Daily Austerity Watch: Capitol Hill Meets Wall Street

House Speaker John Boehner (R-OH) is in a pickle.    On the one hand, the Ohio Republican has to convince his political base that he is serious about cutting the nation’s debt while at the same time assuring Wall Street that Republicans are not going to sabotage efforts  to raise the debt ceiling.   It’s not going to be easy.

The Wall Street bankers who will be in the audience for Boehner’s speech at the Economic Club of New York are going to be keenly interested in hearing how the GOP will avoid having the $14.3 billion debt ceiling breached by May 16.   Everyone — at least those with a brain cell — acknowledges that it would be a disaster for the U.S. economy if Uncle Sam maxed out his credit cards.  Last month, he Treasury Borrowing Advisory Committee, the organization that represents dealers in Treasury Dealers on Wall Street, argued that a breach would cause foreign investors to slash their holdings — perhaps permanently — and lead to a downgrade of U.S. sovreign debt, among other things.

“What Wall Street wants to hear is that they are going to raise the debt ceiling in a timely way,” said Mark Zandi, chief economist at Moody’s Analytics Inc. in West Chester, Pennsylvania, told Bloomberg News.  He added that politicians may bicker but at the end of the day they will raise the debt ceiling.

At least that’s the theory.

According to Politico,  Boehner will offer an olive branch of sorts, arguing for major changes to Medicare and will advocate for more aggressive cuts to the debt and deficit than being advocated by the Democrats.  It was not clear if this refers to the controversial Medicare overhaul advocated by House Budget Committee Chairman Paul Ryan,  though it probably does not since most pundits consider the bill to dead on arrival.

The National Journal’s Major Garrett told MSNBC that Republicans are going to tell the Obama Administration that if you cut up the credit card, “we’ll pay the bill.”  That is not what Wall Street wants to hear.  For one thing,  President Obama has said he wants a “clean” — amendment free — bill on the debt ceiling.   Investors hate uncertainty, which is exactly what a fight over the debt ceiling that goes down to the wire will create.

“Boehner’s public insistence that reforming Medicare stay a part of debt ceiling negotiations could reaffirm a concern among Wall Street types that Republicans are driving a hard bargain on the limit and will take the negotiations up to the last minute,” Politico says.  ” Boehner said last week Congress must now cut trillions, not billions.”

Boehner was able to negotiate a last-minute deal to avert a government  shut-down last month that many experts didn’t think would happen.   This time he has to pill an even bigger rabbit out of his hat.

–Jonathan Berr