The Best Deal May Be a Default

The Best Deal May Be a Default

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Negotiations between the president and Republican leaders to raise the federal borrowing limit regressed on Monday, leaving a partisan stalemate that will make reaching a deal before the August 2nd deadline more difficult. In fact, talks have reached such a state that a default, terrible as that could be, may be a better outcome than a deal.

An ideological anti-tax minority, out of touch with reality on many levels, effectively has control of the Republican Party. Boehner reinforced the GOP’s hardline on taxes Saturday, saying he would not support a $4 trillion deal if it included tax increases. With a substantial GOP majority in the House and the foolish filibuster rules that give a Republican minority control over much of what the Senate does, the machinery of governance has ceased to function.

Somehow this stranglehold must be broken if the federal government is to be able to serve the American people. Yes, spending has to be cut in the longer term, as Obama and most Democrats have agreed. But that’s not enough for this minority, who want to enshrine their power through a balanced budget constitutional amendment that would probably make it impossible to ever raise needed revenue.

A debt default might wake up voters to the risks this minority poses to the nation.

David Brooks, a conservative columnist for the New York Times, did not advocate for a default in a recent column, but made an important observation: If the debt ceiling talks fail, “independents will conclude that Republican fanaticism caused this default. They will conclude that Republicans are not fit to govern. And they will be right.” 

Meanwhile in Minnesota, the state government is in the 10th day of a shutdown, with 22,000 employees laid off, road projects halted, $90 million worth of income tax refunds delayed, no one available to renew restaurant liquor licenses, state parks closed and so on. The issue: Republican legislators would not accept an increase in taxes for people with incomes of $1 million or more even as part of a budget deal that included billions of dollars in spending cuts.

No compromises indeed.

Like Minnesota’s Democratic Gov. Mark Dayton, Obama clearly has been willing to accept a deal with far more spending cuts than revenue increases. He is willing to talk about reducing spending for Medicare and Social Security. But again, that’s not enough.

This mindset was summed up a couple of days ago in a letter to the Washington Post. A reader in Arlington, Va., said the government was taking in far more revenue each month than is needed to pay interest on the debt. And that since Treasury Secretary Timothy F. Geithner knows that “the consequences of defaulting on our bonds are the most severe, so these payments will be prioritized.

“Hitting the debt ceiling without a deal will simply force spending cuts, albeit in a crude way. All the talk about default is simply a scare tactic. All the president has to do is order that debt obligations be prioritized. If he doesn’t do this and we default, then he is to blame.”

In other words, as long as taxes aren’t raised, who cares about all the other obligations of government; Social Security benefits, pay for soldiers in Afghanistan, federal judges and U.S. ambassadors in foreign countries, medical supplies in VA hospitals, disaster aid, and on and on.

As a journalist, I watched the political back and forth in Washington and other parts of the country for almost 50 years. It’s never been like this before. And it can’t be allowed to continue, even if it takes a debt default to stop it.

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covered the Federal Reserve and the economy for 25 years at the Washington Post before joining Bloomberg News in 2004. In 2009 he began writing freelance pieces for, among others, Thomson Reuters, and is widely recognized for his ability to interpret the Fed.