Tensions Escalate as Stakes Grow in Fiscal Clash

[Zenlitened]

Source: New York Times

WASHINGTON — The Federal Reserve chairman, Ben S. Bernanke, warned on Wednesday of a “huge financial calamity” if President Obama and the Republicans cannot agree on a budget deal that allows the federal debt ceiling to be increased. Moody’s, the ratings agency, threatened a credit downgrade, citing a “rising possibility” that no deal would be reached before the government’s borrowing authority hits its limit on Aug. 2.

And the latest bipartisan negotiating session on Wednesday evening ended in heightened tension if not outright discord. Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

Across Washington, officials were weighed down with a sense that they were hurtling toward a crisis. Grim-faced lawmakers spent the day shuttling from meeting to meeting in search of a way out of the fix.

The stakes are high, for the economy, the financial markets and both parties. But the pressure was particularly intense on Republican leaders, who only weeks ago seemed to be on the offensive and in a strong position to extract major concessions from Mr. Obama and the Democrats.

Read more: http://www.nytimes.com/2011/07/14/us/politics/14fiscal.html?hp

[mia]

1. The McConnell gambit ?

"Democrats said Mr. Obama had set a deadline of Friday for the two sides to determine whether they could reach a broad budget deal. If not, he said, they would turn to finding an accord over how to raise the debt limit without agreement on taxes and spending."

Interesting that McConell thought this was a good idea before he suggested changing the Constitution.



http://www.economist.com/blogs/lexington/2011/07/debt-ceiling

WHAT to make of Mitch McConnell's plan for raising the debt ceiling without an agreement on spending and taxes? I outsource to the excellent David Hawkings of Congressional Quarterly, a sister organisation of The Economist.

For all of its dismissive nicknames — “last-ditch option,” “Hail Mary punt” and “Pass the Buck Act” seem to be the most popular — McConnell’s idea really could be just the sort of surprising, bold and complicated maneuver needed to get around the coming budgetary calamity ...

Going with the McConnell option will forestall the sort of panicked Wall Street sell-off that might have been needed in the next three weeks to pressure the most liberal and most conservative lawmakers to acquiesce in an actual deal. It gives Obama fiscal stability on which to run the government and on which to run for re-election. It gives Boehner a way to avoid either capitulating on his call for a 1-to-1 ratio of spending cuts to debt ceiling increases — or reversing his fealty to the no-new-taxes position he’s been forced into by Cantor and the GOP caucus’s tea party majority. And (without choking on the details) it would still give every congressional Republican at least three and maybe six chances to cast a politically potent but ultimately meaningless vote before Election Day 2012 against raising the debt limit, while forcing Democrats to cast just as many votes in favor of the extra borrowing.

The biggest potential downside, and it’s a significant one, is that the people who voted for a Republican House so that it could make bold and politically risky decisions will view this as a too-clever-by-half cave-in. That’s the sentiment that most worries (and at the same time bucks up) the 87 freshmen, who sound like they want the next three weeks to be filled with all the brinkmanship, high drama and confrontation with a president they distrust as they imagined as candidates. And so they may yet insist with their “no” votes on any compromise that the moribund talks keep going up to, or even beyond, the appointed hour for falling into the budgetary abyss.