In a Senate hearing on Thursday, Federal Reserve Chairman Ben Bernanke expressed his concern that Republicans were using debt ceiling negotiations as an opportunity to bargain on deficit cutting. Although he believes the deficit problem needs to be fixed, Bernanke does not think that it is wise to play games with the debt ceiling. He doesn't want to see the market for Treasuries get spooked by Washington's bickering. Why aren't Republicans more worried about this problem? They may realize that it works to their advantage.
There are two sorts of problems that could result from Congress failing to raise the debt ceiling promptly. In each case, Republicans might be better off taking their time.
Problem #1: No Agreement Is Reached On Time
Although the U.S. will bump its head on the debt ceiling next week, the Treasury has said it can take extraordinary measures until early August to keep the government going. After that, however, more significant obligations will have to be cut to prevent default. Is this supposed to scare Republicans?
For starters, the Republicans know that the Obama administration does not want to go down in history as the one under which the U.S. first defaulted. As a result, it will do whatever is necessary to make debt payments. In other words, it will cut other government obligations until a new deal is reached.