Team Obama Fiddles While Debt Ceiling Fires Burn

Some historical accounts of the Great Fire of Rome, which destroyed three of the city’s fourteen districts and damaged seven others, depict it as an urban redevelopment project gone bad. Emperor Nero allegedly torched the district where he wanted to build his Domus Aurea. Hence any lyre-playing was not a sign of imperial madness, but a badly-informed leader not knowing his plans had spun badly out of control.

President Obama’s plan at social and economic engineering, of rolling back core elements of the Great Deal out of a misguided effort to cut spending in a weak economy, is similarly blazing out of control. The debt ceiling crisis was meant to be a scare to provide an excuse for measures that are opposed by broad swathes of the public. Polls predictably show that voters want five contradictory things before noon: they are against cutting Social Security and care much more about more jobs than about less deficit, but yeah, they’d like that too if they can have it.

While members of the administration may dimly recognize what a firestorm they have unleashed, their crisis responses look to be no better than Nero’s. Obama has severely limited his options by playing up the rigidity of the debt limit. In the meantime, the Republicans are playing chicken and are looking very convincing by claiming the Tea Partiers had removed the steering wheel from the car. As John Kay warned in the Financial Times, this produced a toxic “bidding” dynamic:

The game theorist Martin Shubik invented an unpleasant economists’ party game called the dollar bill auction. The players agree to auction a dollar bill with one cent increments to the bids. As usual, the dollar goes to the highest bidder. The twist is that both the highest bidder and the second-highest bidder must pay.

You might start with a low bid – but offers will quickly rise towards a dollar. Soon the highest bid will be 99 cents with the underbidder at 98 cents. At that point, it pays the underbidder to offer a dollar. He will not now gain from the transaction, but that outcome is better than the loss of 98 cents. And now there is a sting in the tail. There is no reason why the bidding should stop at a dollar. The new underbidder stands to lose 99 cents. But if a bid of $1.01 is successful, he can reduce his loss to a single cent.

The underbidder always comes back. So the auction can continue until the resources of the players are exhausted. The game must end, but never well. There are reports that over $200 has been paid for a dollar in Shubik’s game.

In the DC version, neither the Democratic Senators nor the Republicans in the House want to be underbidders. And the Obama appears recklessly unwilling to circumvent the debt ceiling, since it would eliminate his leverage for pushing through entitlement cuts.

Yet as we’ve discussed, the outcomes the players have committed themselves to are either shooting the economy or bleeding it to death. A sudden curtailment of Federal spending, unless it was very brief, would assure a slowdown. And that’s before you get to wild cards of what might happen to the Treasury market. With Timmie in charge, an actual default seems unthinkable but not all investors will be willing to trust that, and it is not at all clear what would happen in the event of a downgrade. It has had remarkably little effect on Japan, but crisis psychology has kicked in. While I think worries on that front are exaggerated, even small changes will still have an impact. And utter failure of the Treasury or Fed to make any reassuring noises or discuss contingency plans is making rattled nerves much worse than they need to be.

Put it another way: you know things have gotten really bad when you realize having Larry Summers back in a position of authority would probably have led to less stupidity than what we are seeing now. As bad as many of his reflexes are, Obama’s and Geithner’s are even worse.

It has, late in the game, hit the point where Wall Street is imploring Team Obama and Congress to raise the debt ceiling. Obama has claims that his lawyers told him that he could not use the 14th Amendment to ignore the debt ceiling. But the few precedents suggest otherwise, and opinion is certain to be divided enough among authorities that the President could easily have found legal cover if he wanted to (the Administration has had no compunctions on taking aggressive positions on habeas corpus and a raft of other Constitutional issues).

Respected Constitutional scholar Lawrence Tribe, who had obligingly provided Obama with an ass-covering, not-convincingly-argued New York Times op ed against the viability of invoking the 14th Amendment, has effectively reversed himself since then, admitting that that both a court challenge and impeachment were highly unlikely. Yale constitutional scholar Jack Balkin wrote today (hat tip Arthur) of three additional routes the President could use to work around the debt ceiling. One is the coin seigniorage idea that has been discussed here and on other sites. Another is the “exploding option”:

The government can also raise money through sales: For example, it could sell the Federal Reserve an option to purchase government property for $2 trillion. The Fed would then credit the proceeds to the government’s checking account. Once Congress lifts the debt ceiling, the president could buy back the option for a dollar, or the option could simply expire in 90 days.

Balkin also argues for a third route, effectively, that the President can’t use the 14th Amendment casually, but could when circumstances became more extreme:

If the president reasonably believes that the public debt will be put in question… Section 4 [of the 14th Amendment] comes into play once again. His predicament is caused by the combination of statutes that authorize and limit what he can do: He must pay appropriated monies, but he may not print new currency and he may not float new debt. If this combination of contradictory commands would cause him to violate Section 4, then he has a constitutional duty to treat at least one of the laws as unconstitutional as applied to the current circumstances.

The increased urgency has also led to a change in stance in the Democratic hackocracy. Matt Yglesias, a reliable purveyor of party orthodoxy, pooh poohed the coin seigniorage idea two weeks ago. Today, Brad DeLong (who is generally a loyalist but not an official water-carrier) came out in favor of it based on the Balkin reading. Yglesias made a partial retreat and admitted that Balkin might be right but invoked the bogeyman of a debt downgrade.

But a related question is why is the Administration not doing a better (as in any) job of crisis preparation as a way of calming rattled nerves? Of course, part of the answer is that since this is a manufactured crisis, they really feel they need to keep the heat on and are locked into their current strategy. But a piece by Gillian Tett of the Financial Times lists five areas where the Fed and Treasury owe the public answers on what takes place if there is no debt deal before official finances become strained. I’m not in agreement with all the questions on her list. For instance, “What might the US government do to support the US money market funds if American debt is downgraded, or suffers a technical default?” Paul Volcker was vehemently opposed to the backstopping of money market funds in the crisis, and the assumption underlying Tett’s question assumes that these reserves are entitled to some sort of official protection. Money market fund managers have reportedly raised cash levels substantially in anticipation of redemptions; Treasury-only money market funds won’t dump Treasuries; AAA only funds would presumably in the event of a downgrade (other types of institutional investors are seeking waivers, but I think it would be a non-starter in a product branded as AAA). But her general point is valid: the authorities have been way too close mouthed given the worries they have whipped up. It is astonishing, for instance, that the false August 2 deadline is still widely reported in the media when it is now acknowledged that the real drop dead date is August 10.

We know that the end game is the Democrats will blink, but uncharacteristically, they haven’t done so yet. And enough Senators regard cuts to Social Security with no corresponding sacrifices from better heeled interests (from the military industrial complex to the rich) as fatal to their re-election chances so as to make bringing them to heel daunting in the limited time left.

It is hard to come up with words that are strong enough to describe what an appalling display of misguided ego, inept negotiating postures, bad policy thinking, and utter disregard for the public interest are on display in this fiasco. But as a friend of mine likes to say, “Things always look darkest before they go completely black.”

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  1. attempter

    This comparison is actually unfair to Nero, who according to the evidence was sincerely shocked by the fire and moved fast to bring the people relief. He quickly set up a tent city on the exercise field to shelter those rendered homeless and organized massive food shipments from the provinces. The radical opposite of Bush with Katrina and Obama with the Gulf Oil Eruption.

    Nero also used the disaster as an opportunity to undertake large-scale public works projects which in many ways improved life for the average resident. Again the opposite of the Bush/Obama Shock Doctrine.

    I don’t say that to whitewash Nero, who was a monster in many ways, but to highlight how unprecedentedly obscene today’s monsters are, that even someone like Nero shines by comparison.

    As for the description of the political wrangling, does that matter at all? So two criminal gangs are squabbling. All that should matter to us is that they’re squabbling over nothing but shares of the loot, while we’re the robbery and enslavement target of both equally. The only meaningful system phenomenon is kleptocracy itself.

    Laurence Tribe, LOL. Another one who once had a somewhat respectable name but who has descended to the level of a gutter hack. (And doesn’t even have the stomach to stay there, but then reverses himself. So he’s worthless from anyone’s point of view.) Talk about ending one’s career as a buffoon.

    1. Yves Smith Post author

      Yes, I know but the probably apocryphal but widely used metaphor of fiddling while Rome burns was too apt to pass up. It would have made for cumbersome drafting to spell out that modern scholars no longer believe that account.

      1. attempter

        I run into the same thing trying to use the founding fathers as material. They’re part of the only revolutionary heritage we have, and yet many of the most famous ones helped sell it out. So I try to separate the spirit of ’76 from that of ’87-88 (not to mention things like their slave ownership). It’s hard to do.

        1. dearieme

          Consider the possibility that the men of ’87-’88, and the slave-owners, were the real deal, and that all the “spirit of ’76” stuff with which you were indoctrinated in childhood was just advertising blarney.

          1. attempter

            No, the ideals are part of history’s democratic movement, however much many of the individuals involved changed their minds about them once they were in power. The American Revolution made a start and then was put on ice. It’s time to resume it. But this time not make the mistake of falling for the “representation” scam or the scam that “the wealthy and the poor will always be with us.” Neither needs to exist nor should exist.

  2. R Foreman

    “It is hard to come up with words that are strong enough to describe what an appalling display of misguided ego, inept negotiating postures, bad policy thinking, and utter disregard for the public interest are on display in this fiasco.”

    Alright now, don’t hold back on us Yves… just tell us what you’re really thinking.

      1. epzen

        Yes!!! 8 years of Bush and now Obama. Too bad someone isn’t in a position to successfully challenge him for the Democratic nomination.

  3. vlade

    Lincoln, whom Obama likes to style himself after, happily ignored constitution in crisis. Indeed, the mark of leadership in crisis is that you make your own rules to get out of it and worry abut niceties later.

    If Obama is really worried about US default/downgrade, is not even impeachement (which, after all, is only a personal problem) worthy sacrifice?

    The more I see this, the more I believe that both sides pretty much ignore August 2.
    To an extent, for Obama, it fits with the behaviour so far. Rethorics of the extreme, but not really backed by reality. If you do say that something is a hard deadline, you’d better be damn convincing it’s a hard one (and unwillingness of Tresury/Fed to look at options leaves me wondering whether it is).

    He’s so good at painting himself into corners that he’s either completly incompetent, or that he picks corners he wants to be and starts painting. I would not discount the first possibility.

    1. ex-PFC Chuck

      He’s so good at painting himself into corners that he’s either completly incompetent, or that he picks corners he wants to be and starts painting. I would not discount the first possibility.

      Neither would I discount that possibility. And in the case of the second possibility, the corners he picks are all Republican ones. So, if there are any genuine grown-up Democrats with national stature left will one of them please stand up and take on Obama for the presidential nomination in 2012? Yes, I know it looks like an impossible challenge, but it’s for the very future of some shred of democracy in this country. Not to mention the soul of the Democratic Party. Leo Amery’s dismissal of Neville Chamberlain in the House of Parliament in May, 1940, come to mind:

      You have sat here too long for any good you are doing. Depart, I say, and let us have done with you. In the name of God, go!

      How about it, Elizabeth Warren?

      1. Sufferin' Succotash

        Historical footnote.
        Amery lifted that line from Oliver Cromwell’s speech to Parliament in 1653 just before his troops cleared the chamber at gunpoint.
        It’s not that I consider fantasizing about such an event occurring in today’s House of Representatives to be taking a responsible attitude towards the US political system, but…

      2. Wyndtunnel

        It would seem South Park’s Satan has dumped Saddam and found himself a new butt-buddy.

    2. Eric

      Well, at 1:20 PM EDT 7/29 I would estimate that a solution that acts just like a clean increase to the debt limit has not been closer to hand since the Continuing Resolution face-off several months ago. Now, without question it could blow up, but there is an increasing chance that the corner we end up in functions just like the one that the Democratic party would have elected.

  4. Willbur

    “Polls predictably show that voters want five contradictory things before noon…”

    I truly despise this Village fallacy, yet it keeps getting dogmatically repeated. The American people aren’t confused or contradictory, they want these things and polling consistently shows they know how they want to pay for it all: Much higher taxes on the top quintile.

    1. Yves Smith Post author

      It’s not a fallacy, it is EXTREMELY well documented.

      Read poll results, they are inconsistent. They are very susceptible to how the question is stated. I used to do survey research. This is just about the very first thing you learn in that business.

      That is further confirmed by tons of research on cognitive biases. Identical economic propositions will elicit very different responses depending on how they are presented.

      People want things that are contradictory all the time, such as being thin and eating ice cream.

      1. Willbur

        Yes, polls can be inconsistent, yes, wording matters, and I know all about manipulating cognitive biases, having worked both in polling and marketing but when different pollsters, using different methodologies, over multiple polls, over a multi-year period keep showing the same trend, I think it’s safe to infer that Americans want to pay for social programs by increasing taxes on “The Rich”.

        I’d be happy to have you point me to polling that shows that a majority of the respondents want continued services but not at the expense of taxing the rich, because I haven’t seen anything to that effect.

        1. Capo Regime

          Wilbur–why don’t you do your own research. Just use the google thing. To ask Ives to point you to it is just churlish.

        2. Capo Regime

          O.K. Sorry but its clear you don’t understand a very basic point Ms. Smith is making. Her point is indeed extemely well documented and a staple of political science research for decades!

        3. Yves Smith Post author

          The taxing the rich point is a straw man. I’ve never EVER said the public was against that.

      2. Foppe

        But what happens if you ignore the polls that suggest that people want smaller govt, or SS/medicare cuts for others, but not for themselves?
        Because I get the feeling that if you just focus on polls that ask about the people’s opinion wrt tax increases for the rich, I suspect that the people are much less ‘confused’. Sure, they may have come to believe that SS cuts are ‘the only way to a healthy economy’, but we all know that’s just misinformation that’s being fed to them by the truckload, so it seems to me that we can pretty much ignore those opinions/poll outcomes. Because I suspect that that’s what’s frustrating Willbur.

        1. Foppe

          Apologies for the incoherent writing. Attempt #2:

          But would you still if you ignore the polls that ask people about whether they want ‘big’ or ‘small’ govt, or ‘SS/medicare cuts for others, but not for us’? Because while it is certainly possible that many have come to believe that SS cuts are ‘the only way to a healthy economy’, we all know that’s just misinformation that’s being fed to them by the truckload, so it seems to me better to just ignore those opinions/poll outcomes altogether.
          And it is my impression that if we were to focus only on the polls that ask about the people’s opinion WRT tax increases for the rich, they are much less confused or contradictory. I suspect that that’s what Willbur was hinting at.

          1. Foppe

            Sorry, it seems the language center of my brain is on strike today. That first sentence should probably read:
            “But would the same conclusion (about unrealistic voter expections/demands) still follow if you were to rudely ignore any and every poll that asks people about whether they want ‘big’ or ‘small’ govt, or ‘SS/medicare cuts for others, but not for us’ entirely?”

    2. curlydan

      The polls (Pew/WaPo poll from a few days ago in particular) that the public favors cutting the deficit by raising taxes on those earning more than $250,000 more than any other policy. See FireDogLake–they’ve been hammering away at the results from this poll.

      72% supported raising taxes on $250K+ earners as a way of reducing the deficit–far more than any other policy offered. Reducing Social Security or cutting Medicare did not get a majority supporting these methods.

      But is this most popular option even being considered? No. Politicians don’t follow the votes, they follow the money.

      A poll of preferences will always show contradictory results. Although we bash many of the tenets of economics, unlimited wants and limited resources still holds true. But similar to every other country in the world, the U.S.’s pols do not respond to the majority of the people or their most desired policy. They respond the the moneyed powers that be.

      1. curlydan

        Here’s a link to the 72% favoring higher taxes to $250K+ earners:

        Here’s one older poll from June. There is one non-contradictory theme here and Jon Walker nails it: The public favors progressive solutions to reduce the debt.

  5. LeeAnne

    The use of S&P in this strategy is mimicking the PPT role in the first bailout.

    The stock market protection racket dropped the Dow Jones 700 points -front page -WoW! enough proof of consensus for Congress to pass the Paulson/Pelosi 2008 financial coup with a get-out-of-jail card for all; any organization or individual anointed with bailout FED money not permitted to be questioned. That sounds in retrospect like something the BIS inserted. With leverage, that $700,000,000,000 bailout became $2 trillion with a measly $200,000,000 for Hank Paulson personally.

    BTW, rarely is there any mention of the role of the Plunge (stock market) Protection Team or PPT as its called in passing the 2008 Paulson bailout. For a quick history of the Team here

    Why the downplay of the role of S&P in manipulating emotion and the he fact that all of this is cheap theater; criminal, crooked, and bloody, seems to be lost in the discussion.

    The Nero analogy works, but these people aren’t fiddling. They’re blowing up the joint.

  6. rd

    The geography of government spending may be cming into play here.

    Most of the “Blue” states send more money to DC than they get back. Many of the “Red” states get back more than they send. However, many of the large financial centers are in “Blue” states.

    It is possible that the Machiavellian minds in Obama’s White House may actually believe that they can guide this juggernaut so that they keep the financial markets relatively stable by prioritizing things like Treasuries in their default spending plan while inflicting maximum pain on Republican dominated states by simply selecting the appropriate spending sectors to not allocate cash to.

    I believe that TurboTax Timmy and Obama both have the hubris to believe that they could actually control the default dragon. The GOP is helping them think that by simply pretending that the government can renege on 40% of its obligations without being in default.

    I have never been a Boehner fan, but I almost feel sorry for him at this point in time. He appears to be a politician stuck between a rock, a hard place, Hell, and oblivion.

    1. hermanas

      Mention of Boehner reminds me of Dad, “If you want something to cry about, I’ll give you something to cry about.”

    2. liberal

      inflicting maximum pain on Republican dominated states by simply selecting the appropriate spending sectors to not allocate cash to.

      Obama’s too much of a coward to ever do anything like that.

  7. LeeAnne

    Watch for that moment of high dungeon, fear and manipulated panic on the side of one scenario or another. For it is the MSM talking to themselves with rigged signalling who always claim the public is saying whatever – whatever is in their playbook; everything in political economics now being as rigged as a USSR famine. The whole point of this charade will be revealed soon enough.

    We’ve been through this before. Repeat: substitute S&P for PPT.

  8. Jefferson's ghost

    Welcome to America, the world’s newest third world banana republic.

    Ruled by fear today, by decree tomorrow.

      1. ScottS

        But split which way? Along red/blue lines, or rich/poor lines?
        I see that it was the former at first, now it’s the latter.

        Or perhaps the banana has been quartered.

  9. Allen C

    The realities of macroeconomic math are eventually unavoidable. This is the end of the political shell game. Most are essentially unaware of the basic math and the politicians lack the will to deal with it. Deal with it.

    1. LeeAnne

      The mathematics are hundreds of $trillions trading with no regulation. Bankers and minions (see politicians) stuffing their pockets and operating at insane magnitudes of leverage. Those who understand the game ducking for cover with their ill gotten gains.

      That’s the mathematics. Everyone has understood for a very long time that the leverage for debt was insane; they just were lead to believe through a spectacularly well-financed propaganda machine of think tanks and MSM, that the TPTB knew what they were doing, as indeed they did. The big secret is that they were at WAR with the public.

      That’s a bit hard to swallow.

      The public didn’t speak the language of economics, deprived of it and intentionally kept ignorant through the dark art of the economics teaching profession.

      Blaming the victims is at the very heart of the crimes being committed by almost everyone in power.

      1. carly

        I wonder if we’re seeing the beginning of the end. The greed and lack of generosity was nowhere near as bad in the ’70s as it is today. Just think, that villain Nixon toyed with the idea of universal health care legislation but made no progress. Maybe the awareness of Peak Oil is driving their actions more than we think.

        It’s a whole different world. The standard of living will decline slowly and there will be only so much room at the top. The rich are getting while the getting is good and will eventually withdraw to some well defended retreat. This grim game of musical chairs will not end well for most of us. The spectacle in Congress only confirms that we are on the verge of an appalling paradigm shift.

        1. attempter

          The awareness of Peak Oil, cinched by the American Peak in 1970, was one of the two great crises corporatism faced. The other was the looming maturity of most sectors and consequent plummet of the profit rate to near-zero.

          Those were the reasons the neoliberal strategy to loot the entire result of the mid-century oil surplus, loot all real assets, and restore feudalism but in a modern totalitarian form, was conceived and put into execution starting in the early 70s.

        2. zadoofkaflorida

          Where will the rich go? I have thought they would withdraw from sight with their stolen billions also. Maybe they own their own Islands/countries by now. The rich will withdraw from the US, leaving us all broke and homeless.

      2. Kraken

        Very well said. It’s a war against the people, and the Kleptocracy seems to be in control.

  10. Dave of Maryland

    This is our very own National Stress Test.

    By mid-August we will start to know what snapped, what is in the process of snapping, and what will likely snap as a result of all this pointless, useless, stupid, self-invoked stress.

  11. Richard


    If the US is up against its debt ceiling, doesn’t that mean that deposit insurance is now essentially worthless? As I understand it, the FDIC has some money to cover depositors of a failing bank. When it runs out, it turns to the Treasury for more. Well, if the Treasury cannot provide more funds, then…

    As you pointed out in another post today, the big banks are insolvent. Doesn’t that set us up for a classic bank run? Isn’t it better to get your money out now than absorb the losses?

  12. LJR

    “As John Kay warned in the Financial Times, this produced a toxic “bidding” dynamic:”

    I’m sorry, Yves, but this is hogwash. Nobody is “bidding” on the debt ceiling with understanding that the losing party pays the same as the winner. Kay’s article was simply the result of a day when his imagination failed him and he had to come up with some copy. The game is STUPID and totally unlike anything happening here or in Europe.

    There’s a lot of toxicity involved in the debt ceiling fiasco but likening it to a game that no one in his right mind would play doesn’t help clarify the issues.

    The Tea Partiers desperately need a “victory” to take back to their constituents. They campaigned on debt reduction. Obama wants to appear the great compromiser who made a deal nobody liked but everybody would swallow – like most of the crap he peddles. The Dems? Who knows what that bunch of toejam lickers are up to? Boehner? He needs to show he can lead the House.

    Nowhere in the above is there anything remotely like two players bidding on a dollar bill with the understanding that both will pay the winning bid. It’s much more complicated than that.

    Your insights are usually clarifying and I just had to speak up on this sad exception the rule. It does no good to throw out a simple-minded false analogy.

  13. Paul Tioxon

    “We know that the end game is the Democrats will blink, but uncharacteristically, they haven’t done so yet.”

    For some reason, Yves, and the- I hate Obama’s guts so much, but for the morally correct reason- crowd, refuse to look much beyond their circle of friends from the FT or some other financial money center oracle. Let’s look at what someone has to say, who knows politics better than FOREX strategies. Someone, who also makes political predictions, and bases it on experience in politics and frequently, is proven correct by what he says when the facts come to pass, not just trenchant metaphoric imagery.

    Here is a link to MSNBC where Andrea Mitchell interviews Lawrence O’Donnell. He clearly points out, last year when the tea party was swept into power, that they will have a rough time dealing with a particular perfunctory administrative task that Congress routinely performs, on a regular basis, the raising of the debt limit. Furthermore, he has been regularly pointing out that Obama will not agree to anything unless the republicans agree to everything, in some compromise proposal. Based on this simple Occam’s Razor, he has predicted that nothing much will happen, other than a last minute, one page, clean bill that only changes the numbers on the debt limit by increasing the amount authorized to be borrowed.

    But please see for yourselves:

    We will all see what comes to pass, but no, do not expect anything but chaos, because that has what has been unleashed by the Tea Party Libertarians, who are renamed, are nothing more than former anarchists. They need no ruler over them, no a Speaker of the House, not the Constitution that the will amend on a daily basis for everything and anything that comes to mind, not the obligation of the US Government to honor its own agreed to budget.

    So for some reason, you insist on conspiracy like analysis of what Obama will do, based on the flimsiest of Time Magazine articles about conservative dinners and promises to take apart entitlements, in front of republican spinmeisters no less. Please, try to show some commonsense in matters of state. Let me leave you with this nerve wracking insight into hoe people with power, not money, but power operate.



    “How laudable it is for a prince to keep good faith and live with integrity, and not with astuteness……everyone knows. Still, the experience of our times shows those princes to have done great things who have had little regard for good faith, and have been able by astuteness to confuse men’s brains, and who have over come those that have loyalty their foundation.

    …there are two methods of fighting, the one by law and the other by force… but as the first method is often insufficient, one must have recourse to the second.

    …a prudent ruler ought not to keep the faith when by doing so it would be against his interest, and when the reasons which made him bind himself no longer exist. IF ALL MEN WERE GOOD, THIS PRECEPT WOULD NOT BE A GOOD ONE; BUT AS THEY ARE BAD, AND WOULD NOT OBSERVE THEIR FAITH WITH YOU, SO YOU ARE NOT BOUND TO KEEP FAITH WITH THEM. …..

    ….Thus it is well to seem merciful, faithful, humane, sincere, religious, and also to be so; but you must have the mind so disposed that when it is needful to be otherwise you may be able to change to the opposite qualities. And it must be understood that a prince, and especially a new prince, can not observe all those things which are considered good in men, being often obliged , in order to maintain the state, to act against faith, against charity, against humanity and against religion…….

    A prince…. should seem to be all mercy, faith, integrity, humanity, and religion. And nothing is more necessary than to seem to have this last quality, for men in general judge more by the eyes than by the hands, for everyone can see, but very few have to feel. Everybody sees what you appear to be , few feel what you are, and those few will not dare to oppose themselves to the many, who have the majesty of the state to defend them; AND IN THE ACTIONS OF MEN, AND ESPECIALLY OF PRINCES, FROM WHICH THERE IS NO APPEAL, THE ENDS JUSTIFIES THE MEANS.

    “Let a prince therefore aim at conquering and maintaining the state, and the means will always be judged honorable and praised by everyone, for the vulgar is always taken by appearances and the issue of the event; and the world consists only of the vulgar, and the few who are not vulgar are isolated when the many have a rallying point in the prince.”


    The Prince and The Discourse by Niccolo Machiavelli
    Modern Library Edition, 1950

    The order of the day and everyday for this and every other president is to maintain the social order. It is done by any means necessary. That is the use of power. Deal with it.

    1. liberal

      …you insist on conspiracy like analysis of what Obama will do…

      An analysis of Obama’s motives, not a conspiracy-theoretic one, is necessary, because it was clear from the start that the best negotiating strategy for Obama would have been to say “I will not sign anything other than a clean bill,” then stick to it. People arguing that Obama has his own agenda (“centrist” desire to trim back entitlements, even though SS for one hasn’t contributed a penny to the deficit) have the better side of this debate, ISTM.

    2. JTFaraday

      “Based on this simple Occam’s Razor, he has predicted that nothing much will happen, other than a last minute, one page, clean bill that only changes the numbers on the debt limit by increasing the amount authorized to be borrowed.”

      But didn’t you hear? Larry Kudlow has been on CNBC shilling for the Reid plan every day. You know, the one with Obama’s social security and medicare cuts in it, as reported by the Washington Post the other week? The one that will give Wall Street enough of what it wants while still killing the Bam presidency and the D-Party through subversion from within?

      I’m placing my bet there. Keep hoping, though.

    3. psychohistorian

      I am unsure whether I am vulgar or not but am very sure that I am strongly against the Prince being allowed to continue ruling our world.

    4. attempter

      How ironic (and pathetic) that someone can cite Occam’s Razor yet be too clueless to understand the stark, brute fact that if a party has a de facto one-party dictatorship for two years, then by definition whatever it does is exactly what it wants to do, no more, no less.

      He clearly points out, last year when the tea party was swept into power…

      Oh I see, it’s a memory problem. History only started at the beginning of 2011. Nice try.

      The order of the day and everyday for this and every other president is to maintain the social order.

      Stop it, you’re killing me!

      Fascist drivel.

      Try this, far more honest quote:

      The policeman is not there to preserve order. The policeman is there to preserve disorder.

      – Mayor Daley after 1968’s Chicago Police Riot

      And then reconsider Obama’s disaster capitalist Shock Doctrine, which is his one and only doctrine and policy.

    5. Doug Terpstra

      Bravo, Paul, You nailed Obama perfectly, though I trust your sermon was tongue-in-cheek. He is not Emperor Nero or Herbert Hoover at all, but rather the product of better-to-be-feared-than-loved Machiavellianism. Machiavelli was admired by elitists like Leo Strauss and Neocon schemers like Karl Rove, and yes, Obama, which is probably why I find him so repulsive.

      Prince Obama is Karl Rove 2.0, a higher-order conniving Neocon to whom integrity, truth, and egalitarianism are not foundational moral principles at all but only weapons of manipulation to be cynically wielded with “cunning and duplicity”—along with liberal war and violence—against gullible masses incapable of grasping his own higher ideals. This is the abomination on the imperial throne today, a violent Machiavellian dictator who has eroded the constitution and triumphed over democracy.

      Machiavelli viewed “misery as one of the vices that enables a prince to rule”. And as attempter observes, via the Shock Doctrine austerity is the perfect means for Obama to impose this hierarchical, hereditary New World Order to serve only ‘worthy’ violent elites such as himself. His defining moment, the antithesis of FDR’s, is now within his grasp.

      Yes, as Yves has documented, Obama is a clear and present danger to democracy the American people and world peace. Thanks for helping to out him.

      You’ve even composed the beginning of a new pledge of allegiance for the DLC. “The order of the day and everyday for this and every other president is to maintain the social order. It is done by any means necessary. That is the use of power. Deal with it.”

      Yes we shall, Paul, soon, we shall!

  14. RA

    It’s too early in the game for the 14th amendment and coinage. Those are acts of desparation and should only be taken when the meltdown begins and you have to assume the adult role.

    Boehner’s plan is going to finally get through, the Dems will vote it down for propaganda purposes and then will agree to it and say: “We didn’t have a choice!!!”

    Everybody gets cover.

    1. Cedric Regula

      Some people think Timmy will be selling the gold in Ft. Knox, and Ron Paul will be weighing every bar as it goes out the door.

      1. Cedric Regula

        Then, if Ben were smart (IF), as soon as they were done he would raise Fed Funds to 2%. Gold would go back down to $500, longer term treasuries would crash locking in traders till maturity, stocks would trade at fair value, commodity prices would be set by end user supply and demand, oil would head to $60, savers would get the inflation rate on their savings, and we would have nailed a bunch rich people, arabs, and central banks.

        But that would be too fun, easy and equitable to hope for.

  15. Jackrabbit

    We know that the end game is the Democrats will blink, but uncharacteristically, they haven’t done so yet.

    Obama doesn’t blink when he senses a threat to his political well being. For example, he wouldn’t sign the legislation – hastily rammed through congress on voice votes last fall – that papered over the robosigning fiasco.

    Boehner is over-reaching by trying to create a situation that threatens Obama politically. Obama was not prepared for that.

  16. ep3

    WOW, darkest before they go black.

    Yves, I have developed the theory that Obama is so set in doing “big things” that any variation from those plans means certain doom for his legacy. I say his ego is cashing checks his policies can’t cash. I think he is so obsessed with being the president who solved all these problems (as well as raising all this campaign cash) and then he will go down in history as greater than FDR and Reagan. He will get his face on Mt. Rushmore. I think his biggest fear was that he would only be known as the first black president.
    To use an example with this crisis. He could back off and say “hey look I’m not gonna get a grand bargain, I will live to fight another day”. Yet he is pushing beyond rationality thinking that there won’t be a tomorrow to fight this battle and he will be known as just another guy that failed at gutting entitlements.
    I wonder too if this was to be his big accomplishment as president. The one great thing he would be remembered for. He figured ‘if i make deals with the health care industry, fake reform will pass fairly quickly and then we move on’. But health care became such a struggle he spent too much time on it. Health care spilled over into entitlement reform time. He expected to have more time to work out changes to entitlements, as well as having more people on board by the time the debt ceiling date hit. He actually expected to have it done. So that by august he would be more fully occupied with campaigning. By august, with the economy crashing he could pass some worthless tax cuts or something to pretend he cared (“once the debt is fixed, ppl in washington will want to work on jobs and gov’t spending programs to fix the country because then we have the money to do it”).

  17. Johnny Clamboat

    Obama has claims that his lawyers told him that he could not use the 14th Amendment to ignore the debt ceiling. But the few precedents suggest otherwise

    Nevermind the text in Amendment XIV, section 5: “The Congress shall have power to enforce, by appropriate legislation, the provisions of this article.”

    Perhaps the executive’s lawyers can look for some fine print, maybe something along the lines of “unless the Congress holds an approval rating of less than 10%.”

    Considering the malleability of the document, it’s time for the State to come clean and hold a shredding ceremony for the Constitution. It has failed.

    “But whether the Constitution really be one thing, or another, this much is certain – that it has either authorized such a government as we have had, or has been powerless to prevent it. In either case, it is unfit to exist.” – Lysander Spooner

  18. dearieme

    If, as I suspect, the USA is irretrievably insolvent, recognition of the fact is quite likely to come in a pretty haphazard way in response to some near-accidental event, such as the current imbroglio.

    The foul you up, your Pres and House
    They may not mean to, but they do
    They give you all the faults they have
    And add some extra just for you.

  19. VietnamVet

    There are striking parallels between the USA and Greece.

    The American debt crisis has been manufactured to cut benefit payments to American citizens in order to allow the transfer monies to the banks and investors who are unwilling to take a haircut on their trillions of dollars worth of bad bets made in the unregulated financial markets.

    This has exactly the same atmosphere as when TARP was passed through Congress.

    The USA has a history of Revolution, Civil War and hot headed radicals. Thanks to TARP we have the Tea Party Radicals in the House. These radicals may blow up the whole facade and show what a tragic farce governance is in the USA when all the strings are pulled from Wall Street.

  20. b.

    “Obama appears recklessly unwilling to circumvent the debt ceiling, since it would eliminate his leverage for pushing through entitlement cuts.”

    I think this is the key observation here – it answers all questions regarding invocation of the 14th etc.

    “he has a constitutional duty to treat at least one of the laws as unconstitutional”

    If he wanted to do this right, he would have to make a clear argument that the debt ceiling is effectively unconstitutional – the debt ceiling is pretty much meaningless if it has to be ignored whenever detailed Congressional mandates for spending and taxation are underfunded due to borrowing restraints. The executive cannot reasonably pick and choose – as Geithner’s Treasury is hinting – with respect to spending, and the executive cannot change taxation either. A constitutional debt ceiling would block inconsistent laws reaching a Congressional vote.

    Obama wants the debt ceiling, he has put himself in a position where he has to use it or loose it, now, and the reason he needs it is because even with his attempt at blackmailing both parties and both houses with a threat of selective default into a Grand Bargain, he appears to fail – and he believes the Grand Bargain is the key to whatever his economical malfeasance has left of his re-election prospects.

    The man’s a gambler after all. Whowouldathunk…

    1. taunger


      My name is Taunger. I have accesses to many US$, but I need to have access funds. I am writing to ask you help, and I will pay you a substantial reward. If you forward your paycheck to me, then after the US debt default, I will provide you with US$ through my access, plus a substantial award. No need to mail the check, we can operate electronically. Please forward your account information, with relevant personal identification, to this email address:

  21. Frowner

    Is there likely to be a bank run if the Feds can’t insure deposits any more? I don’t have a lot of cash, but should I get it out now?

    What happens if there’s a bank run and then I get a paycheck? How do I get actual cash for the check?

    1. No Know

      I read here a lot but I can never understand this money stuff. Ben B. said we have a helicopter and lotsa folks say he is “printing money”. Last I heard the Fed (or maybe it’s the Treasury) can print all the money they want and it has no impact on the “debt ceiling”. So what is the problem? Ink? Helicopters? (I’ll bet the AF has some fixed wing ac that could be used) Pilots? The man said he had it under control and now at crunch time he’s lost his tongue????

  22. Richard H. Serlin

    Krugman wirtes, “his continuing faith in bipartisanship”.

    Obama’s a very smart man. I think he very much knows better.

    His big selling strategy is to look like Mr. Reasonable, Compromiser, Post-Partisan-Fairy-Land. People love this, and sadly consider little, and understand little, the economic and other policy issues, and highly value this instead. It’s a shame it’s like this, but Obama’s sales strategy seems to be working to a large extent. His polls numbers are very high for the economy being so bad, and there’s no doubt that avoiding a Republican President in 2012 is immensely important, so you can see Obama’s reasons for putting on this act and doing such ugly harmful things.

  23. Veri

    All of you are missing the Big Picture.

    1. Obama is not stupid
    2. He knows the consequences
    3. He is doing the wrong thing

    Stop and consider that he is, as some have conspired him to be, a Wall Street trojan horse. Big Finance. Co-opted Globalist. A tool of Finance.

    Rome burned. America is burning.

  24. beowulf

    Good Lord, he’s the President of the United States, when he points his finger in Washington, a 100 people die in Afghanistan and now he acts as powerless as a kid stuck in foster care? Why doesn’t he pay someone to, I dunno, read through the laws he’s sworn to faithfully execute?

    International Economic Powers Act, for “any unusual and extraordinary threat, which has its source in whole or substantial part outside the United States”… a tally of foreign-owned Treasuries would clear the “substantial part” hurdle:
    i>”The President may… investigate, block during the pendency of an investigation, regulate, direct and compel, nullify, void, prevent or prohibit, any acquisition, holding, withholding, use, transfer, withdrawal, transportation, importation or exportation of, or dealing in, or exercising any right, power, or privilege with respect to, or transactions involving, any property in which any foreign country or a national thereof has any interest by any person, or with respect to any property subject to the jurisdiction of the United States.—-000-.htm

    I can’t tell you how unbelievably broad that is (of course T-bonds and S&P’s owner McGraw-Hill have foreign investors). The President would be within his rights to compel S&P to issue the United States its very own AAAA rating if he wished. That’s a little heavyhanded, so simply prohibit S&P from revisiting Uncle Sam’s current AAA rating, done and done. There’s not a federal judge in the country who wouldn’t back his play, especially if he wore a belt AND suspenders. For that, let’s see go across the Potomac and dig out the Defense Production Act:

    “[Sect. 2071] Allocation of materials, services, and facilities… The President is hereby authorized…(1) to require that performance under contracts or orders (other than contracts of employment) which he deems necessary or appropriate to promote the national defense shall take priority over performance under any other contract or order, and, for the purpose of assuring such priority, to require acceptance and performance of such contracts or orders in preference to other contracts or orders by any person he finds to be capable of their performance, and (2) to allocate materials, services, and facilities in such manner, upon such conditions, and to such extent as he shall deem necessary or appropriate to promote the national defense…”

    If its related to national defense, he can make any corporation in American do his bidding (Truman got shot down in Court from seizing the steel mills in part because he neglected to use this law), and yes national defense includes “systems and assets” vital to our “national economic security”.
    “[Sect. 2152] The term “national defense” means programs for military and energy production… and critical infrastructure protection and restoration… The term “critical infrastructure” means any systems and assets, whether physical or cyber-based… vital to the United States… including, but not limited to, national economic security and national public health or safety.”—-000-.html

    1. psychohistorian

      I would posit that “our” President is doing the explicit bidding of the people that put him in that position….and it wasn’t the American voters except in a titular sense that put him there.

      The inherited rich, through their sociopathic puppets, of which Obama is one, are controlling all aspects of our present and future.

  25. Tim

    TurboTax Timmy is supposed to issue a draft today on what the order of precedence will be in making payments on current revenue sans a lift in the debt limit.

    The long bond just broke out to the upside (higher prices, lower yeilds) hard. Apparently Timmy already told somebody our debtholders will be safe.

    Some americans are about to lose there cashflow then.

    This ensures political suicide for those unwilling to compromise in congress if the debt limit isn’t raised.

  26. No Know

    “This political machine is based on patronage and graft”

    …imported from Chicago!

  27. Rodger Malcolm Mitchell

    “A sudden curtailment of Federal spending, unless it was very brief, would almost assure a slowdown.”

    The curtailment needn’t be sudden. A slow curtailment will assure a slowdown.

    The federal government is America’s largest customer. Ask any businessperson what happens when the largest customer cuts back. Employees are let go. Suppliers receive fewer orders, so their employees are let go.

    And this cutback is supposed to stimulate business and cure unemployment? Would someone please explain the mechanism by which reduced federal spending and/or increased taxes, will stimulate the economy?

    Rodger Malcolm Mitchell

    1. Yves Smith Post author

      I said right before that: “the outcomes the players have committed themselves to are either shooting the economy or bleeding it to death.” Putting through the cuts is bleeding it to death.

  28. tz

    Lyre, Lyre, city on fire…

    I have a solution. For all the corporate welfare, pay them in 30 year US treasury zero coupon bonds. So when Medicare Part D pays Pfizer, pay them in debt. Ag subsidies? From the big agribusiness to the small farmers, give them debt (if they don’t want liberty). Revenue sharing. The list goes on, and should include the TARP like bailouts the Banksters are paying their bonuses from.

  29. pebird

    The neo-progressives and their commentators want to look responsible, but you have to ask, responsible to whom?

  30. Bill Ayala

    This was the last sentence in Lupica’s column on “The Deal”: “You know who needs saving? Us. From them.” How true!!!!!!!!!!!!!!!!!!!!!!

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