A Debt Deal is Nigh! A Debt Deal is Nigh! Or is It?

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If you make a quick scan of the headlines, which is the way a lot of people interact with the news, you’d see numerous reports stressing that Senate leaders had made “progress” in the “let’s try not to crash into the debt ceiling” talks and were hopeful of getting a deal done. Stock markets took cheer from these reports.

We feel compelled to mention one matter: getting a debt ceiling/end the shutdown pact of some sort is merely a precursor to the hoped for performance of The Persecution and Assassination of What is Left of the American Middle Class, as Performed by the Inmates of the Beltway under the Direction of Barack Obama (more commonly described as the Grand Bargain or Great Betrayal).

It is also important to recognize that even though the messaging was positive, anyone who has an eye on the calendar knows that things have to go close to without a hitch for bills to get through the Senate and House in time to avert putting the Treasury in the position of having to make do with existing cash flow until the debt ceiling is lifted. Mind you, only really serious pessimists doubt that the debt ceiling will be raised, and likely well before the real crunch time of October 31-November 1. And even then that does not a default on Treasury bonds; one analyst argues the drop dead date for Treasuries is November 15 (personally, I think there is no way an Administration so close heavily populated with acolytes of Bob Rubin would ever let that happen. Expect the Fed to invoke its unusual and exigent circumstances powers in the unlikely event that things go on that long).

But it’s also critical to recognize that the sanguine reaction of equity markets represents the reactions of a particularly happy-go-lucky bunch that has had the Greenspan and Bernanke put protecting their backs for a very long time. Fixed income investors are a much more sober and quant-y bunch, and with good reason. As Goldman’s senior partner in the 1970s, Gus Levy, remarked, “In bonds, you eat like a bird and you shit like an elephant.” In other words, the upside is modest and the downside is considerable.

Credit markets get much less reporting than equity markets; in part, it’s because they have long been dominated by institutional investors, in part, because the markets are over the counter, and hence less transparent than exchange traded stocks. And they are just less sexy from a news standpoint; most bonds are fungible. Investors buy them on their credit risks and specific attributes, while stocks are story paper.

And those dour fixed income investors have been quietly preparing for possible nasty outcomes even as the US stock market has stayed comfortably within its recent trading range. One indicator: one month Libor is lower than comparable Treasuries. Remember that the mere effort to get out of the way of bad possible outcomes can produce serious dislocations. Fixed income markets were closed Monday due to the commercial bank holiday. We’ll have a much better reading on the sentiment of the investors who matter over the course of the day. Remember Jim Carville’s saying: “I used to think if there was reincarnation, I wanted to come back as the President or the Pope or a .400 baseball hitter. But now I want to come back as the bond market. You can intimidate everyone.”

Today, the New York Times is in particularly fine form, and its lead story on the debt negotiations is the best one-stop shopping on the status of the talks. Here’s the outline of the deal under discussion:

Negotiators talked into the evening as senators from both parties coalesced around a plan that would lift the debt limit through Feb. 7, pass a resolution to finance the government through Jan. 15 and conclude formal discussions on a long-term tax and spending plan no later than Dec. 13, according to one Senate aide briefed on the plan.

But keep in mind that the two Senators hashing out a possible deal, Harry Reid and Mitch McConnell, can’t make any binding commitments. They have to go back to their principals. One can assume that Reid is not too far out ahead of what Obama might accept. That is not a given on the Republican side, as the Times warns:

But while both Senator Mitch McConnell of Kentucky, the Republican leader, and Senator Harry Reid of Nevada, the Democratic leader, praised the progress that was made in the Senate, it was already clear that the most conservative members of the House were not going to go along quietly with a plan that does not accomplish their goal from the outset of this two-week-old crisis: dismantling the president’s health care law.

“We’ve got a name for it in the House: it’s called the Senate surrender caucus,” said Representative Tim Huelskamp, Republican of Kansas. “Anybody who would vote for that in the House as Republican would virtually guarantee a primary challenger.”

Now in fact, this Representative talk is bluster. Based on the public statements of Republican representatives, Democrats are highly confident that 19 to 21 Republicans in the House would go along with Democrats, which is enough to secure the passage of a clean continuing resolution and debt ceiling relief. But Boehner has clearly all this time felt the need to win some additional Republicans over before calling for a vote. Boehner has further, in the eyes of Democrats, dealt with Democrats in bad faith before. As Karen Tumulty wrote in the Washington Post:

Right up until the final days before the fiscal year ended Sept. 30, Obama and Democratic leaders believed that House Speaker John A. Boehner (R-Ohio) would find a way to avert a government shutdown by passing a stopgap spending bill.

Boehner, they thought, had assured them as much over the summer. That was when Reid agreed, with the White House’s assent, to set spending levels in the short-term funding bill at sequestration levels, rather than the higher amount that liberals and many in the House were hoping to see.

Translation: Boehner asked for concessions from Senate Democrats, Reid and Obama reluctantly agreed (and other reports indicate that Reid had to push hard to secure the cooperation he needed from fellow Senators), then Boehner said he couldn’t deliver on what he proposed and asked for more. That sort of retrading does not go over well in negotiations.

Even thought the Treasuries are not at immediate risk of default if the October 17 date comes and the deal is not finalized (and remember, that can happen simply due to procedural issues even if Obama and Boehner sign off on an outline agreed by Reid and McConnell), there can still be plenty of disruption and collateral damage if the deal is not looking like it will be in hand either by or very shortly after October 17. The Times explains:

Officials in several states said a default would mean unprecedented but unknown consequences to federal programs that are administered by the states, like Medicaid and food stamps. They also said that a market collapse could undermine state pension plans. And higher interest rates from a default on federal bonds could make short-term borrowing more difficult and costly for states…At the same time, asset managers and banks began taking steps to be ready if the Treasury Department is unable to pay back its short-term debt on time. And world leaders expressed concern about the impact on their countries…

Wall Street sentiment may be in evidence even before a vote, when the Treasury Department sells new 13- and 26-week bonds. If investors are hesitant to buy them, it could set a negative tone for the day, as was the case after an auction last Tuesday. George Goncalves, a Treasury strategist at Nomura Securities, said investors might not immediately panic if all signs were pointing toward a positive vote.

So while the magnitude of the possible damage means it looks unlikely that the Tea Party can cow Boehner into delaying a vote. But the timing is still getting very tight even if Reid and McConnell sign off on terms early today. And any delay past the 17th won’t just fray nerves, it will further damage America’s already falling standing in the rest of the world.

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  1. 12312399

    ” And any delay past the 17th won’t just fray nerves, it will further damage America’s already falling standing in the rest of the world”

    law of unintentional consequences–the debt ceiling fight has guaranteed the survival of the euro.

    everyone from Russia to China to Korea to Australia now have a renewed interested in supporting an alternate reserve currency.

  2. ep3

    Yves, two things.
    First, why would elected officials put off their great betrayal until february, thus pushing things even closer to an election?
    Second, I just see your last section as the dream scenario in the Tea party’s eyes. To cut off poor ppl benefits, even tho it would blow up the economy, would somehow justify that the tea partiers are so smart and correct about gov’t spending. And it somehow won’t hurt them politically.

    1. NotTimothyGeithner

      The answer to your first question is:

      There might be argument about the state of the Democratic caucus, but as a practical matter, they are a weak non-entity which responds to events. This default and budget situation have been with us for some time, so what did the Democrats spend this year doing?

      -Pushing for watered down control 2 months after it was out of the headlines, Gun control isn’t a top issue despite overwhelming support for background checks or assume we have good laws. This kind of legislation has to be done right away.

      -Defending hideous government programs. We can’t have a debt problem because of the debt ceiling, which was a 20 year old stunt which the Democrats never removed because they liked to vote against raising the ceiling as a minority party, when the government has plenty of money to throw away on the NSA.

      -There was a push for war.

      This is what they have done while the country has had the Paul Ryan budget forced on it. The Democrats have any strategy because they have decided to hold on to the Dow as the only economic measure.

      The other problem is the Democrats have to wait for the President because Obama can destroy any one of them with certain exceptions (Charlie Rangel). Obama can’t be wrong because Obama is great which means Obama’s original strategy must be very close to working. Whatever the aims, Obama won’t change course until he is forced to by public embarrassment. Obama is legacy shopping and thinks bucking the party he leads makes him a great man despite the obvious flaw in the idea.

      A delay is the only viable outcome at the current juncture. The proximity of an election might scare the GOP especially if Terry MacAuliffe has a big win in Virginia with low turnout this November because Terry isn’t driving people out to vote for him. Other than a delay, they don’t have a short term strategy which doesn’t include more or less admitting they have wasted their time in office.

      In regards to your second point, the TeaParty inc. is an attempt at rebranding GOP voters to keep them in line and prepare them for Romney (a true member of the GOP elite as opposed to a celebrity candidate, ex Bachman or even Reagan who was something of an outsider by GOP standards) with subtle allusion to Boston where Mittens use to work. Obviously, poor historical knowledge caused people to miss this especially Michelle Bachmann.

      What is really occurring is the GOP base is revolting, but being leaderless and extremely conservative at least in their minds, they don’t have a point except to grab power and stomp their feet. This is the Southern Strategy coming to an end. If Romney can’t win the White House against a really crummy President, the GOP base is wondering why they need to listen to the Romney/Bush41 element or at least what they are being offered. Obama has expanded the office of faith-based initiatives. They get what they want just by meaning to Democrats.

      1. LucyLulu

        As somebody who lives in Teapartyville and is regularly exposed to TP ideology, I can assure that the Tea Party folk NEVER supported Romney, other than as the lesser of two evils once he won the primaries. He was the antithesis of what they represented as a member of the traditional and Wall St. elite. Santorum, or even Ron Paul, would have been more suitable choices.

        1. NotTimothyGeithner

          They never supported Romney, but they did VOTE for him on the ballot which is key, winning more votes than Sunday Morning Talkshow host President John McCain. The whole point of the Tea Party, funded by the Koch Brothers who happened to heavily invest in the Romney campaign, was to prevent the GOP base ridding themselves of the GOP elite. Do you remember how excited the GOP crowds were for Palin, a political outsider who rose to power to distract from widespread GOP scandal in Alaska? Did anyone really think Herman Cain and Newt had shots? The answer is no, but they did serve to keep the crowds from coalescing around an anti-Romney.

          It goes back to ’76 and ’80. Ronnie Raygun was an outsider candidate against Ford and Pappy Bush. The GOP has pretty much been this way for decades. Its just now their base realizes they have more power in the relationship and aren’t being offered shiny things to keep them in line anymore.

          1. sue

            Those extolling RReagan had best stop revising history, found completely and totally documented, showing RR was totally bought and sold by the “Kosher Nostra”, in this book, recommended recently on Naked Capitalism-“SUPERMOB”:


            “Investigative reporter Gus Russo returns with his most explosive book yet, the remarkable story of the “Supermob”–a cadre of men who, over the course of decades, secretly influenced nearly every aspect of American society. Presenting startling, never-before-seen revelations about such famous members as Jules Stein, Joe Glaser, Ronald Reagan, Lew Wasserman, David Bazelon, and John Jacob Factor–as well as infamous, scrupulously low-profile members–Russo pulls the lid off of a half-century of criminal infiltration into American business, politics, and society. At the heart of it all is Sidney “The Fixer” Korshak, who from the 1940’s until his death in the 1990s, was not only the most powerful lawyer in the world, according to the FBI, but the enigmatic player behind countless 20th century power mergers, political deals, and organized crime chicaneries. As the underworld’s primary link to the corporate upperworld, Korshak’s backroom dominance and talent for anonymity will likely never be equaled.”

  3. beerdignado

    With regards to falling standing:
    “China calls for dollar to be replaced as global reserve currency” http://www.latimes.com/business/la-fi-shutdown-china-20131015,0,260996.story

    “As U.S. politicians of both political parties are still shuffling back and forth between the White House and the Capitol Hill without striking a viable deal to bring normality to the body politic they brag about, it is perhaps a good time for the befuddled world to start considering building a de-Americanized world,” China’s official state-run news agency, Xinhua, said in an English-language commentary Sunday.”

    1. Banger

      This fact, as much as anything else, shows the utter fragmentation of the American ruling elite. Perhaps many of them believe our days are numbered and are just giving up the ship. Who knows?

      1. Cassiodorus

        Merely because the ruling elite now run their organizations in the way in which Enron was run does not mean that they are in any way “in trouble.” When their modus operandi are proved to be self-destructive, the ruling elites write themselves golden parachute contracts and retire, leaving the 99% to clean up the mess. New Enrons spring up to replace the old ones, and the system continues.

        Eventually the functions of “landlord” and “boss” will merge, and the working class will discover itself the victim of a new serfdom in a neofeudal structure. When living conditions under such a new system become intolerable, the wealthy will retire to their McMansions on the newly-sizzling Arctic Ocean coast, while the rest of the planet dies in a global warming blaze. It will only take a few decades.

        To put the ruling class “in trouble,” we must stop working for the ruling class.

        1. Lambert Strether

          “Eventually the functions of ‘landlord’ and ‘boss’ will merge.” That’s very acute. It would also be a happy outcome of the foreclosure crisis, for private equity and whoever else is buying up all the foreclosed properties.

        2. Banger

          We can talk about not working for the ruling class all we want but, in the end, they rule and we have to work for them unless we create alternatives. It won’t happen by pointing out the contradictions to the current version of radically predatory capitalism because the vast majority of the American people aren’t capable of even noticing contradictions.

              1. Banger

                Please, I’ve hung out with working class people all my life and I know and respect most them and count them as my friends. But, they are politically stupid and believe in very bizarre fairy tales–just listen to C-span call in shows sometime–most of them have no clue and are proud of it.

                Among the younger people this know-nothing tribal consciousness is changing–I think there is some hope that a revivified left-analysis could find fertile grounds there.

              2. Massinissa

                I might add that there is ultimately no evidence for the working class to be able to mobilize in a general strike when there is no movement at all to attempt to educate them, much less politically mobilize them, and that supposing they could strike without such ideologoical and social infrastructure is to show your ultimate naivete.

                There are no socialists, no populists, no Left, no Wobblies, and so few unions not associated to the Democratic establishment that they are completely inconsequential.

                You think the working class will just wake up one morning and strike all together across the country? Dont be so naive. Theres been no political mobilization of any substantive kind at all. Hell, there havnt even been many smaller strikes, save some substantial teachers union strikes, fast food workers strikes, maybe some others, but all in all unions, and the working class, are in shambles at the moment.

                I dont think not being to bet in a general strike happening in the next 10-15 years makes me elitist. Rather the reverse makes you naive.

                1. Cassiodorus

                  Everyone who argues this assumes that all things will remain the same. All things are not going to remain the same. “Do you think the Egyptians are all going to rise up at once and demand the ouster of Mubarak? Don’t be so naive,” you might have said a couple of years ago. “There has been no political mobilization at all” — so Occupy didn’t happen.

                  The fact that there is no longer any “Left” of the type you expect is merely an indicator that you are looking in the wrong places.

                  Oh and I love the socioeconomic prediction “10-15 years” in advance. Tell us all, please, what’s really going to happen over the next 10-15 years. I’m sure the assembled audience here at Naked Cap would like to know.

              3. sue

                ..interestingly, I believe it was Gore Vidal who noted, since initiation of the 30 year mortgage, those willing to risk their home and families by striking, has fallen to striking levels…

                1. Cassiodorus

                  Well that trend will come to a full stop at some point. Part of it ended with all the foreclosures in the first Obama administration. Lots of people who once owned now rent.

                  I’m just not convinced that the Powers That Be can take away everything from everyone and we’re all just going to sit down for it.

                  1. jrs

                    Homeownership is probably back down to the historical norm as a percentage of the population. It increased beyond that for awhile in the bubble.

          1. hunkerdown

            I think they’re capable of noticing them and reacting to them by picking whatever side accessorizes their personalities and seeking to obliterate the other as bad fashion, as illustrated by the two-party system, each party of which is (by design or by evolution) half right, half horsefeathers and fully dedicated to conquest.

            Sadly, the side they usually pick is the one that demands the least moral effort from them and raises their status within their social circles, with no regard to objectivity.

            And we don’t *have* to work for them. In fact, the belief that we have to work for them is an example of a choice made on stunted morality. General strikes are illegal mainly because they work.

    2. Cassiodorus

      Of course the ruling class in China would be screwed by a US default. I’m sure the Bank of China has far upward of $1 trillion in Treasury bills and US dollars by now, and the value of all that dollar-denominated asset stuff is dependent upon the good standing of the US government.

      1. James Levy

        The irony is that only the loss of that huge investment can set the Chinese and the rest free of the dollar. China doesn’t have the guts to walk away from that $1 trillion dollar bet. Perhaps the Americans will make it easy from them and default. Then perhaps the major nations can work out a better system, a new Bretton Woods perhaps, that will be more honest and work better than letting Uncle Sam endlessly create useless liquidity.

      2. LucyLulu

        The US doesn’t have to actually default on Treasuries to shake up the bond markets. If the US were to not pay creditors, even if only because of an unwillingness vs. an inability, and this includes any creditors not just bond holders, confidence will be shaken. On the 23rd a large SS payment is due, then again Nov 1. SS recipients are bondholders too. However I believe there will be a deal by the end of the week.

        The Chinese have been talking about wanting to get off the $ for years. For now they are stuck but this just adds further fuel for an eventual transition to a different reserve currency. US “full faith” is subject to irrational political whims. Polls of big money investors show that the vast majority believe that by 2025 the world will have abandoned the $ as reserve.

      3. Anarcissie

        I wonder if the Chinese could not take out the supposed value of the debt in kind. You know, buy off the ruling class, hire the military, and then just take stuff. And even wage serfs. Think they’re up to it?

  4. PaulArt

    Apropos the Great Bargain, I know you are all going to beat me up but I hope you hear me out. I for one really don’t much care about SS and Medicare. Let me tell you why. SS and Medicare today are the single biggest barriers to generating support for making the case for a ‘Livable Wage’ and Single Payer. As long as you provide McJobs and then shove off people into SS at some point you don’t really understand how McJobs create poverty. Take Walmart, they take advantage of the support the Government gives people through the EITC and also Medicaid. Do we really want to support this model? SS and Medicare are very similar. SS in the case of lower income workers is a Government subsidy to employers who do not pay a living wage that allows a portion to be set aside for retirement or pension. Same applies for Medicare. Instead of attacking and eviscerating the Physician, Pharma and Insurance lobbies we are all singing Kumbaya and asking for the system to be perpetuated. As long as SS and Medicare are around you can be guaranteed that there will exist no critical mass public support to decimate these interest groups that feed at the trough of Medicare. Unless the pain is felt equally by a majority then we will go on creating separate and unequal groups. Consider for a moment that there was no Medicare when Obama was discussing the ACA in 2008-9. Do you think for a moment that he would have trifled with a huge mass of uncovered poverty ridden Seniors who are creaking under the weight of our ‘fee for service’ system? We would have gotten the Public Option or even Single Payer in a jiffy. There is good proof for this. Look at the student crowd. Did you see anyone coming to their rescue besides Warren? Nope. Take away the student loan subsidy and then watch the rage of the parents in the burbs boil over. I have relatives who are content to merely sign the student loan papers of their kids without any thinking and then go to the booth and click on the GOP ticket considering the life of servitude they are shackling their children to. Mixing up the the middle classes is a great camouflage on poverty. SS and Medicare do this really well. I support Single Payer and I also support bashing up the Physician, Pharma and Insurance lobbies but I think that Medicare deflates support for Single Payer. I always root for cutting SS and Medicare NOW. Krugman put this admirably when he says that he does not understand the stance that ‘in order to cut future benefits we need to cut future benefits’. This is the usual technique of raising the eligibility age to ‘fix’ SS and Medicare. It’s the easiest thing to do. I have become fed up of putting up with this.

    1. Banger

      I don’t think you are wrong exactly except that I collect SS and if I didn’t I would be in trouble. But yes SS is going to become an increasingly divisive issue as the U.S. decline continues but it is unlikely to be changed very much any time soon. But I do believe you are barking up the wrong tree in the right forest. The problem we have is that the system is fragmenting and privileged groups who benefit are everywhere. Some days ago someone brought up the example of tenured professors–tenure creates an aristocratic class in universities and further dramatizes the various level of serfs form non-tenured profs to grad-students and that’s just on the teaching side–then there are the administrator class who are, as a class, becoming dominant because universities are now businesses with the highest level of prestige going to CEOs not academics.

      We are rapidly moving towards having the most rigid class-system in the developed world–why? Because we lack common purpose and believe, collectively, that compassion is a sin and selfishness is the highest virtue. Until we change that we are doomed to further fragmentation and further decline.

      1. James Levy

        My dad died on June 2. He was a wonderful man. Ninety-one year old veteran of the War in the Pacific. Never out of work for a day. If we didn’t have Medicare, my family would have either had to take him off dialysis several years ago and kill him, or bankrupt my mom, my two brothers, and me to keep him alive.

        These arguments are very abstract until your mom or your dad or your favorite aunt needs drugs or dialysis or an operation to stay alive, and the price tag is in the tens or hundreds of thousands of dollars. You scrap the system in hopes of getting something better, you condemn thousands of people to death and/or penury. And there is no guarantee that anything better, perhaps not anything at all, emerges after your act of creative destruction. We have to go forward, not destroy what little we’ve got in the hope that somehow we’ll “do it right” at some nebulous future date.

        1. from Mexico

          What PaulArt is arguing here is just another version of the “You have to destroy a village to save it” routine.

        2. s spade

          Reading stuff like this day after day makes me wonder why almost nobody besides Bill Black seems to understand that a good many problems could be solved merely by enforcing the laws we have against fraud and refusing to bail out zombie banks? Had this been done in the first Obama administration, finance would by now have returned to a subordinate role and our celebrity executives would have been cleansed by bankruptcy and short prison stays.

          Instead, we have otherwise intelligent people hoping against hope for a National Bankruptcy that will presage erection of a Socialist Workers Paradise. All you guys who sit there underlining Das Kapital ought to read some Twentieth Century history, IMHO.

      2. Brooklin Bridge

        I don’t know about tenure creating an aristocratic class but I do know that right wing efforts have been uniform in dismantling “tenure” positions since the 1970’s onward. The idea behind tenure, what ever it may be now, was to provide protection to professors from the vagaries of administrative POV (political, social and so on) much like Judges are insulated from the other branches of government and for much the same reasons. Back in the 70’s, the Right didn’t like “tenure” any more than it liked unions.

        Granted, that may have changed since there has been such an effective takeover of the major universities by right wing forces, that they might as well support tenure now as they can control who gets it. But still, as in any business, and education is nothing now if it is not business, there is an ingrained almost instinctual desire on the part of the university powers that be to control professors the same way business likes to control workers and that doesn’t include giving them a buffer zone of protection in the form of tenure

        1. Banger

          No tenure was a good thing and still is in many ways–but the difference in power and income among academics is absurdly large and that fact means that when the tenured profs die out academic freedom will die–except for the superstars in the most elite universities.

    2. Dan Kervick

      I’m lost. Social Security is mainly a program for retirees, not an income subsidy for low income workers.

      1. just_kate

        He is suggesting that if Social Security did not exist everyone would get a pony and you could barter for health care using your pony.

        1. craazyboy

          The way it really works is your collective bargaining union will negotiate a pension plan and heath/dental package. Also a golden parachute to float you gently to a Burger King if you get laid off at your MacDs job.

          Ponies are for upper management. (limit 5 per manager)

        2. jrs

          The argument is really of “the worse the better sort”. Social programs forestall revolution. That they do. They also in the meantime improve the lives of those not on them, ie not having to compete with a person of retirement age for a job improves your bagaining power (even if you still have very little of it). But true is does forestall revolution. It is betting an aweful lot that that’s what we’ll get – left revolution – that ends well. Or we get people to want change via the carrot and not the stick.

    3. Dirk77

      Paul, this neoliberal libertarian philosophy that provides cover for the looting and drives this removal of all safety nets is like a virus – as are all popular but flawed philosophic movements. You need to endure until it has worked through society’s system. This takes time. It is not a question of people needing more evidence; it is a question of people understanding the evidence that is already present and then getting the time to formulate a better philosophy. So you need to fight to preserve what safety nets you have even though they not be perfect.

    4. from Mexico

      Your comment boils down to three main arguments:

      1) Mr. Market should provide better for the working poor,

      2) If it weren’t for government subsidies for the working poor, then Mr. Market would make up the difference, and

      3) A repetition of the self-interest axiom, the conviction that everyone operates with the following philosophy: “I’ve got mine, so you can go off under a bridge and starve as far as I’m concerned.”

      Some of these arguments were echoed in this recent documentary produced by a New Zealand television station:


      However, all of your arguments are based on false assumpitons.

      To begin with, despite the illusions and delusions of Adam Smith et al, Mr. Market has never provided adequately for workers.

      Second, if Mr. Market doesn’t provide adequatley for workers, the polity, beginning in the last part of the 19th century, has stepped in to do what Mr. Market failed to do.

      And third, the self-interest axiom is a partial truth. Most people really do experience feelings of empathy, benevolence, and generoisty, and are moved to other-serving action when exposed to the suffering of others. Polls consistently show overwhelming support for more egalitarian public policy. The values, attitudes, beliefs and opinions of the majority, however, are ignored in our dysfuncitonal demcoracy.

        1. Yves Smith Post author

          Let’s start with every poll over the last 40 years showing overwhelming support (60% to 70+%, depending on how the question is phrased, poll results are very sensitive to the wording of the question) for keeping Social Security and Medicare as is. People would rather pay more taxes.

    5. Brooklin Bridge

      Be careful what you wish for Paul.

      Granted the system is close to totally corrupt, as well as the players, but this would be a particularly destructive way of clearing out the debris, particularly in terms of who gets hurt. The people who would be hurt, no, devastated, are overwhelmingly the innocent and financially weak who have simply done the right thing all their lives.

      I have a nasty hunch you are going to get what you wish for soon, though not all at once, and very much doubt you will like the results, since what will fill in the void is not justice, but simply more greed.

  5. McMike

    I just realized that short term treasuries WILL be defaulted.

    Why? Because it is one of the remaining pockets of middle class wealth. A pocket, incidentally, viewed as safe from predation…. so, predation is virtually guaranteed. It WILL be plundered.

    Sure, the short treasury investors were being bled by broker fees and interest rate arbitrage. But that’s not enough for the vampire squid. It is no longer satisfied with rent extraction; it demands appropriation of the entire pot.

    I iamagine a new Paulson has already made himself a bazillionaire by working out shorting schemes in concert with the trasury primary dealers. Next stop, a 30% to 40% haircut on the money market funds. A bail-in if you will.

    It is the only rule of thumb one needs in modern America. If there is a pot of honey hiding anywhere, the banks will get thier paws on it, no matter what the externalities.

    1. Yves Smith Post author

      I don’t see it.

      Because it is super late for me, I’m not going to unpack this in detail (it would take 5+ longish paras to do this more completely). Money market funds are the biggest investors in repo. Repo funds broker dealers, meaning the trading operations of big bank. And Treasuries are part of the collateral used for derivatives exposures.

      One money market fund having a run in the Lehman collapse was enough to lead to a $250,000 per account guarantee being thrown up across the entire money market industry. Recent papers continue to discuss that the repo problem has not been adequately addressed since the crisis, although some serious proposals have been put forward.

      So basically, Treasury fail leads to broker-dealer failure. TPTB moved heaven and earth to prevent that from happening in 2008, including throwing pretty much everyone else under the bus. I don’t see why you’d expect their reflexes to be any different now.

      1. McMike

        Indeed. That was true in 2008. So, the pigmen have had five years to protect themselves and to come up with a scheme. And several months to put it in play.

        I know it is highly a cynical rule of thumb, but it hasn’t been wrong yet.

        I cannot defend it based on logical analysis and convention, because using logical analysis and convention to anticipate the enemy is a strategic error in this context. We must break this habit of the mind. We are dealing with a rapacious force that has no limitations at the moment, only a relentless appetite and deep pathology for greed and theft. Yes, it is not just greed, it has to come with theft to get thier rocks off.

        It’s like trying to analyze stock fundementals to make investment decisions. Haw haw. How quaint.

        Here’s the rule: If there is a pot of money that can be raided, it will be raided. No matter what the “rules” are. No matter what rational people expect. No matter who gets hurt.

        That is the one dependable lesson of this era.

        We are in the movie The Matrix. In 2008, Wall Street crashed the housing market and the CDO market and everyone along with it: they blew up the bridge that everyone (including themselves) were standing on. Then, while everyone else crashed down to earth, Wall Street dodged bullets, and leaped out the window into space… whereupon a helicopter materialized and grabbed their hand, leaving yet further destruction in its wake, and carting Wall Street off to safety while everyone else died (you get the idea).

        This is the Matrix. They are making it up as they go. You cannot predict this. You cannot expect the laws of physics or the rules of man to protect you. You cannot analyze this. The only reliable evaluation is to anticipate the TARGETS, then ASSUME that a way will be found to raid them.

        Treasuries (directly owned in dollar denomination) have not yet been plundered, ergo, their turn at the wheel must be imminent.

        Surely something is sacred, right? Surely some place is safe? This whole crisis is one long string of unprecented violations of law, ethics, morality, and expectations.

        Hint: if the target has money, if we think we are protected for any conventional reason, and then we assure ourselves “there’s NO WAY they’d do that”….. catch yourself, you just answered your own question.

        Look, despite my bombast here, I am not necessarily saying that the money market funds will be raided in the next two months. I don’t know who stands to win from a drop and who (in power) stands to lose.

        I am saying: do not be surprised if they do. A radical analysis (i.e. breaking conventional habits of thought) shows us to expect the unexpected, and to be suspicious of rationales about what will or won’t happen, and to identify the targets first and then work backwards to the tactics.

        It’s like an impossible heist caper movie. We start with the pile of gold in the heavily protected vault, and then our protagonists go about finding an impossible way to get at it. Which always works.

          1. Mcmike

            Absolutely. And please help me develop the idea.

            I am having trouble fully articulating it and fleshing it out.

            I came at the idea as a privatization opponent, which turns out to have been just one tentacle of the squid.

            I was first introduced to the notion in a conversation with a foreign born electronic currency geek. The gist was: the elite have been systematically looting weak nations for decades. Meanwhile, the US itself had turned into the fattest plum of all. So, the US was about to have its turn in the abattoir – to be systematically sent down the line and stripped of every bit of value, methodically and with completeness. Not your usual mere rent extraction, but a complete deconstruction of wealth. Scorched earth.

            In order to see it, you need to be willing to accept that the US is not special, and can be robbed every bit as pathologically and completely as some defenseless third world nation.

            That was about the year 2001 or so. So far, he has proven to be right on target.

            Every single revelation, from LIBOR to muni bid riging, to arcane interest swaps, to liar loans, to CDO’s built to lose, to Goldman owning aluminum warehousing…. every single story is at its root a story of wall street finding a way to plunder money previously thought safe or sacred and taking it ruthlessly and without thought or care to the long term consequences.

            Their methodical determination is the giveaway: if there is a pile of money, they will find a way to grab it.

            We enter the nether word of financial particle physics, whereby the very existence of free-floating wealth thought secure in its little atomic orbit in fact creates the conditions of its own instability.

            We will know it is over when they show up with SWAT teams and take the pocket change from under our couch cushions and the lint from our dryers. Even the last can of Who-hash!

            1. Banger

              Indeed, your insight is of central importance. It comes along with the decline of the nation-state and it involves everyone with some power in every industry and almost every major sector in the U.S. This is the logical result of what happens when there is no sense of morality or common values. Everyone is game–even your grandmother and why not? If there are no real ties or boundaries why not f!ck everyone in every way that can happen?

              However, as we can see this has its own problems–the system that made it possible to loot the country starts to break down then what? We see it now–factions break off of formerly great conspiracies and the people who have been propagandized through trillions of dollars of conscious and clever mind-control techniques start being walking contradictions and essentially become non-functional and completely irrational, e.g., the TP movement.

            2. Screwball

              @ Mcmike

              I think your rule says is all. The comments in this part of the thread are spot on IMHO.

              We are witnessing the continual, methodical, incessant rape and pillage of the American people (and the world) by the kings of the Monopoly game.

              Rules, morals, ethics, and laws are only for the serfs.

              Greedy psychopaths backed with endless Fed liquidity, a bought and paid for DC, and no rule of law – what can possibly go wrong?

              It would be funny if it wasn’t.

            3. Lambert Strether

              “A peaceful land, a quiet people. That has always been my rule.” –Roose Bolton, Game of Thrones.

        1. James Levy

          I think the line from Wall Street applies: Charlie Sheen is talking to Michael Douglas about wrecking a company; Sheen wants to know why; “Because it can be wrecked.”

          With the absolute and adamant refusal of Elites to increase demand anywhere in the global economy, production is giving way to asset stripping as the best use of capital. This is why otherwise educated and intelligent people like Chancellor Merkel can blithely say that the goal is to make all the Euro countries net exporters with a positive balance of trade. She says nonsense like that (how can you all sell and nobody buy?) because the irrationality of the system has gone into overdrive and any attempt to look reality square in the face is precluded by defense mechanisms shielding our leaders from acknowledging what is happening.

          Our leaders today are like Morbius in the film Forbidden Planet (no knock on the Matrix but I prefer the golden oldies). Facing their own culpability and mendacity to too much for them. So they construct fairy tales of evil monsters lurking in the shadows (fraudulent hairdressers, welfare queens, lazy Greeks) to exculpate themselves of responsibility. Of course, our modern day Morbiuses will gladly throw their daughter and the crew that came to rescue them to the beast in order to go on enjoying their happy lives of solipsistic self-indulgence. No happy ending in sight.

            1. Jill

              I agree. We have seen this in other nations and throughout history. There are sociopaths who get in power. They want more money and more power. They want it all. They go for it all and the society who has the misfortune to be under their rule, completely disentigrates.

              You can have a functioning, good society along with some people having obscene amounts of wealth and power. (it’s not a great idea, but it can be done.)

              These people don’t want even that. They want to be king of a dung hill. Who wants such a thing for their life? But that’s what they want.

              1. Banger

                I think people of all classes are hooked into the culture of narcissism that goes beyond greed, lust for power and so on. It is the notion that life is all about “me” and “me” only. What is good for me is good for the community, the country, the universe. Our political problems stem from this cultural tendency re-enforced by all media.

      2. Calgacus

        I of course agree. TPTB would be the big losers under these premature doomsday scenarios. If Treasuries are worthless, dollars= treasuries are worthless. Dollars are what TPTB pay their henchpersons / employees / minions with. TPTB don’t have private armies & private domains (yet; not even on the scale they existed in the 30s) If TPTB’s minions don’t get paid in something with immediate worth they won’t hench and minion, and where would TPTB be then? Henchmen aren’t like the government employees who are working for no recompense right now.

      3. bob goodwin

        If it cost fiscal $5+T to fix 2008 plus the printing of massive money, are you saying that it we would be willing to do the same a second time? Is there an upper limit? Or do you sense that things are fixed enough where 2008 can’t happen again? I don’t have an intuition on how far we are through the debt deflation, but history has shown plenty of government defaults, regardless of the preferences of the government. Crisis happen very fast. I am not arguing that a default is likely or desirable, I just am allergic to the idea that it is impossible or unthinkable.

  6. middle seaman

    The reported agreement follows the blue print of most of the confrontations between the Rs and the Ds. The Rs start with an outrageous demand and the Ds end up falling on the job by accepting considerably less that they could. Moving the goal posts beyond Xmas and giving up some on Obamacare, what does that do for anybody except the Rs.

    1. NotTimothyGeithner

      Nothing, but the Democrats are a hodge podge of actors beholden the Third Way ilk for one reason or another, mostly Democratic voters not holding Democratic elected accountable. There primary leader is Obama who is more concerned with cutting Social Security and being America’s stern father.

      One can’t expect much as long as Reid, Pelosi, and pretty much anyone in Democratic leadership is in office because its a sign the Democrats are fine with business as usual despite the results to date.

      1. James Levy

        A slight defense for workaday Democrats (I’m not talking politicos). Most are decent people with good instincts. They are not the Alpha males that are rewarded in our society. Hell, most of them aren’t even males. They care, at least some, for their fellows, and don’t want to hurt anyone. So they think, “maybe we should have universal healthcare” or “maybe we should make college more affordable” and they say something like that overtly. Well, they get jumped on, at work, at the coffee shop, at the church picnic, by really angry people (most of them men) who are dismissive and threatening, and they hear the same tone on TV and the radio-you’re ideas are stupid, dangerous, presumptuous, and only reward “them” (you know, the coloreds) for being lazy and stupid and having too much sex and popping out babies so they can get more welfare.

        What is our nice, decent lady or gentleman supposed to do under this kind of assault? Grab a meat clever and go after these assholes? No, she shuts up and goes about her business and makes sure not to raise these issues again, because all she will get is grief and veiled threats and demeaned.

        Being a concerned human being is a self-selecting activity. It means that you are not well suited to the knock-about and nasty world of the modern agora. You’re asking people who don’t believe in violence and threats to use just those tools to get kindness, justice, mercy, and compassion. After the horrors of the 20th century, it’s hard to sell people of conscience and good faith on the idea that the ends justify the means. Alas, this makes them ineffectual in the game as currently constituted.

        1. Brooklin Bridge

          Being a concerned human being is a self-selecting activity. It means that you are not well suited to the knock-about and nasty world of the modern agora. You’re asking people who don’t believe in violence and threats to use just those tools to get kindness, justice, mercy, and compassion. After the horrors of the 20th century, it’s hard to sell people of conscience and good faith on the idea that the ends justify the means. Alas, this makes them ineffectual in the game as currently constituted.

          This is very true and often forgotten when talking about the ineffectual “left”. Compassion and doing things for others is easy to portray as “goody two shoes” by the rent extractors but very hard to live up to, never mind “sell” as propaganda, by those resisting or trying to help.

          The other side of this is what Yves has written about frequently as the race to the bottom by the rent extractors meaning they have warped the system such that it is harder and harder to do business “honestly” or with integrity. Stealing pays. Dealing fairly costs.

        2. NotTimothyGeithner

          Who knew the path to hell was paved with good intentions? I hate to break it to you, but merely being nice and friendly has resulted in going backwards for decades now. I’m not discussing to the Republicans. Its actually very easy to do. They usually self-destruct. The problem is standing up to Democrats.

          Most of the people who go to local Democratic meetings who aren’t politicos. They are friendly, but they also provide an important support for the crooks and Democrats who aren’t interested in actually fighting in Washington.

          They make the same argument you just made about our Washington elite, and the result is a constant right wing shift.

          There are many great things about ACA, but ACA does not deal with the for-profit hospital cartels. Instead of fighting against this, they spend their time fighting actual reform by supporting electeds because of their letter next to their name and little stories about the time the elected official did something nice for someone.

          At some point, the NPR listeners and NYT readers of the world who have access to plenty of information have to recognize they are part of the problem when they rush out to applaud Diane Feinstin and discuss how awful fundies are by not letting them smoke pot, ignoring Feinstein’s massive take from the for-profit prison industry which loves non-violent drug offenders.

          Please don’t try to hide behind simpletons* by lumping them with the problem which is still the local Democrats who identify strongly as Democrats. People who listen to NPR and read the NYT have access to resources and information to help hold these accountable, and they don’t. They instead rely on tired Aaron Sorkin scripts and bemoan how all the reasonable Republicans (rarer than unicorns in reality) are shouted down by those meanies in the Tea Party (created by the Koch Brothers who more or less own Boehner, Cantor, Romney, and so forth.).

          These people do need to be held accountable and called out. The one honest thing Obama has said was people needed to make him do things because when they do he actually kind of listens. Obama and the Democrats do what he does because the class of people who are just super friendly allow him and Democratic cronies to paint legitimate criticisms as cranks by appearing to be so reasonable.

          *Most voters are simpletons with bizarre ideas. If you never gone canvassing, I recommend it at least once, but its an eye opener. Democrats who worry about messaging are idiots. The American people just make up crazy stuff, and they might hang up the phone but will yak away if go to their door.

    2. Jim Haygood

      ‘Moving the goal posts beyond Xmas and giving up some on Obamacare, what does that do for anybody except the Rs.’

      Well, it might save me a 95-dollar penalty next year, since I ain’t signing up for MFing Obuggercare, even with a cocked IRS pistol held to me head.

      And no, I don’t vote R (or D).

  7. Malmo

    One more time. The ultimate deal, whenever it comes, can be described in two words–Grand Bargain. Everything else is purely kabuki. This is what establisment Dems and Reps want, and they are by far the majority report. It’s not a matter of if, but when. Watch.

  8. charles sereno

    The Great Betrayal is already in place. It’s just being implemented in a sustainable, 2-step fashion. The 2 steps backward are done already (sequester, etc). The 1 step forward will be a media-concocted “victory” of the Democrats in beating down the Tea Partiers. In the end, this strategy will be seen as a blueprint of the Grand Plan of the PTB behind the curtain. Don’t expect big cuts in SS or Medicare immediately. It will be sufficient merely to get Bigfoot’s toe in the door. George W tried to barge in but, like the Wind in the fable, lost the contest. Once the flock gets accustomed to its new pasture, it will be time for the next 2-step. The Irish example is a portent of our future. They have “proved” that austerity works! PS: Depending on midterm elections, the Democrats might be chosen to execute (!) the Grand Plan. This could entail an alliance with “liberal” Republicans who would be called “red dogs.”

  9. Matt

    Newly passed house rule 368 means than Cantor and only Cantor will decide if and when the House votes.
    Those who will profit by default will determine the time of default.
    Those who will profit by not defaulting will determine the time of not defaulting.

    1. LucyLulu

      The other interesting fact about this new rule passed is that it was voted on in secret in the middle of the night, and Democrats weren’t invited to the party. They only found out later. Had it not been passed, any member of the House could have brought the Senate bill up for a vote.

  10. Richard Lyon

    The house Republicans opened their caucus meeting by singing Amazing Grace. Now doesn’t that inspire confidence that all will be well. Chaos reigns!

  11. clarence pest swinney

    The deficit is declining at fastest pace since WWII.
    The president has introduced a plan that would avoid Sequestration
    awful cuts and proposes to boost the economy and restrengthen the middle class.
    His plan cuts spending wisely, gets savings in entitlements and closes tax loopholes that favor the rich. Total Deficit Reduction to date has been $2500 Billion and additional $1800 Billion is in his long range plan.
    His plan is not approved by Tea Party Sequesters who want more spending cuts especially in entitlements. Will AHC cut spending? It seems unlikely.
    No one mentions Revenue like canceling Bush Tax Cuts. And Payroll Tax Cuts.
    We will never get close to reducing spending and balancing the budget without Revenue increases on the wealthiest. Why? Simple. They have all the money. When 20% have 85% of wealth it does not leave much with which to work.

    1. LucyLulu

      Dear pesty Clarence (ha ha),
      This is what NC folks don’t want to face. Even if Obama was a “progressive”, which he isn’t, the president isn’t granted power to pass legislation, only Congress. The House is steadfast on “no new taxes”. There is no such equivalent faction for expanding the social safety net, or even protecting what we have. Some of our elected representatives DO oppose the Grand Betrayal but they are outnumbered.

      Outside of Congress and among the American populace, those who support a broader social safety net are in a distinct minority, and far less vocal than their counterparts of the right. An illuminating survey, conducted jointly by pollsters from the Obama and Romney campaigns, has just been published by Esquire and NBC. It classifies people in 8 different ideological categories, two on the left, two on the right, and four in the center. The center represents 52% of the population. The left represents 21% and is equally divided between “bleeding hearts” and the “Gospel left”. 55% of people support a balanced budget amendment. The only “liberal” policy that received more than 50% support is increasing taxes on those who earn more than $1M annually. When asked which of these four statements best describe how one feels, here are the results:

      Government spending represents our country’s moral obligation to care for one another. 7%

      Government spending, while sometimes inefficient, is the best way to ensure investment in the common good. 19%

      Government spending should never exceed what it takes in. 35%

      Government spending is wasteful and inefficient. 39%

      We progressives have much work to do yet before the policies we desire will be implemented. Kudos to Yves for her tireless (and uncompensated) work and invaluable contributions. There will be a special place in heaven reserved for her (whether she believes or not, grin). As readers we can help by getting the word out more broadly.

      Raw results of poll can be found here:


      1. Banger

        Left ideas fail to gain traction in the U.S. because we lack a common identity, a common purpose and common ethnicity. Western civilization is not generally accepted in the U.S. People want to live in a culture that is anti-Enlightenment more often than not. They want swift and brutal justice, rigid class structure, an attractive aristocracy to gape at and a life that features interests that avoid stimulating higher brain function.

        1. Linden

          And yet, if we tried to get everyone to hew to a common purpose and a common identity, what we’d probably get would be fascism. Go figure.

      2. Brooklin Bridge

        Those polls are both fascinating and depressing!

        It would be a mistake, however, to think they were only valid in the United States. The sentiments expressed in those polls underlies the point of view that has been sold globally now for over twenty years. You will find it in most – not all – but most countries in Europe and I suspect a surprising number of near and far Eastern countries. I have family in France and while they have a stronger historical respect for social safe-guards for the middle class than we do, they are deeply affected by this gigantic global propaganda machine about deficits, dead-beats living off the state teat, the whole damn thing. They are loosing the battle of wits and social programs are being eroded while privatization is often going full steam ahead (French highways for instance). What’s saved is saved more by “instinct” as in “keep government away from my Medicare”, than by public consciousness of the issues.

        I personally know French who were communist leaning in the 1970’s that today parrot many of the exact same memes surrounding deficit hysteria, or welfare abuse in this country. It’s like their advertising, their TV programming, and now even what you get in their supermarkets; it’s the exact same stuff…

        1. LucyLulu

          I have French family too, about half of whom represent the right side of the political spectrum in France. The way they describe it to me is that the right in the US has nothing comparable in France, and the right in France would be considered centrist here. The left they say is the communist party, their words, not mine. But even the right takes for granted that health care is a right for all and finds US policy untenable for an advanced economy.

          I can’t necessarily vouch for the accuracy or objectivity, only that they are intelligent, well-educated and well-informed. It’s embarrassing that they often seem to know more about the US than either my sister or I do, whether politics, and most especially, geography. They’d talk about places they’d visited in the US we’d never even heard of. While neither or us are road warriors, it isn’t as if we have lived in closets all our lives either.

          1. Brooklin Bridge

            Those polls are both fascinating and depressing!

            It would be a mistake, however, to think they were only valid in the United States. The sentiments expressed in those polls underlies the point of view that has been sold globally now for over twenty years. You will find it in most – not all – but most countries in Europe and I suspect a surprising number of near and far Eastern countries. I have family in France and while they have a stronger historical respect for social safe-guards for the middle class than we do, they are deeply affected by this gigantic global propaganda machine about deficits, dead-beats living off the state teat, the whole damn thing. They are loosing the battle of wits and social programs are being eroded while privatization is often going full steam ahead (French highways for instance). What’s saved is saved more by “instinct” as in “keep government away from my Medicare”, than by public consciousness of the issues.

            I personally know French who were communist leaning in the 1970’s that today parrot many of the exact same memes surrounding deficit hysteria, or welfare abuse in this country. It’s like their advertising, their TV programming, and now even what you get in their supermarkets; it’s the exact same stuff…

            I’m curious; do these people in your family live in or near Paris or a major city?

            I agree that you have to take the liberal institutions they grew up with, such as their health care system, their vacations, work hours, minimum wage, etc., into account when making such assessments, not to mention their multi party system which tends to mitigate all groups and in particular fringe groups.

            That said, Le Front national, Le FN for short, headed up by Le Pen, actually now his daughter, is not exactly what you would call a bastion of reasonable old style conservative thought. They may not be the tea party, but they are fairly hard-core and are gaining rather than loosing in popularity.

            So yes, the Health Care system is taken for granted, much as it is in Canada, and the Right, generally, is more moderate than ours, but whenever I drill down in conversation with the people I’m talking about, these inconsistencies that I can only explain by global propaganda come to the surface. I lived there for some time so I take certain things such as the health care system for granted much the way they do and my “sensitivity” (hopefully not my prejudices or paranoid fantasies) to differences in attitude between the seventies – eighties and now tend to revolve around things like an eerily parallel notion that welfare recipients are free-loaders, that government is too big, that a country like a household shouldn’t spend more than it takes in (they never used to talk about that), and so on. Sometimes it’s word for word the same stuff and sometimes it’s sort of the same. In the 70’s and 80’s such prejudices originated only with the Right and they tended to be local French variations, applicable to circumstances of the time in France and particularly Paris. Now-a-days, with the more educated, those like your family that know a lot about what’s going on here, a particularly telling question to me at least, is if you bring up the subject of NPR. More frequently than warranted, (meaning greater than zero) they will tell you that it is a “liberal” or “progressive” outlet. Yes they know a lot about the States, but much of that knowledge is still “packaged” in some difficult to pin point way for them. That their advertising, TV programming, and supermarket “packaged” content (except for bread and cheese, of course), is often identical to ours is incontestable though it’s worth pointing out that many of the brands we find on our shelves now come from Europe.

            1. Brooklin Bridge

              @LucyLulu: Sorry, I had my previous comment on the same buffer as my reply to you. I did a copy of all and they got concatenated into the above comment. You have to wade through my original comment, the one you replied to, before you get to my reply to you.

            2. LucyLulu

              You seem to have a more nuanced understanding, hindered in part due to my lack of fluency in French.

              My relatives are rather scattered about but the ones in particular that like to talk about US politics are in and around Lyons/St. Etienne, and especially my father’s cousin in Luneville (near Nancy).

          2. ian

            “The way they describe it to me is that the right in the US has nothing comparable in France, and the right in France would be considered centrist here”

            Huh? UMP maybe.

            But the Le Pens, first Pere and now Fille, come to mind.

            They’re gaining.

  12. kevinearick

    Peak Empire

    “The Anatolian nobility let down their own emperor, deliberately sabotaging the battle plan. The elites were so caught up in their own jockeying for position that they lost sight of the real threat. It was not debt that destroyed the Western and Eastern Roman Empires, each in turn. It was faction.”

    The elites are jockeying because we are beyond peak empire urban ponzi. There is no private demand for public debt. The Fed is left ‘printing’ both ends, capital for Wall Street and interest payments for local governments, in a contracting feedback loop. And the empire herd cannot change its behavior in real time so it has little choice but to go along for the ride, preferring magic to work. Peer pressure has always been about extortion. Only the emotional investor is surprised.

    You have nations built on DNA by new family formation, and nations built on artificial geographic borders by legacy capital in its attempt to remain solvent. A vortex is like a spring coil with a contact set. Careful what you wish for; there are trade-offs and unintended consequences everywhere.

    OK, so, which came first, debt or faction? Where is point C removing observers prism at a given time? What happens when you drive a new car off the lot? What are people buying a new car every few years really getting? Have you been to Spokane? What is the relationship between speed and position in the vortex? Where do you expect to find gravity?

  13. Jim

    Tea Party rebels who met at the Tortilla Coast violated their oaths to protect and defend the Constitution of the US, under specific terms of Amendment 14: “The validity of the public debt of the United States, authorized by law….. shall not be questioned.”
    A majority of the Senate should pass an “emergency powers” resolution, petitioning the President to defend the validity of the public debt by borrowing sufficient funds to pay all legal obligations as they become due and payable. Although this Senate resolution would not be a law, it would be a clear signal that the majority of the Senate will support the President, if the debt ceiling has to be violated by the Executive Branch to safeguard the validity of the public debt.
    The Tea Party rebels will attempt to impeach the President, but the majority in the Senate will have signaled “emergency powers” were warranted.

    1. LucyLulu

      In the end, the Tortilla Coast Accord won’t hold muster. Boehner will never get a bill that will meet the approval of this faction and will have to resort to using Democratic votes. While he could have similarly passed legislation using Democratic votes before the shutdown, he thinks he has to prove to them he tried all other options first to retain their support for his Speakership. Meanwhile, TP support for new House leadership is already a fait accompli. Expect Eric Cantor in 2014 unless the GOP manages to beat the odds and lose the House.

      1. LucyLulu

        That would be a dream come true for the TP. They’ve been wetting their pants waiting almost 5 years for a chance to start impeachment proceedings against the illegitimate Kenyan president. Maybe that’s even what the default is all about, trying to provoke Obama into doing something that will give them sufficient grounds to make a move. I wonder if O doesn’t suspect as much and that is part of his rationale for refusing to take extraordinary measures.

      2. JTFaraday

        If, according fascist theorist Carl Schmitt, “the sovereign” is that person or entity that determines what constitutes a state of emergency, then should Obama decide to execute the responsibilities of his office by doing an end-run around the legislature, it will interesting to see if does so by
        making an appeal to the Constitution of the US, thereby salvaging whatever of the spirit of the rule of law he can in the face of an intransigent legislature, or if he slips through some technical loop hole in a coin collectors’ bill because some locally elected representative somewhere (or their 20-something Congressional aide(s)) can’t write decent legislative boilerplate.


        What might each choice suggest about Obama and the Obama Administration?

        Are we sending fanboyz to do a political scientist’s job?

    2. Bapoy

      What dictatorships are made of. I don’t think you want that to happen, seriously. Let me put you in the libertarian seat.

      A nut job wins election in 2016 and the first day passes an emergency powers resolution to kill all social programs and jail anyone who questions the authority. You see how this idea of yours sucks big time? And than we talk about how we will never get a Hitler, even when we are the ones asking for just that.

      And before you go on talking about the Tea Party taking anyone hostage, look at the composition of the house and senate and tell us what percentage is tea party. Single digit percent? And the last time I used math, I thought this was meaningless in the grand scheme of things?

      So than the house is not deadlocked because of the tea party, it’s deadlocked because there will be primaries in which the conservativeness of the so called conservatives will be questioned. And you bet your butt there will be tons of changes come January, and by changes I mean TONS of more Tea Partiers in the house and congress. That’s why the republicans are putting up a front and acting as if they really care after years of spending just like drunken sailors. Everyone is focused on the pot of gold while walking on quick sand.

  14. Bapoy

    There is something very key here. The house has the power of spending… PERIOD…

    Not congress, not the president, it’s the HOUSE that has the power. Both the congress and the president are there to agree or disagree. The house can technically balance the budget tomorrow and tell the congress and executive branch to shove it.

    All the acting by Boehner and Reid is just that, acting. Both are powerless when it comes to spending. The house has the power and authority to either authorize spending or deny it.

    Although I do think that GOP representatives will “cave” in at the last minute, this is a dimension on the issue. And one dimension that makes it extremely hard for quote conservatives unquote to justify their conservativeness come election time, which is conveniently scheduled at the beginning of next year. So there is basically one slim chance that the house republicans will stand firm and keep the debt limit where it sits today. And I sure hope they do keep it where it is. Our government needs to have a real and serious talk about the drunken spending they’ve been doing, this may be a good start.

    On another note, can we already stop talking about the default lie? I thought at this point everyone would have heard that we take 10 times more in income than we spend on debt monthly.. And if you didn’t know not paying medicare, social security, welfare and all other social programs is NOT a default. The US only guarantees payments the national debt. So please, spare the scare tactics already.

    1. cwaltz

      You must have had a very different government class than mine. The House originates budget bills. It doesn’t have the sole power of the purse. Any bills still require the Senate and President to become the law of the land.

      Oh and Social Security Trust Fund is a BOND holder(That’s right it isn’t IOUS but BONDS that the fund contains.) I dare you to find the portion of the Constitution that allows the government to cherry pick which bondholders it WANTS to pay. As Lew has stated many times, HE CAN’T. You might be able to get out of paying welfare but welfare isn’t backed by bonds, social security is because legally they were required to roll that surplus into treasury bonds.

      So whoopsie, that doesn’t work unless you can change laws to allow default on some bonds but not on others. Good luck with that.

      1. Bapoy

        So let me get this.

        The almighty government that has access to the most sophisticated technologies and banks cant simply hold all payments, and MANUALLY pay bonds coming due? Sure it can…

        And regards spending bills, you just said the same, the house has the most power in the process. So no, I had the same government you do.

      1. Bapoy

        The government has a technology called bank and like us, it can ask these banks to hold all payments. It can EASILY ask the bank to make payments to pay interest on debt from xyz account.

        Lew works for the president and is not being honest. What is referring to is social security, medicare, etc, those may be tough to prioritize.

        1. cwaltz

          The banks are PRIVATE(even the Fed is a public/private hybrid.) They aren’t owned by the government. They are owned and controlled by shareholders. The Constitution has absolutely nothing in it to suggest that debt can be prioritized. Lew isn’t being dishonest at all about that. It’s wishful thinking on the part of many that the government can tell one faction “here’s the money we owe you” and then tell another “we’re defaulting and renegotiating what we owe you.”

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