It almost goes without saying, but Brian Beutler of Talking Points Memo got Standard & Poor's to say it anyway. "A sovereign's failure to service its debt as payments come due is a default according to S&P's sovereign rating criteria," according John Piecuch, spokesman for Standard & Poors. "In that case, the rating would be lowered to 'SD' (Selective Default)."

A few months ago, S&P revised our credit outlook to negative: that meant they thought there was a slightly higher chance we'd lose our credit rating in the future. That was a bit of a shock to the political system, but this would be the real thing. So it's worth being clear: when you hear Paul Ryan say the market would accept a default “for a day or two or three or four," or Devin Nunes say that “by defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions,” you're not hearing about some alternative to default. To S&P, that'd be a default. They'd lower our credit rating. The market would see our political system diving into an abyss that every other congress and presidential administration in history had considered unthinkable, and they'd see the rating agencies downgrading our debt, and that's plenty of fuel for an epic freak out.

A lot of Republicans get this. Doug Holtz-Eakin, president of the American Action Forum, released a YouTube video detailing the disastrous consequences of default and flatly concluding that "we’re going to raise the debt ceiling.” But the danger is that the Republican Party will want other things -- say, a bill with extremely deep spending cuts but absolutely no tax increases -- more than it will want to raise the debt ceiling. And with enough voices saying that the debt ceiling doesn't need to be raised, and enough other voices saying it can't be raised outside of one-sided concessions the Democrats will not make, it won't get raised.

Five in the morning

1) Moody's and S&P say the debt ceiling battle is risking the US's credit rating, reports Brian Beutler: "Two of the biggest ratings agencies say they could downgrade the United States' triple-A credit if the government misses even a single debt-service payment. 'A sovereign's failure to service its debt as payments come due is a default according to S&P's sovereign rating criteria,' writes John Piecuch, spokesman for Standard & Poors, one of the 'Big Three' credit ratings agencies, in an email to me. 'In that case, the rating would be lowered to 'SD' (Selective Default).' A U.S. analyst for Moody's -- another Big Three ratings agency -- was not available for an interview. But a spokesman referred me to a February report in which they downplay the likelihood that they'll have to reduce the country's credit rating. But it could happen as the result of a major political failure."

2) A bunch of key regulatory posts are still empty, reports Jesse Eisinger: "With Sheila C. Bair soon to leave her post at the Federal Deposit Insurance Corporation, the Obama administration will have five major bank regulatory positions either unfilled or staffed with acting directors. The administration has inexplicably left open the vice chairman for banking supervision, a new position at the Federal Reserve created by the Dodd-Frank Act, despite having a candidate that many people think is an obvious choice: Daniel K. Tarullo. The new Consumer Financial Products Board chairman is unnamed. There are some lower-level positions that don't have candidates, including the head of the Treasury's Office of Financial Research and the Financial Stability Oversight Council insurance post."

3) Senate Democrats won't release a debt plan, reports Lori Montgomery: "Senate Democrats decided Thursday not to release their spending plan to counter the budget blueprint approved last month by House Republicans, saying they will wait to see whether talks at the White House produce a compromise plan for reining in the national debt. Democrats said they are close to agreement on a spending plan that would reduce borrowing by more than $4 trillion over the next decade, with about half the savings coming from higher taxes. That would offer a sharp contrast to the GOP budget, which relies entirely on deep cuts in spending. But rather than subject a proposal for higher taxes to Republican attack, Senate Budget Committee Chairman Kent Conrad (D-N.D.) said he would 'defer' action."

4) The US wants a European to lead the IMF, report Sudeep Reddy, Geraldine Amiel, and David Gauthier-Villars: "The U.S. stood behind the International Monetary Fund's longstanding succession guidelines Thursday--averting rising calls by emerging-market officials for more sway over the IMF and boosting Europeans' efforts to name the next IMF chief...The fund's six-decade tradition calls for appointing a European to lead it, but the post now comes open amid a shift in the longtime balance of global economic power. Emerging-market nations, arguing that their new strength should be reflected in senior management of the IMF, are pressing for more say in the body, which directs the flow of billions of dollars to stabilize the global economy... The U.S., IMF's largest shareholder, isn't supporting developing countries' call."

5) Insurers will have to justify any premium hikes over 10 percent, reports Robert Pear: "Alarmed at soaring premiums and profits in the health insurance industry, the Obama administration demanded on Thursday that insurers justify proposed rate increases of more than 10 percent, starting in September. Kathleen Sebelius, the secretary of health and human services, issued a final rule establishing procedures for federal and state insurance experts to scrutinize premiums. Insurers, she said, will have to justify rate increases in an environment in which they are doing well financially, with profits exceeding the expectations of many Wall Street analysts...Federal health officials proposed the 10 percent threshold in December. The insurance industry criticized it as an arbitrary test that could brand a majority of rate increases as presumptively unreasonable."

Cool visualization interlude: A mashup of Daft Punk songs, with the layered tracks represented as concentric, expanding circles.

Got tips, additions, or comments? E-mail me.

Still to come: Some House Democrats want Obama to recess-appoint Elizabeth Warren; Nancy Pelosi is holding the line against any Medicare cuts; Dahlia Lithwick on Goodwin Liu; natural disasters are leading some GOP freshmen to warm up to government spending; a new "gang" might put together a bipartisan drilling bill; and a zombie kitten feasts on (gelatin) brains.

Economy

Natural disasters are making GOP freshmen change their tune on spending, reports Marin Cogan: "They came to Washington with a near singular focus on heady national issues, like cutting spending, reducing the budget deficit and paying down the national debt. But in their first few months in office, many in the historic freshman class of GOP lawmakers have been waylaid by far more parochial concerns -- tornadoes and flooding that have ravaged the South, cost billions of dollars in damage and taken hundreds of lives. And now these freshmen -- especially those from Louisiana, Alabama and the Midwest -- realize more than ever their constituents need the federal government’s help. And money. Many have blunted their anti-government tough talk -- choosing instead to focus on how local, state and federal agencies can best help their constituents rebuild."

A group of House Democrats wants Obama to recess-appoint Elizabeth Warren, reports Jennifer Epstein: "Three House Democrats are calling on President Barack Obama to circumvent the congressional confirmation process and appoint Elizabeth Warren to lead the Consumer Financial Protection Bureau. Reps. Carolyn Maloney (N.Y.), Keith Ellison (Minn.) and Brad Miller (N.C.) are urging their colleagues to sign onto a letter urging Obama to appoint Warren to the post while Congress is in recess. 'We can think of no better person to be the first director of this incredibly important consumer financial protection regulator,' the letter to the president says. Warren is currently an advisor to the president overseeing the agency, but has not been put up for appointment, since Senate Republicans have vowed to block the appointment of any director for the CFPB, even a Republican, unless the bureau’s powers are weakened."

House GOP leaders aren't focused on the debt limit at town hall meetings, report Jonathan Allen and Jake Sherman: "House Republican leaders have spent a lot of time lately assuring Wall Street that they understand the calamitous consequences that would result from a default on the nation’s debt. But at an economic forum here in House Majority Leader Eric Cantor’s hometown, 'Main Street' business leaders didn’t seem to have much interest in the issue that preoccupies Washington, New York and other cities concerned with high finance. Rather than the nation’s account ledger, they talked about issues that affect their own ledgers: gas prices, government regulation and tax policy. Even liberal activists who confronted Cantor after the event wanted to pick fights on abortion rights and public radio funding. Cantor didn’t bring up the debt limit, either."

You can thank the Fed for manufacturing's recovery, writes Paul Krugman: "What’s driving the turnaround in our manufacturing trade? The main answer is that the U.S. dollar has fallen against other currencies, helping give U.S.-based manufacturing a cost advantage. A weaker dollar, it turns out, was just what U.S. industry needed. Yet the Federal Reserve finds itself under intense pressure from the right to make the dollar stronger, not weaker. A few months ago, Paul Ryan, the chairman of the House Budget Committee, berated Ben Bernanke for failing to tighten monetary policy, declaring: 'There is nothing more insidious that a country can do to its citizens than debase its currency.' If Mr. Bernanke had given in to that kind of pressure, manufacturing would have continued its relentless decline."

The social democratic and pro-business wings of the Democratic party are at war, writes Michael Gerson: "Again and again, Democratic leaders have failed to produce budget approaches that unite 90 percent of their caucus. This is not entirely their fault. The ideological distance between social Democrats and pro-business Democrats is wider than any ideological gap on the Republican side. If pro-business Democrats were formally independent as a party, like the Liberal Democrats in Britain, they might be tempted to form a coalition government with Republicans — using their influence not only to block the proposals of social Democrats but to gain a share of power. But America’s two-party system doesn’t allow for this strategy."

Work-sharing shows a lot of promise, writes Robert Skidelsky: "Ponder what a civilized solution to the problem of technology-driven unemployment would look like. The answer, surely, is work-sharing. To the Anglo-American economist, any such proposal is anathema, because it smacks of the dreaded “lump of labor” fallacy – the idea, once popular in trade-union circles, that there exists only a certain amount of work, and it should be shared out fairly. Of course, this is a fallacy when resources are scarce, but even economists never thought that growth would continue forever. The discipline’s founders expected that, at some point in the future, mankind would attain a “stationary state” of zero growth. Then we would require only a certain amount of work – much less than we perform now – to satisfy all reasonable needs. The choice would then be between limitless technology-driven unemployment and sharing out the work that needed to be done. Only a workaholic would prefer the first solution. Unfortunately, such people seem to be in charge of policy in the United States and Britain."

Sesame Street interlude: Bert interviews Andy Samberg on Conversations with Bert.

Health Care

Nancy Pelosi pledges to block any Medicare cuts, reports Greg Sargent: "'It is a flag we’ve planted that we will protect and defend. We have a plan. It’s called Medicare.' That’s from Nancy Pelosi, who called me from Wisconsin, where she’s holding events today defending Medicare in Paul Ryan's back yard. On the call, Pelosi laid out a message on Medicare she hopes Dems will use for -- well, forever. Pelosi recently came under fire from Republicans -- and even some liberals -- when she recently indicated that Medicare should be 'on the table' for deficit reduction...Asked to clarify what she meant, and to detail what sort of changes she’d be open to, Pelosi insisted that any claims she could support cuts in the program are wrong."

Paul Ryan's Medicare plan is smart generational politics, writes Mark Schmitt: "If there was ever going to be a generational war in this country, that high school class of ’74 would be its Mason-Dixon line. It’s the moment when Bill Clinton’s promise--'if you work hard and play by the rules you’ll get ahead'--began to lose its value. Today’s seniors and near-seniors spent much of their working lives in that postwar world, with their incomes rising, investments gaining, their health increasingly secure, and their retirements predictable. Everyone 55 and younger spent his or her entire working life in an economy where all those trends had stalled or reversed... The Ryan plan, in other words, delivers to the older generation exactly what they’ve had all their lives--secure and predictable benefits--and to the next generation, more of what they’ve known--insecurity and risk."

All of Medicare should work like part D, writes Michael Leavitt: "We must make Medicare Part A (hospital insurance) and Part B (health insurance) work more like Medicare Part D (prescription drug insurance). Doing so would dramatically improve the financial condition of our country and help us meet our commitment to seniors. The prescription drug benefit, passed in 2003 and implemented in 2006, broke ground because it moved away from the traditional Medicare model. Instead of relying on regulated government payments to control costs, the drug benefit relies on cost-conscious consumers selecting drug plans that suit their needs and household budgets...Current projections by the Medicare actuaries show the 10-year costs of the drug legislation coming in 41 percent below estimates made when the bill passed."

Domestic Policy

Senate Republicans successfully filibustered appeals court nominee Goodwin Liu, reports Paul Kane: "Senate Republicans on Thursday blocked the nomination of President Obama’s nominee to a high-profile federal appellate court, the first time Republicans have ever united to successfully filibuster a judicial nomination. On a 52 to 43 vote, law professor Goodwin Liu fell eight votes short of the 60 needed to overcome a GOP filibuster to his nomination. All but one Republican, Alaska’s Lisa Murkowski, opposed ending debate on Liu’s nomination to the San Francisco-based U.S. Court of Appeals for the 9th Circuit. In blocking Liu’s confirmation, Republicans have now joined Democrats in supporting filibusters of judicial nominees, something many of them contended was unconstitutional just six years ago when they unsuccessfully sought to change rules to forbid such actions."

Conservative opposition to Goodwin Liu is hypocritical, writes Dahlia Lithwick: "Goodwin Liu is many, many things (disclosure: I have met him several times), but an 'extraordinary circumstance' he is not. Liu is a Yale and Stanford graduate and associate dean of one of the many Top 10 law schools in the country. He received the highest possible rating from the American Bar Association and endorsements from legal thinkers from across the political spectrum, including Kenneth Starr and Clint Bolick. But Senate Republicans were set on making an example of Liu, who was nominated well over a year ago...From the start Republicans depicted him as the Tim Riggins of the legal academy--all beer-soaked hair and bloody knuckles--and never varied that picture in the face of the evidence. The caricature of Liu as careless and reckless and 'wacky' never dimmed, even while it never fit."

States are considering mandating modified food labeling, reports Lyndsey Layton: "In the absence of a federal law requiring labels for genetically modified food, 14 states are debating whether to mandate labeling for modified foods sold within their borders. The discussions, taking place from Albany, N.Y., to Sacramento, come as federal regulators weigh approval of the first genetically modified animal, a salmon, for human consumption. In four states -- California, Oregon, Vermont and Alaska -- lawmakers are considering legislation that would pertain only to fish. The other states, including New York, are grappling with measures that would require all foods made from genetically modified ingredients to disclose that information on the label."

Mandating campaign contribution disclosure would politicize contracting, writes Susan Collins: "The White House has proposed an executive order that would discourage some businesses from competing for government contracts and chill the First Amendment rights of executives and directors. A draft of the order, titled 'Disclosure of Political Spending by Government Contractors,' would in fact infuse politics into the contracting process. In true Orwellian fashion, the draft order suggests that the only way to keep politics out of the contracting process is to include political information with every contract offer. If the White House gets its way, federal agencies would have to collect information on the campaign contributions and other political expenditures of potential contractors before a contract could be awarded."

Adorable animals feasting on humans interlude: A zombie cat feasts on braaaains.

Energy

A new "gang" is forming to put together a drilling bill, reports Darren Goode: "Now that the Senate has dismissed two messaging bills designed to give each party talking points in the battle over rising gas prices and oil industry profits, attention turns to whether the two sides can reach any serious compromise on either. A Democratic plan to force the five biggest companies to pay billions more annually in taxes and a Republican bill aimed at boosting offshore oil and gas drilling fell well short this week to get the 60 votes needed on initial procedural votes... Sen. Mary Landrieu (D-La.), who voted against both bills on the floor this week. Landrieu said next week she will start contacting some of the 'gang' of senators that put together a bipartisan energy plan back when gas prices spiked in 2008 'and see if we can initiate something from the center.'"

Ken Salazar also wants some bipartisan bills on energy: http://politi.co/kxaydG

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.

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May 20, 2011