Debt ceiling deja vu?
Just a few short years ago, a president sent a request to Congress for a simple, but expensive piece of legislation. President Bush asked lawmakers for a $700 billion blank check to rescue the troubled financial sector that was on the verge of collapsing and taking the US economy down with it.
Both parties in Congress balked. And when the Democratic controlled House of Representatives failed to pass the TARP increase, the markets responded.
The Dow Jones Industrial Average dropped over 777 points after the House vote on September 29, 2008. The Senate came to the rescue by passing the program and the House quickly followed suit. So can history repeat itself?
The short answer: No. The TARP vote was a rare do-over in Washington and it doesn't appear that the debt ceiling debate will provide lawmakers a second chance to get it right.
When President Obama asked for Congress to raise the debt ceiling without doing it as part of broader legislation, Republicans in Congress pushed back, even though so-called "clean bills" have been a matter of course in recent years.
"The president says I want you to send me a clean bill. Well guess what, Mr. President, not at chance you are going to get a clean bill," said House Speaker John Boehner in April. "And I can just tell you this, there will not be an increase in the debt limit without something really really big attached to it," he said.
Until Saturday, Boehner was in for something big. He had initially backed Mr. Obama's push for a possible $4 trillion savings package that would couple some revenue raisers and some cuts in entitlements as part of an agreement to raise the nation's debt borrowing limit. "We agree that to do that, both sides are going to have to step outside their comfort zones and make some political sacrifices," said Mr. Obama.
But the big deal seems to have faded away. And now the president and congressional leaders are left with something less grand. But either way, they are asking members of congress to do something they don't want to do, even if it is vitally important to the economy.
Most Americans don't approve of raising the debt ceiling and that opposition has gained significant traction in Congress. But most Americans didn't approve of the TARP program either. And many in Congress still don't and some still regret their vote, even though most of the money has been paid back and the financial system was stabilized.
That brings us to today. Most in the House won't vote to raise the debt ceiling without significant spending cuts. Republicans want cuts with no tax increases. Democrats, who control the Senate, won't vote for spending cuts without some sort of revenue raisers, most likely closing tax loopholes or phasing out tax cuts on the wealthiest Americans and most balk at the idea of cutting entitlements like Social Security or Medicare.
The White House is calling for a "balanced" approach. Could history repeat itself? Could a deal get done that could pass the Senate, needing all Democrats and a few Republicans, but fail in the House where the Republican majority would not vote to pass a bill that includes tax increases? Could that failed vote be a warning to House members that something has to be done to raise the debt ceiling or face "catastrophic economic and market consequences of a default crisis," as the Treasury Department has warned?
Could the legislative game of chicken that eventually passed the TARP program be on tap as Washington steams toward the August 2nd date of the Government being unable to pay its bills?
Unfortunately, not. The 777 point drop, the largest single day point drop in history, could look tiny compared to what could happen if the nation's credibility to pay its debts is challenged. If world markets lose faith in the American economy, there not be a chance for a second vote if there is any failure to raise the debt limit.
As Treasury Secretary Timothy Geithner said Sunday on CBS's "Face the Nation," time is running out.
"I do believe that this week, and certainly by the end of next week, we have to have agreement on the outlines of a package. It has to be clear that the leadership have found a way to solve this and they have a path to get votes for something," said Geithner. In ruling out any chance of a TARP-like legislative kabuki dance, Geithner said Congress has no choice but to act quickly.
"You can't wait until August 2nd. The credit rating agencies of the world have already made it clear in public, the longer we go into July without a path to resolution, the more risk they are going to put a cloud over our credit rating. And again, there's no reason why the leadership in Congress should let that happen," Geithner said.
