Wahlman: Boehner's Way Out

NEW YORK (TheStreet) -- The consensus is that House Speaker John A. Boehner (R., Ohio) has painted himself into a corner between the Tea Party Republicans and vetoes from President Obama. As a result, he either has to cave and face the wrath of his caucus -- or play hardball with the media against him, as it is dutifully doing Obama's bidding.

However, Boehner has a way out that will get him a significant consolation prize, without risking the media's wrath surrounding even the risk of getting close to a debt default.

But first, let's describe the conventional wisdom around the situation with the government shutdown and the debt limit.

The market has largely concluded that the so-called government shutdown isn't a big deal, even if it could fester if it goes on for a very long time. It's only a relatively small part of the government that's shut down, and if the furloughed bureaucrats are "non-essential" anyway, why were they employed in the first place? Most Americans go to work, walk the sidewalks, and see no damaging effects of the so-called shutdown.

Even refusal to lift the debt limit would not be nearly as bad as the partisan media claim it would be. The government collects $250 billion per month in taxes, and the interest on the debt is $30 billion. In other words, zero risk of a debt default.

That is, zero risk if Obama does the right thing.

But what if Obama were to simply sabotage the debt limit situation and voluntarily cause a default? With the help of the compliant media, Obama would try to pin the blame on the Republicans, and Boehner in particular.

Even without Obama causing a debt default for no logical mathematical reason, he could still make life very painful for the Republicans, given that he's got the media in his pocket. For example, any threat to stop sending out Social Security checks could easily cause the Republicans to cave.

Even for Republicans, if it's Social Security against Obamacare, Social Security wins every day. Boehner knows this.

All this is to say that the Republicans most likely will cave on the debt limit in the face of Obama exercising his control of the media. Therefore, it is in Boehner's interest to stop digging the debt limit hole immediately. The more he digs, the more painful the eventual surrender would have to be, two weeks from now.

Here is where it gets interesting: It is widely and naturally assumed that the Republicans first have to cut a deal on the spending, and then turn to the debt ceiling.

Well, seeing as the government shutdown simply hasn't become a big deal for the markets, Boehner actually has one more option: Jump straight to the debt limit issue right now, and give Obama everything for which he is asking on that one.

Well, doesn't mean total surrender, you say? No, not if there is no deal on the spending to begin with! In the scenario I am describing, the debt limit gets put off the table, but Boehner still holds the spending limit power over Obama.

This may not be all the Republicans want in their ideal scenario. Their ultimate pressure on Obama for the purpose of somehow getting rid of Obamacare would be an unlikely outcome.

But that was a pipe dream anyway, given that Obama is willing to go all the way to the brink -- and then jump into the canyon -- for this cause.

At the same time, Boehner can't show up empty-handed to his caucus, and expect to keep his job as Republican leader and House Speaker. The problem here is if he tries to get something out of a debt limit deal, and Obama doesn't blink, Boehner is going to walk home with nothing. And then, he's no longer Speaker. See how that works?

That's where my proposed solution comes in, which solves Boehner's dilemma.

No matter whatever other issues at hand, Obama cannot refuse a clean debt limit deal. As it stands, however, Obama has counted on first solving the spending issue -- and THEN move onto the debt deal. His tactic has been: First, stare down the Republicans for a spending deal, where they will get essentially nothing -- but the issue will be resolved. Second, go to the brink on the debt limit where the Republicans will get precisely zero, because they will be forced to cave under media's biased pressure.

What Boehner would do under this proposal is to reverse the order of things: Obama can't refuse a clean debt limit increase, so Boehner gives that to him now, as much as he and his caucus don't like it. Then, on the spending issue where the market has shown it isn't a big deal, and where there is a lot more public support (letting some unproductive government bureaucrats stay home), Boehner can essentially hold out forever.

In this scenario, Obama can either drag out the spending bill negotiations forever as well -- or settle with Boehner, but at that point Obama doesn't have nearly as much leverage as he does when the debt limit issue is on the table.

In other words, in my proposed scenario Obama gets to borrow the money, but he doesn't get to spend it -- and those spending negotiations can go on forever, without heavy public or media pressure on the Republicans, in comparison to the urgent debt limit issue.

In the current conventional wisdom scenario, the Republicans get to cut a crummy deal (if anything at all) on the spending issue, and then they stake everything on the prospect of keeping Obama from borrowing more money. Even if that's a heroic thing on principle, it's a loser given that Obama has a heavily biased media in his pocket. It's a guaranteed loser for the Republicans, and they would have to cave with losses on all fronts.

But if Boehner reverses the two issues, he can hold out essentially forever for a decent spending deal and perceived victory -- even if it's not the home run of which some members of his caucus have dreamed. The alternative to my proposal is a painful next two weeks, followed by near-certain capitulation.

Speaker Boehner, what say you?

The bottom line for the market is this: The pressing debt limit issue in Washington, D.C., will be resolved extremely soon, and in its wake the market will bounce strongly as the thesis returns to the Federal Reserve Chairman Ben Bernanke put, aka hedge fund manager David Tepper's "You can't lose" inflation vs. growth scenario.

This article was written by an independent contributor, separate from TheStreet's regular news coverage.

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