Tim Geithner has issued another ultimatum, asking that the debt limit be increased in July, before we get close to that August 2 deadline where the US would be forced into default. He also again remarked that Republicans have assured him they will increase the debt limit before that default date ever comes. This again shows that this entire conversation is kabuki, a prelude to a deal.

Mr. Geithner said he believed the threat of some Republicans, when they said they won’t vote to raise the ceiling, but he said ultimately the ceiling would be raised.

“Washington is a complicated place, and it really is hard to separate the political theater from what is real, what is happening,” he said. “The leadership of the Republican party has made it clear to the president that they will get this done, they will not take too long.”

I don’t deny that the Republican leadership has made that commitment. It is true, however, that if you were the Treasury Secretary and you wanted the markets to maintain confidence in the full faith and credit of the United States, you would say this. However, I tend to believe the “kabuki” view of the debt limit debate.

One new entry into that debate is the rise of the default skeptics, rank and file Republicans who simply choose not to believe that the US will actually default on August 2.

Many conservative Republicans in the House of Representatives, especially those affiliated with the small-government Tea Party movement, say that Geithner and the White House are trying to panic them into raising the debt limit.

They also contend that the Treasury has other options to continue meeting the country’s obligations, such as selling assets including gold reserves and government land.

“There is no certain day,” said congressman James Lankford, a member of the fiscally conservative Republican Study Committee. “It’s a moving target. Even if August 2 is passed, Treasury has the tools in its back pocket to keep us from defaulting.”

Lankford added: “Treasury has done a good job of trying to increase the panic, rather than giving us solutions.”

Dennis Ross, a House Republican and a member of the Tea Party caucus, told Reuters: “I don’t think Treasury has been up front with us. I am not convinced the sky will fall in on August 3.”

Ross added: “I’m not an economist, but I have maintained a household. The federal government owns 70 per cent of Utah, for example. There are federal buildings. If you need cash, let’s start liquidating.”

Carrie Budoff Brown has more on this. I know that selling Utah sounds like a solid fiscal strategy, but maybe Dennis Ross has never been in the position of having to urgently sell something in his life. The result is you give away the object for pennies on the dollar. Short-selling all the assets of the United States because Republicans don’t want to authorize payment on the country’s accumulated debts is quite an insane strategy.

But emphasis on the word “strategy.” Because this is all part of a game to extract the maximum possible concessions. In the end, the debt limit will be increased. The White House can simply repeal that mantra and dare Republicans to do otherwise.

David Dayen

David Dayen

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