Friday, July 29, 2011

INDEBTED

INDEBTED

Whatever happens next week as we approach our current rendezvous with destiny, also known as the debt ceiling crisis, one thing is certain.

Wall Street is getting what it wished for.

And apparently does not like it.

The stock market just closed for the day, suffering its worst weekly loss of the year. This was apparently caused by the double news whammy visited upon us in the last twenty-four hours -- a report on GDP which measured the growth rate in the last quarter at an anemic 1.3% for the year, and the continuing debt ceiling debacle in Washington.

The former came on top of revised figures for the first quarter, lowering the growth rate from a previously reported 1.9% to an actual 0.4%, which now makes the current "recovery" the weakest on record and puts us more or less on the brink of another recession.  The latter is a consequence of Tea Party madness, that uniquely dysfunctional blend of ideological extremism made possible by  the political ennui that kept large chunks of the 2008 electorate on their couches in 2010, thus allowing the patients to now run the asylum.

The current Speaker of the House, John Boehner, is by no means a happy camper.  Even his proverbial deep tan has begun to fade as he scurries to convince his caucus to support his plan to raise the debt limit.  It apparently does not matter, either to him or his caucus, that the  plan for which he still has not gotten a vote will be dead on arrival in the Senate.  The idea here is to get the right wing offering on the table so that the Senate and the Administration are forced to negotiate against it. 

Be that as it may, however, the plan itself is laughably inept.  It would "solve" the crisis for a few months so that it is timed to arise anew in the upcoming 2012 election year.  And it will weaken the economy by cutting spending and pulling demand down.

Boehner et al. do not care.

It is now an article of faith in their party that spending must be cut regardless of the consequences.  Though this intransigence ignores a solid century of economic data and history, no one in the current Congress actually remembers the Depression of the 1930s, even if the few octogenarians still serving might actually have been alive during some part of it.  Instead, the mantra that deficits will kill us rules the political roost.  The Tea Partiers universally assert that the 2009 stimulus package did no good and that TARP in 2008 was a failure as well. 

The facts belie both assertions. TARP rescued the financial system from certain implosion and the stimulus forestalled a second Great Depression where unemployment would have exceeded 20%.  Indeed, the only problem with the stimulus is that it was not large enough, and the only problem with TARP is that it did not exact nearly enough concessions from Wall Street in exchange for the bail out.  More to the (immediate) point, today's debt ceiling crisis is an entirely manufactured one.  We have repeatedly raised the debt limit over the last thirty years of conservative ascendancy, and we have done so for one and only one reason.

The alternative to doing so is stupid. 

Even their hero, Ronald Reagan, said as much in an earlier version of this same movie.  During his Presidency, the limit was raised seventeen times.  On one such occasion, Reagan betrayed an uncommon impatience with all the political bluster. "Congress consistently brings the government to the edge of default before facing its responsibility," he said. "This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility – two things that set us apart from much of the world."

Though Reagan's right wing heirs embrace their man, they ignore his words.

And not just on the debt ceiling.

Reagan also raised taxes eleven times while he was President, and he never submitted a balanced budget.  To ease the rhetorical pain,  he called those tax hikes "revenue enhancers," but today's GOP would have none of that.  In their world, if a tax cut is allowed to expire or sunset, those who do nothing to stop the eventuality are raising taxes nonetheless. 

In the current debt ceiling debate, some commentators claim that Reagan would endorse the Boehner plan.   If, however,  Reagan's actual conduct in office is  the measure of what he would now do, the far greater likelihood is that he would endorse Obama's plan.  The latter cuts more over a longer period of time, contains some "revenue enhancers" in the form of closed loopholes, and eliminates the repeated near term "brinkmanship" that the Boehner plan guarantees and that Reagan himself wearied of.

As noted, Wall Street's vote is already in, and while the Street liberally funded the GOP's mid-term ascendancy, it is in no mood for a replay of this sorry spectacle six months from now. 

So, Mr. Speaker, here's some advice. 

Cut your losses. 

Can the Tea Party.

Win one for the Gipper.