October 11, 2013

Analysis: Obama’s hardline budget stance rooted in 2011 impasse

The resolution of the showdown with House Republicans will be critical to maintaining Obama’s capacity to wield his clout during the three years left in his presidency.

By Mike Dorning And Margaret Talev
Bloomberg News

(Continued from page 1)

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A political breakdown that leads to a debt default carries greater risk over the long run for Obama than for the Republicans.

The Associated Press

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“There’s a hell of a lot more at stake for the president of the United States,” said Leon Panetta, Obama’s former defense secretary and Central Intelligence Agency director. “Nobody remembers who was speaker of the House when we went into the Depression; everybody remembers who the president was.”

He added: “Presidents who are successful are ultimately presidents who are able to get it done, get beyond this crisis. We cannot be a country that is constantly facing crisis.”

The economy already is showing signs of stress from the showdown between Obama and the House Republicans, similar to the damage sustained during the 2011 debt crisis.

The Gallup Poll’s weekly economic-confidence index plummeted 12 points in the week ending Oct. 6, the deepest plunge since the September 2008 collapse of Lehman Brothers Holdings Inc.

The benchmark Standard & Poor’s 500 stock index has dropped 4 percent since hitting a high on Sept. 18 amid concern about the political stalemate in Washington, though it’s still up more than 16 percent since the beginning of the year.

During the 2011 debt talks, the S&P 500 stock index fell 16.8 percent between July 22, when negotiations on a broad budget deal collapsed, and Aug. 8, the first trading day after the government’s AAA debt was downgraded. The index didn’t recover to its July 22 level until February 2012.

In 2011, Obama avoided a default with an agreement to cut federal spending by $917 billion over a decade and eventually put in place another $1.2 trillion in automatic, across-the- board spending cuts.

After those debt talks, growth slowed, though it regained enough strength by 2012 that Obama won re-election in a campaign partly based on his role shepherding a recovery from the 2007-2009 recession.

Among the real-time monitors the administration paid close attention to during the 2011 budget battle was the Chicago Board Options Exchange Volatility Index, said William Daley, who was then the White House chief of staff.

The VIX, sometimes nicknamed the market’s “fear gauge,” rises when investors anticipate more stock market volatility in the future.

It surged from 13.16 on Sept. 19 to 19.6 yesterday. That’s less than half the VIX’s peak of 48 reached during the 2011 debt crisis.

Obama has made the preservation of presidential power a centerpiece of his argument against meeting Republican conditions for renewal of the debt limit or a short-term extension of government funding needed to end the shutdown.

“You don’t pay a ransom; you don’t provide concessions for Congress doing its job and America paying its bills,” he said in an Oct. 8 news conference. He continued to use rhetoric belittling Republican resistance. “You don’t get a chance to call your bank and say, ‘I’m not going to pay my mortgage this month unless you throw in a new car and an Xbox,’ “ he said.

Obama and his aides in 2011 frustrated many Senate Democrats who saw them either as naïve or too focused on the 2012 campaign, said Jim Manley, a senior director at QGA Public Affairs and a former top aide to Senate Majority Leader Harry Reid, D-Nev.

Then-chief of staff Daley and adviser David Plouffe were so intent on gaining support from independent voters, Manley said, that they “spent months trying to cut a deal with Speaker Boehner when everyone else knew there was no deal to be had.”

“They’ve learned the lesson,” Manley said. “They’ve adjusted their tactics and taken a much harder line this time around, refusing to get into negotiations just for the sake of negotiations or optics.”

Obama also doesn’t have to run for election again.

Even so, Manley said, “It doesn’t mean everyone on the Hill isn’t going to be nervously watching how this thing plays out.”

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