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Why the Risk of Default Is So Much Greater Now


On its surface, the unfolding debt-ceiling crisis looks a lot like the confrontation in 2011 between congressional Republicans and then-President Barack Obama. Once again, a new GOP majority in the House is using the threat of a national default as leverage to force a first-term Democratic president to agree to spending cuts in exchange for lifting the federal borrowing limit. A first-ever default could crash the markets and trigger a recession. But, as in 2011, the two parties remain far apart, with a deadline to act approaching rapidly.

Eric Cantor knows the feeling well. Twelve years ago, he was the House majority leader deputized by then-Speaker John Boehner to negotiate an agreement with Joe Biden, who was Obama’s vice president at the time. Cantor left Congress in 2014 after a stunning primary defeat that presaged the GOP’s anti-establishment, anti-immigration lurch toward Donald Trump two years later. He’s now a senior executive at a Wall Street investment bank.

I called him up this week to ask what he had learned from the 2011 negotiations and how he sees today’s fight going. He warned that the risks of failure—and with it, economic calamity—are significantly greater this time around.

Cantor and Biden failed to strike a deal on their own in 2011; that task ultimately fell to Biden and Senate GOP Leader Mitch McConnell. But Cantor told me he was impressed with Biden’s willingness to bargain: “He was very much in the mode of negotiating, compromising.”

Not this time—Biden has rebuffed pleas from Speaker Kevin McCarthy for one-on-one negotiations. “President Biden is not the same person as Vice President Biden was,” Cantor said, a bit ruefully. Nor has Biden empowered anyone in his administration to bargain at all.

“They’ve not negotiated a darn thing,” Cantor said.

In 2011, Obama engaged with Republicans months in advance of the fiscal deadline, and the talks between Cantor and Biden, along with separate negotiations between Obama and Boehner, helped set parameters for the agreement that materialized when the nation was on the brink of default.

The present lack of negotiations is likely a direct result of how things went back in 2011. Though both sides came to an agreement eventually, the near miss still caused a stock-market slide and the downgrading of the U.S. credit rating. When the U.S. bumped up against the debt ceiling again later in the Obama presidency, the administration was less inclined to negotiate—and a chastened GOP allowed the limit to be lifted without a fight. The lesson Democrats drew from that experience was never again to concede to the Republican premise that increasing the borrowing limit should be subject to legislative haggling.

Biden’s no-negotiation stance, however, might not be sustainable. On Monday, Treasury Secretary Janet Yellen informed congressional leaders that the country would run out of fiscal wiggle room—afforded by the use of “extraordinary measures” that stretch federal funds—as soon as June 1. That deadline is earlier than many people in Washington expected, and Yellen’s warning injected fresh urgency into the effort to find a way out of the crisis. In response, Biden summoned McCarthy, McConnell, and their Democratic counterparts to a White House meeting next week.

In 2011, McCarthy was one rung beneath Cantor in the House GOP hierarchy. Now, as speaker, he’s operating with a much thinner margin than Boehner and Cantor, who had more than 20 votes to spare. The GOP’s five-vote majority has less leverage, but it is more dug-in against the Democrats, and the speakership that McCarthy fought so hard to secure could be at risk if he were to allow the debt ceiling to be raised without extracting sufficient budget cuts or other concessions. The moderate dealmakers in the House Republican Conference have all but vanished. Boehner was ultimately forced out in 2015 by a conservative revolt, but he did not face the threat of an ouster that now hangs over McCarthy.

Although McCarthy was able to muster enough votes last week to pass an opening bid through the House—“a huge victory,” Cantor told me—he’s unlikely to secure the same level of budget cuts that Republicans did in 2011. Obama and Boehner had traded proposals for entitlement cuts and tax increases, and the deal Congress eventually passed triggered $1.2 trillion in spending reductions over a 10-year period. Under pressure from former President Donald Trump, McCarthy isn’t even pushing this time for cuts to Medicare or Social Security. The likeliest solution, according to potential congressional dealmakers, is an agreement that would merely slow the growth of federal spending, not reverse it. “You’re just not going to move the needle as far,” Cantor said.

Cantor remains in touch with McCarthy; the two, along with the Republican who succeeded Boehner as speaker, Paul Ryan, were once a conservative triumvirate known as the “Young Guns” (they were already in their 40s, but this is Congress), who rose quickly in the House GOP. When I asked him whether it was possible for McCarthy to emerge victorious in the eyes of his party, Cantor seemed doubtful. “Look, he’s got a very, very slim majority,” he said. “And given where conservative media and social media is on the issue, it’s just hard to be able to create a situation where you can declare a win and have everyone go along with it.”

For now, Cantor said, McCarthy is doing what he needs to do to give himself space to negotiate. “Kevin has demonstrated a will to fight, and I think that’s the most important thing right now for members to see—he’s willing to go to bat for them and fight,” he said. “So he comes into this with a fair amount of capital to work with.”

Biden is also in fighting mode at the moment, in contrast to his bargaining mode in 2011. Cantor argued that “ironically,” Biden had more authority to hammer out a deal when he was Obama’s lieutenant than he does now. “He’s captive of the extreme left and the progressives in his party,” he said.

This is mostly spin from a Republican who remains, even in his political retirement, a party loyalist. And Biden would surely dispute the suggestion that he would cut a deal with Republicans if left to his own devices; he came away from the 2011 experience with the same determination as others in his party not to negotiate again over the debt ceiling. But Cantor’s point is that because progressives are more ascendant now than they were then, Biden has less room to maneuver, especially as he launches a reelection bid for which he’ll need the left’s enthusiastic support.

Cantor offered a couple of scenarios for how Biden and McCarthy could avert a default. The most likely involves Washington’s favorite fallback, the punt: Republicans would agree to a short-term increase in the debt ceiling in exchange for Biden committing to serious fiscal negotiations later in the year, when both sides would face a harder deadline. They could also reach a broader agreement in the next few weeks, but Cantor did not sound particularly hopeful. “I still don’t think we go into default,” the veteran of congressional brinkmanship told me, “but I think the path is certainly narrower, and the options available to either side are narrower.”

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