Do you remember the GOP talking point going into last November's mid-term election about how the failure to renew the Bush tax cuts was creating "uncertainty" in the business community?
The talking point was always bullshit because by their very nature, the market is uncertain, or as the Clash once wrote: "the future is unwritten."
Well, yesterday Mitch McConnell said that the GOP plans to stretch out negotiations on the debt ceiling until possibly July 8.
Follow me below the fold for more details:
This is how Andy Sullivan of Reuters reported:
Senate Republican Leader Mitch McConnell and Eric Cantor, the No. 2 Republican in the House of Representatives, fired the opening shots in what is expected to be a bitter fight with the White House over increasing the U.S. borrowing limit to enable the country to keep paying its debts.
Prolonging negotiations past mid-May when Washington will hit its debt limit could give Republicans more leverage to secure big spending cuts, but it could worry investors as the country runs up against a possible default. The Republicans said they would act before that happened.
In plain English, fucking around with the debt ceiling could stifle investment because of the potential that the government might default.
Other diarists on DK and elsewhere have pointed out that in the event of a default, all those sweet baillout deals that the Wall Street banks got courtesy of the US taxpayer will be wiped out and suddenly they will have to pay out of their own pocket.
Two pundits writing for The Hill noted that the negotiations regarding the potential government shutdown were basically small potatoes compared to what could happen when negotiating the debt ceiling:
If Wall Street saw the fight over legislation to fund the government as playing with matches, it sees the fight over the debt ceiling as playing with plastic explosives, said Steve Bell, a former staff director with the Senate Budget Committee.
Wait for it...Here's the death blow to GOP stupidity coming from none other than John S. McCain's chief economic advisor during the 2008 election:
“What markets typically dislike the most is uncertainty,” said Douglas Holtz-Eakin, the president of the American Action Forum and former director of the Congressional Budget Office. “The more it drags out, the greater that impact will be, and that’s not a good thing.”
Yah think?
Bell cautioned that the situation could be similar to the market meltdown in September, 2008 which led to the TARP bailout after the Dow Jones industrial average dropped 700 points that day:
Bell said people on Wall Street are saying that a failed debt-ceiling vote on the House floor would be like the first failed vote on TARP — only worse.
“I think you would have a similar reaction in the bond market and — most people don’t realize this — the bond market is an order of magnitude bigger than the equities market,” he said.
To put it bluntly, President Obama and the Democrats are negotiating with a bunch of Kamikaze pilots willing to destroy the world financial market simply to get rid of of a bunch of social programs like Planned Parenthood, SCHIP, ACA, etc. all of which only contribute a tiny amount to the national debt.
And they are willing, to borrow a phrase from Vietnam, willing to destroy the economy in order to "save" it. Except that they won't save it unless by "save" that means gut all forms of entitlements not going to corporations and literally drown government in a bathtub as Grover Nordquist fantasized.
Naturally, those market fetishists in the GOP understand that this will make the economy worse, which IMO is exactly their point. And then, they will try to blame Obama and the Democrats.
In order to portray these GOPers as a bunch of mad men, Obama and the Democrats need to get front and center and explain in simple terms exactly what this kind of suicide strategy from the Republicans will mean to America and the world financial markets. The few relatively sane people in the Republican Party will eventually cave probably somewhere between July 1 and July 8, because they know the public will blame them despite their primitive attempts to cast the blame on the Democrats.
The reality is that when you announce that you are planning on stretching the negotiations until the 11th hour, you are really not being serious at negotiations at all. And the Democrats need to call the Republicans on their bluff. NOW!
UPDATE: I noticed I needed to correct something when I was reading a different article about the debt ceiling. The quote from Steve Bell is not entirely accurate. I partially paraphrased it, but it is factually incorrect. I noticed this while reading a column by Charlie Cook entitled "Raising the debt ceiling a necessary evil." Here is the correct information:
Those who remember the Dow Jones Industrial Average dropping nearly 778 points on Sept. 29, 2008 after the House voted down the — since paid off — Troubled Asset Relief Program, losing $1.2 trillion in market value, might look at that as a reminder of the economic consequences of dumb political decisions.
That drop, minutes after the vote, was actually greater than the 684-point drop on September 17, 2001, the first trading day after the Sept. 11 attacks.
UPDATE II:I would recommend reading Cook's column because it provides background on the history of the debt ceiling, the consequences of what would happen, and also some polling data.
The debt ceiling was established in 1917 with the Second Liberty Bond Act. The law is still in effect.
A number of posters has suggested that Obama and the Democrats announce whom would be stiffed should the US default. On DK, military contractors and other Republican favorites should be at the top of that list, online posters said.
But Cook cautioned against such action, despite it being very popular:
While the temptation of populists and demagogues would be to stiff the bondholders, the cost we would have to pay to borrow money would be astronomical.
Keep in mind that we are carrying about $14 trillion in debt. Interest rates, needless to say, would soar.