The Tea Baggers won, confusing both Democrats and Republicans by refusing to act like politicians, eschewing all the usual motivations such as their own self-interest or party affinity or even the general welfare of the country. You can't negotiate with cement. Giving proof to the old adage: "Never get in a fight with an ugly person, they got nothing to lose."
Some market observers speculate that a downgrade would be a non-event: Japan, for example, went from a rating of AAA to AA without much drama. Others suggest that a downgrade would increase Treasury’s borrowing costs by $100 billion a year or more, making our already unsustainable deficit trajectory even worse.
There are no rules to define what is systemic and what isn’t — or to accurately predict the consequences of an economic shock. Each crisis is unique. How exactly it will affect financial markets, companies and our economy is impossible to know. Nonetheless, recent examples offer guidance.
In 2008, a number of once-cherished beliefs were turned upside down: (1) that home prices in America would never fall; (2) that AAA-rated subprime securities are money-good; (3) that a major investment bank would never fail. Consumers, investors and companies allocated capital according to these truths. When the beliefs were revealed to be false, massive shocks were inflicted on the economy as financial markets rapidly adjusted to account for these new risks.
... Standard & Poor's has gone a step further: It says even if the debt ceiling is raised next week, it might still lower the nation's credit rating -- unless the deal also contains a credible, bipartisan plan to reduce the long-term budget deficit by $4 trillion. This is something neither Senate Majority Leader Harry Reid's nor House Speaker John Boehner's plans would accomplish.
Now I don't mean to be impertinent, but as long as America pays its debts on time, who is Standard & Poor's to tell America how much debt it has to shed and by when?
Until the eve of Wall Street's collapse in late 2007, S&P gave triple-A ratings to what turned out to be some of the Street's riskiest packages of mortgage-backed securities.
Had S&P done its job, we wouldn't have had the debt and housing bubbles to begin with. That means taxpayers wouldn't have had to bail out Wall Street. We probably wouldn't have had a Great Recession. Millions of Americans wouldn't be jobless and collecting unemployment benefits. There'd be no need for the stimulus that saved 3 million other jobs. And far more tax revenue would have been pouring into the Treasury.
In other words, had S&P done its job, the federal budget deficit would likely be far smaller than it is today -- and S&P wouldn't be threatening the United States with a downgrade if we didn't come up with a plan for shrinking it.
And why has S&P decided to get into public policy now anyway? Where was it when President George W. Bush turned a $5 trillion budget surplus bequeathed to him by Bill Clinton into a gaping deficit?
Those who would chronicle events in Washington can find no richer source of analogy and metaphor than the Three Stooges. These days, I’m thinking of the times when an exasperated Moe, having suffered the indignity of an accidental spritzing or clobbering, turns to Larry or Curly and demands, “What’s the big idea?”
The premise of the debt-ceiling fight is too far-fetched for a Stooges film, since no audience could imagine leaders of a great nation stumbling into such a mess. Moe’s trademark line is still relevant, however, even if it’s not followed by the two-fingered poke in the eyes that our elected officials richly deserve ....
.... Conservatives are on a winning streak because they have a Big Idea that serves as an animating, motivating, unifying force. It happens to be a very bad idea, but it’s better than nothing — which, sadly, is what progressives have.
The simplistic Big Idea that defines today’s Republican Party is that taxes are always too high and government spending is always wasteful. Therefore, both taxes and spending need to be reduced.
That’s basically it. There are a couple of asterisks: Many conservatives, perhaps most, don’t consider the military a part of “government” per se and are more amenable to defense spending; and even a Tea Party freshman is more likely to keep an open mind about the publicly funded infrastructure project in his or her own district. There is also an overarching philosophy about the relationship between government and the individual, and some conservatives imagine a “return” to a Jeffersonian Arcadia that never was.
There is something rich about the president of the United States and the speaker of the House pretending that they are somehow not part of Washington. If these two aren't Washington, what is? The International Spy Museum? Ben's Chili Bowl? Wolf Blitzer?
... David Walker -- the former Comptroller General of the United States and head of the Government Accountability Office -- says it's imperative both sides of the aisle find a compromise that also sets conditions to lower our long-term debt and get us back on track. If they don't, the rest of us will pay.
Here's what he says will happen if the federal government can't reach a deal:
- $4 billion-plus a day will come out of the economy.
- Government and civilian military workers will be laid off temporarily. That will result in penalties for late payment, to be paid by taxpayers.
- Social security payments will be delayed.
- No one knows how bad the reaction will be, but Walker is confident it will be negative for the stock and bond markets and the economy.
- Interest rates will rise. For every 1% rise in interest rates, taxpayers will be on the hook for an additional $150 billion in debt payments.
Washington has many lazy habits, and one of the worst is a reflexive tendency to see equivalence where none exists. Hence the nonsense, being peddled by politicians and commentators who should know better, that "both sides" are equally at fault in the deadlocked talks over the debt ceiling.
This is patently false. The truth is that Democrats have made clear they are open to a compromise deal on budget cuts and revenue increases. Republicans have made clear they are not.
Put another way, Democrats reacted to the "grand bargain" proposed by President Obama and House Speaker John Boehner by squawking, complaining and highlighting elements they didn’t like. This is known throughout the world as the way to begin a process of negotiation.
Republicans, by contrast, answered with a definitive "no" and then covered their ears. Given the looming Aug. 2 deadline for default if the debt ceiling is not raised, the proper term for this approach is blackmail.
Yet the "both sides are to blame" narrative somehow gained currency after Boehner announced Saturday that House Republicans would not support any increase in revenue, period. A false equivalence was drawn between the absolute Republican rejection of "revenue-positive" tax reform and the less-than-absolute Democratic opposition to "benefit cuts" in Medicare and Social Security.
The bogus story line is that the radical right-wing base of the GOP and the radical left-wing base of the Democratic Party are equally to blame for sinking the deal.
