This morning's Washington Post has an "adaptation" from Bob Woodward's new book, The Price of Politics. It concerns the debt ceiling crisis of July and August 2011, when the Republicans threatened to blow apart the world economy if they didn't get their way.
“[A veto of the Republican plan] would have massive effects,” Geithner said. Treasury had to conduct a bond auction in the open market in about five days, the regular Tuesday auction, with settlement on Thursday. That first auction could be a kind of tripwire, setting off a chain reaction. The federal government couldn’t pay its bills. “Why would anyone buy U.S. bonds if it’s an open question whether we are going to have the authority to pay for them?”
Another possible outcome, Geithner said, was perhaps worse. “Suppose we have an auction and no one shows up?”
The cascading impact would be unknowable. The world could decide to dump U.S. Treasuries. Prices would plummet, interest rates would skyrocket. The one pillar of stability, the United States, the rock in the global economy, could collapse.
“So,” the president said, “if we give $1.2 trillion now in spending cuts” — the amount in the House bill to get the first increase in the debt ceiling for about six to nine months — “what happens next time?” The Republicans would then come back next year, in the middle of the presidential campaign, and impose more conditions on the next debt ceiling increase. He could not give the Republicans that kind of leverage, that kind of weapon. It was hostage taking. It was blackmail. “This will forever change the relationship between the presidency and the Congress.
“Imagine if, when Nancy Pelosi had become speaker, she had said to George W. Bush, ‘End the Iraq war, or I’m going to cause a global financial crisis.’ ”
So, Obama said, they had to break the Republicans on this. Otherwise, they would be back whenever it suited them politically.
They were out of options, Geithner said. The only one might be accepting the House bill, loathsome as it might be. “The 2008 financial crisis will be seen as a minor blip if we default,” he said.
The president said, “The Republicans are forcing the risk of a default on us. I can’t stop them from doing that. We can have the fight now, or we can have the fight later on, but the fight is coming to us.”
So, no, Obama said, he was not going to cave. Period. He said good night, got up and left.
... Obama never had to confront the veto question. A few days later, House Republicans dropped their insistence on the two-step plan. The final plan accepted a debt limit increase that would take the country through the 2012 presidential contest. It also postponed $2.4 trillion in spending cuts until early 2013.