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S&P: Boehner Plan Not Enough to Avoid Debt Downgrade

If the goal of last night’s Presidential address was to send a message to Congress to do their jobs, the fact that several Congressional websites allegedly crashed shows that the message was received at some level, and that President Obama should have been doing this kind of call to action all along, rather than merely for the purposes of austerity and compromise.

But Obama said something else that probably carried more weight with Republicans than the mere voice of the people. He intimated that a short-term increase in the debt limit would not be enough to avoid a debt downgrade. And he appears to be correct. The word is that S&P would downgrade US debt in the event that the Boehner plan passed, though not if the Reid plan passed.

Now, I obviously don’t take much stock in S&P, and I think that they are massively overstepping their boundaries by picking and choosing between government policy. But looking at the politics, that would really change matters. It’s something that Democrats were already out shouting about yesterday, that a short-term increase would constitute a tax increase for every American. How they get there is by saying that a debt downgrade would increase borrowing rates, mortgage rates, car loans, and virtually every other financial transaction.

It doesn’t matter that I think S&P’s behavior has been atrocious, it matters that members of Congress still believe in them, and in the value of the triple-A rating. Not only that, but John Boehner doesn’t seem to have the support of his party or of the far-right activist groups for his two-step plan. Given this resistance from the right, and the fact that no more than a handful of Democrats will support it, it’s an open question as to whether Boehner’s plan can even pass the House, let alone the Senate, where Democrats are against it.

This doesn’t mean that the Reid plan can pass the Senate either. It can probably get a majority, but it’s unclear whether it could attract enough Republicans to break a filibuster. Joe Lieberman reinforcing the claim that the $1 trillion cut to future Iraq and Afghanistan war spending is a “gimmick” probably sinks any effort to make that fly, even though it was part of the Ryan budget that practically every Republican voted for.

So we’re pretty much right where we started: poised for an era of austerity, but unable to figure out which plan will specifically take us there, and staring square in the face of default.

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David Dayen

David Dayen