House GOP Leaders Gear Up For Debt Ceiling Battle

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The Senate is scheduled to vote on a bill later today that would keep the government open through the middle of November. What it won't do is defund Obamacare, something many House Republicans are still demanding. This means the fight over the short-term spending bill is likely to keep raging right up to a possible government shutdown on Tuesday. And this comes before the real battle coming next month over the nation's debt ceiling.

Here's NPR congressional correspondent Tamara Keith.

TAMARA KEITH, BYLINE: Behind closed doors yesterday morning, House GOP leaders laid out their plan for the debt ceiling. They would offer to lift the nation's credit limit for a year, in exchange for a long list of conservative agenda items: delay Obamacare, approve the Keystone XL Pipeline, reform the tax code, and on and on.

Texas Republican Blake Farenthold left the meeting optimistic.

REPRESENTATIVE BLAKE FARENTHOLD: The proposal being outlined is something everybody can get behind. It's stuff that, primarily, that we've already voted for and passed.

KEITH: It's not clear this will ultimately be the House Republicans strategy. In fact, it appears - at least temporarily - to be shelved. But one thing is certain: House Republicans plan to use their leverage on the debt limit to get something in return.

President Obama and Senate Democrats say they will not negotiate over the debt ceiling, period. So, given that likely impasse, is there a risk of blowing up the economy? Farenthold took a deep breath, and paused.

FARENTHOLD: Yes. That's why we're paid the big bucks, right? To figure these problems out.

KEITH: In acknowledging the risks, Farenthold joins a chorus of economists and business leaders. Most of them, though, urge Congress not to play with fire. But there are a number of House Republicans who argue the risks of getting burned aren't all that severe.

REPRESENTATIVE JOHN KLINE: I think it's not a good thing. But you've got a lot more flexibility with the debt limit.

KEITH: John Kline is a Minnesota Republican. He says, unlike a government shutdown, with the debt limit, there would be no immediate crisis.

KLINE: The government has the authority to spend money. It simply doesn't have enough. But the secretary of the Treasury has the ability to pay different parts of the obligation.

KEITH: This is a concept known as prioritization. Make interest payments on the national debt first, and there won't be a default. John Fleming is a Republican from Louisiana.

REPRESENTATIVE JOHN FLEMING: There's always enough revenue to make interest payments. There will never be a shortfall on that, so that default is impossible.

KEITH: Democrats call this the pay-China-first plan. People from both parties with an intimate understanding of Treasury Department operations say prioritization may not be technically possible, and even if it were, the risks of sending the nation into default would be too great.

IAN SHEPHERDSON: I think that, actually, the consequences of not raising the debt ceiling would be calamitous.

KEITH: Ian Shepherdson is chief economist at Pantheon Macroeconomics. He says if the debt ceiling isn't raised - even if treasury could keep making interest payments - it wouldn't have enough money to meet the rest of the nation's obligations, like sending out Social Security checks or veterans benefits.

SHEPHERDSON: It is absolutely, unambiguously clear that the money to make all the contractually committed payments would not be there, very quickly. To my mind, that would be a default.

KEITH: Some in Congress argue it wouldn't technically be a default, as long as the interest payments were still being made. But Doug Elmendorf, the head of the non-partisan Congressional Budget Office, warned a House Committee yesterday it may not matter.

DOUG ELMENDORF: If the confidence in the reliability of those payments were cast into doubt, then the consequences for the budget, for the U.S. economy, for the U.S. and global financial systems could be large and lasting and very damaging.

KEITH: There's no way of knowing exactly how the markets would react, but Shepherdson says he'd just as soon not find out.

SHEPHERDSON: There are some cliffs that you don't want to look over, and I think this is probably one of them.

KEITH: Treasury Secretary Jack Lew says October 17th is the date beyond which he can't guarantee the nation would have enough cash on hand to pay its bills.

Tamara Keith, NPR News.

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