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NYT: This Debt-Ceiling Fight Will Be Different

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I participated in a roundtable discussion for the New York Times to discuss the Republican House majority and the coming clash over the federal debt limit. The Times‘ Ross Douthat led the conversation with me and my friend Haley Byrd Wilt of The Dispatch.

Here’s one of the key points I made:

Douthat: Let’s turn to the debt-ceiling issue. A lot of moderates and market watchers seem relatively sanguine, on the grounds that we’ve seen debt-ceiling fights before in the Obama era, and we know this will end (eventually) in compromise. But Liam, you’ve talked a lot about how there’s a big gulf between what conservatives consider the lessons of those Obama-era negotiations and how the Biden White House remembers them. Can you talk about those dueling visions?

Donovan: This is the fundamental problem at play — a mutual comfort level based on shared experiences from the not-so-distant past that the sides took very different lessons from.

For Republicans, the showdown in 2011 was the signal achievement of the Tea Party: staring down President Barack Obama and forcing the cuts associated with the Budget Control Act. It validated one of the animating forces of the right over the past decade-plus — that the party’s failures are a result of weak, feckless leadership, and if they fight, they win.

For Democrats, including Joe Biden, who as vice president had a front-row seat to the deal, it was evidence of why you should never negotiate under these circumstances, because it enables and encourages ever more reckless hostage-taking. That informs their current posture, as does the fact that they actually won the last such game of chicken in 2021.

Read the full piece here.

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Axios: Why debt ceiling risks could be real this time

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I spoke to Axios‘ Neil Irwin about the debt limit collision course and the circular risk of market optimism and underreaction.

What they’re saying: “In order for Congress to act expeditiously, there must be a sense of gravity around the consequences should they fail to act,” Liam Donovan, a principal at Bracewell LLP, tells Axios.

•”At this point, conventional market wisdom is actively undermining that sort of pressure by projecting unmitigated confidence that it will all work out,” he said.

The bottom line: The sanguine outlook on Wall Street makes it more likely that some ugly days may be in store later this year.

Read the full piece here.

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GRID News: Can the same House that barely elected a speaker manage to raise the debt ceiling?

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I spoke the GRID‘s Matt Zeitlin about the chaotic start to the 118th Congress and what it says about the looming debt limit fight.

The speakership fight was a “stark confirmation of what we already knew — that the results of the election have empowered and emboldened hard-liners within the conference and weakened the hand of leadership,” Liam Donovan, a Republican lobbyist, told Grid. It’s not clear that “any speakership” — McCarthy or otherwise — could survive putting forward a debt ceiling increase that Democrats could live with. “The challenge over the next six to eight months will be finding some sort of mutually acceptable fig leaf that would avoid a downgrade or default scenario.”

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But since past debt ceiling standoffs have been resolved without a breach, it’s possible that either the White House or the House may be more comfortable holding to their position in the expectation that the other side would cave. Similarly, it’s possible that the financial markets may not start reacting to the possibility of a debt ceiling breach until much later in the process, providing little outside pressure to reach a deal. “I think the X factor here is whether the mess on display wakes up [Wall] Street. They have underreacted in the past assuming it would all work out, which in turn emboldens guys who insist it’s all Chicken Little stuff. They’ll probably have to feel some pain to do what’s necessary,” Donovan said.

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Read the full piece here.

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