Tea Party Amateurs are Vulnerable to a Sucker Punch
After carefully reading through this column by Asia Times' Spengler--who is consistently extremely thoughtful--I find his logic, unfortunately, compelling.
Quite some number of Ricochet commenters have argued that if August arrives without an increase in the debt ceiling, there are no good reasons for a new financial crisis to erupt. I broadly agree. But as Spengler points out--and this argument, I think, must be taken seriously--there are plenty of bad reasons.
Keynes wasn't wrong about everything. We all, I assume, feel robust frustration with the idea that countercyclical fiscal policy is the way out of the recession. But those animal spirits of the market? I wouldn't write those off yet. It's almost trivially true to say that when people panic, they behave irrationally. Mass panic is a well-known phenomenon. You feel confident in ruling this scenario out? I don't.
Now, before you say, "Well, if it happens, it happens, the stuff's overvalued, the day of reckoning comes today or it comes tomorrow but it's still coming" consider the ensuing political scenario he sketches out:
In that event, the Obama administration would declare an emergency, summon bankers to Washington for crisis-management sessions, slash every form of spending except for coupon payments on Treasuries, and so forth. Markets would swoon over the uncertainty. And the president would be on television denouncing the lunatics who brought things to this point. Congress would pass emergency legislation, markets would snap back, and Obama would declare himself a national savior.
Obama, meanwhile, would play the populist against the banks, demanding tougher government controls, consumer protection, and perhaps even the right to dictate that banks make loans to the Democrats' pet projects in the name of job-creation (just as the Clinton administration forced banks into the subprime market, supposedly to help poor people buy homes).
No good crisis should go to waste, Rahm Emanuel said. ...
That's a little too plausible for my taste.
Spengler imagines Obama's speech:
My fellow Americans, the Republican party has been in the pocket of the big banks for too long. After the last Republican administration led the country into the worst economic crisis since the Great Depression, you elected me to restore the balance in favor of working people. Now the Republicans have pushed America into yet another crisis, and again we are faced with the danger of depression.
In consultation with the Federal Reserve and world leaders, I have taken emergency measures that ensure that the irresponsibility of big financial institutions and their Republican friends will not harm your job, your pension or your bank account. And I am sending Congress a set of emergency reform measures to ensure that the banks put the needs of ordinary people ahead of their own fat bonuses.
And you know, that sounds about right.
Spengler's key point is this: "In a crisis the executive authority holds all the aces, because only the executive can act to alleviate the crisis." He warns against expending all the ammo on the debt-ceiling showdown. I think I have to agree. His logic is pretty compelling.
Peter was right to note that Margaret Thatcher picked her battles with caution. His example--her capitulation to the National Union of Mineworkers in 1981--is apposite.
Remember Reykjavik, yes. But also remember that when Thatcher took a look at the situation in 1981 and realized her government was not prepared for the fight, she caved. Immediately. It was not because she had no principles. It was because she knew what the situation was; she had a healthy respect for the constraints of the battlefield; and she did not propose merely to go down with glory. She proposed to win.
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Sep '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Spengler's analysis is compelling, though ultimately if that's what we're faced with then its a rigged National Socialist deck until the White House is reclaimed. The only counterpunctual I can think of is Canada's Meech Lake Accord which was supposed to bring Canadian armageddon if not passed.
It wasn't passed. Nothing untoward happened, and the rest is herstory.
Apr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
I read it. As always David Goldman can be persuasive.
Here are a few of the many not persuaded...
FreedomWorks, RedSate, American Majority Action, Let Freedom Ring, and the Club For Growth draft a letter to Republicans in Congress opposing the McConnell Plan. Of particular note, considering who all is on board this letter, is this paragraph:
“We will refrain from backing any Member of Congress or candidate for federal office, or a leadership position in a Republican Caucus, who supports the McConnell—Reid—Pelosi “Cut, Run, and Hide” plan, to the extent that our various legal structures and rules allow.”
http://www.redstate.com/erick/files/2011/07/CoalitionLetter.pdf
Apr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
What, me worry?
Debt to GDP ratio:
Greece 143%
Italy 119%
Portugal 93%
US 97% (official, or lying weasel US debt)
That 97% ratio of US debt to GDP (US GDP = $14.6 trillion, 2010) is composed of $14.3 trillion in official US debt. Which is what the current fight is about.
However, unfunded liabilities (S/S, Medicare, Medicaid, Obamacare) amount to $61.6 trillion (a conservative low end estimate, CATO says $119.5 trillion).
Guarantees using the full faith and credit of the US (Freddie, Fannie, student loans, Exchange Stabilization Fund (ESF), The Temporary Liquidity Guarantee Program (TLGP), etc. amount to $16 trillion, an amount larger than the official US debt itself.
So 14.3 + 61.6 + 16 = $91.9 trillion or 642% of GDP (1026% using CATO figures)
As I said we definitely are in a league of our own.
And to make matters more difficult total obligations are rising much faster than GDP annually even without new official borrowing. Which means every year the situation gets much worse. Unlike Japan, whose debt is mostly self-financed, our debt is owed to foreigners. A small rise in interest rates on our debt would be catastrophic.
Mar '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Mr Murphy would agree with the term "Tea Party Amateurs". I guess we should leave it to the Professionals who are leading us towards Greece. Mrs Thatcher, I am pretty sure, would not approve.
Actually, I'm surprised by how well the Republicans are doing - but I think they know they can't do much until 2013 - maybe lose another trillion or two - a trillion here, a trillion there, and pretty soon we are talking real money. Well, not really - they just print it or, these days, type some zeros into a computer at the Fed.
Edited on Jul 19, 2011 at 6:23amMay '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
First off, I don't know if her Serene Highness, Queen Claire, recently received a blood transfusion from one Michael Murphy, but I can't say I like the term "amateur" in the headline. This is especially so when you consider what "professional" management has done for the Federal Government.
The Obama chickens have come home to roost. This continued recession is his baby. Even if Congress reaches a deal on the debt ceiling American business is still not going to invest or make new hires until this government is reined in. See Wynn, Steve.
Jun '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Gaming a market is one of the most difficult ways to consistently make money in the world.
That said, it's what market participants don't see coming that overturns their book. We are only a few trading days away from August 2nd and everybody and their brother knows about the impending tsunami washout of a debt crisis.
I don't claim to have a crystal ball on the markets but it sure does look like this fear headline is a yawn as far as the markets are concerned. If this weren't the case, yields would already have spiked.
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Claire, Claire, don't tell the Republicans to cave. That is the one thing that they are good at.
Nov '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
If Obama is determined to become a national saviour, then If it's not this crisis, he'll manufacture a different one. The rest of the country can't simply hide under the bed until it all goes away.
Sep '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
I don't think this was a good fight to pick. I don't think roiling wold markets and then win or lose resolving the crisis with something less than what you want and then the lifted uncertainty probably helps the market...it doesn't make us look good.
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Paul, what's your plan for dealing with the scenario outlined? Do you not share my feeling, when you read that, of "Yep, that's all too plausible?"
I'm happy to say do not cave if I think this scenario has really been anticipated and plans have been made for dealing with it, politically. Do you see that? Or do you see something more like the kind of tunnel vision that led us to go into Iraq (basically morally and strategically the right decision) without a serious plan for dealing with an insurgency (madness)?
May '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
All my instincts favor taking a hard line on principle. But this piece by Nicole Gelinas gives me pause: http://city-journal.com/2011/eon0715ng.html
Apr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
There are a lot of plans but they are not always in the NY Times or on CNN.
Coburn deficit plan offers $9 trillion in savings
http://www.washingtonpost.com/business/economy/coburn-deficit-plan-proposes-9-trillion-in-savings/2011/07/18/gIQArcBvMI_story.html
http://coburn.senate.gov/public/index.cfm/pressreleases?ContentRecord_id=1d817708-76ed-4b2b-9cc2-076415409d44
http://coburn.senate.gov/public//index.cfm?a=Files.Serve&File_id=5d66088c-40d4-40e5-ad95-bc5d88774595
Apr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Cut, cap and balance
http://rsc.jordan.house.gov/Solutions/debtceiling.htm
http://rsc.jordan.house.gov/UploadedFiles/Cut_Cap_Balance_Act_Summary-FAQ--07-15-11.pdf
http://www.cutcapandbalanceact.com/
(a lot of Tea Party amateurs there)
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Claire Berlinski, Ed.
Paul, what's your plan for dealing with the scenario outlined? Do you not share my feeling, when you read that, of "Yep, that's all too plausible?"
I'm happy to say do not cave if I think this scenario has really been anticipated and plans have been made for dealing with it, politically. Do you see that? Or do you see something more like the kind of tunnel vision that led us to go into Iraq (basically morally and strategically the right decision) without a serious plan for dealing with an insurgency (madness)? · Jul 19 at 6:58am
I think that we should call Obama's bluff. The markets will swoon . . . briefly -- and then, for the first time in my lifetime, it will be recognized that in these matters the legislature is supreme. If the Republicans cave, our side will lose heart . . . as happened in the days of Bill Clinton.
Note the polls. The Republicans in Congress are not especially popular. Obama's support is collapsing.
Edited on Jul 19, 2011 at 8:50amApr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
The Ryan Plan
http://www.roadmap.republicans.budget.house.gov/Plan/
http://gregmankiw.blogspot.com/2011/04/ryan-plan.html
http://www.cbo.gov/ftpdocs/121xx/doc12128/04-05-Ryan_Letter.pdf
Sep '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
I guess now the choice is McCoward’s plan or default. I would suggest the house could pass a 300B. increase in the debt ceiling with 300B in. cuts attached, in addition I would also do away with the corporate jet so called loop hole and ethanol subsidies. Take away all of Obama’s excuses. Let Obama either sign or veto it. FY 2012 begins Oct 1 and the house Republicans can pass CR’s for individual departments cutting fat, waste and duplication. The problem isn’t winning the PR battle. The problem is many establishment Republicans love big government and McCoward and Bonehead are two prime examples.
May '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
There's also a principled reason for "caving" (in addition to preventing possible financial calamity). The issue is really spending, not borrowing. Congress has already baked in most of the spending. It's strange to have approved the spending but not to approve issuing bonds to support the spending. I understand the desire to restrain spending, but one could argue that threatening not to allow borrowing to meet these already existing obligations is reckless. Do we want to be tarred with that? Would a better fight be to demand an actual budget (as required by statute), and on that battleground to demand lower spending?
Apr '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Are the Dems going to go for broke (no pun intended)?
Bill Clinton Would Declare The Debt Limit Illegal
http://www.nationalmemo.com/article/exclusive-former-president-bill-clinton-says-he-would-use-constitutional-option-raise-debt
A Democrat putsch in the wind?
May '11
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Paul A. Rahe
I think that we should call Obama's bluff. The markets will swoon . . . briefly -- and then, for the first time in my lifetime, it will be recognized that in these matters the legislature is supreme. If the Republicans cave, our side will lose heart . . . as happened in the days of Bill Clinton.
Note the polls. The Republicans in Congress is not especially popular. Obama's support is collapsing. · Jul 19 at 7:17am
The legislature is supreme -- and Republicans only control one of two houses. I'm beginning to see some of Mike Murphy's points. . . .
Aug '10
Re: Tea Party Amateurs are Vulnerable to a Sucker Punch
Viator hit on the problem above: once you reach certain debt levels, monetary policy simply stops working. Fiscal policy then appears to be the only solution to climbing out of a recession... but at that point the "stimulating" effect of fiscal policy become so short-lived, it can not overcome the animal spirits Keynes theorized were holding back economic growth.
Keynes was not entirely wrong, but his "correct" ideas about animal spirits are only applicable in a very narrow set of economic circumstances. And he had very little useful to say about how his theories interacted with debt.
In short, things may go haywire if the debt ceiling isn't raised. But that doesn't mean raising it and spending more would make us better off.
(If you want the full argument, Henry Hazlitt debunked most of Keynes' General Theory in his book The Failure Of The New Economics.)