A Gov’t Shutdown (Before Debt Ceiling Crisis) Looks More Likely

I figure the whole world will write about the Fed today, so thought I’d highlight the other important development.

The House Republicans look dead set on de-funding Obamacare as part of the continuing resolution that keeps the government going until October 1.  This is stupid gamesmanship (as well as phenomenally stupid policy).  It allows the Democrats to call their bluff and precipitate a crisis that will be blamed on the Republicans.

  • Neither party really wants to go over the brink on a debt default.  But a government shutdown isn’t nearly as cataclysmic.  The House has just given the Democrats a clear path to provoking a shutdown and leaving the Republican party holding the blame for it.
  • At this point, the Democrats can just ignore the House bill and loudly demand that the House Republicans pass a “clean” continuing resolution AND a debt ceiling raise.
  • It won’t be hard to make the case that the government’s functioning and credit  shouldn’t be held hostage to stop a health care law that was already passed and then “ratified” by the 2012 election results.
  • The Republicans can either cave on one or both issues or hold firm.  If they don’t cave, the government shuts down BEFORE we default.  The ensuing crisis gets mixed up with looming default, forcing action shortly thereafter.
  • In the meantime, Obama can gravely warn America’s seniors about the risk their Social Security Checks won’t go out in case of default.  This wakens the Balrog (see post below) and the walls of Congress get torn down shortly thereafter.

What remains mystifying about all of this is that the Republican stance is just dumb from a pure game-playing perspective.  They are handing the initiative off to the Democrats.  If they choose, the Democrats can now just sit put on the moral high ground as we hurtle over the (painful) cliff of a shutdown with the (deadly) cliff of a default looming.  The pain of the shutdown will be blamed on the Republicans (by most voters) and the looming threat of the default will force the Republicans to cave in.  Maybe Obama gets his democratic House in 2014 after all….

What if Obama Wakens the Balrog? Markets are Too Complacent on the Debt Ceiling.

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