Thursday, September 26, 2013

Shutdown and/or Default

After today, four days to go before a possible shutdown. After that, seventeen days to possible default. What's the forecast? Here's what I see, albeit with little clarity:
  • Friday or Saturday the Senate will return a clean CR at sequester spending levels back to the House. Right now, don't think Boehner can pass a clean CR without relying on Democrats. He was hoping to pass an omnibus conditional debt ceiling resolution on Saturday, before the budget vote, to get his caucus to shift focus to the  debt ceiling. This afternoon, he found he doesn't have the votes. People want to see what happens on the Budget CR. So Boehner must put a conditional CR back to the Senate, ensuring a Tuesday shutdown, or ask Democrats for help. If Democrats say yes without conditions, there will be no shutdown. If they ask for something, most likely moving the budget target off the sequester levels, we will have shutdown, since the Senate won't have time to respond before the midnight Monday deadline. Best Guess: Boehner will ask for Democratic help and pass a clean CR - so no Shutdown.
  • The debt ceiling could follow a similar trajectory: the House will pass a contingent debt ceiling resolution containing a long list of demands - one year Obamacare delay, the Keystone pipeline, drilling on federal lands and offshore, reverse new EPA carbon capture rules, cut back the wings of the Consumer Financial Protection Bureau, etc. The Senate will strip all this out and send back a clean 14 month debt ceiling increase resolution. Meanwhile a very high stakes game of chicken will be going on: Obama says he will not negotiate the debt ceiling; Boehner says he has to and ultimately will. Boehner has raised the expectations of the GOP caucus very high - saying the debt ceiling is the maximum point of leverage with the Democrats, and that is where the GOP can make the most progress. I am very clear that Obama will not budge on this, and that the Democratic leadership team in the House and Senate will back him up. Will Boehner realize this in time? In their last big negotiation in 2011, Obama caved to save the country from default. I think Republicans expect him to cave. Will they all realize their mistake in time? And if they do, will they turn back and pass a clean resolution? Best Guess: Boehner will figure it out and decide to move with a clean resolution just in time to get it signed before October 17.
This is a highly hopeful forecast and I am basing it mostly on my assessment of Boehner as a person who will do the right thing - not for himself, but for his Party and his country, once he sees there are no good alternatives. Do not think he will take the lead in causing a shutdown; nor will he refuse to take a path that prevents default just to please the base. I am not at all confident, though. I assign just a 50-60% probability to the above scenario - in other words, not very high.

And here's another low probability forecast: If the game plays out as above, we will land on October 18 with a very angry and frustrated GOP base, an ecstatic Democratic Party, a deeply wounded Speaker Boehner, and the next budget deadline coming up on November 15, less than 30 days away. I think there's a chance that Boehner, possibly realizing his time is up as Speaker, will lead a Grand Bargain negotiation with Obama (cancel the sequester, replace it with a mix of targeted cuts, new tax revenues from tax reform, and chained CPI for Medicare and Social Security) that will pass the House with Democratic votes and be signed into law.

Pretty far out, I admit. I give it a 30% chance. But that's not zero. And wouldn't that be a great day for the country!

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