What is delightful, in that pass-the-popcorn-watch-the-train-wreck kinda way, is that there is very little margin of error at this point for things to go wrong. And there are still so many ways for things to go wrong. This is not nearly as easy as the federal shut down, where you can pass a CR to preserve the status quo for another week while details get worked out. You would have to pass a clean bill to raise the debt ceiling some modest amount to buy more time, which is unclear could pass the House.
The other problem with playing chicken is that you assume you know the other players. But human beings in group situations are funny. Obama is convinced that Hoyer can bring along the Blue Dogs (and the Blue Dogs are certain to vote for any raise in the debt ceiling that the Republicans sign off on) and he can bring the Tricolor Caucus (which is local slang for the combination of the Black Caucus, the Hispanic Caucus, and the Asian/Pacific Islander Caucus) and the Progressive Caucus. Why not? We have now had several significant legislative fights and funding fights and each time the Democrats have ultimately fallen into line lik good little boys and girls and done what Obama and Hoyer have told them.
But human beings are funny critters, especially when in large groups. What Obama is proposing is not just a violation of fundamental principles for a number of the Dems. The proposals discussed to date also make them more vulnerable to primary challenges on the left (which Dems don't generally worry about) and election challenges on the right (which they do). A 'Grand Bargain' which does not create jobs but does cut social security, medicare, and medicaid creates tremendous vulnerability for any House members still feeling vulnerable. Add to that that many Dems have no idea what their 2012 district will actually look like, which makes selecting a rational choice based on traditional political calculus even more difficult.
Meanwhile, on the R side, there are a core of Tea Party Rs who are True Believers. They genuinely believe that default is not the big deal the political and financial establishment (whom they do not trust) say it will be. They believe that standing up to this sort of political pressure is what voters sent them to Washington to do, and many of them took significant criticism for the "compromise" to keep the government open back in March.
The question is can you get enough Rs and Ds to follow the leaders -- assuming the leaders come to terms at all. What is more exciting is that we don't have to wait until August 2 to have impact on financial markets. So far, everyone appears convinced that Congress will ultimate raise the debt ceiling and that all of this is just political theater. And why not? It has been before, and every time things look grim they turn around and look hopeful again. But if financial interests start to hedge, and that hedge turns into panic, it can do serious damage to the world financial system even before August 2.
If I were a financial analyst, the failure to reauthorize the FAA would give me some serious concern about whether these bozos can get their act together. But that's just me. We will have to see what next week brings.