Republican Divisions Make Debt Ceiling Solution No Sure Thing

The general consensus has bee the politicians in Washington will come to a debt ceiling solution at the last moment. Don’t be so sure. Divisions within the Republican Party may be so bad that the unthinkable happens as the party can’t agree on its own position.

Debt Ceiling Doom

There are some that are arguing the debt ceiling is not the potential doom it seems to be. A default, goes the argument, wouldn’t really mean anything. This view is a mistake because it fails to take into account the unique position of the dollar and United States treasury notes in the world economy.

The United States is viewed as the most powerful and stable economy in the world. Given this, the dollar has become the defacto currency used throughout it because the value is considered to be solid. I was once in Siberia in Russia and the money they traded in was the $20 bill, not the ruble.

The same notion goes for our treasury notes. They are considered the safest investment in the world. When the Great Recession started slapping everyone around in late 2007, investors around the world stormed into the treasury notes. They were not looking for gains, only to avoid losing money in other currencies.

Confidence

All of this boils down to a simple economic concept – confidence. The world is confident in the United States. Most investors don’t bat an eye at a country like Greece defaulting on its debt. It is to be expected with such countries. A default by the United States, however, is an entirely different matter. If it happens, the world will be forced to reevaluate whether the United States is the economic pillar of strength it was always thought to be. When that happens, the cost of borrowing money for the United States will skyrocket and throw the economy back into a recession or worse.

Republicans

Nothing is more frustrating than negotiating with a party only to find out they don’t have the authority to make a decision. This is exactly what is happening in Washington, D.C. The problem is the Republican Party is fractured into divisions that more or less make it next to impossible to know what they really want.

The divisions are everywhere, but the biggest are between the Tea Partiers and more moderate party members like Boehner. What is becoming clear is Boehner doesn’t have the backing to do a deal. He got close with President Obama only to hear his own representative members voice that they would not vote for such a deal. Now, on July 26, 2011, various groups of Republicans in the House are now holding press conferences basically refuting any plans put forth by Boehner and other Republican leaders.

Debt Ceiling Default?

The critical problem now is who does President Obama do a deal with? He clearly is willing to address spending cuts of entitlement programs, a position that few would have every believed five years ago would happen. This is surely more than we Republicans could have ever hoped for, but we now stand unable to take advantage of it because we can’t stop fighting with each other.

The notion that a debt ceiling default could never happen is under serious pressure now. If the Republican Party can’t get its act together in the House, the unthinkable could happen. I seriously doubt that is a legacy that anyone there wants to have.

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