Many in Washington and Wall Street are seeking to 2011 as a factor not to go nuts about the present debt-ceiling standoff. That year, a comparable crisis ended with a last-minute contract.
Investors “are thinking, I’ve seen this movie many times before and I know the end of it,” Moody’s Analytics primary financial expert Mark Zandi said.
But should financiers actually be so sanguine? Maybe not, according to Mike Sommers, who had a front-row seat to the drama in 2011 as chief of staff for then-Speaker John Boehner.
This year’s face-off, he said, “is 100% different,” including: “I just don’t know where the deal space is here.”
Several essential elements that remained in location throughout 2011 are missing this time around. Back then, the talks started much earlier and there was a various political environment and shared contract from the start that deficit decrease was a leading concern for both sides.
President Obama and Boehner likewise interacted socially in their off hours, making dealmaking a little simpler.
“We had a willing dance partner in President Obama who understood that the political dynamics changed significantly in 2010 and that he needed a deal on this,” said Sommers, who is now the CEO of the American Petroleum Institute.
Similarities and differences
Both the current standoff and 2011 are similar in one respect: They feature a Democratic president on the eve of a re-election bid facing off against a newly ascendant House GOP majority intent on curbing what they see as his excesses.
But those 2011 talks began early and after Obama had established the Bowles-Simpson Commission a year earlier with a mission of finding a balanced budget.
Those talks also featured a completely different personal dynamic between the leaders. Obama and Boehner saw each other again and again in the months that led up to that deal, from the formal meetings to golf outings.
By contrast, President Biden and Speaker McCarthy have only been in the same room a handful of times in 2023 and their interactions have more often been notable for heated remarks and personal acrimony.
Staff meetings also only began in recent days as the leaders belatedly try to find their way to a bipartisan deal against a very tight timeline.
Changes to the political landscape
The vast differences with 2011 are a result of shifts in the political landscape on both sides of the aisle. Some of those shifts are the result of how the 2011 crisis played out.
For Biden, who was right in the middle of those earlier talks as a lead negotiator, things are different now precisely because the 2011 openness to negotiate was later seen by Democrats as a mistake.
Veterans of the Obama administration have regularly expressed regret that they agreed to negotiate on something they say should be inviolable: the full faith and credit of the United States.
The then-Vice President came out clearly looking for a different approach in the future. “I’d be annoyed if I was sitting there too,” Biden said in August 2011 of his Democratic coworkers even as he assembled elect the deal that ultimately passed.
This time around, Biden and his group might be taking a seat to work out however they are still extending some credulity by preserving even the talks today are in fact working out on spending cuts more normally, not over the financial obligation limitation per se.
On the other side, Republicans look to 2011 as a model for how to use the debt ceiling as leverage but the political dynamics have changed there as well.
This time around, the powerful conservative wing of the GOP caucus has driven the GOP to demand much more and given McCarthy much less room to negotiate.
Last month, Republicans passed a sprawling proposal that is essentially a GOP wishlist not just focused on spending levels and deficits, but also addressing topics like tax policy, student loans and the Biden’s administration’s environment modification policies.
The tradition of 2011
The 2011 crisis ultimately ended simply 2 days prior to the Treasury Department had actually predicted the U.S. would lack money.
It was the last time a debt-ceiling contract led to concrete deficit decrease. The Budget Control Act of 2011 caused $917 billion in deficit decrease over the following years, according to the Committee for a Responsible Federal Budget.
But it likewise featured high expenses. Markets swooned in the summertime of 2011 and the brush with default caused the United States getting its very first credit downgrade in history.
Even with the memory of those expenses, the issues stay that both Washington and the monetary sector are minimizing the possibilities of a default, an occasion that Treasury Secretary Janet Yellen said today would imply “economic and financial catastrophe.”
Mike Konczal, a director at the Roosevelt Institute, kept in mind in a press instruction Monday that in taking a look at recent history “I worry that the lesson [lawmakers] are taking is that a solution will show up at the last minute, as it did in 2011.”
Ben Werschkul is Washington reporter for Yahoo Finance.
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