President Obama tried to turn the heat up on Republicans over the national debt ceiling in his White House press conference this morning. His message was clear: He has been willing to make the politically tough decisions needed to rein in the deficit. Republicans haven't.
Just as important, Obama raised the stakes by saying he would not sign any stop-gap measures to allow negotiations to continue beyond August 2. That leaves negotiators just three weeks to strike a deal and secure congressional approval. Those weeks are going to test not just the wills of Democratic and Republican leaders but also the patience of the financial markets. Debt rating agencies have warned of a possible downgrade of the U.S. credit rating, and the new chief of the International Monetary Fund says failure to raise the debt ceiling poses a threat to global financial stability.
Obama was gracious to John Boehner, noting that the House Speaker faced difficult challenges within the House GOP caucus. That olive branch reflected Obama's hope that Boehner might decide to re-engage in talks on a $4-trillion debt ceiling deal that would trade entitlement reform for tax hikes. †
Boehner's decision on Saturday to abandon pursuit of a "grand bargain" reflects his political weakness. Although he speaks for House Republican lawmakers, he does not command them.
Boehner's chief lieutenants favor pursuing a smaller $2.4 billion deal that would not hike taxes. They are supported by Tea Party legislators who scoff at Treasury Secretary Tim Geithner's claim that failing to raise the debt ceiling will be a "catastrophe" for the economy.
House Republicans are also being egged on by GOP presidential candidates. Former Minnesota governor Tim Pawlenty told Iowa voters last week: "I hope and pray and believe they should not raise the debt ceiling."
How the debt ceiling debate plays out will be shaped partly by the answer to a simple questions. Who will get blamed if the White House and Congress cannot agree on a deal?
Many Republicans believe that the answer is Obama because Americans expect presidents to get things done. Conversely, many Republicans worry that backing Obama's call to raise taxes -- even if it is described as closing loopholes or reining in tax expenditures -- will cost them dearly with their own constituents.
Obama's remarks today were about using the presidential bully pulpit to change that calculation. He knows that he gains leverage if Americans accept his claim that the GOP is courting economic disaster with a "my way or the highway" attitude.
The debt ceiling debate will also be shaped by how the financial markets react. So far, they have discounted the lack of progress on a deal. Investors understand a basic rule of Washington showdowns: nothing get decided until the last minute.
But the calm in the markets also encourages both Democrats and Republicans to hold until the last moment. And that wait will test the patience of investors who are already jittery with concerns about slowing job growth in the United States, increasing political turmoil in the Middle East, and an expanding eurozone debt crisis.