Default crisis kabuki, Act III
by David Atkins ("thereisnospoon")
It's time to play another round of "who could have predicted?", default crisis edition:
A Congressional aide briefed on ongoing negotiations between House Speaker John Boehner and President Obama says the two principals may be nearing a "grand bargain" to raise the debt limit which would contain large, set-in-stone spending cuts but only the possibility of future revenue increases.
"All cuts," the aide said. "Maybe revenues some time in the future."
The status of negotiations has Democratic aides on both sides of the Capitol nervous and unhappy. And the notion that the impasse over the debt limit may be nearing an end is sparking denials from both the White House and Boehner's office -- in part, perhaps, because neither side has buy-in from their parties on a consensus plan.
Of course, no one knows if this is a trial balloon, if the aides don't know what they're talking about, if it represents just a feint in the negotiation process, or the final offer on the table from the Obama Administration. In the end, it doesn't really matter, because what we're going to get when all is said and done is massive cuts with no reveneus, or phantom revenues at best. Maybe Social Security and Medicare will be on the chopping block, or maybe not, depending on how strongly the Democratic House Caucus can hold out.
Writing about the default crisis negotiation is depressing, because the endgame is already telegraphed. The highest echelons of the Democratic Party take orders from Wall St., because that's where the campaign cash comes from, and because if Republicans get all of Wall Street's money and the Southern/Midwestern conservative vote, it's game over for Democrats and hello to President Bachmann. Add to that the fact that most of the acclaimed "best and brightest" Ivy League economists still subscribe to some form of neoliberal economic theory, and the fact that Democrats subscribe to the rationalist Enlightenment-based technocratic impulse that inclines to believe them, and Democrats will go along with what Wall St. wants when push comes to shove.
Of course, The entire Republican Party worships at the altar of the Golden Bull, and blames poor minorities when the bull rampages in a frenzy of bubbly economic destruction. Other "principles" may get in the way, but if Wall St. says "boo" loud enough, the GOP will ultimately fall in line. They always do. The House Democratic caucus is somewhat less pliable to financial sector demands, depending on the local campaign contribution revenue stream, but other local businesses that depend on short-term bank loans will eventually twist their arms into submission, too. If you're a Congresswoman having to choose between raising the Medicare eligibility age or allowing businesses that employ over thousands of people in your district to go underwater, you'll raise the eligibility age no matter how much you hate the idea.
The TARP vote was the model for the default ceiling vote: everyone will likely posture until the market flips out, and then everyone will panic and do exactly what conservatives and the Rick Santellis of the world want them to.
So here's how this plays out: the Obama Administration lays down a marker that says we'll accept 90% spending cuts and 10% revenue increases in exchange for a default ceiling increase. The GOP lays down a marker that says the ceiling increase vote itself is a compromise, so just the vote with no revenues attached is their final offer. Impasse. The Obama Administration sweetens the pot by putting Medicare and Social Security on the table. House Democrats, appropriately, refuse to budge. McConnell Republicans (mostly in the Senate) who understand what even the prospect of a debt default would mean on Wall St. panic and capitulate. The Ignorant Caucus of the House GOP tells the GOP Senators to take a long walk off a short pier, and passes a preposterous, economy-killing bill that has no chance in hell of going anywhere. The Administration sweetens the deal for Republicans even further, which emboldens the GOP to see what more they can extract. And almost certainly, Congressional Dems will push back pretty hard. More impasse. Then possibly a short-term extension.
Eventually, as with the TARP vote, the market will freak out. There will be a big plunge, leading to mass panic on Capitol Hill. At that point, enough House GOP yokels and wavering Democrats will come out of their camps to unite behind a plan involving massive cuts, the promise of phantom future revenues that everyone knows won't happen, and some minor cuts to "entitlement programs" that Democrats might think are livable.
And everyone will breathe a big sigh of relief, both camps will declare victory and go home happy. Everyone, of course, but the American people getting screwed. But as we all know, Wall Street's needs and political campaign coffers come first, every single time.