Debt Talks Stall Before They Even Start

The death of Osama bin Laden dominates media, as it should.

Yet, in the shadow of that dramatic story lies the continuing federal fiscal tar pit.

Events this week already call into question assumptions held since the beginning of the year:

• Will the Gang of Six in the Senate produce a comprehensive, unified debt reduction plan?

• Will the Senate Budget Committee be able to produce a budget resolution for FY 2012?

• If both the committee and the Gang of Six fail, where does that leave the debt ceiling increase?

• Will the voices of those outside and inside Congress calling for rejecting the debt ceiling increase lose strength and votes as Members learn more about the risks of rejection?

Most analysts confidently predicted that the Gang of Six would succeed in producing a bipartisan plan; that the Budget Committee would produce a budget for FY 12 based in large part on that Gang of Six plan; that failure was not an option; and that as members learned more about the dangers of playing politics with the debt ceiling increase, they would become more responsible in their statements and more flexible in their stances.

Events seem to reveal a slow deterioration in the debate.

Tuesday, Chairman Kent Conrad revealed to his Democratic colleagues in the Senate his own plan for an FY12 budget.  While the Chairman insisted that the Gang of Six could still produce its own initiative, he wanted to have a separate plan if the Gang of Six failed.  Conrad's plan varies dramatically from the budget passed by the House earlier this year, but nevertheless Senate Majority Leader Harry Reid advised the caucus not to endorse the Conrad budget because a great deal of negotiations lie ahead.

With a Gang of Six proposal, and without the active endorsement of the Majority Leader, it is hard to envision Chairman Conrad getting an FY12 budget passed through his committee anytime soon.

At the same time, The Weekly Standard's editor, Bill Kristol, relates a conversation he had with former Treasury Secretary James Baker.  Kristol writes that Baker urged Congress not to pass a debt ceiling increase without a specific, multi-year deficit reduction plan in place.

Separately, a former Treasury official, Emil Henry, has written in The Wall Street Journal claiming that a debt ceiling increase really isn't necessary and that markets will react benignly if the government merely pays the interest and principal on debt as it matures, even if it means that other government operations would close down as a result.

Meanwhile, tomorrow discussions on the debt ceiling and fiscal policy will begin at Blair House, under the leadership of Vice-President Joe Biden.  No one knows how much impact the Biden initiative will have, but the meeting will begin with several members absent--not an auspicious start.

Far from clarifying the fiscal debate, the two-week Easter Recess seems to have had almost no impact.  Republicans returned to the House, saying that pro-Medicare and pro-Social Security protesters at town hall meetings were simply union members organized for the purpose of disruption.

Gas at $4 a gallon, unemployment, still dropping housing prices and increasing foreclosures, and painful unemployment remained the focus of the folks back home.

In essence, then, the decision has been made.

May 16 will come and go, Treasury Secretary Tim Geithner will resort to various tricks to keep the nation's finances in order until sometime in August, and Congress will continue to bicker.  America won't default on its debt through some series of tactics.

Meanwhile, world markets will wonder at the combination of silliness and recklessness that characterizes Washington, D.C.,'s debate on a fundamental aspect of governance.

As a political matter, one constant remains:  the House of Representatives has to pass a debt ceiling increase.  President Obama doesn't have to pass the bill.  Failure will be laid not at the President's door, but at the door of the ideologues in both parties who dominate the behavior of Congress.

It's sad that of the few tasks the Constitution reserves to the Legislative Branch, Congress finds itself unable to do one of the most basic ones: establishing a rational level of spending and taxing.

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