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How the debt ceiling crisis will play out

It is hard to see how the debt ceiling crisis will play out, but here are some speculative thoughts.

To simplify, let us stipulate there are four parties to the conflict:

Progressive Democrats
Moderate Democrats
GOP leadership
Tea party

– Democrats (both Progressive and Moderate) have no incentive to make concessions: it would mean the Tea Party will make all the decisions henceforth (by continually holding economy hostage) and thereby constitute an end to the US political system as we know it.

– GOP leadership have no incentive to let Democrats and moderate GOP vote to raise the debt ceiling: they would lose leadership.

– Tea party have no incentive to make concessions: they face no electoral threat from moderates and from the left.

Outcome 1 – Everyone follows their incentives and the debt ceiling is breached. Obama unilaterally increases debt ceiling, leading to a constitutional crisis and mayhem in financial markets (due to uncertainty regarding status of US government securities).


Outcome 2 – GOP leadership ignore incentives and do the right thing: let the democrats and moderates of both parties vote to raise the debt ceiling while sacrificing their leadership. Eric Cantor (or whoever else) takes over as speaker by pledging allegiance to the Tea Party and promising not to let the next debt ceiling vote – in, say, three months time – go ahead without their demands being met. The rolling crisis thereby continues.


Outcome 3 – Moderate democrats promise to support Boehner as speaker, changing his incentive to let them vote up the debt ceiling.


Outcome 3 means an end to the two party system that has existed for the past 150 years. There will, by November, be a Three party system – a speaker supported by a Grand Coalition of ‘moderates’ and a progressive caucus on the left and a Tea Party caucus on the right.

If you think about it, outcome 3 is how the crisis of 2011 was resolved, but in a less explicit manner (the Tea Party did not kick out Boehner). It was in the interests of ‘moderates’ of both parties to pretend this is still a two-party system, but I’m not sure that is true going forward.

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