The Only Card In Orange Julius's Deck

Ezra Klein correctly points out that GOP House Speaker John Boehner is going to threaten to shut down the government over the debt limit.  It's literally the only card in the deck at this point for him.

Of course he will. For one thing, it worked well for him in 2011. Republicans got more than $900 billion in immediate spending cuts, as well as $1.2 trillion in triggered spending cuts -- though they don't much like the $500 billion or so of those cuts scheduled to fall on the Pentagon. They also drove President Obama's approval ratings beneath 40 percent. And while I'm not one who thinks Republicans intentionally tank the economy to undermine Obama, there's little doubt that the effect of the debt-ceiling debacle was to set back the recovery, brightening Republican prospects and darkening Democratic ones. The fact is that it's easier to be sanguine about economic showdowns when you're not the ones in charge.

For another, it's Boehner's only option in 2012. The Democrats, for once, have nothing but fiscal leverage. They've got the expiration of the Bush tax cuts, which all Republicans would hate and many Democrats would welcome. They've got the aforementioned spending trigger, which Republicans really have begun to fear for its cuts to defense spending. They can do nothing -- or, more likely, offer Republicans a deal they can't accept -- and the resulting paralysis will swing fiscal policy far, far, far to the left. Threatening to default on the national debt is Boehner's only piece of counter-leverage.

So of course Boehner will try and use the debt ceiling as leverage again. And again. And again. It's pretty clear that, at this point, there's no going back to the time when debt-ceiling increases came smoothly. If I were the market, I'd take the fact that the leader of one of the two parties has publicly said that he "welcomes" debt-ceiling showdowns as evidence that the United States is almost certain to default on its debt -- if only temporarily -- within the next decade or so. 

Let's also give credit where credit is due:  President Obama and the Democrats maneuvered John Boehner into the corner he's in right now, and he went of his own volition like the moron he is.  Nobody, not even his own side, believes Boehner has the upper hand here.  The most likely outcome will be nothing, and in this case nothing means all of the Bush tax cuts expire.  That won't happen until January...after the elections.  Nothing he can do about it either.

So Boehner will fold, just like he has folded so many times before.