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With Republicans Caught Between Wall Street and the Tea Party, Dems Just Might Win the Debt Ceiling Standoff

It'll take backbone we haven't yet seen, but GOP intransigence has given Obama the upper hand.

The country may have dodged a bullet as a result of the Republicans' unwavering intransigence on the debt ceiling. Democrats, after all, appeared ready to bend over backward to give them most of what they wanted – a series of incredibly painful spending cuts, perhaps including Medicare “reforms” -- in the middle of a gruelingly inadequate “recovery.”

Sources told the Washington Post 's Ezra Klein that Obama's decision to publicly call out the GOP was a sign that the deal was well and truly dead, at least until the government starts shutting down operations. According to reports, the Republicans walked away from an offer that would have landed them $2 trillion in cuts over the next decade because they refused to tolerate closing $400 billion in tax loopholes for their corporate patrons. Senate Democrats, meanwhile, are set to unveil their own budget, which is expected to fall to the left of not only what might have come out of the failed negotiations but also Obama's own budget outline.

While the pundits wring their hands over Washington's lack of “bipartisanship,” the reality that everyone understands is that the GOP leadership is far more frightened of its base than the Dems are of theirs. The Tea Partiers may have been promoted and employed to great effect by the Republican Party during the health-care debate, but as one Tea Party organizer told New York Times reporter Kate Zernike, “the people who have failed to represent us in the Republican Party have got to be targeted, they have to go.” In the last cycle they knocked off Sen Bob Bennett, R-Utah, a stalwart conservative. Freedomworks is now going after his erstwhile colleague, Orrin Hatch -- he of the 90 percent-plus rating from the American Conservative Union -- for the apostasy of supporting some rather corporate-friendly cap-and-trade legislation.

Given those circumstances, gridlock is the best thing for the economy and the American people. These may well be political games, but they have real-world consequences – the GOP's deep cuts to spending would not only fall heavily on the neediest Americans, they would also cost us hundreds of thousands of jobs over the next few years. What's more, holding the line sends the message – especially important in light of the tax deal Obama cut with Senate Republicans last fall – that the administration won't negotiate with hostage-takers acting in bad faith.

A number of Republicans have chosen to spin the debt ceiling as a non-issue, insisting, contrary to what every expert believes, that defaulting on the debt would be no big deal. Their base has bought the spin, and thus can't be moved to accept a deal at this point. There may well be a last-minute deal to raise the debt ceiling, but the GOP establishment has painted itself into a corner – with their Wall Street backers terrified of the consequences of default on one side, and their base on the other, unwilling to tolerate any effort to work with Democrats.

The Republicans may not be bluffing, but Obama and the Democrats appear for the moment to be holding their ground. They believe they've framed the debate well – arguing that the Republicans are so hellbent on preserving tax breaks for those at the top that they're refusing to do their jobs and, in the process, threatening the Main Street economy. And because the GOP is afraid to flinch, and Obama thinks he has a winning political argument, it seems unlikely that a deal will be forthcoming before August 3, when the Treasury's ability to shuffle money between accounts will play out and the United States will begin to default on some of its obligations, including, perhaps, its obligation to retirees on Social Security.

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