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Debt Ceiling Debtageddon. Another Y2K?

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So let me get this straight.

The President and a bunch o’ pundits said that if we defaulted on the debt ceiling we would have been downgraded, and cried catastophe whenever they got the chance, with Geithner,  Goldman Sachs’ favorite bagman, leading the chorus of Cassandras.

Putting aside the fact that the debt ceiling was a technicality and that our bills would have continued to be paid over time, we didn’t miss out on the debt ceiling – and we were still downgraded.

So the President’s Debtageddon scenario came to pass.

And what happened?

The markets plummeted – mainly because of some bad economic numbers and the Euro Debt Crisis – and then bounced right up again. Stocks are pretty much where they were. And most importantly – the yield on a 10 year note hit its lowest point in history, as everyone flooded into ‘downgraded’ treasuries.

Moody’s and Fitch’s Rating Agencies ‘shrugged off’ what their buddies at S+Poorhouse decided to do, which is bad news for S+P, who now look like outliers (with the accent on the ‘liars’).

It’s becoming increasingly clear that there would have been no debtageddon, and the President’s use of the threat totally backfired.

Instead of forcing the GOP to buckle, the Cassandra threats of our demise and the attack by the ‘bond vigilantes’ enabled the Tea Party to leverage real power because they didn’t care if we ‘defaulted’ (a misused term if ever I heard one). That set up a classic blowback which allowed Boehner to be ‘forced by’ or in other words ‘use’ Tea Party intransigence to force Obama to back way, way down.

It’s easy to say, but what the President should have done was to stand up to GOP intransigence, with the help of some real – non Wall Street led – economic advice. We aren’t in a debt crisis. US Treasuries will remain the haven of last resort for decades to come. We need stimulus spending. Medicare saves the US money. Social Security is not at risk. The Pentagon has to be cut.

If he’d just asked for a clean bill in Congress, and then when the GOP failed to pass it, ignored the debt ceiling completely, debtageddon would simply not have happened, and the issue would quite simply have faded away.

The Debt ceiling would have been passed in a sad voice vote sometime just before the recess.

Bless them, but yet again, Obama’s political and economic team made a dog’s dinner of things.


Written by coolrebel

August 14, 2011 at 11:47 pm

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