Who will tell the markets?

Over the last fifteen years or so, the United States stopped being a serious country. They stopped being serious about any number of things, but primarily, they decided that they could, as a country, treat money as a joke.

Let's ignore for the time being supply-side economics and the Reagan deficits that really started the downward spiral and made the Republican an essentially liberal party on fiscal matters. The real trouble started at the end of the Clinton years.

Going into the 2000 campaign, both Democrats and Republicans ran around the country saying that they had erased the deficit. The problem is that they really only created the illusion that they did through dumb luck and clever accounting. While it's true that the GOP Congress managed to slightly slow the rate of program growth, most of the difference came from increased tax revenue that resulted from the tech bubble of the late 90s and applying the Social Security surplus to the deficit.

The problem with that is that bubbles always burst and you can only spend a surplus once. Unless and until you structurally alter the budget, it's only a matter of time before you wind up back in deficit. And remember, the surplus was largely illusory in the first place.

But that didn't stop Governor George W. Bush and Vice President Al Gore from campaigning on how best to blow it. Bush eventually inherited the White House from Clinton and began the largest spending spree in American history up until that point. The entire surplus - and then some - was erased in Bush's first few months with a massive tax cut. Then, just as the country was going to war, the Republicans passed the largest non-defense program expansions since Lyndon Johnson was president. It's very hard to look at the numbers in black and white and not conclude that even Jimmy Carter and his very liberal Congress were more fiscally conservative that Bush and the GOP.

During Bush's last months in office, the world ended. Presidents Bush and Obama engaged in classical Keynesian stimulus economics and the deficit exploded to truly unmanageable levels. People who consciously ignored the fact that Bush promised to spend a trillion dollars more than John Kerry did five years earlier started the Tea Party within 60 days of Barack Obama's inauguration. From there American ignorance of virtually everything grew by leaps and bounds. And after the Republicans reclaimed the House of Representatives last November, the stupidity suddenly became very dangerous.

That's not to say that Obama's particularly serious, either. During his 2008 campaign, he promised to repeal the ruinous Bush tax cuts only on those making over $250,000 a year, when they're actually unaffordable across the board. Then he caved last December and extended them all for another two years at a cost of about a trillion dollars. Roughly a third of Obama's February 2009 stimulus - about $300 billion - was tax cuts, and that's on top of the $150 billion in stimulus tax rebates that Bush signed a year earlier.

It's important to remember that, for budgetary purposes, tax cuts are spending when they're not paid for with other cuts. I wouldn't go as far as Alan Greenspan did last summer and say that "tax cuts never pay for themselves," but he isn't entirely wrong. And precisely none of the trillions of dollars of tax cuts over the last decade were paid for with cuts. Indeed, spending grew at an even faster rate than taxes were cut.

So the Tea Party essentially took over the House and last week they very nearly shut down the government. The only problem is that they did it over what amounted to nothing, less than 3% of this year's deficit. In the end, it came down to a few million dollars to Planned Parenthood, making the entire exercise the most ridiculous things I've ever seen. The only operating premise I can discern from this is that Jesus will balance the books, but only if a minuscule number of abortions are stopped first.

Even the more serious of the Teapublicans, such as Budget Committee Chairman Representative Paul Ryan, are planning on erasing the deficit in twenty or thirty years by growing it at an even faster rate than Bush and Obama have in the short-term, largely with a staggering $4 trillion in further tax cuts in the first ten years of his plan. These folks are a joke, and not a particularly amusing one.

There's a very simple reason that Speaker John Boehner is crying all the goddamn time. He knows that at any given minute his psychopathic Tea Party caucus is about a half hour away from taking his job. Frankly, I'd be more than a little weepy myself if I had to keep a constant eye on these morons. It must be the most exhausting gig in the world.

Worse, Boehner isn't getting so much as a cigarette break after dodging the monumentally silly bullet he did last Friday. Now he has to suit up for the real battle royale, the debt ceiling vote, which has to be done by the middle of May, lest the United States run out of money. So he's doing what any semi-responsible person would do, canvassing opinion on Wall Street. The reports suggest that he doesn't like what he's hearing.

House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.


Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.

Treasury could then implement emergency measures to continuing making interest payments on existing debut until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.

(...)


The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.

“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.

Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.

If Boehner isn't deeply a-scared by that, he's an idiot. Because if there's one absolute certainty about the debt ceiling vote, it is that the bill is going to loaded down with legendarily stupid and bizarre riders about abortion and other nonsense that they'll never get through the Senate, let alone signed by the White House. Genetic misfits like Sarah Palin, Michele Bachmann, Mike Pence, 90% of talk radio and 110% of the Republican blogosphere won't have it any other way. The Tea Party would just as soon burn down the house to make some incomprehensible point that only makes sense in their own fevered imaginations.

Worse, they aren't even going to try to address the vast majority of the real spending, which is entitlements and security. They're just going to continue tinkering with the 17% of the budget that dosn't really accomplish much of anything. And forget about raising actual revenue. Absolutely no one in Washington has the balls to do that.

We're very rapidly approaching the point where anyone who pumps money into the United States will actually deserve to lose their shirt. Throwing good money after bad into a country that seems determined to commit financial suicide is going to end as well as you would expect it to. It's no longer a question of if America defaults, it's when. And I can't see how they avoid it in the next two years, if not sooner. Horseshit social issues, easily disproveable ideology and an allergy to even basic math makes it unavoidable.

The resulting chaos is going hurt the American people, a number of whom are among my closest friends, far more badly than they can even imagine. But they ultimately elected the very people who are causing the problem, and a number of them actually seem proud of it.