Experts say the GOP's strategy could wind up doing lasting damage to the U.S. economy. Wall Street to GOP: Are you nuts?

Senior Republicans believe they will be on stronger political ground if they allow a relatively clean bill funding the government to reach the president’s desk and instead use the debt-hike battle to gut Obamacare.

That’s a very dubious assumption.


Political analysts and market experts say this strategy could wind up doing lasting damage to both the United States economy and the GOP’s national political standing.

The fundamental flaw: There is no scenario under which the GOP is going to achieve its main stated goal, delaying the Affordable Care Act, through a debt limit showdown. The White House and Senate Democrats would never agree to such a demand. And senior administration officials say privately that their public refusal to negotiate over the debt limit is not simply a political ploy they will inevitably have to cast aside. Perhaps aware of the risks, House GOP leadership is now considering postponing a vote on a debt limit that includes an Obamacare delay to see what they can get out of a continuing resolution that funds the government past Sept. 30.

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A brief shutdown would have some negative economic effects and could create political blowback on the GOP. But it would cause far less long-term damage than a default, which would likely send interest rates sky-rocketing, crush the stock market, devastate business and consumer confidence, and probably send the nation’s economy hurtling back into recession if not depression.

“The economic damage created by a government shutdown doesn’t compare to that of breaching the debt limit,” said Mark Zandi of Moody’s Analytics. “Breaching the limit would be an economic disaster. Perhaps Republicans feel that gives the threat of breaching the limit more leverage. Or perhaps some don’t believe the impact of breaching the limit would be that bad. But to be frank, I’m as perplexed as you are. Fortunately, I’m not asked for advice on political strategy.”

In the best-case scenario, investors would come to believe that “we have totally incompetent politicians who are unwilling to pay the bills when they are due,” said Michael Obuchowski of North Shore Asset Management.

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White House aides say enshrining the debt limit as a political weapon under which an opposition party can extract major concessions would be a highly corrosive precedent that would make an eventual default a near-certainty when future negotiations fail. White House and Treasury officials say any further negotiations over the debt limit would introduce a level of risk around United States Treasury bonds where none previously existed, ultimately raising borrowing costs for both the government and average citizens for decades to come — if not permanently.

“We can’t do it, not just because of the issues at stake now but for what it would mean generations from now,” one senior administration official said recently.

White House senior adviser Dan Pfeiffer on Thursday described House Republicans as suicide bombers. “What we’re not for is negotiating with people with a bomb strapped to their chest,” Pfeiffer told CNN’s Jake Tapper. “We’re not going to do that.”

( Also on POLITICO: House GOP may delay debt ceiling vote)

Republicans would almost certainly have to either give in on their Obamacare demands — disappointing their most ardent tea party supporters — or be blamed for forcing a historic default or near-default over a quixotic quest to block a duly enacted law.

By contrast, GOP leadership could instead choose to stage their fight over funding the government, showing their tea party supporters they are willing to force a shutdown over the matter while possibly extracting concessions on other matters such as the Keystone pipeline or further spending cuts.

The White House has made clear it will not offer concessions for the debt limit hike, but it will negotiate over the continuing resolution to fund the government. That bill is currently working its way through the Senate and will be returned to the House stripped of the provision defunding Obamacare.

“Tea partiers need a shutdown to show their voters what they are willing to do, and and John Boehner needs it to show tea partiers what he’s willing to do,” said Stan Collender of Qorvis Communications, an expert on the federal budget process.

Some Republicans say they believe a debt limit breach would not be a significant political or economic crisis and that Treasury could simply decide to make interest payments on debt while curtailing other spending.

Treasury could probably engage in such “prioritization.” But it would mean eventually missing payments on Social Security and other vital programs and ultimately failing to meet bond payments. This would send the world’s largest economy — which previously enjoyed the status of global reserve currency and risk-free borrower — into default. And that would mean issuing future debt to fund all government operations, from the military to school lunch programs, would be far more costly if not impossible. The damage, according to non-partisan economic and market experts, would be virtually incalculable.

Even if Republicans decide they have more leverage by threatening default and take the nation to the brink — or even slightly beyond — and win some kind of deal, it could still have a negative impact on interest rates and the economy. Treasury bond investors, including large holders such as China, could decide the risks of eventual default had risen and start demanding higher interest rates.

And while surveys do show Americans like the idea of showing some kind of spending restraint when raising the debt limit, they do not support forcing default over unrelated issues such as the health care law.

Polls show Obamacare is not wildly popular — and the White House is now delaying another piece of the law — but they also show that even most Republicans do not want to force a default over the president’s signature legislative achievement.

A poll conducted for CNBC released earlier this week shows Americans overall oppose defunding Obamacare by a 44 percent to 38 percent margin. And the public opposes defunding Obamacare by a far sharper 59 percent to 19 percent if doing so means forcing a default. Even Republicans say they oppose defunding Obamacare by 48 percent to 36 percent if it means a shutdown or default. The only group that supports debt-limit brinksmanship over Obamacare: tea party supporters, with 54 percent backing such a strategy.

So, over the next two weeks, GOP leadership will have to decide whether pushing for concessions from the White House they have virtually no chance of getting and that enjoy only limited support within their own party is worth the risk of getting blamed for a historic and potentially devastating default.