Return of the default deniers

By Rachael Bade, Ryan Lizza and Eugene Daniels

With help from Eli Okun and Garrett Ross

Speaker Kevin McCarthy holds a media availability in Statuary Hall at the U.S. Capitol on Thursday, Jan. 12. | Francis Chung/POLITICO

Amid the debt ceiling standoffs of 2011 and 2013, and warnings of global economic catastrophe, a novel proposal gained traction on the right: Rather than defaulting on bond obligations and sparking a broader calamity in the markets, the federal government could, once the ceiling is reached, simply pick and choose which bills to pay.

Such “debt prioritization” schemes never went anywhere. Democrats branded their proponents “default deniers” and firmly opposed their efforts. The standoffs were resolved, and the notion of favoring bondholders first was forgotten by all but a devoted band of conservative budget hawks.

Now what’s old is new again: Amid another looming debt showdown, WaPo’s Jeff Stein, Leigh Ann Caldwell and Theodoric Meyer scooped details of a brewing GOP plan to put a bill on the House floor instructing the Treasury Department to prioritize 1) debt service payments, 2) Social Security, Medicare and veterans benefits and 3) military funding absent a bipartisan agreement to raise the borrowing cap.

The controversial proposal, which has not been finalized, “would still leave out huge swaths of critical federal expenditures on things such as Medicaid, food safety inspections, border control and air traffic control, to name just a handful of thousands of programs,” the trio note. It was part of the handshake agreement between KEVIN McCARTHY and his detractors, helping the California Republican secure the speaker’s gavel in return for a promise to bring a prioritization bill up for a vote before April.

Democrats are already coming out swinging. Last night, White House chief of staff RON KLAIN blasted the idea on Twitter — previewing how Democrats are going to have a field day accusing the GOP of putting Chinese lenders over the wellbeing of Americans.

Twitter screenshot

Besides the obvious political headaches, debt prioritization poses some practical complications, as well. When the notion was floated a decade ago, the Obama Administration argued that such a plan was unworkable given that government computers automatically make millions of payments every day. Then-Treasury Secretary JACK LEW called prioritization “default by another name,” according to WaPo.

Prioritization is also unlikely to protect the U.S. credit rating, which saw downgrades amid the previous fiscal standoffs. Bondholders might be protected but others due federal payments might not, with WaPo noting that the proposal would force Uncle Sam “to halt payment for as much as 20 percent of money that it has already promised to spend.”

Importantly, it’s not only Democrats raising alarms. Economists — even conservative ones — are warning that debt prioritization would not sidestep the economic consequences of failing to raise the debt ceiling, which could include a stock-market spiral and significant job losses. Among those named in the story:

— NEIL BRADLEY, executive vice president of the U.S. Chamber of Commerce: “If the U.S. government skips its payments to America’s seniors or skips its payments to bondholders, both of those things call into question the full faith and credit of the United States government and our commitment to paying our bills. And both of them have pretty catastrophic economic consequences.”

— BRIAN RIEDL, a Manhattan Institute policy analyst who worked in Sen. ROB PORTMAN’s (R-Ohio) office in 2011: “Studying this in 2011 convinced us this would be a really bad idea and something we really did not want to happen. We didn’t end the exercise saying, ‘This is feasible and smart.’ We said, ‘Let’s avoid this at all costs because it’s going to be a disaster.’”

Meanwhile, American Enterprise Institute economist MICHAEL STRAINargued in a blog post this week that raising the debt ceiling should be “routine” and warned against the dangers of “an accidental, temporary default.”

“Congress is playing with fire,” he wrote. “The Dow would plunge by thousands of points per day, and the credibility of the US — its trustworthiness as a country that pays its debts on time — would be substantially eroded. After a day or two of this chaos, a clean bill to increase the debt ceiling would pass both houses of Congress with overwhelming bipartisan support. Republicans would have accomplished nothing.”

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The news comes after Treasury Secretary JANET YELLEN on Friday notified Congress that the debt ceiling will be reached Thursday and she’ll begin using “extraordinary measures” to keep payments going for a time. Yellen signaled that the “X date” when payments will lapse could come much earlier than lawmakers had expected — as soon as June rather than this fall.

The White House is making clear, meanwhile, that it is not willing to wheel and deal as the Obama administration did. Raising the debt limit “should be done without conditions,” press secretary KARINE JEAN-PIERRE said Friday. “There is going to be no negotiation over it. This is something that must get done.”

There’s clearly room for a conversation about the federal government’s fiscal trajectory. The national debt is now at 121% of the gross domestic product — a level the country hasn’t approached since the immediate aftermath of World War II. But the GOP’s demand to tackle the issue as part of a debt ceiling negotiation and risk economic devastation rings hollow given the party’s collective shrug at raising the cap not once, but three times under President DONALD TRUMP.

The good news? Things are at least moving fast — debates that took months to play out a decade ago are now advancing day by day as the debt standoff moves front-and-center. But it remains to be seen how messy things will have to get in the markets before reality sets in.

Good Saturday morning. Thanks for reading Playbook. Drop us a line: Rachael Bade, Eugene Daniels, Ryan Lizza.

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MARK YOUR CALENDARS — “McCarthy invites Biden for Feb. 7 State of the Union speech,” by AP’s Zeke Miller

PHOTO OF THE DAY

President Joe Biden shakes hands with Japanese PM Fumio Kishida as they meet in the Oval Office on Friday, Jan. 13. | Evan Vucci/AP Photo

7 THINGS THAT STUCK WITH US

1. THE TALENTED MR. SANTOS: “Santos’s Lies Were Known to Some Well-Connected Republicans,” by NYT’s Nicholas Fandos: “In late 2021, as he prepared to make a second run for a suburban New York City House seat, George Santos gave permission for his campaign to commission a routine background study on him. … But when the report came back on Mr. Santos, the findings by a Washington research firm were far more startling, suggesting a pattern of deception that cut to the heart of the image he had cultivated as a wealthy financier.”

2. DOCU-DRAMA: “Inside 5 days of a White House determined to maintain business as usual,” by CNN’s Phil Mattingly: “As senior White House advisers took stock of five days of stunning twists and turns, they maintained it would serve as a roadmap for their path ahead, despite the spotlight of an investigation that is largely out of their control. They repeated the view that the investigation will ultimately show Biden’s lawyers took the proper steps when the classified documents were discovered.”

— Related reads: “Democratic allies grow frustrated with White House response to Biden's classified documents,” by NBC’s Peter Nicholas, Kristen Welker, Carol Lee and Mike Memoli …“Document discovery spotlights Biden’s frequent use of Wilmington home,” by WaPo’s Matt Viser

3. EXTREME MAKEOVER, MTG EDITION: “From outside agitator to inside player: The remaking of Marjorie Taylor Greene,” by WaPo’s Ashley Parker and Michael Scherer: “Amid the cycle of self-inflicted errors, public rebukes and halting apologies, [Georgia Rep. MARJORIE TAYLOR] GREENE also embarked upon what one person called a ‘methodical’ reinvention starting early last year, according to some people familiar with her thinking…

“Greene calculated that McCarthy was likely to be the next House speaker — and that her best opportunity at political relevancy was aligning herself with him, one of these people said. She also made the strategic decision to position herself as conduit between the populist base and her party’s leaders, reasoning that she could lobby for more of her conservative priorities if she had strong relationships between both camps, said a second person, who recently spoke with Greene.”

4. BY THE NUMBERS: “Why there are more Republican women in Congress than ever before,” by CNN’s Simone Pathe, Maeve Reston, Janie Boschma and Renée Rigdon: “Though many women (and men who care about electing them) applaud a recent shift in attitude among GOP leadership and a segment of the donor class – for whom identity politics has often been anathema – long-term hurdles remain.”

5. HOT TOPIC: “What’s real behind the gas stove kerfuffle?” by Alex Guillén and Ben Lefebvre: “Genuine or not, the stove flap gave Republican lawmakers an opening to put Biden’s energy policies back on the front burner, after last year’s spurt of high gasoline prices had faded from the headlines. It also touches on a real, coast-to-coast crusade by liberal city and state leaders to prohibit gas stoves and furnaces in new buildings, on the grounds that they endanger health and contribute to climate change. But the White House has disavowed enacting any such ban at the federal level.”

6. SECRETARY UNDER SIEGE: “Democrats slough off attacks on Buttigieg,” by Adam Wren and Oriana Pawlyk: “In his first two years in the usually backwater Cabinet post, [Transportation Secretary PETE] BUTTIGIEG has reaped no shortage of political benefits, from hopscotching around battleground states handing out infrastructure checks to making hundreds of hits on late-night television and local news. But lately he’s been seeing the downsides of running a sprawling department as a rising Democratic Party star.”

7. AD ASTRA ADVERSARIES: “Lunar relations: The U.S., China and a new brand of space race,” by WaPo’s Christian Davenport: “If the Cold War space race of the 1960s required a military like effort to muster the resources to beat the Soviet Union to the moon, the race of today is more of a soft-power endeavor designed to gather allies and create rules for the peaceful use of space.”

CLICKER — “The nation’s cartoonists on the week in politics,” edited by Matt Wuerker — 16 funnies

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GREAT WEEKEND READS, curated by Ryan Lizza

Blake Hounshell, who died this week, was part of a small group of editors who created POLITICO Mag back in 2013. It was one of the highlights of his career.

After he formally left the magazine and moved on to seemingly every other position at POLITICO, Blake remained a fierce champion of POLITICO Mag and longform journalism. “All of us,” he once said of that founding crew, “are culturally ‘magazine people.’” He liked to call himself the magazine’s “guardian angel.”

There were better editors and better reporters and better writers than Blake, but I rarely encountered anyone who was better than him at all three. And he made it all look so effortless. “No editing challenge was insurmountable,” POLITICO Mag’s current editor, Elizabeth Ralph, who helped curate these selections, noted in a tribute to Blake last night. ”I marveled at how easily ideas, writing and editing came to him.”

I reached out to some of the editors and writers whom Blake worked with to assemble this list of Blake’s greatest hits, pieces that Blake was particularly proud of publishing. His involvement in these varied, but he had some role in either assigning, shaping or editing them. And at the end of the list are a few big pieces by Blake himself.

— “The Jihad Next Door,” by Rania Abouzeid: “The Syrian roots of Iraq's newest civil war.”

This piece, a masterful account of the rise of ISIS, won the George Polk Award.

— “The Genocide the U.S. Didn’t See Coming,” by Nahal Toosi: “Barack Obama was determined to open up to Myanmar. Now the country’s military is slaughtering its most vulnerable ethnic group. Could the United States have prevented it?”

Blake had a way of making great stories happen. He assigned Nahal Toosi to a topic where Politico could make a huge contribution in connecting the Washington story to the overseas story. It ended up being a finalist for a National Magazine Award.

— “Inside the Chaotic Early Days of Trump’s Foreign Policy,” by Nahal Toosi: “Former top national security officials detail a climate of fear, incompetence and hostility to facts in a White House that wasn't ready to run the world.”

“‘How many people have you interviewed so far?” Blake asked Nahal when she first told him about this story on Trump’s NSC. “Twenty-five,” she said. “Holy shit!” he replied. “Then I mentioned the anecdote involving the meditation room,” Nahal told us. “That’s when his eyes sparkled. ‘You have got to write this story,’ he said. And he handled the edit.”

— “Kent Sorenson Was a Tea Party Hero. Then He Lost Everything,” by Tim Alberta

“Blake and I spent almost a year piecing this together — preparing for Sorenson to be released from prison, arranging for me to pick him up, then navigating a long period in which Sorenson went dark after his son died by suicide,” Tim said. “Blake kept telling me it would be worth the wait. He was right.”

— “Paul Ryan Sees His Wild Washington Journey Coming to An End,” by Tim Alberta and Rachael Bade: “He felt he was ‘made for this moment.’ But now, on the verge of achieving his long-sought legislative dream, he’s got his eyes on the exits.”

This collaboration between Tim and Rachael earned a 2018 Everett McKinley Dirksen Award for Distinguished Reporting of Congress Honorable Mention.

— “John Boehner Unchained,” by Tim Alberta: “The former House speaker feels liberated — but he’s also seething about what happened to his party.”

“He and I both fought like hell,” Tim told me, “to run it at 12,000 words (they wanted it under 8,000) and when John Harris finished it, he emailed us both: ‘I wanted to keep reading!’”

— “When Aretha Franklin Rocked the National Anthem,” by Zack Stanton: “In 1968, the Queen of Soul drew a fierce, racially charged reaction when she sang ‘The Star-Spangled Banner’ at the Democratic National Convention. The reaction to her death shows how much America has changed — and hasn’t.”

"When Aretha Franklin died, Blake assigned me to write something quick and short — neither of which is my natural inclination" Zack said. "But he saw in me the ability to do good work, even if it was outside my comfort zone. The result may be my favorite piece I've written, and undoubtedly the shortest."

— “Portrait of the Governor as a Young Man,” by Olivia Nuzzi: “Chris Christie's forgotten early years of scandal and failure.”

Blake was justifiably proud of this one, and he never failed to remind Olivia that he published her first great magazine piece.

— “Bill de Blasio Has Some Regrets,” by Ruby Cramer: “As voters ready to pick his successor, the outgoing mayor reflects on his legacy and his relationship with a city that loves to hate him.”

Blake brought Ruby Cramer to POLITICO by promising her a job that would “challenge you and inspire you but also give you the space you need to do what you were put on this Earth to do.” He kept that promise, as you can tell from reading this brilliant de Blasio profile, Ruby’s first piece during her time here.

— “The Man Who Became Donald Trump,” by Annie Karni: “It began as debate prep for Hillary Clinton. It grew into much more than that.”

When you brought Blake a big scoop or a brilliant idea, his face lit up and he couldn’t wait for the moment when he would get to hit a button and share it with the world. “So much fun working with him on this,” Annie said. “He loved it and he was so excited about it.”

— “I Did Ruth Bader Ginsburg's Workout. It Nearly Broke Me,” by Ben Schreckinger: “Pumping iron with RBG’s personal trainer is no joke.”

Blake delighted in the wacky. He had the exquisite idea to assign Schreckinger to try Ruth Bader Ginsberg’s exercise routine and write about it. 

— “State Department Insiders Ask: What Is Susan Pompeo Really Up To?” by Daniel Lippman and Nahal Toosi: “The wife of Secretary of State Mike Pompeo has been integral to his meteoric rise. But her close involvement in his career has attracted unwelcome scrutiny.”

“Blake was keen on being careful and thorough, especially in terms of fairness,” Daniel said. “He also pushed us to get as many previously anonymous quotes from sources to be put on the record because he knew it would make it a much stronger story.”

And a few by Blake himself:

— “Scenes From a Constitutional Crisis: Dulles International Airport meets Donald Trump's immigration order.”

Blake never wanted to be far from the news, and he rushed to the airport on a weekend to report this story even though he was an editor at the time. 

— “Confessions of a Russiagate Skeptic: Why I have my doubts about whether Trump colluded with Moscow.”

Blake had the courage to put his name on something very counterintuitive in the moment.

— “Why I’m No Longer a Russiagate Skeptic: Facts are piling up, and it’s getting harder to deny what’s staring us in the face.”

And he had the courage to change his mind.

FIRST IN PLAYBOOK — MEDIAWATCH: As part of NBCU News Group's roughly 75 layoffs on Thursday, NBC News is shuttering its online opinion vertical NBC News THINK, an NBC source familiar with the matter told Daniel Lippman.The vertical, which started in 2017, published opinion pieces on issues like politics and policy, health and technology, and culture and lifestyle. The NBC News THINK Twitter account last tweeted at 3:30 p.m. Thursday. NBC is moving all opinion perspectives to MSNBC's website.

WHITE HOUSE DEPARTURE LOUNGE — “David Kessler, top science officer for Biden's Covid response, to depart,” by Adam Cancryn

TRANSITIONS — Alex Vargo is now senior policy adviser for Florida Gov. Ron DeSantis. He most recently was VP of policy at the American Free Enterprise Chamber of Commerce, and is a Mitt Romney and Ted Budd alum. … Edgar Zurita is now managing director at Nardello & Co. He previously was a regional director for Latin America at Glomark-Governan. … Catherine Nabavi is now senior director with Siemens Healthineers’ government affairs team. She was previously senior director of congressional affairs at Elevance Health. …

… Sarah Mehrotra is now special assistant for the Department of Education. She most recently was senior data and policy analyst at the Education Trust. … Rep. Anna Paulina Luna (R-Fla.) is adding Alexandra Webb as legislative director and Edie Heipel as comms director. Webb most recently was legislative assistant for Rep. Ben Cline (R-Va.). Heipel most recently was political correspondent for Catholic News Agency, and is a Trump OMB alum.

WEDDING — Jordan Chernikoff and Demetrius Freeman, via NYT: “Ms. Chernikoff … works as a clinical social worker at the Washington VA Medical Center. … Mr. Freeman … is a photojournalist for The Washington Post, covering the White House and Capitol Hill, and a part of the Washington Post staff 2022 Pulitzer Prize public service medal. … The couple were married Dec. 31 at Capulet, a restaurant in New Orleans.”

HAPPY BIRTHDAY: Reps. Michael McCaul (R-Texas) and Randy Feenstra (R-Iowa) … Maureen Dowd … Susan Glasser … Shepard Smith … Nina Totenberg … Frank Raines … League of Conservation Voters’ Gene Karpinski … Sinead Casey … Michael Reed of the RNC … Regina Schofield … Colin Milligan of the American Hospital Association … Michael Block … WaPo’s Jen Liberto and Molly Gannon … Marc Schloss … CAP’s Marcella Bombardieri … Mary Kusler … NAACP’s Jonah Bryson … Toby Harnden … Herald Group’s Kevin Manning and Matt Brafman … Ben Koltun of Beacon Policy Advisors ... Eric Alterman … former North Carolina Gov. Bev Perdue … Margaret Chadbourn

THE SHOWS (Full Sunday show listings here):

ABC “This Week”: Rep. Adam Schiff (D-Calif.) … Sen. Raphael Warnock (D-Ga.) … Rep. Don Bacon (R-Neb.). Panel: Pierre Thomas and Sarah Isgur. Panel: Chris Christie, Donna Brazile, Rick Klein and Rachael Bade.

CNN “State of the Union”: Rep. James Comer (R-Ky.) … Rep. Jamie Raskin (D-Md.). Panel: Rep. Ro Khanna (D-Calif.), Scott Jennings, Ashley Allison and Kristen Soltis Anderson.

FOX “Fox News Sunday”: Rep. Tony Gonzales (R-Texas) … Rep. John Garamendi (D-Calif.) … Arkansas Gov. Sarah Huckabee Sanders. Panel: Cornel West and Robert George. Panel: Guy Benson, Olivia Beavers, Juan Williams and Horace Cooper.

NBC “Meet the Press”: Rod Rosenstein … Sen. Ron Johnson (R-Wis.) … Sen. Debbie Stabenow (D-Mich.). Panel: Hallie Jackson, Al Sharpton and Marc Short.

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Send Playbookers tips to playbook@politico.com or text us at 202-556-3307. Playbook couldn’t happen without our editor Mike DeBonis, deputy editor Zack Stanton and producers Setota Hailemariam and Bethany Irvine.

Correction: Friday’s Playbook misidentified Sen. Jim Risch's party affiliation. He is a Republican.

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