Debt crisis and government inaction
There should be a separation in that last word. The debt emergency in America should have produced a government in action. To the credit of a few in Washington, some congressional representatives did try.
But what a force of resistence they faced. What to say…
USA Today says this:
Twenty-four hours later than planned — and only after a change to mollify conservative Republicans — House Speaker John Boehner, R-Ohio, put together enough votes to rescue his debt limit fix Friday.
The 218-210 vote, along party lines, came four days before President Obama says he’ll run out of the borrowed money that keeps the federal government from paying its bills.
The House vote kicks the issue once again to the slower-moving Senate, where rules make it all but impossible to vote out a plan before Monday.
“I stuck my neck out a mile to try to get an agreement with the president of the United States,” Boehner said, rallying the House to vote for his plan. “It’s time for our colleagues across the aisle to put something on the table! Tell us where you are!”
Senate Majority Leader Harry Reid, D-Nev. vowed to do just that. He had been waiting on the House plan all week, prepared to immediately vote it down.
Look at that. What a statement.
So the biggest issue left to be resolved is the size of the debt limit increase. The Senate plan calls for a $2.4 trillion increase in debt limit, enough to push the next debt limit vote into 2013, after the next election. The House plan would raise it by $900 billion, allowing the government to pay its bills for about six more months, but with another $1.6 trillion increase possible if the House and Senate agree — by a two-thirds vote — to a balanced budget amendment to the Constitution.
And it remains sharply divided by politically partisan issues. I’d say ‘welcome to US politics’, but after traveling to different parts of the world and watching their Parliaments bicker and snipe on daily television newscasts, it’s about the same everywhere.
Which doesn’t make it better. It just shows how political everything is.
Business analyst Elizabeth McDonald has this insight:
And both sides want a deal that gives plausible deniability to make it look like they won more than they lost, as they walk the plank before their bases.
Ignored in all this is a bit of wisdom. No government should want the bond vigilantes enacting fiscal discipline for it. The bond markets’ takedown can be sudden, brutal, and violent. Which is why governments must enact fiscal discipline themselves.
The bond market’s reaction to increased spending under Clinton Administration was swift and brutal. When the budget deficit increased under the Clinton Administration in the mid-‘90s, the bond market sold off. Bond yields about doubled in several years’ time to more than 8%.
The White House was forced to back off and instead balance the budget. That prompted James Carville, then an advisor to President Bill Clinton, to say: “I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter.
But now I would like to come back as the bond market. You can intimidate everybody.”
Which is why the credit ratings agencies are watching. More closely than ever.
Think about this too.
We’ve got an auto czar, a weatherization czar, even an Asian carp czar. But where is the deficit czar?
Isn’t the deficit the most threatening danger of all, one that could hurt all of us, notably in our wallets?
We’ll find out soon. When the going gets tough…
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