OBAMA vs BOEHNER: DEBT CEILING SHOWDOWN

It’s a dangerous game of chicken being played, with both sides waiting to see who will blink first. But with the deadline to avoid a first-ever U.S. debt default now just 1 week away, the stakes are getting steep and the risks are becoming high.

On Monday night, President Obama used a televised address to express to the nation that Congress risks sparking a “deep economic crisis” if lawmakers fail to reach a compromise on the debt ceiling by next Tuesday’s deadline of August 2nd.  He used the bully pulpit of the presidency to go directly to the American people, to express his ideas of exactly what is going wrong and who should be held accountable.

Only hours before the speech, the Democratic-controlled Senate and Republican-controlled House of Representatives revealed opposing plans, both of which would cut government spending and raise the nation’s borrowing limit. During his speech, Mr. Obama backed the plan from Senate Majority Leader Harry Reid, which calls for $2.7 trillion in cuts and would raise the debt ceiling through next year’s November election.  But Republican Speaker of the House John Boehner criticized the Senate plan, claiming it is filled with “phony accounting” and “Washington gimmicks.” He and his House Republicans proposed their own plan, which calls for $1.2 trillion in spending cuts, an immediate $1 trillion debt cap increase, and another possible increase next year tied to additional spending cuts and tax reforms.  But the president was not biting, calling the Republican’s game a “partisan three-ring circus,” saying “The American people may have voted for divided government, but they didn’t vote for a dysfunctional government.” 

Mr. Obama said he believes the Boehner plan is a short-term solution that “doesn’t solve the problem,” adding that conservative Republicans (led by the Tea Party) want to solve the debt crisis with only spending cuts, without requiring corporations and the wealthiest Americans to contribute via changes in the tax code.  Democrats and some political pundits believe Republicans are playing politics with the debt ceiling, hoping that if the country defaults and thereby loses its triple AAA rating, it will reflect poorly on Mr. Obama’s chances for reelection next year.  Or in other words, politics are being placed ahead of what’s best for the country.

If no plan to let the federal government continue borrowing funds by August 2nd is reached, the country will be at risk of defaulting on its debt. That means the U.S. Treasury would be unable to pay its investors, interest rates would skyrocket for anyone seeking loans from U.S. banks, and the government would not be able to meet such obligations as Social Security checks to retirees or fulfill corporate contracts.