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Debt-limit surrender may depend on concessions

It got a bit lost in the coverage of President Barack Obama's State of the Union address, but the biggest news of the week came from House GOP leadership, which signaled it plans to surrender on the debt limit and not demand significant concessions from Democrats.

This makes logical sense, as passage of the budget deal, with widespread GOP support, should make the debt-limit hike a nonevent. For Republicans to oppose covering spending they authorized in the budget would seem perverse.

And the GOP lost significant political ground following the government shutdown fight in the fall and won no real concessions in the past two debt-ceiling fights. So why go into a potentially damaging battle only to lose once again against a united Democratic front as the midterm elections begin to heat up?

Full capitulation seems the only viable strategy. Embrace the spending cuts of the past three years and move on.

(Read more: Why Obama's legacy may be slipping away)

So is it really all over? Will both chambers pass a clean debt-limit bill and send it to the president by the end of February, which the administration says is the final deadline? Maybe. But it's not a guarantee.

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There are still many conservative Republicans in the House who want to attach policy riders to a debt-limit bill, such as approval of the Keystone XL Pipeline, repeal of the medical device tax and elimination of the so-called risk corridors in Obamacare.

And these people do not believe Treasury's deadline is real no matter how many letters, replete with statistics on government cash flows, Treasury Secretary Jack Lew sends to Congress. They are also unmoved by letters like the one sent to the Hill this week by the U.S. Chamber, the American Bankers Association and other big business groups demanding a timely increase in the borrowing limit.

Some close watchers suggested that leadership this week was attempting to set expectations low for members and warn them not to push for modest riders or even bigger ones, such as cuts to entitlements.

But there is no guarantee this message will work and that members will not agitate for House Speaker John Boehner, R-Ohio, to put a bill on the floor with serious riders. After all, the Republican brand is still closely associated with controlling spending and further cutting the $17 trillion national debt.

Polls show that the debt issue continues to resonate with voters (even if threatening default doesn't). So for Republicans, especially in the House, rolling over to pass a clean debt-limit bill will be a tough thing to do.

(Read more: Roach on US recovery: 'Keep the Champagne on ice')

One former top administration official who asked to remain anonymous said there may yet be a round or two of brinkmanship before the debt ceiling ultimately gets raised.

"Republicans may want to test that Treasury date because they have always wanted to test it," the source said. "And it's not totally clear Boehner won't put something on the floor to appease his caucus before eventually giving in as he always does."

None of this means there is any real risk of actual default. Because there isn't. It's just a question of what kind of theatrics precede a debt-limit hike and what kind of impact that could have on already shaky global markets.

The likelihood is that Wall Street will mostly shrug off any noise ahead of the debt-limit hike. But any question of when the real drop-dead date is, coupled with a GOP push for concessions, would come at a sensitive moment as Janet Yellen prepares for her first FOMC meeting and news conference as the newly installed Fed chair.

Yellen is scheduled to meet the press for the first time March 19. And while no one expects her to make any market-moving flubs (she is widely viewed as extraordinarily smart and capable), it will be a new experience for her. Every word she says will be parsed for its meaning on long-term plans for the wind-down of quantitative easing and what metrics she prefers to assess health in the labor market and broader economy.

(Read more: Rich vs. poor: Wage stagnation is a myth)

Presumably the debt limit will be safely raised by the time Yellen takes the big stage. And the recent rout in emerging markets could be over. But we don't know any of that for sure. And there remains at least some chance of a confluence of possibly destabilizing events to converge this spring. The U.S. economy has seen that movie before, and it never ends well.

—By Ben White, POLITICO's chief economic correspondent and a CNBC contributor. White also writes the daily tip sheet POLITICO Morning Money (politico.com/morningmoney). Follow him on Twitter @morningmoneyben.

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