America's game of fiscal Russian roulette

Both sides seem willing to talk, neither side is willing to compromise. America’s budget crisis is still very much in stand-off mode.

In Hostages, a new network serial drama, Toni Collette plays a doctor scheduled to perform a straightforward surgical procedure on the President of the United States, and whose family is kidnapped as a means to force her to assassinate him on the operating table (SPOILER ALERT: the Vice-President might have something to do with it).

Despite Collette's prodigious talents and a generally warm critical reception, poor early ratings bode ill for the show's prospects – perhaps because no fictional hostage drama set in DC could possibly match in intrigue and thrills the reality TV version unfolding in real time before our eyes.

In a move that suggests that the Republican talking point about the President's refusal to negotiate are beginning to bite, the Hostage-in-Chief appeared before the White House press corps on Tuesday offering the GOP House leadership the outlines of an exit strategy. In return for their agreement to temporarily end the shutdown and withdraw their debt threat, the Obama White House will open wide-ranging talks with Republicans on a long-term fiscal deal and possible changes to Obamacare.

Minutes after the President left the podium, House Speaker John Boehner continued to insist that Obama is refusing to negotiate, stressing once again the desire on the part of Republicans to "have a conversation". The verb choices here strike me as telling: Republicans will converse; Democrats must negotiate.

Tuesday's events crystalised matters somewhat: each side wants to appear willing to talk to the other but only on mutually unacceptable terms. Hardly progress.

To make things worse, a growing number of Republican lawmakers have taken to downplaying the threat of a potential debt default. Senator Rand Paul, Republican of Kentucky and likely 2016 contender, berated the President for "trying to scare the markets."

"If you don’t raise your debt ceiling," Paul told reporters, "all you’re saying is, ‘We’re going to be balancing our budget.’" Not so much, if you believe the experts: "This is going to be permanently damaging for business and consumer confidence if this happens," Tom Simons, a money market economist with the investment firm Jeffries Group LLC told the Wall Street Journal, "People will never look at the United States Treasury the same ever again".

Minor hiccup en route to fiscal health or an unprecedented calamity? It's like a game of fiscal Russian roulette, although Putin would never let it get this far.

You might think that the emergence this week of default denialism might be enough to finally rattle investors, but Wall Street remains placid, pointing to a resilient consensus that the crisis (or non-crisis, depending on your point of view) will be averted in the nick of time. Similar stand-offs have been resolved in recent times by last-minute interventions of Vice President Joe Biden and his erstwhile Senate colleague, Minority Leader Mitch McConnell. But McConnell faces a tough re-election battle in his home state of Kentucky next year, and quelling a Tea Party revolt would all but ensure a messy primary challenge from the Right.

In any event, the Senate only comes into play when nervous conservative Democrats threaten to cross the aisle and give Republicans the votes against the White House, an unlikely prospect in light of clear public opposition to the GOP's hardline tactics. Not a single Democrat, not even from deep red states like Alaska, West Virginia and North Carolina – all up for re-election in 2014 – backed Republican efforts to defund Obamacare, a far more vexed political issue than a no-brainer vote to raise the debt ceiling. The House of Representatives, for better or worse (let's face it: worse) is the only game in town.

Will Boehner and Obama settle on a 6-8 week ceasefire to allow for a negotiated 'grand bargain' that addresses long-term debt and entitlement spending? It's certainly the most obvious off-ramp, but what happens next is far from clear. Obama won't take revenue off the table; Boehner won't countenance tax increases. Boehner will demand wholesale changes to Obamacare; the President won't concede any but the most superficial changes. The underlying causes of dysfunction in Washington DC will go untreated. The best either side can hope for is to live to fight another day, a surprisingly appealing result when you consider the alternative.

Phil Quin is a New York based consultant and freelance writer and former advisor to Gareth Evans and Steve Bracks. He can be found on twitter at @philquin