The stakes rise on resolving the budget

What happened

The sharp partisan divide over how to reduce the nation’s deficit widened this week, as Republicans and Democrats dug in to defend their respective proposals to shrink the 2012 budget. In a series of campaign-style speeches, President Obama argued that a combination of spending cuts and tax hikes was the only way to lower the deficit. House Republicans, meanwhile, voted in favor of Rep. Paul Ryan’s proposal to more severely slash spending, cut taxes, and privatize Medicare. That budget plan passed on a 235–193 vote in the House, but is expected to be defeated in the Senate. Ryan branded Obama’s proposal “hopelessly inadequate,” while the president was caught on an open microphone mocking Ryan for styling himself “America’s accountant.”

As Washington traded barbs, Wall Street raised the stakes with warnings that the continuing failure to resolve the fiscal crisis endangers the nation’s financial credibility. Rating agency Standard & Poor’s lowered its outlook on the U.S. credit rating, while economists and Wall Street CEOs expressed fear that Congress would push the government into default if it fails to raise the $14.3 trillion debt ceiling next month. House Republicans have threatened to oppose the increase until Democrats agree to slash spending, while Treasury Secretary Timothy Geithner took pains to assure the markets, saying, “Congress is going to have to raise the debt limit. They understand that.”

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What the editorials said

Standard & Poor’s threat to devalue the nation’s debt is a “disturbingly big deal,” said the Chicago Tribune. If our credit rating were actually downgraded, a Greece-style debt crisis could unfold in the U.S., with dire consequences for the global economy. “Even the world’s most powerful nation can’t buy time forever when it’s running up a tab it hasn’t got the money to pay.” That’s true, but we didn’t need S&P to say so, said Investor’s Business Daily. After all, it is one of the “oracles of dependable wisdom” that gave mortgage-backed securities the full seal of approval until the very day the housing bubble burst. S&P is simply repeating what the rest of us have known forever: “Catastrophe is just around the bend” if President Obama’s spending mania isn’t stopped.

Unfortunately, lawmakers of both stripes would rather play politics than make tough choices, said the Orlando Sentinel. The Ryan and Obama plans have enough in common for a “possible compromise between the parties.” But the Republicans have ruled out tax hikes, while Democrats refuse to consider restructuring Medicare and Medicaid. As long as both sides “refuse to leave their partisan bunkers,” there’s no hope for the deal we need.

What the columnists said

There is one hope amid all this “political intransigence,” said Clifford Marks in NationalJournal.com. A bipartisan group of senators known as the “Gang of Six”—led by Illinois Democrat Dick Durbin and Oklahoma Republican Tom Coburn—has been working on a plan to bridge the gap between the two parties. S&P’s action should only “strengthen the Gang of Six’s hand” as the group struggles for consensus.

I’m not so sure consensus is a good thing, said Paul Krugman in The New York Times. Whenever Washington comes up with a supposedly bipartisan fix, it ends up having been conceived on Republican turf—as it is with the Gang of Six. “So let’s not be civil.” Let Republicans and Democrats have a frank discussion of whose plan is best. American voters deserve no less.

These squabbles will pale in comparison with the “partisan posturing” ahead on the unpopular debt-ceiling vote, said Ezra Klein in The Washington Post. That’s when “normal congressional bickering could prove especially dangerous” by pushing the government to the edge of the “abyss of default” and turning world markets against the U.S. And a market revolt is now a real threat, said Michael Schuman in Time. The U.S. is one of the only debt-laden world economies with no “credible plan to control deficits and debt.” Yet policymakers naïvely continue to act as if the country is “simply too exceptional” to face economic ruin. We may soon find that even the U.S. is not “too big to fail.”