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Debt Deadline Dread

2011 June 1
by Randy H. Milgrom

          I’m worried, if not for our country’s actual ability to meet its obligations then certainly about the messages our lawmakers are sending — to Wall Street, to U.S. bondholders, and to investors and policy makers around the world  — regarding our continued willingness to do so. Our stubborn and perpetually warring political parties are as far apart as ever on the conditions precedent to raising the debt ceiling, which is necesary merely to pay the bills we’ve already incurred. Congress proved its lust for deadline-baiting during the last budget battle that threatened to shut down the government, and it seems even more willing this time to engage in risky brinksmanship.

          But this particular impasse holds even greater potential for harm. And the last possible moment could come sooner than many of these seemingly oblivious lawmakers may think. There is the very real possibility that the mere perception of deadlock as the deadline nears will disastrously roil the markets — which react, and over-react, on a daily and significant basis, often on information that doesn’t even come close to qualifying as news anywhere outside of Wall Street. The specter of the world’s leading economy defaulting on its debt obligations, on the other hand, is newsworthy everywhere, and it dwarfs by a significant margin the first failed vote on the 2010 budget. It even potentialy surpasses the harm caused by the initial failure in late 2008 to authorize TARP, which caused a record 777 point one-day downturn in the Dow. Yet these same lawmakers — along with too many clueless first-timers —  appear to be relishing their roles in the fiasco-to-come. 

          The stage has been set not by facts but by messages. Consider the ominous blurts by a leading senator from each side of the aisle on last Sunday’s Meet the Press:

           Republican McConnell: “I’m confident that unless we do something really significant [including passing major elements of Rep. Ryan’s budget and Medicare plan] about debt and deficit, [the debt ceiling] is not going to be raised.  It’s not going to get my vote….” 

         Democrat Schumer: “[T]he only way we’re going to come to an agreement on the budget and the debt ceiling is if Senator McConnell and his Republican colleagues take the Ryan plan off the table, and take it off now….”

          Against this backdrop, last night’s up-or-down vote on a “clean” debt ceiling bill, which was resoundingly defeated, was acknowledged by both sides — in a rare moment of agreement — as pure political theater.  Republicans, who brought the measure to the House floor, urged its defeat, while Democrats — who would like nothing more than to pass this very bill — accused Republicans of staging a political “stunt,” since they knew full well it wouldn’t pass. So Wall Street ignored last night’s vote; this morning’s downturn is being attributed to a disappointing new jobs report, not to results of the vote, which Republican leaders reportedly assured business executives had been staged to make the point to President Obama that an increase cannot pass absent his agreement to rein in domestic spending.

          A U.S. Chamber of Commerce representative said “Wall Street was in on the joke” of last night’s vote. But there’s nothing funny about what’s being said by those most responsible for steering our economy from disaster. And the real vote — whenever that comes — will be a deadly serious matter.

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