The ongoing debt-ceiling crisis appears strikingly similar to the 2011 clash between congressional Republicans and former President Barack Obama. Once again, the GOP majority in the House is using the threat of a national default to pressure a first-term Democratic president to agree to spending cuts in exchange for raising the federal borrowing limit. A default could have disastrous consequences, potentially crashing the markets and triggering a recession. However, similar to 2011, the two parties remain far apart, and the deadline to act is quickly approaching.
Eric Cantor, the former House majority leader, was intimately familiar with the situation. In 2011, he was responsible for negotiating an agreement with then-Vice President Joe Biden under Speaker John Boehner’s direction. After suffering a shocking primary defeat in 2014, Cantor left Congress, foreshadowing the GOP’s anti-establishment shift towards Donald Trump. He now holds a senior position at a Wall Street investment bank.
I recently spoke to Cantor to gain insight into the 2011 negotiations and his perspective on the current situation. He cautioned that the risks of failure and economic calamity are far greater this time around.
Cantor recalled his experience negotiating with Biden in 2011 and remarked on Biden’s willingness to compromise. However, he noted that Biden’s approach has changed since then, as the president has refused one-on-one negotiations with Speaker Kevin McCarthy and has not authorized any members of his administration to engage in bargaining.
The absence of negotiations at present is likely a result of the 2011 experience. Even though an agreement was eventually reached back then, the close call resulted in a stock market downturn and a downgrade of the U.S. credit rating. Consequently, during later debt ceiling challenges in the Obama era, the administration was less inclined to negotiate, and the GOP, having learned its lesson, allowed the limit to be raised without a fight. Democrats took away from this experience that they would never again concede to the Republican notion of subjecting the borrowing limit to legislative debate.
However, Biden’s current stance against negotiation may not be sustainable. Treasury Secretary Janet Yellen’s recent warning that the country would run out of fiscal wiggle room sooner than expected injected urgency into the situation. In response, Biden has invited McCarthy, McConnell, and their Democratic counterparts to a White House meeting next week.
Compared to Boehner and Cantor in 2011, McCarthy faces a more precarious situation as speaker, with a narrower majority and a more deeply entrenched resistance to Democratic demands. The speakership that McCarthy fought so hard to attain could be at risk if he allows the debt ceiling to be raised without extracting sufficient budget cuts or other concessions. The moderate dealmakers within the House Republican Conference have largely disappeared. While Boehner eventually resigned in 2015 due to a conservative revolt, McCarthy faces the immediate threat of ouster.
Although McCarthy was successful in securing enough votes to pass an initial proposal through the House last week, he is unlikely to achieve the same level of budget cuts as Republicans did in 2011. McCarthy is not even pushing for cuts to Medicare or Social Security this time, likely due to pressure from former President Donald Trump. As such, the most probable solution, according to potential congressional dealmakers, is an agreement that merely slows the growth of federal spending rather than reversing it.
Cantor maintains contact with McCarthy and acknowledges his willingness to fight for his position and members of his party. However, Cantor doubts McCarthy’s ability to emerge victorious given the slim majority and the prevailing sentiments within conservative and social media spheres.
For now, McCarthy is employing tactics to provide himself with negotiating room. Cantor believes that his demonstrated determination to fight is crucial for garnering support from fellow Republicans. He believes McCarthy enters this situation with some influence.
Biden, on the other hand, has adopted a fighting mode compared to his previous inclination for bargaining in 2011. Cantor argues that Biden’s current positioning is influenced by the progressives within his party and his need for their backing in his reelection bid.
Cantor presents a couple of possibilities for avoiding default between Biden and McCarthy. One likely scenario involves a temporary increase in the debt ceiling with an agreement for serious fiscal negotiations later in the year when both sides would face a stricter deadline. Another option is a comprehensive agreement reached within the next few weeks, although Cantor expresses doubts about the likelihood of this outcome. He confidently predicts that default will be avoided but acknowledges that the path is narrower, and the available options for both sides are limited.
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