fragile state of the economic recovery, and Republicans doing all they can to make sure that he does not pass a single piece of landmark legislation (or, for that matter, any legislation that would help the president in righting the economy), Obama has some major work to do if he wants to see electoral success again in 2012. 

Google Images: Voter anger with any all incumbents will certainly flair up after the extended and extremely frustrating weeks of debt ceiling negotiations. This is likely to help boost the Republican nominee, who will be able to paint him/herself as an outsider, much like Senator Obama in the run-up to the 2008 election. 

• Furthermore, while Obama may win the battle, he's growing more and more likely by the day to lose the war. Think about it this way: Polls show that if a potential default were to happen, Republicans in Congress would be blamed by 50% of Americans whereas the president would only be blamed by 33%. According to one commentator, the public would view Obama as bad and congressional republicans as even. Obama cannot win and republicans know it. And GOP presidential candidates should be licking their chops at the opportunity to hit Obama hard on the debt ceiling. With Speaker Boehner walking out of a potential bipartisan deal earlier today, this now leave the McConnell compromise as the last real bill on the table. McConnell's plan would essentially grant the president with 100% of the responsibility to raise the debt ceiling, allowing members of Congress to vote no and shifting all the blame for the unpopular action of raising the ceiling squarely on Obama's shoulders. The way in which the debt ceiling negotiations have been handled is likely to cause a rabid anti-incumbent sentiment for Washington politicians. Like it or not, even acting as the most mature man in the room (assuming an almost father like role over his "congressional" children), President Obama is the leader of the "typical, Washington politicians." President Obama will ultimately find it difficult to stave off a well-funded republican candidate who runs as an outsider, just as Senator Obama did in 2008.  

Conclusion

If you ask me, Republican leadership knows exactly what they're doing. By handicapping the President's ability to fund raise, forcing him to engage in seriously unpopular talks, and potentially giving him the sole approval to increase the debt ceiling (allowing Congress to vote no and putting all the responsibility on the shoulders of the President), they are doing all they can to set the president up for failure in 2012. The most telling of quotes comes from Senate  Minority Leader Mitch McConnell:

The single most important thing we want to achieve is for President Obama to be a one-term president.

Forget compromise, forget the possibility of defaulting on our debts, forget that American voters elect officials to represent them and act and vote in a responsible and grown-up manner. Washington has slowly but surely become a political  circus, a place where the minority party will do anything and everything to ensure that the incumbent does not get re-elected. Republicans have recently mastered this strategy, reaffirming the beliefs of millions of discontent Americans. If the possibility of a market meltdown and rapidly increasing interest rates (among dozens of other things) does not spur this Congress to quickly find compromise, I have absolutely no idea what will. 

Debt Ceiling Drama: Tea Party Republicans vs. Everyone Else

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Just weeks after the Republican caucus wholly rejected any form of "grand deal" to raise the debt ceiling, rumors are swirling around the Capitol that the possibility for a larger package has been put back on the table, and that progress is being made.

A Quick Update
For those who have not been paying much attention lately, here are the most recent updates:

• House Republicans debated and passed the "Cut, Cap, and Balance Act," with 9 republicans opposing and 5 Democrats supporting the bill. According to the language of the bill, the legislation would cut discretionary spending by around $380 billion in 2012 (although where the cuts come from has not yet been specified), enforce a cap on spending that would make it impossible to spend any more than 18% of GDP, and put a balanced budget amendment on the table which would force all tax increases to be passed by a 2/3 vote instead of a simple majority. Republicans have said that this bill will help to right America's fiscal house and spur job growth by creating certainty in the marketplace. Critics have pounced on the bill for not specifying what cuts would be made. They have also asserted that if the bill became law, the legislation would severely handicap the President in times of economic downturn (as he would be unable to access any type of money that would be intended for stimulus). Either way, the bill is said to be dead in the water in the Senate, as the Senate Democratic Majority would be wholly unlikely to pass such a bill seeing as a balanced budget amendment has very limited support among progressives.

• The Senate Minority Leader, Mitch McConnell, has floated a bill that would cut around $1.5 trillion in spending over 10 years while also giving the President the authority to suggest (but not implement) even more future spending cuts as one of the conditions to raising the debt ceiling. But House Republicans have thrown up major roadblocks to this idea, saying that it does not cut enough over the ten year period and that it gives the President too much discretion and too many opportunities to back out of those cuts in the future. Additionally, the President and his administration have been desperately pushing for a bigger deficit-reduction package, which has led many lawmakers to consider the McConnell deal as being too small and possibly unnecessary. Because of this, the bill is looking less and less likely to be the ultimate solution that is agreed upon by the President and Congress. 

Google Images: Mitch McConnell is working frantically to  create a plan that would cut $1.5 trillion dollars from the budget over 10 years and give the President the authorization to raise the debt ceiling. But commentators say it has very little chance of passing the House with enough Tea-Party Republican support. 

Where Does This Leave Us?

With the two most high-profile bills all but ruled out, where does this leave us? Remember a few weeks ago when Boehner drew major flack from House Majority Leader Cantor and the rest of the Republican caucus for offering them a "grand deal" that he had assisted in conceiving with the President? Well, it appears that that plan is back with a vengeance. Commentators and officials close to the White House are saying that a long-term, large-scale deficit plan is now seeming to be more and more likely of an option. 

According to a number of different sources, the President is still looking for a large-scale deficit deal that would likely save more than $4 trillion dollars over ten years, through discretionary cuts, entitlement reforms, tax increases on wealthy Americans, and the elimination of tax subsidies for big oil companies and a number of other corporations. And with Republicans taking major flack for their no-compromise policy, they may at this point be willing to oblige him. 

What would this possible deal look like? According to the Huffington Post,

It would involve steep reductions in health care spending -- both in Medicare and Medicaid. In previous debt ceiling negotiations, the administration has supported further means-testing elements of Medicare as well as raising the eligibility age of the program. Cuts to Medicare suppliers would also be part of a larger package, as would adjusting the payment structure of Social Security so that a lower level of benefits was paid out over time.

Even if these controversial cuts to medicare were approved by both Democrats and Republicans, the problem of tax revenue is still an issue that seems dishearteningly difficult to find common ground on. Said simply, Democrats want the Bush era tax cuts curtailed and rates to go back up to Clinton era levels, which, it should be noted, was a period in which the government was running surpluses (however, whether or not that had to do with tax rates is disputed). Republicans, on the other hand, do not want any form of tax increase involved in a deal.

But the most outspoken congressional Republicans, the freshman, tea-party backed conservatives, may have to swallow the medicine. While Speaker Boehner has publicly stated that Republicans are solely focused on getting cut, cap, and balance signed into law, according to unconfirmed yet widely circulated reports, Speaker Boehner spoke openly to the Republican caucus in a private meeting and said that some form of a grand deal is still on the table. It has also been reported that he has expressed interest in a large-scale deal with the potential for raises in revenue and has been working on some form of a deal directly with President Obama.

Knowing that Republicans will do all they can to avoid tax increases, the President has offered them an alternative path:

The White House has laid out an alternative suggestion during past negotiations: Lawmakers would be required to find $800 billion in additional revenues over the next decade. If they could not find an agreement, then the Bush-era tax cuts for the high-end earners will expire.

What's more, Grover Norquist, the man behind the "no-new-tax-pledge" which all congressman (with a handful of exceptions) have signed, said explicitly that not continuing the Bush tax cuts would not theoretically be considered a tax increase, and therefore would not violate the pledge that Republicans in Congress signed. According to the Washington Post,

According to Mr. Norquist’s interpretation of the Americans for Tax Reform pledge, lawmakers have the technical leeway to bring in as much as $4 trillion in new tax revenue — the cost of extending President George W. Bush’s tax cuts for another decade — without being accused of breaking their promise. “Not continuing a tax cut is not technically a tax increase,” Mr. Norquist told us. So it doesn’t violate the pledge? “We wouldn’t hold it that way,” he said.

Republicans are critical of this alternative path, saying that all Democrats would have to do was simply "run out the clock" -- meaning that they would oppose any and all deals knowing that the Bush tax rates on the rich would go up no matter what. Because of this, Democratic officials say they are floating a new, slightly different idea:

In order to try and find agreement on this front, a slight reversal to the administration's original plan has been floated, according to a Democratic official. Rather than write the decoupling of the Bush tax cuts into the debt ceiling legislation, negotiators will simply leave the rates as is.

Lawmakers would still be tasked with finding $800 billion or so in revenues to supplement a deficit-reduction deal. But if that $800 billion didn't materialize, they would no longer have the fallback option of seeing the high-end rates go back to pre-Bush levels when they are set to expire at the end of 2012. Instead, they would have to relive the dramatic legislative showdown that happened in late 2010, when the president and Democrats tried, unsuccessfully, to decouple the top-rates from the middle and lower income rates.  

Google Images: Grover Norquist, The Head of Americans for Tax Reform

 Analysis: Tea Party vs. All 
As demonstrated above, there are a number of different options floating around. But the worry is that none of them are politically viable, by which I mean none of them would be able to get enough support from House Republicans. Even with President Obama compromising on trillions of cuts, including deeply unpopular cuts to medicare and medicaid, and offering an olive branch to Republicans on taxes, Tea Party backed Republicans still refuse to even entertain the idea of increasing taxes a single penny. Instead, House Republicans have taken to the airwaves and the television screens, arguing with political commentators and hosts that cut, cap, and balance has a great chance of passing the Senate. Case and point, Illinois Rep. Joe Walsh got into a heated (and extremely juvenile) argument with Chris Matthews about the plan that Tea Party Republicans have trumpeted:




Through all the bickering (which I have argued is a huge problem with the mass media), Walsh repeatedly asserts that cut, cap, and balance has a good chance of passing the Senate. This is pure posturing. Cut, cap, and balance has absolutely no chance of passing the Senate. It would need a total of 60 Senators to vote in favor and with the chamber being composed of a Democratic majority vehemently opposed to such ideologically driven legislation, it is dead on arrival. Joe Walsh (and more broadly members of the Tea Party Republican caucus) have said that they are in no way posturing, that they want to see a deal done more than anyone else. In fact, they argue that President Obama is the one lying in an attempt to turn the people against the Republican party.

If Tea Party Republicans are not posturing, if they really believe in compromise, why did they push so hard for cut, cap, and balance, legislation that is purely ideologically driven (with a requirement that all tax increases can only be put into law with a 2/3rds majority) and had absolutely no chance of ever becoming law? If they believe in compromise, with less than two weeks before the government begins the process of defaulting on its debts, shouldn't they be working with the President, working with their leadership to try to hammer out a deal in which no one is happy, but everyone is equally unhappy?

A new CNN poll came out today that showed that 64% of Americans believe that any debt ceiling deal should include a mix of both spending cuts and tax increases:

In those discussions, several budget plans have been proposed that would reduce the amount the government owes by trillions of dollars over the next ten years.  If you had to choose, would you rather see Congress and President Obama agree to a budget plan that only includes cuts in government spending, or a budget plan that includes a combination of spending cuts and tax increases on higher-income Americans and some businesses? 

Only spending cuts 34%  

Spending cuts and tax increases 64%

The Republican Party is in trouble on the debt ceiling, and they are being given a huge chance to potentially avoid political catastrophe. President Obama is giving up at least $2.4 trillion in spending cuts, and what does he want in return? For Bush era tax cuts to expire. Just to hammer the point home (I know I just provided the quote), even Grover Norquist, the biggest anti-tax crusader in Washington, is saying that allowing tax cuts to simply expire is not equal to a tax hike and therefore would not draw the ire of Norquist's powerful group, Americans for Tax Reform. But tea party candidates are still clinging on to the wildly imaginative idea that cut, cap, and balance has a chance to pass the Senate.

This should be most troubling for Republicans like John Boehner and Senate Republicans who believe that compromise is necessary to making a deal. Why? Because when the American voter thinks about who they would blame if the government defaults, their opinions are not nuanced. The vast majority do not say "Republicans in the House" or "Tea Party Republicans." No, they say simply Republicans. This is the same phenomenon that happens almost every midterm election after a new president has been elected. Take, for instance, 2008, when President Obama was swept into office with a huge margin of victory and dozens of congressman rode in on his coattails. Then, in 2010, voters got upset with President Obama because they had voted for change and not a whole lot happened. What did the voters do? They did not get upset at just President Obama, no, they blamed the entire Democratic Party, voting out a huge number of House Democrats and hammering away at the Democratic Senate Majority.

A similar situation appears to be manifesting with the debt ceiling talks. While Senate Republicans have showed openness to compromise, the powerful group of freshman tea-party backed republican congressman have maintained their fierce fight against taxes. In fact, many Senate Republicans have showed interest in the so-called "Gang of Six" proposal that was created by 3 Democrats and 3 Republicans. The plan would essentially raise $1.7 trillion of revenue over the next ten years. But the plan drew near-immediate criticism from House Republicans.

Paul Ryan, the head of the House Budget Committee, expressed his dismay with the plan that would raise revenues:

Unfortunately, it [the plan] increases revenues while failing to seriously address exploding federal spending on health care, which is the primary driver of our debt. There are also serious concerns that the proposal’s substance on spending falls far short of what is needed to achieve the savings it claims.

And Tea-party freshman have also been chiming in against the plan, frustrated with the proposed tax increases. What House Republicans fail to realize is this: The President has expressed a willingness to compromise on trillions of cuts in discretionary and entitlement spending, a willingness that most Democrats are visibly frustrated with. Cuts to Medicare are angering for any Democrat.

But if President Obama's final deal with Speaker Boehner includes cuts to medicare, I would be outright shocked if Democrats did not swallow the bitter pill and vote for the plan anyways, despite their public outcries. This is the main difference between congressional Democrats and Republicans. Putting all the rhetoric aside, Democrats in Congress have shown a willingness to take politics out of the equation and put the country first. Will Democrats take major flack for increasing the debt limit and agreeing to cuts to medicare? Absolutely. They may even lose some wealthy fundraisers. But they understand that if the debt limit is not raised, this country is in grave danger of an even more calamitous economic collapse than 2008.

Tea-party Republicans (this does not include Senate Republicans or Speaker Boehner) say they want to move the nation forward, get our fiscal house in order, and create jobs. But the legislation they're supporting (like cut, cap, and balance) and the roadblocks that they are constantly throwing at the President and at Speaker Boehner suggest the opposite.

Google Images: Tea Party Republicans are sticking to their guns on cut, cap, and balance

And the voters have had enough of it. A recent CNN poll indicated that that 51% of Americans would blame the Republican Congress if the deal is not reached, whereas only 30% would blame Obama. President Obama has positioned himself and the Democratic Party as compromisers, centrists whose main goal is to fix the economy without harming the middle class. Republicans have no response. Worse, Tea Party Republicans have unsuccessfully attempted to paint Obama as a liar and a radical and have worked as hard as possible to derail a possible compromise.

Tea Party House Representatives were elected to Washington in 2010 to cut spending and restore America's fiscal responsibility. But if they don't quickly realize the implications of their actions, and understand that a vast majority of Americans are demanding compromise, come 2012, those "newly elected representatives" will be voted out just as swiftly as they were voted in.

A Missed Opportunity: Republicans Are Quickly Losing Their Momentum

Google Images: Eric Cantor

With their fervent anti-tax ideology, and their inability to entertain any of tax increases despite the fact that President Obama has offered huge cuts in a number of politically unpopular areas of the government, Republicans have lost a potentially monumental opportunity to permanently turn this country center-right.

David Brooks said it best,

It could be that this has been a glorious moment in Republican history. It could be that having persuaded independents that they are a prudent party, Republicans will sweep the next election. Controlling the White House and Congress, perhaps they will have the guts to cut Medicare unilaterally, reform the welfare state and herald in an era of conservative greatness.

Republicans had a huge chance here. I said it in my last post and I will say it again: There was a Democratic president who saw it fit and necessary to move his policies and this country towards the political center, floating ideas that were extremely unpopular in the Democratic Caucus in Congress. Liberal activists were (and still are somewhat) furious and stunned by Obama’s talk about potentially raising the Medicare enrollment age, cutting Social Security by changing the inflation index, and offering offering to work with congressional Republicans on broad-based tax reform. 

The Democratic Party was one step away from truly fracturing, with congressional Democrats unified in their full opposition to entitlement reform while President Obama spent long nights talking about that very topic with Speaker Boehner. Republicans were one step away from really solidifying and even strengthening their 2010 gains. Democrats would have stayed home in large numbers in 2012 and the Republican nominee would have had a huge opportunity to take the White House.

But then something happened. Republicans pulled back. Eric Cantor stormed out of debt talks. He then rebuked Speaker Boehner’s potential deal with President Obama that would have cut around $3 trillion in spending while eliminating tax loopholes and making minor cuts to Medicare. To avoid a “grand deal” was a mistake, but it’s understandable that Republicans pull back from such a large deal. 

But Republicans in the House did not just reject the plan being crafted by Speaker Boehner and President Obama. No, it then went to an even greater extreme. Today, House Republicans introduced the “Cut. Cap, and Balance Act,” which is the most ideologically driven, partisan debt ceiling legislation that we have seen yet. As the August 2^nd default date creeps eerily closer, and both parties frantically attempt to convince independents that they are the ones working for their values, Republicans have astonishingly made a hard-right turn.

And while Republicans believe that their opinions are currently in line with those of the American people (and they are for the most part true), those views are quickly shifting. While just one week ago, a huge majority of Americans disagreed with raising the debt ceiling, those numbers are now much more hazy, with at least one poll out today saying that 55% of Americans are now very concerned about what would happen if the debt ceiling was not raised. 

Furthermore, a new Gallup poll released today shows that 66% of Americans agree that some type of compromise plan is necessary for the debt ceiling, even if it is a plan that the person who was polled personally disagreed with. Just 27% of Americans polled believe that their party should hold out for the exact plan that they want, even if the debt ceiling was not raised by August 2nd. Furthermore, 57% of Republicans believe that a compromise is necessary even if they disagree with the plan and an astounding 72% of independents agree.

Republican and Democratic voters are decided on this issue. Republicans believe that we need to cut, cap, and balance without any tax hikes while Democrats believe that deficit reduction should involve a more balanced approach of spending cuts and tax increases. The fight is over the center. And the ability to relate to the independent center voters (those that are absolutely imperative for election/re-election) is quickly slipping away from Republicans in the House. 

Google Image: Tea Party Patriots Banner

As the tea party continues to radicalize a republican party that no longer has a moderate wing, republican lawmakers are increasingly left pandering and reassuring their own voters. This can be seen with cut, cap, an balance. Republicans know that this bill has no chance of becoming law but that's not what's important. What is important is that the act reassures tea party donors and super conservatives, which keeps money flowing in to republican coffers.

The problem with this approach is that Republicans are now ostracizing independent voters, allowing President Obama, who had consistently attempted (and mostly succeeded) in painting himself as compromiser-in-chief, to swoop in and snatch up independent voters with his centrist and pragmatic policies. While liberal democrats have become rather frustrated with Obama, there is no doubt that they will still vote for him in the end (however begrudgingly they may do it). What has always mattered (and especially matters now) is who can control the middle ground. And with Republicans moving farther and farther right, passing their latest cut, cap. and balance bill by more than 30 votes, they are moving themselves away from what is really important: the political center.

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While Republicans in the House celebrate their victory tonight, the American people are worried, worried that political posturing and risky lies could make it so they no longer have access to credit and are at risk of losing their job. The debt ceiling is not something to play with, it should never be used as a political tool to inspire fear or as an excuse to lie through one's teeth. 

Republicans are happy tonight; but rest assured, political commentators, historians, and politicians will look back on this past month and say that the Republican's handling of the debt ceiling situation was one of the biggest political blunders in the history of the Republican Party. 

The radicalization of the republican party continues, and with it goes a missed, golden opportunity. 

The Question No One Wants to Ask: What Would Happen if the US Government Defaults on Its Debts?

Getty Images

Remember this headline?

Dow falls 777 points, biggest one-day drop ever

With debt ceiling talks completely stalled and neither side wanting to give up political ground, the United States faces a true possibility of default for the first time ever. And the news coming out of Washington is less than stellar. In fact, its downright scary.

Stan Collender, budget expert at Qorvis, spoke to Ezra Klein in Sunday’s Washington Post. He ominously explained,

 “[There is] less than 50-50 [chance of a deal before Aug. 2]..." 

And David Cote, chairman and CEO of Honeywell, on the “Meet the Press” roundtable commented,

 “[I]t's like both parties have a grip on each other's throat and they're more focused on simultaneous asphyxiation than they are on actually resolving the problem.”  

Finally, The New Yorker’s George Packer:

“Obama and Congress are engaged in high-drama brinksmanship, like members of an ordnance-disposal unit arguing about how to defuse a huge ticking bomb.” 

Hearing these types of words form high-level officials and commentators this late into the debt ceiling discussions is extremely disheartening and worrisome for the economic fate of the nation. Remember, while the Obama Administration has said that we will begin the process of defaulting on our obligations August 2nd, it takes time for a bill to be drafted, debated, and passed in both the House and the Senate. If we are going to reach a deal before the deadline, it will have to come this week.

Google Images: On September 29, 2008, the Dow Jones Industrial fell 777 points, the largest single-day drop in history. Analysts are speculating that if a deal is not reached by August 2nd, we could see something comparable, if not worse, to the economic collapse of 2008.

The Current Situation 
Let's face some unfortunate facts:

• The President of the United States and high level treasury officials say that we have until August 2nd at the latest to increase the debt ceiling
• Republicans in Congress are refusing to accept any form of tax hike on any person or corporation (this includes eliminating loopholes for big oil, timber, and corporate jet owners)
• Democrats in Congress are refusing to vote for any debt increase if the deal includes cuts to medicare and/or social security
• To make matters worse, Republican have made a far-right turn, pushing a radically partisan "cut, cap, and balance" plan instead of compromising just two weeks away from a possible default. 
• Debt talks have stalled, with neither side ceding any ground; in fact, both sides have apparently dug in

Politicians in Washington are certainly playing with fire when it comes to the debt ceiling. But the American public is not making it any better. Still, despite all the dire warnings, a plurality of Americans believe that the debt should not be raised. As I have previously said, Republicans see a political victory out of this, attempting to come down on the side of the people since they know that strict opposition to the debt ceiling increase could score them political points now and mean campaign contribution for their 2012 war chest. But maybe, just maybe, if I can explain what would happen if we did default, I can begin to change some minds.

What Is A Default?

Default is a relatively simple concept: It occurs when a debtor (in this case the United States) has not met its legal obligations according to a debt contract. This may mean not making a scheduled payment, violating some condition of the contract, or being unable to pay back the loaned money. Default occurs if the debtor is unwilling or unable to pay their debt.

Google Images: Rioting in Greece

If the United States Defaults...

widespread panic would ensue. No country the size of the United States has ever defaulted on its debt. Think about this: The financial markets lost tremendous amounts of value when Greece was seen as a major threat to default in 2010. Greece has a GDP of $329.9 billion. The United States? Our GDP is almost 43 times bigger than that, valued at an astounding $14.12. A number of economists believed that the world economy was in danger of collapsing had Greece defaulted. Now, can you possibly imagine what would happen if the United States defaulted on its debt? 

One thing that is important to remember is that the debt is not just simply a bunch of numbers; it is real money that has been lent to us by foreign countries with the actual expectation that we return that payment plus interest. The debt is owed to foreign countries, multinational banks, and many Americans through the buying of treasury bonds (which are rated as AAA, the safest type of investment money can buy). If, for example, I overspend and am forced to default on my debts that I owe, that money that I owed does not just magically vanish into thin air. The bank is forced to take the loss. The same can be said for the United States of America. If the US was to default on its debt, the rest of the world would suddenly be left with $14 trillion of unpaid liabilities. One can only imagine the catastrophic collapse that would ensue. While we do not know exactly what would happen (since we have never actually been through and never should have to go through it), it is fairly easy to make some well-supported assumptions:

skiddish and more worried. However, if previous experience serves as a guide, we will not see any type of collapse until August 2nd if a deal had not been reached. That being said, if wall street spent months expecting a late-term deal and no deal ultimately gets done, the markets reaction will be uncharacteristically harsh and never-before-seen. Collender explains it best:

[R]emember the general idea on Wall Street right now is that there will be a deal because there’s always a deal. But Wall Street works off of expectations. So if the market realizes they got this wrong, the reaction could be larger than expected. 

The only positive to a market collapse would be that it would most likely force lawmakers to pass a debt increase as quickly as possible. The AP speculates,

The widespread selloff that might trigger could have one benefit, Briggs and others say. Panic-selling might force Washington to quickly agree to raise the debt limit. Think back to September 2008 for some historical perspective. After the House of Representatives voted down the bailout bill to create the Troubled Asset Relief Program on Sept. 29, the Dow Jones industrial average nosedived 777 points. Congress made an about face and four days later passed the TARP bill. President George W. Bush quickly signed it into law.

But even then, one day past August 2nd is one day too many. A deal is easily reachable if both sides share the sacrifice. In the end, no one will be happy with the deal that is reached. Ultimately it is about making sure that both sides feel equally bad about the bill that they end up passing.

2. Many of the world's largest banks, who have still not fully recovered from the 2008 financial meltdown, would be forced to go bankrupt to their exposure to United States debt. Subsequently, credit for necessary things like homes, cars, etc., would become almost completely unavailable. Additionally, since many large corporations rely on short-term credit to pay their employees and that credit would all but disappear, many workers would be unable to collect their paychecks. 

Moreover, the credit rating agencies like Moody's and S&P have threatened to downgrade treasury bonds from their AAA rating if a deal is not reached. This would mean that treasury bonds would no longer be considered as safe an investment as they once were and countries like China (who are the biggest buyer of US treasury bonds) would pull out its money and look for a safer investment. This could not only cause short-term economic pain, but have grave, long-term consequences for the United States and the rest of the world.

3. To go along with that point, businesses would begin laying off more workers since they have no access to credit and no way to advance their own growth. With no access to capital, companies would start shedding workers at an alarming rate. This would of course only make matters worse, resulting in at  best a deep recession and at worst another Great Depression. 

4. The dollar would also likely become almost worthless since the "full faith and credit" of the United States is the only real thing holding up the value of the dollar. When that disappears as access to credit vanishes, it is hard to imagine the dollar being able to retain any of its value.

5. The government would also be potentially unable to send out checks for medicare and social security, leaving hundreds of thousands of seniors who rely on medicare for their medications and prescriptions paying extremely high prices.

**There are a whole lot of other things that I could list off, like rising oil prices and subsequently, skyrocketing gas prices. But I think that the above four are the most significant and vital to understand. 

Google Images: Unemployment Could Skyrocket to Numbers Not Seen Since the Great Depression

Conclusion
So will the United States default on August 2nd? Most likely not. While the Treasury has said that August 2 is the drop-dead date for default, economists are saying that if lawmakers were to shut down a large percentage of government agencies and shuffle some money around, a full out default could likely be avoided for a few weeks. Regardless, the prospect of living with 20+% unemployment, no access to credit, a withering stock and mutual fund portfolio, and a global meltdown, is something that no person wants to see.

There is something that every American needs to realize: At this moment, the United States can still easily meet its debt obligations. Ignore the hype, those who say that America is broke and/or out of money are lying to you. 

If the United States goes into default, it will most certainly not be because of the economics. If the US defaults on its own debt obligations, it will be solely due to the politics behind the issue. The unintended consequences of political pandering to pick up votes in 2012 would have such grave economic repercussions that America would be left reeling for years to come.

Cut, Cap, and Balance: The Republican's Latest Economic "Plan"

With a debt deal going absolutely nowhere and the August 2nd deadline getting ever closer, the Republican Study Committee (a caucus of House Republicans that push conservative economic principles) has announced that they will push for a brand new economic plan: an amendment to the constitution called "cut, cap, and balance." 

What is Cut, Cap, and Balance?
According to the Study Committee,

1. Cut – Immediate spending cuts to reduce the deficit by half next year.  According to March projections from the Congressional Budget Office, this would require spending cuts of approximately $380 billion in the 2012 fiscal year. 
2.  Cap – Statutory, enforceable caps that bring spending into line with average revenues at 18% of GDP.  Reps. Kingston and Mack have each introduced legislation that would ratchet total federal spending down to 18% of GDP over the course of 5-6 years.  
3. Balance – House and Senate passage of a Balanced Budget Amendment to the Constitution that includes a spending cap at 18% of GDP and a supermajority requirement for tax increases.  The House Judiciary Committee and all 47 GOP Senators have endorsed Balanced Budget Amendments along these lines. 

Andrew Stiles at the National Review provides an even more succinct explanation:

Under the “Cut, Cap, and Balance” legislation, Congress would raise the debt ceiling by $2.5 trillion (the amount requested by President Obama to get him through the 2012 election). However, that increase would go into effect only if both houses of Congress pass — with two-thirds majorities — a balanced-budget amendment (BBA) to the Constitution and send it to the states for ratification. In addition, the plan calls for significant spending cuts to next year’s budget — about $111 billion — and firm caps on federal spending at 18.5 percent of GDP by the end of the decade. According to White House data, given current trends, spending will exceed 25 percent of GDP this year and will hover around 22.5 percent for the next five years. (The legislation will make no immediate changes to Medicare, Medicaid, or Social Security.) 

The plan sounds perfect in theory. Let's make sure that the government lives within its means by limiting their ability to spend and tax! But the Republican plan is, sadly, complete hogwash. 

Analysis: The Negatives

Let's break down why this plan would do little to assist our ailing economy. In fact, the Republican's plan to cut, cap, and balance could make our economic problems even more severe:

1. Firstly, and practically speaking, there is no way that such an amendment could ever be added to the Constitution. The numbers simply do not add up. As a recap, the amendment would have to pass both the House and the Senate with a 2/3rds majority, which means that 67 senators as well as 287 members of the House would have to vote in favor. This is extremely improbable seeing that there are currently only 47 Republican Senators and 240 Republican members of the House. Such a controversial and likely straight party-line vote would make it all but impossible for Republicans to draw the bipartisan support they would need to pass it. 

2. The plan would significantly handicap the country's ability to deal with recessions and economic collapses. Cut, cap, and balance calls for a rule to be put in place that would require a supermajority (that is, 2/3rds of Congress) to pass any form of tax increase. Furthermore, they would make it impossible for government to spend any money in the form of an economic stimulus or in times of potential economic catastrophe. This could have terrifying ramifications. Let me start with an example. I am not a politician, and therefore am able to say something that almost no politician (at least Republican will ever say): Say what you want about the $700 billion that went to bailing out the banks, but it was an absolutely necessary infusion of cash to a system that could no longer prop itself up. Those emergency funds temporarily staved off an even worse recession until the government could figure out how to create more wide-ranging and long-term economic measures. If cut, cap, and balance had been in place during 2008, President Obama would not have the opportunity to grant the banks that money because there would have been a law in place that severely weakened his ability to react to economic calamities. 

3. My third point goes hand in hand with the previous idea. If the economy began to tumble (which it would if regulations were eliminated to create a marketplace that would be determined largely by greed and the government was unable to spend the necessary funds like TARP to keep the economy afloat), taxes would almost certainly have to be increased to make up for the fact that the government would be unable to spend money due to cut, cap, and balance. But tax increases would also be an impossible feat, seeing that Republicans will never vote for any form of tax increase or tax loophole elimination and Democrats will never have a supermajority in either the House or the Senate. This puts the US government in a horrible and absolutely unworkable position in times of recession. Not only would they be unable to spend any emergency money, but they would be unable to raise that money through taxes. That does not sound like a plan for economic prosperity from me. Instead, it sounds like a plan for long-term economic depression. 

While Republican commentators are ecstatic that the bill will be introduced this week on the House floor, others are less thrilled. The Huffington Post explains,

Economists say a balanced-budget requirement would tie the federal government's hands during a recession, when tax revenues plummet and welfare costs rise, by forcing it to slash spending or raise taxes.

Seiver, a professor of finance at San Diego State. "It's exactly the opposite of what intelligent fiscal policy should do."

Tax revenues tend to decline in times of economic downturns. Making it harder to raise taxes during recessionary periods in which tax revenues plummet would tie the federal government's hands. 

Scoring Political Points
I have a working thesis about this whole cut, cap, and balance business. Despite the minority of really uniformed Republican congressmen who truly don't understand the importance of raising the debt ceiling and the negative consequences that not increasing it could have on the economy, I really believe that most of these congressman do not actually believe what they are saying.

Hear me out: Cut, cap, and balance (and for that matter a number of Republican principles like "low taxes" and "minimal government regulation") sound fantastic in theory and only cause problems when you try to apply them practically. Republicans know that it will not ever be adopted, that they simply do not have the supermajorities needed for its passage. But it doesn't matter. They've seen the polls (a majority of Americans don't support raising the debt ceiling) and know that if they posture enough, America will see the Republican Party as "their party."

Republican strategists are giddy at the number of possibilities that Republicans have to come out politically victorious from debt ceiling discussions. Polls show that the public, and especially Republican voters, oppose a debt ceiling increase and favor some form of balanced budget amendment:

"This is a vote where ... the House Republican majority gets to align itself with the American public at large," said Kevin Madden, a Republican strategist and former Boehner spokesman. 

Conclusion
What could possibly force Republicans to raising the debt ceiling, something that inevitable must happen if the US wants to avoid economic default and something that has happened 39 times since 1980 (17 of those times being under President Reagan)? The failure of the cut, cap, and balance bill in achieving political success, coupled with an increasingly more frantic lobbying campaign by pro-business, Republican allies (like the Chamber of Commerce, who has admonished congressional Republicans for playing politics with the debt ceiling), could soften Republican opposition as August 2nd inches closer. Additionally, a steep drop in financial markets could also change their mind (In fact, Nancy Pelosi said in an interview that that may be the only way Republicans will actually understand that their actions have consequences).

The biggest problem for me with Republican's hard-right turn is their utter lack of ability to compromise (or even consider compromise a legitimate option). Here we are two weeks away from potentially defaulting on our debt and instead of proposing something that operates under the assumption that deficit reduction should be a shared sacrifice, Republicans have gone in the opposite direction, proposing a plan that Democrats and independents alike are sure to be distrustful of. 

Despite their best efforts to derail it, Republicans in Congress know that the debt ceiling will be raised, it's only a matter of time. But by fear mongering relentlessly and playing politics with an issue that's extremely unpopular among the general American populous, Republicans are winning. And sadly, that's all that will ever matter in Washington. 

Washington Post: Since 1980, the debt ceiling has been raised 39 times. It was raised 17 times under Ronald Reagan, four times under Bill Clinton and seven times under George W. Bush.