At this point, the debt limit vote feels more like the $87 billion dollars in Iraq back in 2004. Presidential candidates on the Democratic side lined up to criticize and vote against that, but ultimately, it passed with substantial Democratic support. Now, with the debt limit, again the potential Republican Presidential candidates have taken the lead in opposition to the increase (I have to say “potential” because none of them have the gumption to get in the race yet):

Three potential Republican candidates for president came out against boosting the federal debt limit without substantial spending cuts, raising the temperature in a debate that is quickly becoming a test of Washington’s newfound appetite for financial discipline.

Rep. Mike Pence of Indiana and former Republican House Speaker Newt Gingrich on Monday joined former Minnesota Gov. Tim Pawlenty in calling for spending cuts and opposing any increase in the $14.3 trillion debt ceiling without them.

However, at a retreat last week, House Majority Leader Eric Cantor basically acknowledged that the debt limit increase will be passed, although he added that they would try to use it as “leverage” for spending cuts. When you’re talking about leverage first, you’re probably not very serious about acquiring leverage. Even a spokesman for the Tea Party Express is quoted in the article favoring a “temporary increase in the debt ceiling that would allow the U.S. to meet short-term obligations.” Since a default event on the debt would hurt banks more than anyone, and nobody in Washington has any appetite for hurting banks… well, you get the picture.

Pat Toomey, a pretty hard-core conservative who actually has to vote on the debt limit, has come up with a “compromise” plan that would serve both goals – protect the banks and force massive spending cuts. This is really rich, and former investment banker Toomey is the perfect person to introduce it:

As members of Congress debate whether to raise the U.S. debt ceiling—the limit on our government’s debt—we should all agree on at least one thing: Under no circumstances is it acceptable for the U.S. to default on its debt. Not only are we morally obligated to honor our debts, but we benefit greatly from the nearly universal conviction that those who lend to us will always be repaid, on time and in full. We should never undermine that conviction.

Fortunately, even if Congress doesn’t raise the debt ceiling, a default on our debt need not follow when our borrowings reach their limit in the next few months. I intend to introduce legislation to make sure of this […]

In fact, if Congress refuses to raise the debt ceiling, the federal government will still have far more than enough money to fully service our debt. Next year, for instance, about 6.5% of all projected federal government expenditures will go to interest on our debt, and tax revenue is projected to cover about 67% of all government expenditures. With roughly 10 times more income than needed to honor our debt obligations, why would we ever default?

To make absolutely sure, I intend to introduce legislation that would require the Treasury to make interest payments on our debt its first priority in the event that the debt ceiling is not raised. This would not only ensure the continued confidence of investors at home and abroad, but would enable us to have an honest debate about the consequences of our eventual decision about the debt ceiling.

So here’s what he’s proposing: if the Republicans take the debt limit hostage, the banks would get paid first. What that means, of course, is that everything else the government does – health care, Social Security, federal employee salaries, etc., etc. – would have to get in line behind debt service. Some states, including California, work this way. But it’s really a naked attempt to protect banks from the consequences of irresponsible Republican actions.

This is a “best of both worlds” scenario for the Republicans – they get to take hostages over spending cuts while also exempting the banks from any hardship. If this becomes the “compromise” option, we’re all in for it.

David Dayen

David Dayen