2023 drama will be ‘100% different’ from 2011

Finance


Many in Washington and Wall Street are looking to 2011 as a reason not to be shaken by the current debate over the debt ceiling. A similar crisis ended in a last-minute agreement that year.

Investors “have seen this movie so many times and they think they know how it ends,” said Mark Zandy, chief economist at Moody’s Analytics.

But should investors really be so optimistic? Probably not, according to Mike Sommers, who sat front row on the show in 2011 as then-House Speaker John Boehner’s chief of staff.

He said this year’s showdown was “100% different,” adding, “I don’t know where the room for a deal is.”

Some key elements that were present in 2011 are now missing. At the time, negotiations began much earlier, the political environment was different, and there was mutual agreement from the beginning that reducing the deficit was a top priority for both sides.

President Obama and Mr. Boehner also got to know each other better after hours, making it a little easier to reach consensus.

Sommers, now CEO of the American Petroleum Institute, said, “President Obama understood that the political dynamics had changed significantly in 2010 and that we needed to come to an agreement on this. I had a partner,” he said.

President Barack Obama discusses debt with Ohio House Speaker John Boehner (left) in the White House Cabinet Office in Washington, Saturday, July 23, 2011.  (AP Photo/Carolyn Custer)

President Barack Obama and House Speaker John Boehner meet in the White House Cabinet Office on July 23, 2011. (AP Photo/Carolyn Custer)

Similarities and differences

The current conflict and the 2011 conflict are similar in some respects. Both depict a Democratic president on the verge of re-election facing a newly dominant House Republican majority that seeks to curb what is perceived as excesses.

But those 2011 talks began early after President Obama set up the Bowles-Simpson Commission a year ago with a mission to find a balanced budget.

These talks also marked a very different personal power relationship between the leaders. Obama and Boehner met on numerous occasions in the months leading up to the deal, from formal meetings to golf outings.

U.S. House of Representatives John Boehner makes a putt on the first hole during a golf game as Ohio Governor John Kasich (left), U.S. Vice President Joe Biden (left) and U.S. President Barack Obama (right) look on. Chairman (2nd right), Andrews Air Force Base, Maryland, June 18, 2011.  AFP PHOTO/Mandel NGAN (Photo credit: MANDEL NGAN/AFP via Getty Images)

House Speaker John Boehner plays golf and makes a putt with Ohio Gov. John Kasich, Vice President Joe Biden and President Barack Obama in June 2011. Mandel Gunn/AFP via Getty Images

By contrast, President Biden and House Speaker McCarthy were in the same room only a few times in 2023, and their exchanges were often noted for their fiery rhetoric and personal acrimony.

Staff meetings have only recently begun as leaders try to find their way to a bipartisan deal on a very tight schedule.

change in political climate

The big difference from 2011 is the result of the changing political climate on both sides. Some of these changes are the result of the unfolding of the 2011 crisis.

Things are different now for Biden, who was in the middle of early negotiations as chief negotiator, as his openness to the 2011 negotiations was later seen as a mistake by Democrats.

Obama administration veterans have regularly expressed regret for agreeing to negotiate what they claimed should be inviolable: total trust and credit in the United States.

The vice president at the time said he was clearly looking for a different approach in the future. “I would be annoyed if I sat there,” Mr. Biden told his Democratic colleagues in August 2011, while collecting votes for the final deal.

This time around, Biden and his team may be sitting down to negotiate, but even maintain that this week’s talks aren’t really about the debt ceiling per se, but about more general spending cuts. It still extends some credit by doing so.

House Speaker Kevin McCarthy (R-CA) and US President Joe Biden wait for a meeting on the US debt ceiling in the Oval Office of the White House in Washington, DC, May 9, 2023. Mr. Biden and Republican leaders met in hopes of breaking the deadlock over the U.S. debt ceiling. Removing the national debt ceiling will allow the government to pay for spending already spent.  (Photo credit: Brendan SMIALOWSKI/AFP) (Photo credit: BRENDAN SMIALOWSKI/AFP via Getty Images)

Chairman Kevin McCarthy and President Joe Biden during talks on the U.S. debt ceiling on May 9. (Brendan Smiarowski/AFP via Getty Images)

Meanwhile, Republicans are looking to 2011 as a model to leverage the debt ceiling, but even there the political dynamic is shifting.

This time, powerful conservatives in the Republican caucus pushed the GOP for more, leaving McCarthy no room to negotiate.

Republicans passed a gargantuan bill last month that is essentially a Republican wish list, focused not only on spending levels and deficits, but also on topics such as taxes, student loans and the Biden administration’s climate change policy.

Legacy of 2011

The 2011 crisis finally ended just two days before the Treasury predicted that US funding would run dry.

It was the last time a debt ceiling deal led to a tangible deficit reduction. According to the Board on a Responsible Federal Budget, the Budget Control Act of 2011 resulted in $917 billion in deficit reduction over the next decade.

But it also came at a huge cost. Markets crashed in the summer of 2011 and the US suffered its first-ever credit downgrade as it faced defaults.

Despite the memory of those costs, fears remain that both the U.S. government and financial sector are downplaying the possibility of default, with Treasury Secretary Janet Yellen saying this week that said a default would mean an “economic and financial catastrophe.”

Looking back at recent history, Mike Kontzal, director of the Roosevelt Institute, said at a news conference Monday that “I worry that lessons are lost.” [lawmakers] I think, like in 2011, we will find a solution at the last minute.”

Ben Werschkul is the Washington correspondent for Yahoo Finance.

Click here for business and money related political news

Read the latest financial and business news from Yahoo Finance



Source link

Leave a Reply

Your email address will not be published. Required fields are marked *