StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between

The Dirty Secret About Today's "Clean" Debt Ceiling Vote

31 May 2011
Posted by Stan Collender
The House Republican leadership wants everyone to think that the expected large “no” vote this evening on a “clean” debt ceiling will demonstrate that there’s no support for increasing the government’s borrowing limit unless deficit reductions are attached.  That’s simply not true
As my column below from today’s Roll Call explains, a debt ceiling increase with deficit reductions attached would also very likely…if not certainly…be rejected.  In other words, just because a debt ceiling increase that doesn’t include spending cuts or revenue increases can’t be adopted doesn’t automatically mean that, as the leadership wants us to believe, a bill with them will pass.
Dirty Secrets About a ‘Clean’ Debt Ceiling Bill
House Republicans said last week that they were planning to bring up a “clean” debt ceiling bill for a vote, possibly as early as this week. A “clean” bill is an increase in the amount the government is allowed to borrow without deficit reduction measures or other provisions. It’s what Majority Leader Eric Cantor (R-Va.) said a month or so ago he would do but then backed off when he was warned that its rejection could roil financial markets. It’s also the same bill demanded by Rep. Peter Welch (Vt.) and more than 100 other Democrats who say it’s the right way to proceed.
In today’s world of sound bites and spin, it’s hard to argue with the name. After all, a clean debt ceiling bill seems to belong to a long list of things that are generally assumed to be on the side of the angels such as clean coal technology, the clean margins surgeons hope for when they examine a cancer patient and the clean plate club our moms used to tell us about. But in the current debate, a clean debt ceiling bill has a number of dark meanings and foreboding implications that make it less than totally benign and completely desirable.
It’s no secret that House Republicans plan to bring the bill to a vote because they want it to fail. Their goal is for the bill to be voted down by a wide margin so they can claim there’s no support for increasing the debt ceiling without substantial deficit reductions.
But the claim will actually be an extraordinary fallacy because a debt ceiling increase that includes deficit reductions is just as likely to be rejected. Some Representatives would vote against it just because it would increase the government’s borrowing limit, others would oppose it because of the specific spending cuts and revenue increases, and others would vote “no” because they want deeper deficit reduction. In other words — and completely contrary to the demagoguery, spin and hyperbole that will be used when the debate is over and the clean bill has failed — it’s not at all certain that a big “no” vote for a clean debt ceiling increase means that the opposite is true and a majority is clamoring for an increase that includes deficit reductions.
Demonstrating that there’s little support for a bill that doesn’t include deficit reductions is not the only — and possibly not even the most important — reason the GOP leadership wants to hold the vote. The leadership may have finally realized that, with polls showing a substantial majority of Americans opposing an increase in the borrowing limit, many House Members — especially middle-of-the-road Republicans — have to be given a chance to vote against the bill now so they will be able to vote for it later. A “no” vote this week — about two months before the Treasury says the government’s cash position will become critical — would allow Representatives to validate their anti-debt-increase credentials for the folks back home but still give financial markets time to recover if they react negatively. Putting that vote on the record should also make it easier for some lawmakers to support an increase in the debt ceiling in late July or early August and, therefore, for a bill to be passed.
Many Members publicly insist that a big “no” vote on a clean bill will have little to no effect on financial markets. But here’s another dirty little secret: There is a growing suspicion that, like what happened the day after the House rejected the Troubled Asset Relief Program in September 2008 and the Dow Jones Industrial Average fell by almost 7 percent, such a vote could quickly change market perceptions of the situation and have a substantial negative effect on interest rates and equity prices. 
It’s even possible that’s part of the plan. Former Office of Management and Budget Director Peter Orszag said last week that it is going to be difficult to get Members of Congress to agree to increase the debt ceiling without some kind of “turbulence” in the bond market. A big “no” vote on a debt ceiling increase bill could easily accelerate that type of disturbance in the financial force. Indeed, it might be what’s needed to precipitate it and the leadership may be counting on that happening.
But the most interesting dirty secret is that a “clean” bill sounds so wholesome, pure and valuable that some folks back home may assume it would be wrong for their Member of Congress to oppose it. This is not as far-fetched as it seems. Until the housing crisis became front-page news, a subprime loan, which is now generally considered to be less than desirable, was thought to be a good thing by a substantial percentage of the country because, they assumed, it meant that they were borrowing at an interest rate that was less than prime. If the political theater involved with bringing a clean bill to the House floor isn’t well understood, the scheme of bringing it up for a vote so it can fail could easily backfire.

How sad and disturbing that

How sad and disturbing that the political situation in the United States has become so degraded by far-right-wing Republican know-nothingism that we are even having this discussion. I am completely disgusted.

Please explain...

are you're saying that the GOP has condemned this country to financial obliteration come August 2 ? should we be packing our bags ?

House Dems should call their bluff

Ultimately, it is big business that pays for Republican Congressmen to be in power. The last thing America's business community wants to see is a debt crisis. When it comes down to it, they will keep their minions in line.

It has been the reputation of

It has been the reputation of the Republican party that it is the party of big business (low taxes, easy money, soft labor laws). But their positions now would seem to benefit only a small minority of big businesses, if any. Doing nothing about foreclosures hurts business. Opposing stimulus in a depressed economy hurts business. Tight money hurts business. Higher interest rates hurt business.

Debt Ceiling

Are the House Democrats willing to provide the political concessions necesary to achieve the objective which they claim is critical to the country and the economy? If not, does this mean that failing to increase the debt limit isn't so critical, or that they are willing to put us all at grave risk for partisan purposes?

Debt Ceiling

I think you make some interesting and valid points, Mr. Collender. I think the general feel across the board of people I talk to, is that the US should not raise the debt ceiling. Most people on the street get the idea that they can not solve their problems by getting more into debt. Debt = slavery and that is something that no one wants to be in.

Didn't Democrats Get Exactly What They Asked For?

Didn't Democrats get exactly what they asked for? They are the ones who wanted a "clean" vote on the matter, and one could just as easily presume their political intentions were no different than what is attributed to the Republicans. It seems that some of the Democrats, and their supporters such as those who commented here, are sore losers because the bluff was called and the outcome was not as they wished.

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