May 14, 2011 – 3:28 p.m.
Political Economy: Boehner vs. Bernanke
By John Cranford, CQ Columnist
In a speech that sounded tailored more to a tea party rally in the heartland than to bankers, Boehner told the Economic Club of New York that lawmakers should in no way embrace an increase in the federal government’s authority to borrow unless they also voted to cut “trillions, not just billions” in spending, immediately.
Since the likelihood of spending cuts of that magnitude is exactly zero, Boehner was explicitly siding with those who dismiss out of hand the dire warnings of what might transpire if the federal debt limit isn’t increased in a timely way. He was quite clear on this point.
“It’s true that allowing America to default would be irresponsible,” the Speaker said. “But it would be more irresponsible to raise the debt ceiling without simultaneously taking dramatic steps to reduce spending and reform the budget process.”
Boehner’s comment echoes what was previously the view of a handful of lawmakers. Yet it’s a sharp departure from what Boehner was saying a few months ago. This new stridency on the debt has become GOP doctrine, and it pits the party against some of its most traditional allies on Wall Street.
That Boehner scoffs at the dangers — heretofore generally regarded as gospel — of not raising the debt limit is evidence that he’s reading the polls. “Washington’s arrogance has triggered a political rebellion in our country,” Boehner told his New York audience. “I don’t think ‘rebellion’ is too strong of a word.”
He’s right, of course. What started as a heresy from a few freshmen Republicans in the Senate, notably
Well, Wall Street might.
Under questioning from Senate Banking Committee Democrats, Bernanke came as close to saying Boehner was blowing smoke as any official — especially as any central banker — ever would.
“Using the debt limit as a bargaining chip is quite risky,” said the Fed chief, a Republican who served as chief economic adviser to President George W. Bush in 2005. “Even if the debt is paid, there’s the issue of market confidence and how the market would respond to the risk of default or even the default on non-debt obligations.”
Translated from the original cautious Fedspeak, Bernanke was saying: Is Boehner nuts?
Then the Fed chairman allowed himself to be coaxed into implying that Boehner’s understanding of economics might be a tiny bit deficient. Asked specifically about Boehner’s assertion in his New York speech that federal borrowing was “crowding out” company investment and constraining the economy’s recovery, Bernanke said no. At least not now.
Political Economy: Boehner vs. Bernanke
“Under conventional definitions of crowding out, in terms of credit markets and labor markets, we’re not seeing too much of that,” he said. Boom, Bernanke took the Speaker to school.
Boehner is, of course, playing politics — trying to placate the tea party crowd, to keep the heat on President Obama and the Democrats and to navigate a treacherous course to the 2012 elections, when he wants to run the table.
The public may be open to his line that the debt limit is no big deal, but it may also be confused, or at least conflicted. In a CNN/Opinion Research Corp. survey at the beginning of May, 60 percent of those polled said they opposed an increase in the debt ceiling. That would be a win for Boehner.
At the same time, 63 percent said their personal financial condition would be affected “some” or “a good deal” if the debt limit weren’t increased, and 60 percent said the Republicans haven’t “acted responsibly” in this debate. That looks like the makings of trouble for the GOP with voters if the debt-limit fight blows up.
It’s already clear that Boehner isn’t doing himself much good with the people on Wall Street who finance both the Republican Party and the government itself, and who are wary of Washington behaving foolishly. If this game of chicken goes on until early August, when Treasury says the drop-dead date will come, Boehner may find he has few friends up there as well.