In my observation of the Debt Ceiling negotiations, my perspective was that the Tea Party
- didn't understand monetary policy
-didn't understand the relationship between Treasury bonds, the Federal Reserve and global markets
-didn't understand what a default would mean economically for our nation
-didn't understand how increasing interest rates on the debt we pay nationally, would also mean an increase in interest on personal debt
- didn't understand what the potential loss of reserve currency status means to every item Americans purchase that is internationally traded
I realize, I had a fatal flaw in my thinking. At least some Tea Partiers do understand and they are saying "BRING IT ON!"
As the U.S. Treasury taps into it's last stop gap measure (our Treasury funds were depleted back in May) of suspending reinvestment in the Exchange Stabilization Fund, to provide the last $23 billion the Treasury can access.
In August, the Treasury has $172.4 billion revenue and payments due of $306.7 billion leaving a deficit of $134.3 billion. link
I thought surely any sane person can look to Greece and Ireland, as well as Portugal, Italy, and Spain, to see that government default is devastating.
But then I read Ezra Klein's interview with Stan Collender, who was a staff member for both House and Senate Budget Committees.
Michelle Bachman asked Mr. Collender to speak to Tea Party congressmen in February and the impression he took away is quite frightening.
EK: And was it a list of demands? What did the Republicans have to do in order to avoid being “unelected”?
SC: The marching orders were, first, you must not vote to extend the continuing resolution [that would keep the government open through 2011] unless it, in their words, “defunds Obamacare.” Number two, you must not, under any circumstances, vote for an increase in the debt ceiling. Period. No conditions. Number three, and they said this explicitly, we don’t trust John Boehner or Eric Cantor. And the state party chair from Virginia was from Cantor’s district. And, finally, the members themselves told me afterwards that what they thought they did wrong in 1995 and 1996 was they gave in too early to Clinton.
The next day, five Tea Party Republicans voted against the first extension. The second one lost 54 Republicans. The third one lost 59 Republicans. What I took from that was, first, that the debt ceiling was going to be a lot more trouble than anyone realized. They did not want a negotiation there. There was a religious-like fervor on that point: Voting for the debt ceiling was a sin, and you can’t just sin a little. Second, Boehner and Cantor were going to have a lot more trouble than anyone thought. And then the third thing was for all those who thought they could get a deal early, it was clear to me that there was no way they could come up with a compromise or agree to a deal before the deadline. Even if it was a great deal, the presumption would be that they gave up too much by not waiting till the last second, just like with Clinton. So there’s no way they won’t blow through the 22nd of July, the date that got set up for an early deadline.
What Pres. Obama, Reid, Pelosi, McConnell, Boehner, and Cantor are negotiating with are not people who don't understand the consequences - they INVITE the consequences and embrace a Wild West mentality that will unravel our government.
Collender's expectation:
EK: Which suggests to me that a market reaction could have a more significant effect on the psychology of some of these members of Congress than we give it credit for. They’re not prepared for it, and if it comes, it disproves some of the assumptions they’re working with.
SC: Right. And remember the general idea on Wall Street right now is that there will be a deal because there’s always a deal. But Wall Street works off of expectations. So if the market realizes they got this wrong, the reaction could be larger than expected.
Misinformation can be cured with education. This is economic terrorism.