Second Thoughts on the Debt Ceiling

I am having second thoughts:

It looks like the mega deal is out ($4 trillion, with up to $1 trillion in new revenues). Boehner called the President last night to say he could not live with the revenue part of the deal. In today's meeting, the President says he will try to convince him otherwise, but my guess is the big debt agreement is dead.

So now we move back to the "medium" size program ($2.4 trillion with $400 billion in new revenues). Let's say the leadership group agrees, and takes it back to Congress.It might pass. And it might not.

What does the President do if he thinks it's going to fail, or that its chance of not passing are reasonable? Can he let August 2 come without any warning to the US, or to the markets that Treasury will pay the bills going forward after August 2, without debt issuance? At first, I thought he could. Now I am having second thoughts.

Who knows what the markets will do on August 2, if there is no agreement. Even if the President talks right away on August 2, there still could be market chaos. And Republicans will accuse him of lying to the American people, and the charges may well stick. After all, it has been Republicans who have been arguing that the August 2 date is bogus.

I think he will "fess up" some time before the end of the month, if a deal has not been done and passed, saying that he used the August 2 deadline date to put pressure on the system to come up with a breakthrough deal, that there is no way he is going to let the US default, that a debt limit increase is needed, but there is no huge time pressure.

Will he be hurt politically? Possibly. He will argue that he gambled and lost. He really wanted a breakthrough deal that could alter the course of budget conversations now and in the future.

How about Republicans? They turned down a $4 trillion game-changing budget deal - and why did they do this? And if they turn down a $2.4 trillion very significant deal - why? They didn't want to close some loopholes and raise some revenues from the wealthy. In other words, they care more about the wealthy and no revenue/tax increases than they do about the budget. As David Brooks has already said: If Republicans turn down the budget deal of the century, they are not fit to govern.

Pundits on both sides call Obama a weak leader and a bad negotiator. It's too early to fully review the bidding and the performance on this issue, but we have some early indications:

Republicans thought Obama would cave on revenues and do a spending cuts only deal. He hasn't and he won't.

Republicans never thought Obama would put Social Security, Medicare and Medicaid on the table. He did. They walked.

Republicans couldn't even dream of the possibility that Obama would support a bigger budget cut deal than they would sign on to. He has. And so far, they have walked.

Both Republicans and Democrats, and almost every pundit has criticized Obama for not supporting the Bowles-Simpson Deficit Commission findings. We don't have the details of the almost $4 trillion deal, but it sounds a lot like the numbers in Bowles-Simpson.

It really seems incredible: Republicans have allowed Obama to outflank them and attack from the political right (a super-size budget deal) and they are leaving the field of battle.

There is much more to come. As for me, I put in my vote for leading from the rear, when it forces your opponent to commit himself first, and then you come onto the field and use his energy against him, forcing him to retreat.

We will continue to observe this remarkable contest.