Did Paul Ryan Provide A Debt Ceiling Compromise Fig Leaf?

Tyler Durden's picture

Late last night, Paul Ryan wrote a WSJ op-ed titled "Here's How We Can End This Stalemate" in which some suggest he gave the framework for what a possible fig leaf offering on the government shutdown and debt ceiling compromise could look like. While on the surface this may be grounds for optimism, the reality is that Ryan, whose entire proposal is based on the assumption that Obama is willing to negotiate which for now he has shown repeatedly he won't, merely fell back to his traditional "grand bargain" talking point made so clear during the Mitt Romney presidential campaign.

To wit: "If Mr. Obama decides to talk, he'll find that we actually agree on some things. For example, most of us agree that gradual, structural reforms are better than sudden, arbitrary cuts. For my Democratic colleagues, the discretionary spending levels in the Budget Control Act are a major concern. And the truth is, there's a better way to cut spending. We could provide relief from the discretionary spending levels in the Budget Control Act in exchange for structural reforms to entitlement programs."

Obviously, the issue that Ryan focuses on is not the short-term funding gap, but the longer term deficit, captured best by the CBO's most recent long-term forecast best captured by this image:

In light of his proposal, Ryan gave some suggestions on how to generate a more viable long-term budget for the US, including increasing revenue, reducing spending, changing Medicare premiums, reforming Medigap plans, asking Federal workers to contribute more to their own retirement, and all those other talking points which have been tried before. Unsuccessfully. Because why bother with long-term sustainability when the #1 enabler of an irresponsible government, Ben Bernanke, is about to be replaced with an even more dovish person?

Nonetheless, Ryan made it clear this was not another "Grand Bargain" proposal:

This isn't a grand bargain. For that, we need a complete rethinking of government's approach to helping the most vulnerable, and a complete rethinking of government's approach to health care. But right now, we need to find common ground. We need to open the federal government. We need to pay our bills today—and make sure we can pay our bills tomorrow. So let's negotiate an agreement to make modest reforms to entitlement programs and the tax code.

Nonetheless, what Ryan does suggest is yet another angle to a common bargaining position, one which would be certainly more palatable to Obama:

That's why I want a budget agreement—because if we don't make the tough decisions now, we'll face only tougher decisions later. We can work together. We can do some good. All it takes is leadership—and for the president to come to the table.

The reason it would be "palatable" is that in order to get both parties happy and reach a compromise, all that would happen is for various long-term assumptions would be changed, with zero actual, real current impact - something politicians are good at, because it does not generate an adverse impact during their tenure (afterwards, it becomes someone else's problem).

In other words, yet another episode of can kicking, one which resolves the near-term stress points and pushes all the hard decisions to the future. As for the key issue on the table, Obamacare, it will be quietly, pardon the pun, tabled. Which, just as Bank of America said, is the compromise option. As long as the ACA is a topic of discussion no agreement can be achieved.

Which is why we tend to agree: ultimately this will probably be the loophole used by Boehner and the republicans to fold once more. The only question is when, and how big of a catalyst will we need for everyone to get into a room and lock themselves until an agreement is reached. In this regard, we agree with Deutsche Bank that only a big enough market drop will force things to where both sides have no choice but to sit down. And as explained, the outcome of such a "sitdown" would be trumpeted as yet another semi-grand bargain, which however would achieve absolutely nothing.

Finally, another take on the Ryan overture is from New Hampshire senator John Sununu who largely covered all these points in a Bloomberg TV interview earlier.