Partying like it's 1995 --What will it be? Tulips, tea or tech?

Over the past week, top White House officials have been floating a trial balloon for their strategy on the economy. At its core is a decision to put deficit reduction ahead of job creation.

The premise is that the bond markets and allied deficit hawks are demanding action to cut the budget, that Obama lacks the votes in the Senate for a serious jobs initiative, and that polls show voters care more about deficit reduction than about jobs.

So the plan, modeled closely on the work of the Peter G. Peterson foundation and the anticipated report of the president's own fiscal commission, is a deal that includes cuts in Social Security plus a new Value Added Tax (VAT), in order to get deep cuts in the deficit. As a sweetener to get Republicans to back the VAT, White House officials would cut the corporate income tax.

The bond vigilantes who've been missing in action under George W. Bush may be preparing for a return engagement once Barack Obama or John McCain takes office next year.

Investors and former policy makers predict that the same market forces that torpedoed President Bill Clinton's ``putting people first'' spending initiatives at the start of his presidency are gathering again at the prospect of McCain's tax cuts and Obama's health-care and education programs.

``Though times are different and a lot of the government spending is necessary, we're going to see rates rise in a saw- tooth pattern over the next few years,'' says E. Craig Coats Jr., the head of Salomon Brothers' government securities desk when it was the world's biggest bond trader. Coats considers himself one of the original vigilantes, the bearish traders who drove up long-term interest rates, persuading Clinton to place deficit-reduction above fulfilling his spending promises.

That course-reversal prompted Clinton political adviser James Carville to observe at the time: ``I used to think that if there was reincarnation, I wanted to come back as the president or the pope or as a .400 baseball hitter. But now I would like to come back as the bond market. You can intimidate everybody.''

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Leon Panetta, Clinton's first budget director, says that ``if we continue to run these large deficits, not only bond traders but the securities markets are suddenly going to awaken with concern about whether or not the administration is doing anything to discipline the budget.''

If that happens, Panetta says, ``it's just a matter of time before they start to put pressure on a new administration.''

Clinton's experience shows what such pressure can do to a president's agenda. Promises of spending on education, public works and a middle-class tax cut fell by the wayside as advisers led by Robert Rubin, who later became Treasury secretary, convinced the new president the best thing he could do for the economy was to show investors his resolve on fiscal discipline.

``You mean to tell me that the success of the economic program and my re-election hinges on the Federal Reserve and a bunch of fucking bond traders?'' Clinton raged at aides, according to journalist Bob Woodward's book, ``The Agenda.''

Clinton's deficit-reduction policies resulted in a sustained economic boom that generated budget surpluses from his last four budgets and helped pull 10-year yields, which topped 8 percent in 1994, below 5 percent by the late 1990s.

Just as Bush benefited from the achievements of the Clinton years, gaining room to pursue his initial tax-cut agenda, either McCain or Obama will likely be under immediate pressure to fix the problems left over from Bush.

The plan is dubious economics and worse politics. You could hardly hand the Republicans a better gift for the fall election. Imagine the GOP TV spots, Fox talking points, and Wall Street Journal editorial: Obama Administration Has Secret Plan to Raise Your Taxes and Cut Your Social Security.

White House officials are working closely with the president's new fiscal commission in the hope that the bipartisan commissions final report will provide Republican cover for the deal. The commission, due to report by December 1, needs fourteen out of its eighteen members to make an official recommendation. One hope of the deficit hawks is that a super-majority report could steamroll a lame duck session of Congress to act quickly, pending a more Republican Congress in January.

Of the eighteen members, thirteen are fiscal conservatives. Only four are liberals -- Reps. Jan Schakowsky and Xavier Becerra, Sen. Dick Durban, and Andy Stern of the SEIU. A swing vote is Sen. Max Baucus, who is something of a deficit hawk, but defends Social Security and doesn't like automatic fiscal formulas that weaken his jurisdiction as Senate Finance Committee Chair.

Stepping back from the fiscal wonkery, this astonishing White House course is root canal economics as well as political suicide. If the unemployment rate is still close to 10 percent in November, Democrats in the House and Senate face a bloodbath. Yet Larry Summers has ruled out any new large jobs initiative before the election, according to several well placed sources. And if the White House is planning to hit the middle class with a double whammy of increased taxes through a VAT plus Social Security cuts, that's like handing the Republicans a loaded gun.

The GOP, please recall, came within a whisker of killing health reform because of the diversion of Medicare money. If any program is more sacred to older voters, swing voters, and the Democratic base, it's Social Security.

What can the smartest guys in the room be thinking?

Finally, it is wildly improbable as a political proposition to think that Republicans, either on the fiscal commission or in the Congress, will vote for a VAT. This version of a grand bargain has been promoted for years by Pete Peterson and Robert Rubin, and has now been embraced by Rubin's protege, budget director Peter Orszag. The fiscal conservatives who dominate the 18-member presidential commission hope to co-opt the commission's four liberals.

In the end Republican opposition to a VAT is likely to save the Democrat budget hawks from themselves. But along the way, this politically bizarre fantasy will do real damage -- by preventing the White House from embracing a strong recovery program, by frightening both Democratic base and swing voters, and by giving Republicans even more ammunition to use in November.