Congressional Republicans appear to be on the verge of agreeing to a relatively short-term increase to the debt ceiling, a week before the deadline set by Treasury. But all of the various factors contributing to that push may have an unfortunate side effect: making resolution of the government shutdown even less likely.
The shape of a potential debt ceiling deal is still murky in this morning's reports. Politico reports, on an "under-the-radar effort" by Senate Minority Leader Mitch McConnell and his colleagues to work out a solution that would "temporarily raise the debt ceiling and reopen the government in return for a handful of policy proposals." How this is different than the existing Republican position — in short, that the party will back an end to the shutdown and a lifting of the debt limit in exchange for policy proposals — is mostly in the acceptability of those proposals: a repeal of the medical device tax (which was part of earlier Republican proposals), a shift in implementing sequestration, and new requirements for getting health insurance under Obamacare. They are much more modest than, say, gutting Obamacare, but still probably more than the president and Senate Democrats would accept.
But what Senate Republicans want is generally unimportant. The conservative House Republicans have been calling the plays for weeks. They, too, seem receptive to a debt limit deal — but don't appear to be ready to budge on the shutdown. "In a meeting with the most ardent House conservatives" The Times reports, "Representative Paul D. Ryan of Wisconsin, the chairman of the House Budget Committee, laid out a package focused on an overhaul of Medicare and a path toward a comprehensive simplification of the tax code." Ryan's goal: "raise the debt ceiling for a few weeks as they press for a broader deficit reduction deal." National Review's Robert Costa reports that the extension could last six weeks. "'We're telling folks, help us here, and we'll work together moving forward,' says a veteran House Republican." But that six-week extension would be used to continue the shutdown fight. (Update: The proposal is now apparently official.)
Why deal on the debt ceiling then? A variety of reasons.
An imminent deadline — and the consequences of missing it
When Treasury Secretary Jack Lew set October 17 as the deadline for an increase to the debt limit, it was an approximation, his guess at when the country wouldn't be able to pay the bills it was incurring. (For weeks, Treasury has been using "extraordinary measures" to pay those bills in the absence of the ability to borrow more money under the current debt limit.) Unlike the shutdown, we wouldn't default — which is miss an interest payment on our debt — at precisely midnight on October 17. It might be November 1 when default happened. While that flexibility was taken by some as reason to ignore the issue, there is no question that a default will happen — in a matter of days — absent some action by Congress. The predicted consequences of default, meanwhile, range from devastating to complete economic apocalypse.
Markets are starting to get spooked
That combination of deadline and horrible consequences of missing the deadline meant that, at some point, those who make their livings in finance would start getting antsy if nothing was done. That point may have arrived. Markets have been generally stable, though the Dow Jones has been on a downward slide since the middle of last month. But more subtle cues suggest mounting concern.
BREAKING: Ahead of U.S. debt ceiling deadline, Fidelity sells off all U.S. debt holdings that come due in late October/early November - AP— CNBC (@CNBC) October 9, 2013
Cost of insuring US debt soared today; almost at 2011 levels pic.twitter.com/sDOXJHbR69— Steven Rattner (@SteveRattner) October 9, 2013
2011, of course, was the last time the United States flirted with debt default. "We have spent 224 years building the nation’s credit as the strongest in the world," Lew told a Senate committee on Thursday morning, "and only Congress can act to protect it."
Traditional Republican campaign allies are balking
From the outset, the Chamber of Commerce, long tightly allied with the Republican Party, opposed a shutdown and called for an increase to the debt ceiling. Business groups are now going further, threatening to weild their most effective tool — fundraising — against Republicans. "Their frustration has grown so intense in recent days," The Times reports, "that several trade association officials warned in interviews on Wednesday that they were considering helping wage primary campaigns against Republican lawmakers who had worked to engineer the political standoff in Washington." Even the Heritage Foundation's activist arm called for an increase to the debt ceiling — after spending months pushing for the current fight.
The anti-Obamacare fight is over — for now
“We took an unpopular law and chose a more unpopular tactic to deal with the law," Sen. Lindsey Graham of South Carolina said, according to Politico. The fight over Obamacare that prompted the shutdown has faded, offering little incentive for Republicans to try and use the debt ceiling as a moment to effect change to the law. Instead, the party is "regrouping for a longer battle over the health-care law," the Washington Post reports.
Republicans are getting hammered in polls
Congressional approval is at five percent. Public approval of the Republican Party in particular is at its lowest point since Gallup began tracking that data. Even particular members of Congress are paying a price: Sen. Mike Lee, a conservative representing the very conservative state of Utah has seen a spike in disapproval following his close alliance with Sen. Ted Cruz of Texas that prompted the current shutdown.
The polls are bad — but Republicans think a debt ceiling deal could help reverse that trend. From the Washington Examiner:
"Boehner said he thinks that punting on the debt limit for a little while will bolster our message that we're willing to meet the president halfway," the [anonymous] House Republican continued. "We feel that the most potent attacks against us are for playing with the debt limit, and so by putting that off, we can see the continuing resolution fight through and then we can turn to the debt limit."
In other words: kicking the debt ceiling down the road reinforces the Republican line that all they ever wanted was negotiations.
There are still a lot of hurdles before an extension to the debt limit could happen. For one, Democrats have been uncharacteristically united in not accepting any half measures in the fight. For another, as that Examiner story points out, many new Republican House members ran in 2012, after the 2011 debt ceiling fight, and pledged never to increase the debt limit. And third, the activist base that got Republicans into this mess are unlikely to sign off on any deal.
For the reasons listed above, a deal on the debt ceiling is more likely than not over the next week — perhaps sooner. As for the shutdown? Almost none of those reasons apply. A poll released on Wednesday indicates that Americans aren't feeling a pinch from the shutdown, although the spike in jobless claims may start turning that perception around. There just isn't the same urgency to resolve the shutdown as there is to avoid a default.
Conventional wisdom used to be that the shutdown made a deal on the debt ceiling more likely. It may have done so. But the debt ceiling deal may end up making resolution of the shutdown much harder. A six-week extension to the debt ceiling is important. But it may mean the shutdown lasts just as long.