It Really IS Time For That Debt Ceiling to Be Raised

by Pejman Yousefzadeh on July 25, 2011

Because the markets are getting spooked:

Stocks were set for a lower open on Monday as political brinkmanship in Washington over the debt ceiling sparked fears of a U.S. rating downgrade, sending world equities lower and pushing gold to a record high.

A divided Congress pursued rival budget plans that appeared unlikely to win broad support, pushing the country closer to a debt default.

While analysts expected a deal to raise the debt ceiling by August 2, the United States moved one step closer to losing its coveted triple-A credit rating as Democrats and Republicans seemed unlikely to reach a deal.

Meanwhile, the outlines of a new deal are developing:

. . . Senate Majority Leader Harry Reid said he is working on a plan to raise the debt limit by $2.7 trillion, coupled with an equal reduction in projected future spending. In a concession to Republicans, he said that plan would not include tax increases, but that the new debt level would last through the 2012 elections.

If this is the deal that is being offered, Republicans ought to take it. It would constitute a massive victory for the GOP; the downside that it would last beyond the 2012 elections is not much of a downside, when one thinks about the need to ensure financial stability via a long term debt ceiling fix, and while it would not cut as much as would the various grand bargain packages that have been discussed over the past several weeks, the cuts would be significant. And with no tax increases, Republicans would have no reason to reject the deal.

Indeed, if Republicans accept the deal, and assuming that Reid can bring along enough of his caucus, then President Obama would be forced to sign on. Once Republicans confirm that this is indeed the agreement Reid wants to push, they should grab at it with both hands.

  • Anonymous

    Not “the markets” in general, just the stock market. The bond markets, which I’d take to be a more germane indicator, are pretty much unaffected:

    http://ftalphaville.ft.com/blog/2011/07/25/632211/debt-talks-and-the-monday-reaction/

  • Johndoe

    Letting Obama get away with not having to talk about this again before November of 2012 is just giving him a cudgel on a silver platter. If losing elections and bequeathing an America not even close to what its Founders intended is what you want, then that’s exactly what you should do. Otherwise, he should be forced to have this out again.

  • Demosthenes

    With all due respect, the Republicans shouldn’t “grab” this deal.  Half the “savings” are phantom, the result of “taking out” of the budget spending that was never IN the budget in the first place (Iraq and Afghanistan).  The only reason to take this deal is to give us the talking point that “Hey, we’re not so unreasonable after all!”  Which is the sort of results-disoriented thinking that will lose us crucial members of our own base…and seats we would otherwise win…

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