There is little to do by way of economic analysis this week, because everything depends on the timing and extent of Washington idiocy.
As to which, as I type this Friday morning, it appears that we can confidently put to rest two assertions:
(1) this is all Kabuki and ultimately rational actors will prevail. Wrong. If this were just kabuki, it would have ended as soon as Wall Street called their servants in Washington and told them to make a deal. Instead, already we are paying a price in the markets and with the ratings agencies - who are likely to downgrade US debt even if a deal does emerge over the weekend. As Calculated Risk concedes this morning, "it is already impacting the markets." It does not matter that we can easily pay our debts, if there is a sufficiently powerful faction able to block those payments and willfully default.
(2) Barack Obama is a shrewd negotiator, backing the GOP into a corner. Wrong. Even if Obama were playing "11 dimensional chess" or "the long game," and actually facilitated this crisis in order to enact his "Grand Bargain," this has not happened. Instead the Teahadists have insisted on total, abject capitulation. Obama may have wanted a "balanced approach", but he has already moved from 2/3 cuts to 1/3 revenue increases, to 100% cuts and 0% increases, and still the GOP extrmemists have refused to budge. It is not out of the question that an extremist Tea Party wet dream will be passed by the House on Monday, leaving the Senate and the President with the options of adopting that bill, or facing immediate default. Via Big Tent Democrat a/k/a Armando, here is Robert Kuttner with a spot-on criticism:
This may sound churlish at such a moment, but in addition to blaming the recklessness of today’s Republican party, the man who deserves substantial blame for this impending economic doomsday is Barack Obama. For two and a half years, he has been all but training the Republicans, Pavlov fashion, to keep rejecting compromise. He has done this by rewarding them with a treat every time they up the ante or move the goal posts. [. . ] if the Republicans, like Europe’s leaders of 1914, miscalculate and create disaster, the responsibility will partly be theirs but also partly our overly eager-to-please president.
In other words, Obama may have the intellect of John Quincy Adams, and the soaring rhetoric of JFK or Reagan, but he has the economic instincts of Herbert Hoover, and the negotiating skill of Jimmy Carter.
Imagine if the Tea Party gets their capitulation now, and the world is saved from US default next week. They will pay no price with the public, who will believe that at the last moment, all became well again. Imagine what the budget "negotiations" will be like, let alone if the debt ceiling must be raised again before January 20, 2013. There is no good solution now, only the hope that once "those who cannot see, must feel," a cold and fearsome resolution will seize the electorate.
10 comments:
I compeltely agree we have a problem, but I am not sure I agree what it is.
I don't believe true default is actually the core issue. Federal revenues are more than adequate to pay interest on our debts, and debts can be refloated without crossing the limit. As the teatypes keep pointing out while missing the point, the Social Security trust funds are also all stored in callable-by-owner Federal bonds, and therefore that operation is also secure. The Social Security operation can also move to first in line by calling bonds as needed to fund operations.
Everything else, not so much.
"2013" is however very optimistic. The teatypes have worked out that this would postpone the next issue until after the election, it is 'obviously' - to their mind - a scheme to protect Obama's re-election, and therefore a compromise would put the next renewal, oh, a year from now.
Also, there is the minor matter of passing a Federal budget.
I have never seen anything like today's Republican party. It is possible that Obama has given too much in these attempted negotiations but how do you cut a deal with people who think compromise is evil. Speaker Boehner can't even get them to agree to a compromise HE HAS DRAFTED.
And that's where I think Robert Kuttner misses the point - you are not dealing with normal politicians who see compromise as part of their job. These people are ideologues, a large chunk of them have never even served as much as on a town council so they have no idea what being a member of Congress is all about. Lawrence O'Donnell has this group down to a T.
What few are talking about but what I think is interesting - where does the Repub party go from here. As you note, the Wall Street financiers of the party want a deal - clean or not - b/c default is very bad for business. The people thought were bought and paid for aren't listening. So where do they go?
The Dems aren't business friendly enough so I think you may see a new business friendly, socially moderate party spring up shortly largely funded by corp Repub types.
With regards to the debt limit, it is clear that we are going the 14th Amendment route.
Maybe, just maybe... (but I strongly doubt it) The Republican Party will realize the Tehadists are just too volatile and cut them loose. After all, one of the strong points of the Republicans has been they way they march in lock-step. Even if it is a large, vocal, dedicated block; at some point this much chaos isn't going to be worth it if their power is going to be blocked from within their own party.
Even better would be if the American people woke up and realized the Tea Party is a bunch of incompetent extremists, & politically banished them to the fringes. But I have almost no hope of that happening.
Mentioning Jimmy Carter got me thinking. . . I can't reconcile the 1970s inflation with MMT. Inflation and debt are the issues of the day so I want to get this. Going off the gold standard we were no longer revenue constrained so I would expect some inflation, but I don't see any deficit spending or productivity loss in the data that was so big that it would explain inflation rates as high as they were. I know I'm missing something but I sure as hell can't ask some forum that'll answer with "hurr Carter herpa derp". Can someone help here? What happened?
Didn't Lawrence O' Donnell support the Iraq War?
Ron Paul and Pat Buchanan didn't.
Just sayin'.
I highly recommend this Salon.com article on John Boehner. It does a terrific job of explaining what is going on with the House GOP and really why we are where we are.
http://www.salon.com/news/politics/war_room/index.html?story=/politics/war_room/2011/07/28/boehner_debt_ceiling
@Ken Hoop - Have no idea if O'Donnell supported the Iraq War but he has a really good beat on the House Tea Partyists.
Why did you ever leave Dkos? I think there are rec list diaries with the same title.
You can blame Obama, but part of the problem is, the tea party reps have this power because they are essentially a minority group. They dont have to come with a solution, they can just say no. As John M pointed out, they have even said no to their own leader, John Boehner, forcing him to scramble to pass a bill.
And it's not like Obama can just walk away from the situation, and let the country default.
@ John M
Which of the several 14th amendment solutions do you mean? Not complaining, just curious.
There is a large Pew Poll establishing 2011 political typologies. 2/3 or 3/5 of Americans in most groups want politicians who will not compromise. Exception: conventional liberals. They got them.
@George Phillips- The one that says we must honor previous obligations that was put into the amendment so the Southerners wouldn't reneg on Union debts. This will no doubt end up in the courts but it prevents default.
John M
I was referring as an alternative to http://thehill.com/homenews/house/174445-pelosi-declines-to-endorse-14th-amendment-solution
the proposal that the President should unilaterally announce that he is ignoring the debt limit.
There seem to be a whole bunch of these 14th amendment solutions out there, and they are very different from each other. I was curious which one you meant, and thank you for the courtesy of your sensible answer.
Mind you, as I have said before, the 14th amendment does not in the real world override a government so messed up that bond interest is larger than tax income.
I believe our host's description of Washington, that the scent of stupid is in the air, covers things.
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