The Wrongologist

What’s Wrong Today:

Don’t know about you, but I never thought that the “bi-partisan” Debt Ceiling negotiations were going to give us a solution prior to the final hours before a general default on the US’ debt obligations.

So when Eric Cantor announced today that he was pulling out of the negotiations, it was no surprise. He says that the group has reached an impasse over taxes that only President Barack Obama and Speaker John Boehner can resolve. Cantor, in an interview with the Wall Street Journal described the last negotiating session as bitterly contentious and said he would not be attending today’s scheduled meeting.

Mr. Cantor said he believed it was time for the negotiations to move up a level. Cantor said. “Given this impasse, I will not be participating in today’s meeting”.

So What’s Wrong?   

First, if you ever find yourself saying “Only John Boehner can solve this problem” your problem cannot be solved.

Second, given the House GOP landscape, there are two players who can cut a budget deal: Eric Cantor and John Boehner. If a deal is to happen, one of them has to do it. That means that one of them is likely to lose his job. The optimistic take is that what we’re seeing is a game of chicken over which one of them it’ll be. Pessimistically, if you had to write a plausible scenario for how America defaults on its debt, or at the least, seriously spooks the market, this is how it starts. By using the debt limit as leverage for a budget deal, the Republican leadership now finds they can’t actually strike a deficit-reduction deal, nor can they go back on their promise to vote against any increase in the debt limit that isn’t accompanied by a deficit-reduction deal. What will follow is a lot of jockeying and fingerpointing, a short-term increase or two, and eventually, a market panic.

Third, what you probably don’t know is that Eric Cantor will benefit financially from a panic:  WSJ’s Washington Wire reported:

“Putting his money where his mouth is?  Eric Cantor, the Republican Whip in the House of Representatives, bought up to $15,000 in shares of ProShares Trust Ultrashort 20+ Year Treasury ETF last December, according to his 2009 financial disclosure statement. The exchange-traded fund takes a short position in long-dated government bonds. In effect, it is a
bet against U.S. government bonds—and perhaps on inflation in the
future.”

This means that Cantor took a short position in long-dated government bonds.He made a bet against U.S. government bonds.. Since Mr. Cantor can seriously affect the value of U.S. government bonds, this investment places him in a direct conflict of interest. It doesn’t matter that the investment was a small amount. If a Democrat were found to be investing like Cantor has done, the Republicans would be calling that Democrat “unpatriotic.”

Cantor is operating in a very dangerous way.  And it is so Wrong.