The Obama administration is now warning that the President will veto House Speaker John Boehner’s two-step plan to raise the U.S. debt ceiling and cut $3 trillion in government spending.
President Barack Obama’s Office of Management and Budget has announced that it “strongly opposes” the measure, which the House is set to vote on tomorrow, and would recommend a veto if it were passed by Congress.
Boehner is trying to round up the votes to pass the measure in the Republican-controlled House, but some conservative Republicans are refusing to sign on to the plan—either because they think that the cuts Boehner is recommending don’t go far enough, or because they oppose the whole idea of lifting the debt ceiling.
Meanwhile, Senate Majority Leader Harry Reid is seeking support for his alternative that would provide a $2.4 trillion increase, enough to get through the 2012 elections. Liberals argue that Boehner’s two-step plan won’t give financial markets the assurance they need. Bloomberg reports that Reid is now saying that the Senate will vote on his proposal “soon.”
Yesterday Wall Street remained sanguine, confident that politicians would make a deal, and avoid default. But today, Reuters reports, the Street is getting nervous: “Wall Street banks are preparing for the real possibility that the United States will lose its top credit rating, which they say will cost the country $100 billion in additional interest payments and hurt both consumers and the economy.”
It’s now likely that at least one of Wall Street’s three credit rating agencies will downgrade U.S. debt. But a downgrade would be minor compared to an outright default that, as Reuters notes, “would catapult the United States to the top of the list of sovereign states whose political dysfunction supersedes sound economic management — above countries like Argentina, Ecuador and Russia.”
It is difficult to imagine that this could happen. But in his televised speech yesterday, Harry Reid voiced his concern that conservatives might be more interested in “embarrassing the president” than in “doing what is right for the country. And today, the Washington Post’s Ezra Klein warned that “Many elected members of the GOP really are willing to let Treasury exhaust its borrowing authority. Very few elected Democrats can say the same. For that reason, Republicans always had the leverage on this issue . . .”