Five Things to Watch For in the Debt-Ceiling Talks
The looming fight to raise the federal debt limit is drawing parallels to 2011 and 2008, neither of which is especially encouraging. In both cases, Republicans in the US House showed they were willing to risk economic and financial catastrophe to make a political point. The question is how far they are prepared to go this time.
The short answer: Pretty far. I spoke to economists, current and former government officials, and veterans of past legislative battles, and many believe that there’s only one thing that will force recalcitrant lawmakers to make a deal: market turmoil.
It’s worth recounting that recent history. In 2011, the standoff between the Republican House and the Democratic White House was also about the debt ceiling. They struck a last-minute deal, but not before the US lost its S&P AAA credit rating. In 2008, the fight was over the bank bailout, and it took a one-day loss of more than $1 trillion in market capitalization to get enough Republican House members to agree to it.
The dysfunction of 2008 and 2011 seems almost innocent now. Washington has “played chicken” so often over the last decade, says Mark Zandi, chief economist at Moody’s Analytics, that it’s hard to tell when the two parties are getting close to a deal. At some point, he says, the “trickle” of market responses to Washington’s dysfunction will turn into a “torrent” of volatility.