If Tea Party Likes a Debt Deal, It Can't Pass: Economist

As the high risk-game of chicken over raising the US debt ceiling draws closer to possible economic collision, one economist is warning that any deal that wins approval from the right-wing Tea Party movement will pass neither the Senate nor the president.

U.S. Minority Leader Rep. John Boehner
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U.S. Minority Leader Rep. John Boehner

“As the Tea Partiers are showing no indications of being willing to compromise at all, the only way a deal can be done is for moderate House Republicans—those who appreciate that default would be hugely damaging for the country—to side with Democrats to pass a bill that the Senate and the president can sign,” Ian Shepherdson, chief US economist at High Frequency Economics said in a research note on Wednesday.

As things stand, such a solution looks very unlikely in the coming days. The latest plan from House Speaker John Boehner needs revising following Congressional Budget Office experts warning it would not deliver on the spending cuts it claimed. That plan is likely to be voted on by Congress on Thursday.

President Barack Obama’s Chief of Staff, Bill Daley, told CNBC on Tuesday that he is confident that some kind of plan will pass. The head of global sovereign ratings at S&P has told CNBC that the US could prioritize debt payments to avoid default but warned such action would be “deeply disruptive” to the US economy.

A problem for the Republican Party could be that the majority of Americans now back a debt ceiling plan that involves both spending cuts and tax hikes. A Reuters/Ipsos poll this week found that 56 percent of American’s favor a plan involving both cuts and tax increases.

“We had hoped by now that House Speaker Boehner would have started to recognize this reality, but press reports suggest that he focused on party solidarity in his conference call with Republican House members,” said Shepherdson.

“Perhaps the light bulb will come on when the inevitable pushback from voters becomes overwhelming. We can only hope that happens before August 2,” Shepherdson said.