Tick, tick. August 2nd is the Debt Limit Armageddon. Or Not.

The deal 'was never really close,' Speaker John Boehner wrote in a letter to House members. | AP Photo Close
By DAVID ROGERS | 7/22/11 6:01 PM EDT

Debt talks between President Barack Obama and Speaker John Boehner broke down again Friday with Republicans accusing the White House of upping its demands for new revenues after a rival deficit reduction plan had emerged in the Senate.

The decision left Congress scrambling to find some alternative path around the threat of default Aug. 2. Discussions were already underway with Senate leaders and Boehner has indicated some openness to four to six week extension to get past the immediate crisis.

“The deal was never reached, and was never really close,” the speaker wrote in a letter to House members released at 6.p.m—after the financial markets had closed. “In the end we couldn’t connect. Not because of different personalities but because of different visions for our country.”

At the same time Republicans released their letter Friday evening, Obama walked into the White House briefing room to declare that Boehner had walked away from “an extraordinary deal.”

Despite Boehner’s disclaimer, the outlines of a $3 trillion plus deficit reduction package had been in place including what would have been substantial savings in Medicare and more than $1 trillion from appropriations over the next decade.

“I just got a call a half hour ago from Speaker Boehner who indicated that he was going to be walking away from negotiations with the White House for a big deficit reduction package,” Obama said. “I think we should have moved forward with a big deal. … It is hard to understand why Boehner would have walked away from this deal.”

Obama called congressional leaders to return to the White House on Saturday at 11 a.m. to continue negotiations, and he warned that something needed to happen — even if it’s a short term debt limit extension — before the financial markets open on Monday morning.

Read more: http://www.politico.com/news/stories/0711/59689.html#ixzz1SsQrTFqy

So what exactly was the Republicans’ endgame strategy on raising the debt limit? Did they believe President Barack Obama would totally capitulate and give them big budget cuts, including to entitlements, with no revenue increases? Did they have a plan if, as happened, he gave them most, but not all of what they wanted? Would they have actually voted to bring on default Armageddon, or was it all just a bluff?

These are just some of the questions people are asking after Senate Minority Leader Mitch McConnell essentially proposed having Obama be the “decider” on raising the debt limit, allowing the GOP to then later blame him for doing it. There may be some political benefit in that, but our polling raises other questions about why Republicans picked this fight and whether they could ever win it without Obama just throwing in the towel.

Voters do care about the debt and deficit spending, but not nearly as much as they worry about job creation. Republicans have done yeoman’s work in elevating the perception of debt and government spending as causal to our economic problems. Our latest IBOPE Zogby interactive poll found 91% of likely voters saying it was important for Obama and Congress to “agree and enact measures which reduce the nation’s long-term debt.”

Obama appeared ready to agree to such a deal. Republicans may not trust Obama to actually come through, both because the Administration has a much better handle on the actual impact of proposed cuts than does Congress (see the December 2011 budget and tax deal that yielded smaller savings than the GOP thought it was getting) and their antipathy toward Obama.

However, Obama’s offer of three-to-one budget cuts to revenue increases and willingness to make changes to the entitlement trifecta of Social Security, Medicare and Medicaid was a good deal for Republicans. Polls (including our most recent) find entitlement cuts unpopular, but that made it all the more to Republican advantage to accept Obama’s offer. GOP House members have voted to end both Medicare and Medicaid as we know them, and lost a safe House seat because of it. Why not put Democrats on the record for cutting entitlements, or at least force a bloody intra-party fight over the issue among Democrats?

The rest of what Obama is reported to have been willing to do fit quite nicely with what we found voters want, such as more in cuts than new revenues, reductions in both discretionary and defense spending and ending tax loopholes and preferences.

This was not good enough because Republicans are a party intent on total victories. In our poll, two-thirds of Republicans said deficit reduction should include only cuts and no added revenues. (Other choices included more in cuts, with some new revenue.) Among independents, who tend to be fiscally conservative, 37% took the hard position of no new revenue.

The Tea Party and Congressional members it helped elect made the debt limit a test of Republican resolve, and they are now angry at McConnell. Some Tea Partiers seemed to believe the nation would not go into default if the limit wasn’t raised, or welcomed the possibility as a way to shrink government.

Those demands put both McConnell and House Speaker John Boehner in a bind between the Tea Party and establishment Republican moneyed interests, for whom government default was unthinkable. McConnell’s plan puts him firmly with the party establishment, and has potential to crack the Republican coalition.

It also takes Obama largely off the hook. Yes, raising the debt limit is unpopular and Republicans can continue to pin the debt on Obama. An agreement would have taken the issue away. But once a new limit is passed, the matter will fade and we will continue to focus on jobs.

Obama’s hurdle to re-election is his need to at least make voters feel the worst economically is behind us. The debt limit debate is unlikely to have any lasting impact on the election. Instead, the big election news was the candidates’ quarterly fund-raising reports, and it was all good for Obama. His $86 million dwarfs the $35 million Republicans have raised. According to the Center for Responsive Politics, four years ago at this time, 10 GOP presidential candidates had raised more than $118 million.

Forcing a fight over the debt limit looks now as though it will help Obama at a time when he is down. The dismal June jobs report was a punch in the gut. Our polling finds the percentage saying Obama deserves re-election down to 36%, and seven Republicans are either in a statistical tie or ahead of Obama (Chris Christie).

The debt limit sideshow allowed Obama to reinforce his claim as “the adult in the room” trying to bring peace and resolution. McConnell’s no mas proposal ends the threat of Obama being the President who presided over the nation’s first default, and means he no longer has to take on an already skeptical party base over entitlements.

Now, Republicans appear back on their heels, and must game plan better than they did on the debt limit to have any hope of making Obama a one-termer.

Investors (big ones) aren't going to wait until August 2nd to make a move. They will do so early next week

It isn't a response to public opinion, or to pressure from the bond markets, or even to complaints from businesses. This crisis is gratuitous and deliberately inflicted by the Republican party.

Americans are now roughly split on raising the debt ceiling, a new CBS News poll shows, with support for an increase nearly doubling since last month.

The spike in support for an increase follows dire warnings from the Obama administration and many economists concerning the consequences of lack of action. They have warned of a possible U.S. default on its obligations, a stock market crash, an increase in interest rates and a halt in Social Security payments and other obligations.

Some Republicans, among them presidential candidate Rep. Michele Bachmann, have deemed such warnings "scare tactics." But the warnings -- and the increased media coverage of the issue -- seem to have prompted many Americans to move from opposing an increase to backing one.

Support for increasing the debt ceiling has risen 22 points from last month, from 24 percent to 46 percent. Opposition has fallen 20 points in that period, from 69 percent to 49 percent. (See graphic at left.)

The poll found that the more one follows the debt ceiling debate, the more likely he or she is to support an increase: 51 percent of those who are following the debate very closely think the debt ceiling should be raised, compared to just 29 percent of those who are not following it closely.

The shift toward more support for an increase can be seen across the political spectrum. Last month, 54 percent of Democrats opposed raising the debt ceiling. Now 61 percent support increasing it. And while a majority of Republicans and independents oppose an increase, it's by a narrower margin than last month. Thirty-three percent of Republicans now say the debt ceiling should be raised, up from 16 percent last month; 40 percent of independents say it should be raised, up from 21 percent last month.

Two thirds of Americans back the Obama administration position that a deal to increase the debt ceiling should include both spending cuts and tax increases, while just 28 percent back the Republican position of only spending cuts. Three in four say an agreement they do not fully support would be preferable to having the U.S. default on its debts.

Are you sure Thomas...take a look at the "All Americans" column before you answer...

Are you suggesting moral equivalence here?

The Clintonian solution is looking better and better to me: Ignore the debt limit, keep paying the nation's bills, and dare the Republicans to sue for default and for bouncing seniors' Social-Security checks. And in November 2012, ask the voters what they think of that.

You're right, I wasn't aware of the default in 1979, although from what I read that was a default in name only, meaning the debt ceiling was raised before any payments were missed.

Those Republicans are correct about the Social Security Trust Fund. It does have a lot of money.

"The problem is all these funds are wrapped up in bonds. Back in 1983 the Social Security Reform Commission basically made guidelines that led to a surplus.

"This surplus was used to buy bonds, and these are the bonds that Michele Bachman and her colleagues would tap into to pay social security checks. The problem becomes, if we use these bonds and pay checks for the next three years, in the long term, we wouldn't have any money left to make further payments . So, after those three years were up there would be no more Social Security," said Alan Barber of The Center for Economic and Policy Research.

So, it sounds like the Republicans are right and the money is, at least, there.

"Technically it is there but technically there is also a law that was enacted in 1996 that says the Social Security Trust Fund can not be run down.

"That means that, even if we were to change the law and modify it so that we could take this money out, there probably would be a lag in payments and in a best-case scenario recipients would have to wait indefinitely to get their checks," Barber told 9News Now.

Obama was asked about this in a July 12, 2011, interview with CBS News anchor Scott Pelley. Here’s their exchange:

Pelley: “Can you tell the folks at home that, no matter what happens, the Social Security checks are going to go out on August the 3rd? There are about $20 billion worth of Social Security checks that have to go out the day after the government is supposedly going to go into default.”

Obama: “Well, this is not just a matter of Social Security checks. These are veterans’ checks, these are folks on disability and their checks. There are about 70 million checks that go out each month.”

Pelley: “Can you guarantee, as president, that those checks will go out on August the 3rd?”

Obama: “I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue, because there may simply not be the money in the coffers to do it.”