Whereupon our hero, Captain America, takes calls—he hopes for the last time—on the debt-crisis hotline.
Caller: So, this is what the abyss looks like?
CA: Actually, we’ve been in it for a while. The pressure’s just starting to get to you.
Caller: Me and everyone else. Is there a way out?
CA: There’s always a way, if there’s a will.
Caller: Hey, if I wanted a Hallmark card, I’d have gone to the drugstore. I need something tangible, something I can hold onto.
CA: So do markets from Tokyo to London to Wall Street. They’re still searching.
Caller: Can Speaker John Boehner’s bill pass the House?
CA: It doesn’t have the votes now. Grassroots GOP groups are divided, but Boehner’s gaining strength. That makes it a jump ball—with House Majority Leader Eric Cantor doing the toss (bet Boehner).
Caller: How many GOP votes can Boehner afford to lose?
CA: No more than 33. And that assumes he picks up 10 Democrats—a stretch since the stronger medicine, “cut, cap, and balance,” pulled only five Democrats.
Caller: What’s the conservatives’ biggest beef?
CA: One big reason is that Boehner cut a deal with Senate Democrats on discretionary spending whereby this year’s discretionary budget will be reduced by $7 billion. The House GOP budget cut $31 billion. Conservatives think a $7 billion first-year cut is too small and a woeful compromise compared with their budget.
Caller: What about the guy who wrote that budget?
CA: Rep. Paul Ryan, R-Wis., said he’s with Boehner. That means he knew he’d never get those cuts through the Senate.
Caller: Speaking of the Senate, Majority Leader Harry Reid’s got a bill that supposedly cuts more over time than Boehner. What’s his first-year discretionary cut?
CA: $5 billion.
Caller: Damn close to Boehner.
CA: This is the story everyone seems to be missing. If you look at Boehner’s plan and Reid’s plan, the discretionary spending cuts in 2012 and 2013 are almost identical. Boehner cuts $1 billion more in 2012, but their numbers are the same in 2013. The numbers that matter most in any budget deal are in the first and second year. Why? Because that’s what Congress has to do immediately and before the next election. Everything else is negotiable later.
Caller: Would these numbers, if agreed to, avoid a government shutdown later this year?
CA: Yep. That’s another reason they matter so much. President Obama, Boehner, and Reid don’t want to live through another shutdown scenario—not after this default hair-pull.
Caller: I saw on Twitter the White House will veto Boehner’s plan.
CA: The release said that his advisers would recommend a veto. Advisers can and have been ignored. Plus, Obama didn’t say that in his prime-time address. That means there’s room to bargain. Not much time, but room.
Caller: But what if Boehner’s plan dies in the Senate?
CA: Reid’s will probably die too. And then something will have to be patched together. You can find the glue, at least a dollop of it, in those spending numbers for 2012 and 2013.
Caller: That still doesn’t give me a lot of hope.
CA: To find hope, politicians are going to have to change.
Caller: Hope and change. I think I remember those words. Anyway, can you run me the numbers on the default scenario?
CA: Between August 3 and August 31, Treasury is supposed to collect $172 billion and pay out $307 billion. That $172 billion can cover the bondholders, Social Security, Medicare/Medicaid, defense vendors, and jobless benefits. If you pay all those, there’s nothing left for active-duty pay ($2.9 billion) or a wide array of other obligations.
Caller: Like what?
CA: Federal salaries, veterans’ programs, Pell Grants, and special-education grants to the states, food stamps, and aid to poor women and children.
Caller: Can we squeak by for a while?
CA: On August 3, revenues are projected to be $12 billion and obligations $32 billion, including $23 billion in Social Security benefits and $2.2 billion in Medicare/Medicaid payments.
Caller: So we’re in a big hole right off the bat.
CA: Yep. Those payments will be delayed, not canceled. But revenue flows and obligation deadlines are uneven. That will cause doubt among beneficiaries and deep uncertainty in the bond markets.
CA: Because Treasury has $470 billion in securities that mature in August. It has to cover principal and interest. Typically, Treasury does that by issuing new bonds. But in a scary default market, buyers will demand higher interest rates. Meanwhile, the nation’s AAA credit rating would be downgraded and higher interest rates and greater stock market volatility would ensue.
Caller: This all makes me feel weak.
CA: Well, that’s a start.
Caller: What can you possibly mean by that?
CA: Abraham Erskine, the doctor who helped create me, chose me because I was weak but knew right from wrong, knew how to meet tough challenges head-on. “A weak man knows the value of strength, the value of power,” he told me.
Caller: What good does that do me? I don’t have a vote in Congress.
CA: You don’t think the specter of default has begun to make the barons in Congress feel weak? It has. And that may be the beginning of understanding the value of strength, the value of power.
This article appears in the July 27, 2011, edition of National Journal Daily.