Debt Limit Doldrums

The lead article in today’s New York Times, “Pressing Obama, House Bars Rise for Debt Ceiling,” describes an event that could only be orchestrated in Washington. Republicans brought up legislation that they wanted to get defeated and did so after the stock market closed to avoid spooking investors.

The vote was the “clean” up or down legislation on raising the debt limit that Democrats have been demanding, but it was not orchestrated and lobbied for by the House leadership as is commonly the case. Instead, the Republicans engineered a resounding defeat of their own legislation to pressure President Obama into spending cuts. They got what they wanted, a 318-to-97 vote rejection.

Economists continue to warn House Republicans that the vote on the debt limit is unlike previous negotiations to avoid a government shutdown because of the implications for the country’s bond rating and the possibility of scaring away potential investors. If the determination remains in doubt, the result could be a runaway cascade for the entire economy.

The cutoff date is August 2nd. After that, we are entering unchartered territory. Unfortunately, the Tea Party members of the House seem oblivious to the implications involved. It may take a crash on Wall Street, just like when the Republicans previously rejected the TARP program, before they realize the folly of their ways.