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Being exceptional apparently means never having take responsiblity for your actions.
The budget stalemate in Washington looks to be going from bad to worse. Here we are, ten days from hitting the debt ceiling limit, and by the reckoning of Wall Street’s watchful analysts, only about three weeks away from default (Treasury can do some creative footwork for a couple of weeks until some large payments must be made, in particular, Social Security disbursements), and both sides are digging in.
As we wrote earlier, House Speaker John Boehner had reportedly said privately last Friday said he would not push the US into default. Over the weekend, in public, he took a much harder line. And new reports indicate, as we speculated yesterday, that he could well decide to align with the apocalyptic Republican majority on the assumption that Obama will have to do what it takes to avoid default. And since Obama and his mouthpieces have repeatedly foresworn using sensible routes out of this impasse, like invoking the 14th Amendment or more creative devices, the Republican hard core believes its brinksmanship will force concessions from Obama.
From the National Republic (hat tip Business Insider):
In private, Boehner has told his allies that he won’t bring up a clean CR, and he’s hopeful that as the deadline nears, President Obama will deal. “There’s no way the president holds firm,” a House GOP insider predicts. “Once that crack opens, I don’t know how the debt limit will be addressed, but it won’t be by Republican capitulation.”
The New York Time similarly reports that both sides are hardening their positions. Both sides are trading barbs; there’s no sign that anyone is interested in talking, nor any indication that terms are being discussed privately while the public mudslinging continues:
Not only was Washington apparently no closer to resolving the dual crises, but the tensions between the parties and between President Obama and the Republican-controlled House seemed to worsen, with differences becoming personal and public….
Mr. Obama and Congressional Democrats have dug in, telling Republicans to capitulate because it is a basic responsibility of Congress to keep the government solvent and open for business. To give in, the Democrats argue, would only encourage Republicans to demand concessions every time the government needs financing, which happens annually, or an increase in the debt limit, which has occurred more than 40 times since Ronald Reagan became president….
With so much at stake, the recriminations seemed to widen the gap between the parties. Mr. Reid’s office reiterated that Mr. Boehner had reneged on his word that the House would pass a simple stopgap financing bill if Democrats agreed that it would reflect current spending levels (they did). It also accused Mr. Boehner of working hand in glove with Democratic leaders to maintain health insurance subsidies that the speaker is now attacking for members of Congress and their staff members.
There was one odd bit of to-in and fro-ing on the Democratic side. The Senate is out to try to pass a clean debt ceiling limit bill, which would give another year of breathing room. That would allow the House to act quickly, since there are by all accounts (except Boehner’s) enough Republican votes in the House to pass such a bill if Boehner would put it up for a vote. There is a possibility of a Senate filibuster, however, as two Democratic senators are opposed and neither side appears to have a good reading as to how many Republican Senators might try to stymie the measure’s passage. As Politico reports:
Just as top Senate Democrats began to lay the groundwork to raise the U.S. government’s borrowing limit through 2014, senior White House officials refused to rule out a short-term increase. The divergent messages caused major heartburn for top Senate Democrats and gave Republicans fresh hope that they could defeat a yearlong debt ceiling hike and win concessions from President Barack Obama in this fall’s fiscal battles.
By late Monday afternoon, nervous Senate Democrats had reached out to the White House to ensure they were on the same page — and the concerns on Capitol Hill seemed to be alleviated after senior administration officials downplayed the idea of a short-term increase.
But the incident underscored the fear among the congressional Democratic leadership that President Barack Obama may eventually back away from the no-negotiation stance he and Senate Majority Leader Harry Reid (D-Nev.) have voiced for weeks in order to avoid a first-ever default. And it raised questions about Senate Democrats’ next step in the debt ceiling debate if Republicans successfully filibuster a bill to increase the $16.7 trillion national debt ceiling.
That sort of signal change suggests that Obama is still looking for every opportunity possible not simply to prevent a train wreck, but to go back to what he’d hoped for, the Goldilocks situation of not too much or too little pain, just enough to give him air cover to press for his
Grand Bargain Great Betrayal without wrecking the economy or freaking out Mr. Market. But this looks to be wildly in denial. As we’ve said, he and Boehner were unable to reach a Great Betrayal last year. Boehner didn’t have the votes then. And his side has become only more intransigent since then. As several readers speculated in comments on our post yesterday (I believe Banger was first to advance the line of thought) the inability to execute on a Great Betrayal, which is something the Republicans have wanted for a long time (recall Bush wanted to privatize Social Security) and see in their grasp with an ideologically aligned President, suggests that there are other fractures in the elites, ones we can’t readily detect but are undermining that deal.
My guess is that the hidden fault line is future of the US military. Even though the reason the US didn’t go into Syria was the Russia adeptly boxing Obama when Congress and the public were already overwhelmingly opposed, it was still stunning that a President would consider such a misadventure when even the Pentagon was against it. We simply don’t have the boots to put on the ground if the conflict were to escalate, which would seem to be precisely the point of meddling. With an overextended military and a desire among a big swathe of the elites to continue the government-shrinkage exercise, the fight may be over how much the military-industrial-intel complex’s ox is gored. And this question doesn’t involve only military contractors; many US companies have extended supply lines and foreign investments that might not look so wise without a muscular US military overseas to protect them.
But whatever the underlying cause is, this game of budget chicken is looking more and more reckless and childish. It’s worse than playing Russian roulette; it’s more like fiddling with rods on a nuclear reactor while turning off the safety overrides one by one. Gideon Rachman has a terrific column at the Financial Times today discussing what a careless, destructive hegemon the US has become. And remember, Naill Ferguson in 2001 (in his book The Cash Nexus) argued that the US was an empire in denial that needed to step into its role. This was the gauntlet he and his neocon fellow travellers threw down:
Far from retreating like some giant snail behind an electronic shell, the United States should be devoting a larger percentage of its vast resources to making the world safe for capitalism and democracy….[T]hese are not naturally occurring, but require strong institutional foundations of law and order. The proper role of an imperial America is to establish these institutions where they are lacking, if necessary – as in Germany and Japan in 1945 – by military force….The reasons it will not happen are threefold: an ideological embarrassment about being seen to wield imperial power, an exaggerated notion of what Russia and China would do in response; and a pusillanimous fear of military casualties. Perhaps that is the greatest disappointment….that the leaders of the one state with the economic resources to make the world a better place lack the guts to do it.
Well, the US appears to have taken up his challenge and made a complete hash of it. As Rachman writes:
American politicians seem confident that their nation’s wealth and power allow them to get away with careless behaviour that would be swiftly punished in a weaker and poorer country…
By contrast, foreigners have sometimes paid a heavy price for careless behaviour….A large part of the rest of the world’s grim fascination with the budget crisis reflects the fear that if the US economy catches another cold, the rest of the world will get pneumonia. China has told the US not to imperil the value of its holdings of US Treasury bills and Christine Lagarde, head of the International Monetary Fund, has warned of the damage the crisis could do to the world economy. But such complaints are drowned out by self-interested bickering in Congress.
The sense that the US is prone to “careless” behaviour that puts others at risk extends to international politics. America paid a high price in lives lost and money wasted during the Iraq war. But the US has now gone home and lost interest. Iraq, meanwhile, is still in the grip of the terrible civil conflict that followed the overthrow of Saddam Hussein…
If a compromise is reached before the US Treasury runs up against the debt ceiling on October 17, then this will probably just be a case of “crisis as usual”. But if America crashes through the debt barrier, things get serious. As Gavyn Davies argued last week, it seems marginally more likely that the Obama administration will drastically cut back on current expenditure rather than default on debt payments. Moving overnight to a balanced budget would be a form of immediate forced austerity of the kind that has caused deep recessions in countries such as Greece and Spain – as they too have struggled to balance their budgets.
The difference would be that US austerity would be caused not by the pressure of the markets, or the IMF – instead it would be a self-inflicted wound that caused huge damage to ordinary Americans and to the global economy. That really would be careless.
And due to space limitations, Rachman’s list of thoughtless damage the US has inflicted on the rest of the world is woefully incomplete. He omits, for instance, our QE policy, which as central bankers in emerging markets have complained, have led to destablizing hot money inflows and outflows and have goosed commodity prices, pushing poor people into distress and even starvation. Similarly, in 2009, thanks to ethanol subsidies, the US sent 107 million tons of grain to ethanol distilleries. That represented enough food calories to feed 330 million people for one year at average world consumption levels. I’m sure readers can provide more examples in comments.
Now I am operating on the assumption that we don’t have any General Rippers who have already taken actions that can’t be reversed, and that one side or the other in this staredown will blink rather than force a voluntary debt default. But both parties look to determined not to be the one to yield. So as I indicated yesterday, it may take a temper tantrum from the Mr. Market to provide the needed deus ex machina in this ugly drama.
Sadly, the punch line is missing from the end of this clip. The Russian ambassador says something like, “We were going to announce it next Monday at the Party Congress. You know how our premier likes surprises.”