Shutdown Journal: Day 11

Photograph by Win McNamee/Getty Images

Speaker of the House John Boehner (R-OH) leaves the U.S. Capitol for a meeting with House Republican leaders and President Barack Obama on October 10, 2013 in Washington, DC.

Updated at 7:12 through 4:30 pm EDT

With reporting on “Political Capital” program interviews by Jonathan Salant

Getting there, slowly:

“Discussions are still ongoing with the White House,,” House Majority Leader Eric Cantor, a Virginia Republican, said this afternoon, as the town awaited word from a long-delayed White House press briefing for the reading on negotiations aimed at ending a government shutdown now in its 11th day. “There are all kinds of discussions between the houses, between the House and the White House.”

Just before 4 pm, a spokesman for House Speaker John Boehner, Michael Steel, said the speaker and President Barack Obama had spoken by phone a few minutes ago. “They agreed that we should all keep talking.”

“The president did call and speak with the speaker of the House this afternoon… and had a good conversation,” said Jay Carney, White House press secretary, shortly after 4. They agreed that all sides need to “keep talking.”

“The president appreciates the constructive approach” of the talks, he said. “I think the talks have been constructive,” he said, “in that there is a recognition” among Republicans that the shutdown is not good for the economy and a breaching of the debt limit would be “catastrophic” for the economy.

Obama “has a number of concerns” with the House Republicans’ proposal for a short-term debt-limit extension, Carney said. “Tying the extension of the debt-ceiling for only six weeks to budget negotiations… creates a dynamic” similar to the showdown they’re in at the moment, he said.  The president “cannot pay ransom” in exchange for Congress doing its duty and paying the nation’s bills.

“It is our position that there is no acceptable reason to keep the government shut down,” he said, and the debt ceiling should be “removed as a tool or a cudgel” in budget negotiations.

“We’re obviously in a better place than we were a few days ago,” Carney said, “but there’s not an agreement.”

* * *

A take-off on Boehner’s line about “ifs, ands and buts” as “candy and nuts:”

* * *

For the first time, a week-and-a-half into a partial shutdown of the U.S. government, the first in 17 years, congressional leaders and the White House showed signs of a way out of their standoff — if only a temporary solution with a short-term extension of the most vexing issue involved: The nation’s debt limit.

The Obama administration is insisting that an agreement to raise the debt ceiling — if only for the six weeks that House Republican leaders are proposing — comes with a reopening of the shuttered services of the government. And without any spending strings attached.

The stock market liked what it saw on the 10th day of the shutdown: The major indices rising more than 2 percent in one day. Events today, the 11th day of the shutdown and closing day of trading for the week, will determine whether that faith was well-placed. The House and Senate planned sessions into the weekend to ratify any agreements, as the Oct 17 deadline for raising the debt limit approaches.

The president is offering to discuss the broader budget issues that Republicans have raised in the standoff — yet only when “the lights are turned on.” And one of the big questions remaining: Can Republican House Speaker John Boehner sell a deal to his own party?

* * *

Sen. Robert Corker, a Tennessee Republican, sees a resolution soon.

“Things are beginning to break,” Corker said in an interview on “Political Capital With Al Hunt,” airing this weekend on Bloomberg Television. “I’d be surprised if it goes all the way to the 17th. I think sometime midweek this will ll be resolved, if not sooner, candidly.”

* * *

House Republicans aligned with the Tea Party have lost their fight with the president, and Congress soon will open the government and raise the debt ceiling on a short-term basis, the way Rep. Peter King, a New York Republican, sees it. He also opposed the shutdown tied to “Obamacare”  from the start.

A potential spending resolution without changes in government policy will “pass overwhelmingly,” King said in a separate interview on “Political Capital With Al Hunt.”  House Speaker John Boehner, an Ohio Republican, “has the leverage he needs, and I think it’s going to come to the House floor, no matter what.”

One reason why an agreement can be reached is that the anti-tax Tea Party Republicans, led by  Sen. Ted Cruz of Texas, have been discredited by the government shutdown, King said.

“The strategy of the Tea Party, of the Cruz Republicans, Ted Cruz Republicans, worked so badly,” King said. Party,” King said. “I think we’ve got to call them on it. We can’t allow a small minority of a party to hijack it and, again, cause catastrophic problems, not just for our party — that’s our problem — but for the country. It’s 800,000 people out of work because of 30 or 40 people.”

* * *

Obama and House Republican leaders were moving toward an agreement to extend the nation’s borrowing authority even as they remained at odds over terms for ending the partial government shutdown, as Bloomberg’s Roxana Tiron, Richard Rubin and Terry Atlas report today.

They met for 90 minutes at the White House yesterday after Boehner of Ohio said he would offer a measure to postpone a potential U.S. default to Nov. 22 from Oct. 17, a step back from the brink that was enough to trigger the biggest rise in U.S. stocks in nine months.

“The developments were the first sign that the president and House Republican leaders could resolve the fiscal impasse without negative economic consequences from a default as the halt in government operations moved into its 11th day,” they report. “Any prospective deal faces many questions, including whether Boehner can reach an agreement without losing the support of his members who are backed by the limited-government Tea Party. They’ve sought to use the debt ceiling and partial government shutdown to force curbs to Obamacare and federal spending cuts.”

“No specific determination was made” about the proposal in a 90-minute meeting among Republican leaders and the president at the White House  yesterday, the administration said in a statement issued afterward. The two sides talked about “potential paths forward.”

Rep. Eric Cantor of Virginia, the House majority leader, called the meeting “constructive”  — and with talks continuing overnight, he said, “hopefully we will have a clearer way, path forward.”

Obama “would like the shutdown stopped,” Rep. Hal Rogers, a Kentucky Republican, said after the White House session. “We are trying to find out what it is he would insist upon” in a spending measure to open the government.

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The Republican brand, in particular, has suffered in this standoff.

First the Gallup Poll this week and now NBC News and the Wall Street Journal polling have recorded a record-low approval rating for the Republican Party.

Just 24 percent of respondents have a favorable opinion of the GOP in the NBC/Journal poll, and only 21 percent have a favorable view of the Tea Party, “both at all-time lows in the history of poll. ” The president’s approval rating stands at just 47 percent in this survey, with public approval of congressional Democrats at 36 percent.

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There could be a political price to pay — for someone — for the partial shutdown of the federal government started by a congressional budget stalemate on Oct. 1.

There could be an even bigger price to pay if negotiations fail to resolve differences between House Republicans and President Barack Obama before an Oct. 17 deadline after which the U.S. will be unable to meet its financial obligations.

“Nobody in the House Republican majority is hitting the panic button — yet,” Bloomberg’s Julie Hirschfeld Davis reports today. “As Republicans’ approval ratings plummet and the share of voters blaming them for the partial government shutdown rises, their concern is growing that the deadlock may threaten the size of their House majority, particularly if it escalates into a debt ceiling default.”

“I worry about our majority, I worry about our capacity to pick up the Senate,” Rep. Steve Womack, an Arkansas Republican, said in an interview. “The Senate in ’14 and protecting our House in ’14 are political objectives that we need to keep in mind while at the same time we fight over the policy issues that are critical for our country.”

Midterm congressional elections are more than a year away and Republicans start with a commanding position in defending the House — a likely 17-seat advantage that has looked insurmountable for Democrats even in the most favorable of environments, Davis reports. Yet the shutdown fallout has lawmakers, strategists and nonpartisan analysts eying a weaker-than- expected showing for Republicans.

The Cook Political Report, a nonpartisan, Washington-based group that analyzes congressional races, was projecting before the budget impasse that Republicans would gain between 2 and 7 seats next year, said House Editor David Wasserman. Now it’s estimating a “minimal net change,” of which either party may be the beneficiary, he said.

“This is an unpredictable situation and if the shutdown drags on into 2014, things could change, but I’m skeptical that Democrats can sustain this level of independent anger at Republicans for well over another year,” Wasserman said.


* * *

Why does the partial shutdown of the federal government, initiated by House Republicans who wanted to block the president’s health-care program, remind us of the Civil War — and also the nullification movement in the South that preceded the Confederacy’s attempted secession from the union?

“The Tea Party-inspired drive to derail Obamacare is anchored in a place where opposition to the federal government is as old as the nation: the American South,” Bloomberg’s Michael Tackett reports today.

“The current fight, a budget standoff that threatens the creditworthiness of the U.S, has vestiges of the secession from the union that started in South Carolina and led to the Civil War. It carries echoes of the nullification crisis over tariffs in the 1830s and the so-called `massive resistance’ movement to oppose desegregation of public schools in the 1950s.”

“In each of those fights, led by Democrats who then dominated the region, Southerners said they were overrun by Northerners hostile to their culture in ways that undermined their freedom,” Tackett reports. “Now, their forebears are Republicans and, while the region’s prevailing party affiliation has changed, the basic orthodoxy has remained.

“I think there are continuities, obviously, between the Tea Party today and the longer tradition of Southern politics that dates back upward of two centuries,” said Stephen Mihm, a professor of history at the University of Georgia in Athens. It also now includes Western states, “with strong libertarian strains,” he said. “It doesn’t map exactly.”

The divide also can be seen as part of the growing split between the views of Americans in urban and rural areas.

Among the 75 most rural U.S. House districts, 62 are represented by Republicans, 12 by Democrats, with one vacant seat most recently held by a Republican, according to U.S. Census data compiled by Bloomberg. In the 11 states that made up the Confederacy in 1860,Republicans hold 58 more seats than Democrats. Since 1997, according to data compiled by Bloomberg, the 11 states have outpaced the rest of the nation in GDP growth.

“I don’t know if the South breeds conservatives, or conservatives flock to the South,” said Harold Holzer, an historian and author of books about Abraham Lincoln, “but of course there are historical parallels to the idea of obstructing federalism, repressing the minority vote, over-the-top (fire-eating) rhetoric, etcetera.”


* * *

In the long-run, the shutdown will come face to face with — the bond market.

Obama knows who is the boss: the bond market.

“Ultimately, what matters is: What do the people who are buying Treasury bills think?” the president told reporters this week, when discussing measures he could take to end the threat of a historic default on the nation’s debt.

Even with the U.S. budget deficit down by more than half since 2009 as a percentage of the economy, the Congressional Budget Office says the government this fiscal year will need to borrow an average of almost $11 billion each week, Bloomberg’s David Lynch and Cordell Eddings report. That’s why Obama is so sensitive to what investors will tolerate.

“The market is the final arbiter of any policy, the ultimate barometer and enforcement mechanism,” says Russ Certo, a managing director at Brean Capital LLC in New York. “The market holds risk-takers and policy makers accountable.”

After weeks of confidently expecting a resolution of the standoff in Washington over the partial government shutdown and the debt ceiling, bond investors this week began to betray nervousness in their approach to short-term government borrowing.

The yield they demanded at the Oct. 8 auction of four-week Treasury securities almost tripled from a week earlier, Treasury Secretary Jack Lew highlighted in testimony before the Senate Finance Committee yesterday. The government was forced to pay 0.35 percent for four-week borrowings, up from 0.12 percent.

* * *

The deniers of the consequences are undeniably missing something.

Republican lawmakers have played down the significance of hitting the debt limit, saying the U.S. avoid default by putting aside funds to pay bond holders. nomists affiliated with the party aren’t so sanguine, Bloomberg’s Rich Miller reports.

Glenn Hubbard, Douglas Holtz-Eakin and Donald Marron, all whom served in President George W. Bush’s administration, voice concern that such a strategy could end up hurting the nomy even if default were averted.

“I would still worry about it,” said Hubbard, who was chairman of Bush’s Council of Economic Advisers from 2001-3. “It signals that we have an inability as a nation to get budget process in order.”

That could “do damage to U.S. wth potential and credibility,” he added.

Some Republican lawmakers have argued that the U.S. can continue to meet interest payments on its debt, even if the government is unable to borrow more money from investors.

“The country will not default if we don’t raise the debt ceiling,” Rep. Ted Yoho, a Florida Republican, said in an interview on Oct. 8.

“We’ve got enough revenue coming in to pay our bills.” The U.S. takes in about $250 billion a month in tax revenue while paying out $20 billion in interest, said Sen. Rand Paul, a Kentucky Republican with designs on the 2016 presidential contest.

“If you don’t raise your debt ceiling, all you’re saying is we’re going to balance our budget,” he told reporters in Washington Oct. 8. “I think if you propose it that way, the bulk of the American public would say, ’My goodness that sounds like a pretty reasonable idea.’”

It doesn’t sound that way to Holtz-Eakin, who worked with Hubbard at the CEA and is a former director of the Congressional Budget Office.

“Breaching the debt limit is a very bad idea,” said Holtz-Eakin, now president of American Action Forum, a self- described center-right policy institute in Washington. “While I don’t know exactly what would happen, I don’t want to find out.”


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