Whatâs Wrong Today
We are quickly approaching the point of no return on increasing the debt limit. And it is doubtful that we will see a positive outcome from the ânegotiationsâ between the two parties.
Some of the Washington ignorati believe that an actual negotiation is underway. Most of them think that a battle between mutually exclusive ideologies is taking place, and that the substantive difference is between those who feel that we should raise revenues in addition to lowering expenditures, and those who think we should simply lower expenses.
Wrong!
There is no negotiation. And this is not what the battle is about.
The Tea party faction of the Republicans believes that the US government is too big and that the best way to make it smaller is to limit its ability to borrow. The easiest way to limit the Governmentâs ability to borrow is by forcing it to miss some payments.
Who would lend to a deadbeat?
Since Speaker Boehner doesnât actually control House Republicans, he will be 50-75 Republican votes short of passing a bill that increases the debt ceiling that isnât based on a compromise with Democrats. Obviously, he would get some Democrats voting with him, but not enough to pass a bill. If he does compromise with Dems, he will be more than 75 votes short of what he needs to pass a bill. Our divided government is really in the House of Representatives and more directly, within the Republican Party in the House.
So who benefits from financial chaos? Two groups:
- Republicans! I previously reported on Eric Cantorâs shorting of US Treasuries, so we know that he benefits personally. Politically, the idea is to create a fiscal crisis that Obama and Democrats canât solve without Republican help. The gamble is that the electorate will blame the ongoing economic crisis (made substantially worse by a default) on Obama in 2012 and that the presidency and the Senate will then swing to Republican control. Then they can proceed with their agenda to dismantle the New Deal social safety net while making the world safe for the wealthiest 1% of Americans.
- Too Big to Fail Money Market firms. The firms that dominate the financial markets take as an article of faith, that inflation will happen and thus borrowing costs will rise. This drives their profits up every time. Moreover, they like tumultuous markets. Since (i) rates havenât actually risen and (ii) commodity prices have retreated since the Spring of this year, their trading departments have seen short term profits decline, so they also benefit from rising rates, a falling dollar and a weakened President.
An old Ponzi schemer in Boston that I used to know said all the time: âIf you canât raise the bridge, lower the river.â This meant to him, think outside the box when you have a problem that you canât solve. The Republicans and the Banks are thinking outside the box alright, and it is so wrong.
