Tags: boehner | debt | dow | obama | markets

Dow Plunge Bolsters Prospects for Boehner’s Debt Deal

Wednesday, 27 Jul 2011 08:15 PM

By David A. Patten

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House Speaker John Boehner’s controversial debt-ceiling proposal appeared to gain significant momentum in the House of Representatives Wednesday, bolstered by alarming economic indicators and an internal lobbying scandal within the GOP.

As a skittish Dow Jones dropped 198 points for its fourth consecutive loss Wednesday, the Republican Party’s most conservative institution, the House Republican Study Committee led by Rep. Jim Jordan, R-Ohio, embroiled itself in a major intra-party snafu Friday that threw chaos into efforts among some grass-roots leaders to mobilize opposition to the Speaker’s proposal.

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Jordan, who has voiced staunch opposition to Boehner’s plan, apologized to his fellow House Republicans Wednesday after news broke that an RSC staff member had been feeding information to grass-roots organizations to help them lobby Republican House members to vote against Boehner’s bill. The aide reported gave the organizations a list of Republican representatives to pressure, in an effort to influence the impending vote.

Some Republican representatives were incensed at what they saw as a back-door effort to intimidate them. After a closed-door RSC meeting, reporters asked Jordan if he planned to continue as chairman of the conservative RSC. His response: “I hope so.”

If the internal political battles rocked the grass-roots conservatives opposed to Boehner’s proposal, a spate of bad economic news Wednesday suggested the economy may be too weak to withstand the game of chicken over the debt ceiling now underway in Washington.

The Federal Reserve’s Beige Book study reported economic activity in eight of the nation’s 12 economic regions slowed over the past eight weeks through mid-July. That contributed to the fourth straight down session on the Dow, as did news that S & P and Moody’s downgraded the credit ratings of Greece and Cyprus, at the same time the IMF warned France that it must address its budget deficit.

“I’ve been very concerned that America is headed down the path as Greece and the other European Union countries,” House GOP conference vice chairwoman Cathy McMorris Rodgers, R-Washington, told Newsmax on a conference call. “We’re not that far behind them.”

CNBC Mad Money host Jim Cramer said on Squawk Box Wednesday morning that he estimates there is a 60 percent changes that the major bond ratings agencies, Moody’s and S & P’s, will downgrade the U.S. credit rating from AAA to AA. Analysts say that will cost U.S. taxpayers an extra $100 billion a year in interest payments on the national debt, and will ultimately push consumer-loan interest rates higher as well.

If Congress doesn’t reach a deal by the Obama administration’s self-declared Aug. 2 deadline, Cramer predicted the S & P 500 will shed between 2 and 4 percent of its value.

Some analysts warned the economic news could foreshadow the long-dreaded double-dip recession. It appeared to give leverage to the growing number of grass-roots conservative representatives -- now including Rep. Allen West of Florida, Rep. Blake Farenthold of Texas, and Kristi Noem of South Dakota -- who believe political and economic reality require the GOP to strike the best bargain it can and raise the debt ceiling, rather than allow President Barack Obama to shift the blame to Republicans for the dismal economy.

“I am very concerned if we can’t reach some kind of agreement in the next few days … that these numbers will get even worse, that we will face a further downgrade, the potential of increased interest rates,” McMorris Rodgers, who strongly supports a balanced budget amendment, said in response to a Newsmax question on the conference call.

“And the impact that that has on the economy, on our federal obligations moving forward, on individual households, job creation, I think would be very negative,” she added. “That’s why I do believe it is important and that the Boehner plan gives us a few more months at a minimum. And it lives within our principles, where we said, ‘We want at least an equal or higher amount of cuts to any kind of debt increase.’”

Farenthold on that call said he initially was leaning against Boehner’s plan, but now is firmly behind it.

“What really turned me from a ‘lean-no’ to a ‘lean-yes,’ and I’m probably a ‘hard yes’ after my conference call with some tea party folks this evening, is something that I used to always complain about on talk show host with the local government in Corpus Christi: We used to run all sorts of projects off because somebody would find one little piece of fault with it.

“You can’t sacrifice the do-able for the perfect,” he said. “We’re moving town the path towards sanity. And we’re going to do it one step at a time, rather than the Hail Mary pass.”

Those remarks by Farenthold and McMorris Rodgers appears to be in line with a rather frank message Speaker Boehner reportedly delivered to House Republicans Wednesday during a closed door session.
Boehner told wavering lawmakers to “get your ass in line,” Politico.com reported.

“This is the bill,” he told his caucus. “I can’t do this job unless you’re behind me.”

TheHill.com’s projected whip count showed Boehner’s bill gained the votes of several members Wednesday, including Reps. Bob Goodlatte of Virginia, Rob Woodall of Georgia, Marsha Blackburn of Tennessee, and Cynthia Lummis of Wyoming.

The surge in support for Boehner’s compromise, which reportedly does not include the requirement of a balanced budget amendment, is a surprising turnaround considering that leadership pulled it back from floor consideration Tuesday after the Congressional Budget Office, applying the new March baseline for the economy, estimated it would only save $800 billion over 10 years rather than the $1.2 trillion initially projected.

GOP leaders added additional cuts, $22 billion of which now will occur in the first year compared to $7 billion in Boehner's original proposal. Late Wednesday the CBO awarded the revised Boehner bill a new score of $917 billion over 10 years.

Liberals are characterizing Boehner's bill as very similar Senate Majority Leader Harry Reid's proposal, albeit smaller.

In at least two key aspects, however, the assertion of similarity is very misleading.

All of Boehner's proposed cuts are real, and they are front-loaded. Reid's cuts take effect in later years, and many of them are based on projections on paper -- declaring $1.2 trillion in savings due to the wars that appear to be winding down, for example. Essentially, this mechanism buys Reid an extra year of spending as usual, without pressure to make corresponding cuts.

The second major difference between the plans is that while both proposals envision a "select joint committee" to try to agree to a "grand bargain" on future cuts, in Reid's plan nothing happens if a deal isn't struck. The issue vanishes and there is no further requirement for Congress to address it.

But under Boehner's proposal, Democrats would have to return with hats in hand, requesting another debt-limit increase and knowing that Republicans would require dollar-for-dollar cuts in return. The Washington Post's Jonathan Bernstein comments "the Reid plan is much, much better for liberals than is the Boehner plan."

Grass-roots opposition to the speaker’s proposal remains strong, however. The organizations object that Boehner’s bill pushes most of the spending cuts off into “out years. They are also frustrated that it establishes yet another “select committee” to propose cuts. They warn the group almost inevitably will recommend revenue increases, as well as faux spending cuts, such as Senate Majority Leader Harry Reid’s plan to “save” $1 trillion because the wars in Iraq and Afghanistan will ultimately someday end.

Max Pappas, vice president of public policy and government affairs for the FreedomWorks organization that opposes Boehner’s deal, tells Newsmax that the best way to revive the economy is to rein in federal spending.

“We want to see big cuts now to help the job and wealth creating part of the economy get back on its feet,” Pappas told Newsmax. “…All these things go together. The bigger the government is in terms of spending and regulation, the smaller the wealth-generating private sector is. So this is how we get back on our feet.”

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