Call it the "Boehner rally."
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Stocks markets surged Thursday and again Friday morning on news out of a stalemated Washington, D.C., that Congressional Republicans had proposed a deal that would temporarily lift the debt ceiling, potentially staving off a devastating default by the U.S.
The Dow Jones Industrial average rose 323 points on Thursday and was up more than 80 points Friday in mid-day trading, the Friday gains coming despite disappointing earnings reports from two of the biggest U.S. banks, J.P. Morgan Chase (NYSE:JPM) and Wells Fargo (NYSE:WFC).
Investors can thank House Speaker John Boehner, R-Ohio, even as the broader public, by a wide majority, blames Boehner and his fellow Republicans for the budget standoff that has shut down portions of the government for nearly two weeks and left the U.S. on the precipice of an unprecedented default.
Boehner might have the toughest job in Washington right now. He’s the face of a GOP party enmeshed in a deep conundrum.
On the one hand, there’s the macro-political landscape: Republicans at some point have to find common ground with the White House and Congressional Democrats on a deal that will reopen government and ensure that the U.S. can pay its debts, or else be ready to shoulder much of the blame for the fallout if no deal is reached.
Polls reveal a growing number of Americans fault Republicans for the impasse. A new Wall Street Journal/NBC News poll released Thursday night showed that 53% of Americans blame Republicans for the government shutdown while 31% blame President Obama. The same poll showed 70% of Americans believe Republicans are putting politics ahead of the greater good of the country.
On the other hand is the micro-political landscape: A significant number of Congressional Republicans are newly or recently-elected, sent to Congress in the 2010 or 2012 elections on platforms devoted to Tea Party principles of less spending and smaller government. And more specifically opposition to ObamaCare that in most cases has included a vow to defund the president’s signature health-care reform legislation.
Texas Senator Ted Cruz and North Carolina Congressman Mark Meadows come quickly to mind.
No Political Incentive to Negotiate
Especially in the House, where many districts have been reconfigured in recent years – gerrymandered in political jargon – to favor one party over another, these politicians’ biggest threat to re-election isn’t from a Democratic opponent in a general election but from a Republican rival in a primary who takes an even harder line on spending than they have.
These potential Republican rivals are waiting back home to pounce on any sign that the incumbents in Washington are breaking their vows of austerity and conceding in any way to the White House and Congressional Democratic.
Powerful conservative advocacy groups such as Club for Growth, Heritage Action and FreedomWorks are more than happy to publicly excoriate elected Republicans who fail to toe the Tea Party line. More importantly, these advocacy groups are threatening the status quo by providing funding – lots of it – to upstart Republicans who take a harder line than those already enmeshed in Washington.
In other words, the core group of Republicans who have refused to sign off on any budget that funds ObamaCare and has demanded spending cuts for a new debt limit have little incentive to negotiate with Obama or the Democrats. Not if they want to be re-elected.
This is the tightrope Boehner has been forced to walk, a high stakes game of chicken in which the Speaker of the House is not only a participant but also a referee.
Economists, business leaders and the Obama administration have made clear the potential fallout from a default. The Treasury Department last week issued a report saying a default could have a “catastrophic” effect on the U.S. economy, freezing credit markets, sharply raising interest rates and devaluing the dollar.
Hyperbolic, perhaps. But the mere threat of default in 2011 caused ratings firm Standard & Poor’s to strip the U.S. of its gold-plated AAA credit rating, a slap in the face that roiled global markets for weeks.
With his deal to extend the debt limit temporarily now on the table, Boehner seems to be pulling all the disparate players back onto the same field. No neat trick given the economic and political stakes at risk.