Thursday, July 28, 2011

Plains Pops: Debt Ceiling Debacle Sum Up

From Megan McArdle at The Atlantic,
What Wall Street, and the ratings agencies are worried about is not whether we can pay--we can--but whether we will.  A lot of Republicans seem to think that we can secure our AAA rating by showing the agencies--and the markets--that we've made serious cuts.  But if you achieve this end by holding the debt ceiling hostage, what you're really demonstrating is not a tough-minded commitment to entitlement reform, but a political system so broken that it has trouble taking even simple, obvious steps to keep the fiscal engine running.  Our AAA is not at risk because our current fiscal path is unsustainable, but because ratings agencies know what many GOP freshman and party activists apparently do not: that doing the unpopular things required to get the budget in balance is going to require both parties to hold hands and jump together.  Otherwise, whoever forces through their unpopular plan (huge tax increases/massive spending cuts) is going to get trounced at the next elections by an opposition party promising to undo whatever it is the party in charge has just done.
My reading of what the ratings agencies have said is that if the GOP somehow manages to force the Democrats to do everything their way, this will not secure our AAA; it will guarantee that we lose it, because it will show that we are currently unable to make the ugly bipartisan compromises that long-term budget balance requires, and raises the risk that sometime in the not-very-distant future, the other party will retaliate by threatening default.  That's what Wall Street cares about.  Not saving social security. Not lower spending.  They just care about getting enough consensus to keep the checks flowing.
From Annie Lowery in Slate
So we might not have a great term for what we have inaccurately termed the big "default" after Aug. 2. But we know its risk: a recession. And we know how we got here: idiots.
From The New York Times,
Not least, a downgrade would be a blow to American credibility and prestige, made all the worse for coming so shortly after the made-in-America global financial crisis. As a correspondent for the German newspaper Die Welt wrote a few days ago, “Out of the American 21st-century crisis could come the downfall of the dominant power of the 20th century.” That may be overheated. But no one can shrug it off. The markets and the rest of the world are worried, and they should be. We all should be.
From Doyle McManus in The Los Angeles Times,
In the short run, brinkmanship has worked for the House Republicans. Their single-minded stubbornness has forced both the White House and the Democratic-controlled Senate to bend in their direction.

But brinkmanship always carries the risk of actually going over the cliff. If the impasse over the debt ceiling causes economic chaos, Boehner and his party will get much of the blame. Already, polls suggest that this debate has been a "negative sum" game for its protagonists: Obama and both parties in Congress have all fallen in public esteem.

The debate has also changed at least one aspect of the way Washington does business. Raising the debt ceiling was once a routine piece of fiscal management, but now, for many in the GOP, it's become a matter of principle, and an indispensable point of leverage too. No matter what happens between now and Aug. 2, we are likely to find ourselves back at the brink again all too soon.
From USA Today,
Republicans in Congress deserve credit for forcing spending cuts. Democrats initially showed little or no interest. But GOP rigidity has pushed the United States to the brink of a self-inflicted crisis that risks great harm to the nation, and that is unconscionable.
Finally, Clive Crook in The Atlantic
In a column for the FT, I confess that I am having second thoughts about America's long-term prospects. Hitherto an optimist about the country and its future--a militant anti-declinist--I am increasingly dismayed by the chronic incapacity in Washington. It's not just the debt-ceiling impasse, though heaven knows that is bad enough...
There's really nothing to add.

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