As the summer recess approaches on Capitol Hill, the halls of
government seem filled with the tales of idiots, full of sound and
fury and signifying nothing.
The House Republicans have 'defeated' a bill which was crafted
explicitly for that purpose
, according to Democratic House Minority Whip Steny Hoyer and
's Aaron Sorenson. In a 97-318 vote against the bill, the majority
party strove to prove that without massive spending cuts, the debt
ceiling will not be raised.
Yet the progressive political website ThinkProgress reported that
one of the key architects of the proposed spending cuts,
Representative Paul Ryan of Wisconsin, has
that "you can't not raise the debt ceiling. Default is the
unworkable solution, or the alternative, I guess I'd say."
That sentiment is echoed on the right - in the opinion pages of the
Wall Street Journal
, economist and former vice president of the Federal Reserve Alan
Blinder wrote that "Fights over the budget are normal and proper in
a democracy, especially when the two parties hold dramatically
different views. But threatening to default should not be a
partisan issue. In view of all the hazards it entails, one wonders
why any responsible person would even flirt with the idea."
Right and left seem to agree that whatever happens, simply
continuing on the present course and hitting the debt ceiling at
full throttle would be disastrous. Yet political considerations
force politicians to consider the unthinkable so as not to appear
weak or vulnerable.
There's no way of predicting how stock markets, financial systems
or the global credit markets would react to the U.S. failing to
raise the debt ceiling by August. Until then, the Treasury
Department can juggle figures and use accounting tricks to keep the
government ticking, but
are limited after August.
Without serious reform of tax, foreign policy and spending, raising
the debt ceiling just keeps the wolves at bay. Charging straight at
default, however, is a much worse alternative. Standard and Poor's,
the rating agency, has
that it might downgrade the nation's AAA sovereign debt rating -
and political gamesmanship like this week's can't help.
Foreign equities and ETFs could perform better than U.S. assets,
but they are just as likely to collapse as investors rush for home.
Similarly, it seems rational that a failure to resolve the debt
ceiling situation would boost the yields on U.S. Treasury bonds as
investors demand a higher premium to compensate for higher risk.
However, Treasury notes are perceived as one of the safest
investments available, and demand for them might surge - depressing
yields - if August arrives without resolution.
the stakes continue to rise, and the outcome remains opaque.
Congress should take this issue seriously, rather than using it for