Third Columnists

While many people are confident that Congress and the President will come together on an agreement vis-a-vis the debt ceiling before the United States is forced (or chooses) to default on interest payments on the national debt (as opposed to simply going into a shutdown), I'm not so sure. It should be remembered that one of the primary goals of "Tea Party" Republicans is not simply to do something about the debt, but to shrink the size of government. Given this, the BATNA position of a default suits their purposes just as much as the serious reduction in spending that they're after.

As an aside, the Balanced Budget Amendment talk is pure posturing. Given that the federal government is currently borrowing a bit over 40% of the money it spend, the crash in spending or the severe tax hikes that would be needed mean that it's unlikely that you could get the amendment through the states, even the Red states, since they tend to receive more in Federal funds than they pay in taxes. They'd be unlikely to be willing to watch all of those funds evaporate, and the more-populous Blue states would likely not be a mood to share revenues.

Anyway, in the case of a default, it becomes less attractive for investors to lend money to the United States, and thus it becomes more expensive for the nation to borrow money. This is just fine if you're in the mode of attempting to shrink government, because the less money government can borrow, the less it can do. And if you can hold the line on tax increases (which will be a much easier job when the economy starts to recover) then recessions become a good time to shrink government by choking off its access to funds.

So, my personal opinion is that part of the reason why Speaker of the House Boehner is having such difficulty with getting all of the Republicans on board is that with the split in his caucus between more Reaganite Republicans and the Tea Party and/or Grover Norquist crowd he finds himself saddled with a number of people who are nominally on his side, but who are actually okay with a failure on his part. And, given that, a deal that allows the government to borrow its way clear of a default is by no means a sure thing.