Why it's a mistake to think Obama will cave on the debt ceiling

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last updated 8 January 2015

Republicans are threatening to let federal agencies shut down on October 1 unless Democrats agree to strip the funding to implement President Obama's health-care law. If that doesn't work, the GOP has an even scarier plan B.

Congress will need to raise the debt ceiling in a few weeks or run the risk of defaulting on some of its debts. GOP leaders say they won't do it unless Obama agrees to delay ObamaCare.

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Republicans, however, are wagering that he'll buckle. After all, they managed to wring spending cuts out of the debt-ceiling showdowns of 2011 and 2012 without triggering an economic meltdown. Sen. Orrin Hatch (R-Utah), in a Wall Street Journal op-ed, urged Obama to reconsider, saying Republicans have mixed budget deals with debt ceiling hikes many times before.

However, it is only since Republicans won the House in 2010 that a party has threatened a government default to get what it wants.

The prospect of a partial default is so frightening that the mere possibility is enough to rattle financial markets. Annie Lowrey points out at The New York Times that government agencies have contingency plans for a government shutdown — but not for a breach of the debt ceiling. "There is really no playbook here," she says.

In response, the financial markets would probably panic. They might not. Some financial experts argue that a few missed payments that spurred immediate congressional action to lift the ceiling might not be so bad. But many, many others foresee a financial tsunami that would raise the country’s borrowing costs, send investors scrambling for safety, and deeply injure the United States and global economy. [New York Times]

Indeed, economists say the nail-biting negotiations over the debt ceiling in 2011 had a significant negative impact on the fledgling economic recovery.

Jonathan Chait says at New York that GOP leaders appear to believe that the sheer magnitude of the potential financial disaster gives Obama ample reason to eventually negotiate. "It's actually a reason to believe he won't," says Chait:

If Obama agrees to trade policy concessions for a debt-ceiling hike, he will permanently enshrine debt-ceiling hostage dramas in the practical functioning of American government. That means not only will unscrupulous opposition parties be able to wring concessions from himself and future presidents, but eventually a negotiating snag will trigger a real default....Terrible though it may be, a default may actually be necessary to preserve the constitutional structure of American government and the rest of Obama’s presidency. [New York]

There's another big reason to assume Obama will stand firm. If disaster is the country's fate, polls suggest voters will pin the blame on the GOP. "The American people don't like ObamaCare," says Ezra Klein at The Washington Post. "But they dislike the Republican Party's kill-it-at-all-costs strategy even more."

Democrats know they own ObamaCare. They can't get away from that. But they figure their chances in 2014 are substantially improved if Republicans own a shutdown — or, worse, a default.Democrats used to hope that ObamaCare would help them in the 2014 election by being popular, but now they think it might help them by driving the GOP so crazy that the American people simply don't trust them to govern. [Washington Post]

Harold Maass is a contributing editor at The Week. He has been writing for The Week since the 2001 debut of the U.S. print edition and served as editor of TheWeek.com when it launched in 2008. Harold started his career as a newspaper reporter in South Florida and Haiti. He has previously worked for a variety of news outlets, including The Miami Herald, ABC News and Fox News, and for several years wrote a daily roundup of financial news for The Week and Yahoo Finance.