THE BUDGET DEAL IN WASHINGTON: “AND NOW, THE END IS NEAR, AND SO I FACE THE FINAL CURTAIN…”

10/17/13

Now that the government shutdown/debt limit standoff has been resolved, for now, the nation can proceed on three fronts.   First, the people who do the actual work in the federal government, as opposed to the politicians who make a living primping, preening, and posing for the media, can get back to work.  Second, the U.S. Treasury is “good for it” for a little while.   Third, yours truly has some comments, and hopefully some insightful comments, on the whole imbroglio.

One of the great things about being a cynic is that it allows one to overcome one’s former partisan leanings and look at political issues from a more objective perspective.   Cynicism leads one to loathe, or at least find both amusing and deeply troubling at the same time, politicians of both parties.  Being able to find very little, if anything, good in either party, we cynics can look at issues from a nearly non-partisan, nearly non-ideological standpoint, to wit…

First, the most obvious flaw with this deal is that it is only temporary.   The government will be “reopened” until January 15 and the debt ceiling will be suspended through February 7.   With the shell game tactics that the deal allowed the Treasury secretary to continue to employ, we should be able to avert another default until early March.   Oh, joy.   This temporary fix will allow the poltroons and popinjays on the Hill and in the White House time to negotiate.   Allowing the likes of Paul Ryan and Patty Murray more time to posture and pontificate is supposed to bring us relief.  O tempora, o mores!

One does not have to be too cynical to suspect that the narcissists in Washington are prolonging this soap opera because they crave the attention; see my 10/11/13 piece, THE DEBT CEILING“CRISIS”:  “HE WANTED TAN SHOES AND PINK SHOELACES, A POLKA DOT VEST AND MAN, OH MAN!”)

 

Second, the GOP does look like something of a traveling freak show after a massive deluge, an earth jarring earthquake, and a series of tornadoes at this stage.  But it is untrue that the Republicans came out of this with no victories whatsoever.  Recall that, earlier this week, the Democrats, feeling their oats, started making demands about rolling back the scheduled sequester cuts due to be implemented in January.  They quickly fell back from that position when it looked like insistence on rolling back the sequester would nearly certainly result in default.  So the GOP did achieve a small victory, along with tightening eligibility verification procedures for those receiving subsidies under the Affordable Health Care Act, or ObamaCare.  It’s certainly not much, and the GOP is looking quite ragged at this stage, but it’s not as if the GOP achieved nothing, as the media would have you believe.

Third, one of the early, and quickly abandoned, goals of the tea partiers was the postponement, or the elimination, of the ObamaCare requirement that that individuals buy health insurance.   As the Wall Street Journal put it this morning (Thursday, 10/17/13, page A6):

They (participants at the “Conversations with Conservatives” confab at the Heritage Foundation) continued to argue that the law (the Affordable Health Care Act) is unfair, and restated their goal to shield individuals who don’t buy insurance from a penalty that kicks in next year.  (Emphasis mine)

Yours truly is no fan of ObamaCare, doesn’t like to be told to do anything, and has something of a libertarian conservative streak in him.   However, protecting the right of people not to buy insurance, which is tantamount to protecting their right to welsh on their responsibilities and force others to pick up their health care expenses, does not seem like the most conservative of ideals to me.   Is this what the tea partiers were fighting for?  The right to shirk one’s responsibilities and force others to pay one’s bills?   If this is true, where do I turn in my “conservative” card?

Fourth, the most enthusiastic “conservatives” in the tea party have to be asking themselves why they are Republicans.  That they will get nowhere with the Republican Party, as it is currently constituted, is best illustrated by an odd, or perhaps intentional, juxtaposition of articles in today’s Wall Street Journal.  On page 1 of today’s (Thursday, 10/17/13’s) paper, we saw two articles with the headlines “Congress Passes a Debt Bill” and “Business Voices Frustration with GOP.”  

The GOP remains, for now, the party of business.  It will take the votes and contributions of the social conservatives and of the genuine fiscal conservatives, but when the chips are down it will do the bidding of the Chamber of Commerce, and will ally itself with the Democrats to do so, as the House vote on yesterday’s deal showed.   That was only the latest illustration of the true colors, for better or worse, of today’s GOP.    Look, for example, at whom the party nominated as its presidential standard-bearer in 2012; what in the world does a guy like Mitt Romney have in common with a populist social conservative who is willing to have the Treasury default on its obligations, and thus risk financial catastrophe, to make a point about a nearly completely unrelated issue? 

Either the tea partiers and their now social conservative allies have to take over the GOP and force the traditional Republicans out or the tea partiers and their social conservative allies have to form a third party.   The two groups can’t realistically co-exist…unless the tea partiers are a bunch of chumps.

As a side note, the President’s speech this morning, gloating and kicking the Republicans while they were down, didn’t help increase the level of “civility,” or “the ability to legislate” either.   Silliness and vanity are by no means exclusive to one party in Washington, despite what the media would have you believe.

Fifth, as much as those of us who genuinely favor a smaller government, and are nearly terrified by the rate at which the government is growing, would like to fantasize about it, there is no consensus, indeed very little enthusiasm among the populace for small government or even meaningful spending cuts.  Sure, everyone wants to cut spending in the abstract, but what those who profess such desire (everyone) really mean is that they’d like to cut the spending that benefits someone else.   No one wants his or her program even nicked, let alone eliminated.   Look at the outcry over the government shutdown and the serial re-opening of government agencies and functions that suddenly became “essential,” “vital,” or “indispensable.”  If we’d waited another week, every program would have been re-opened while the government remained on “lockdown.” Look at the understandable near panic at the prospect of the government’s missing that $50 billion social security payment on November 1.

 

Sadly, the American people, despite loud protests from some quarters about government’s reach and spending skyrocketing and seemingly out of control, have gotten very comfortable with big government, even creeping socialism.   They not only like their share of the bounty that flows from Washington, but one also suspects that, deep inside, they like being told what to do.  It makes life easier and enables one to get back to the business of acquiring crap one doesn’t need with money one doesn’t have to impress people one doesn’t like in a vain attempt to fill the gaping holes in one’s life.

Sixth, the world has to be shaking its head as it looks at once great America, having elected a cabal of mountebanks and charlatans to govern it, bringing itself to the brink of tarnishing, if not destroying, the credibility of the world’s bedrock credit and currency.   Chinese talk earlier this week of “de-Americanizing” the world’s financial structure has to be falling on fertile ground.

What’s the alternative, one might ask?  Right now, there may not be an alternative, though one suspects that when one looks at the German, British, and Japanese government bond markets, one has the makings of a realistic alternative, or set of alternatives (The last may not be a good candidate, given Japan’s fiscal problems; see my 9/13/13 piece ABENOMICS: HAVE THE GOVERNMENT CREATE A MESS AND THEN SPEND MONEY CLEANING IT UP for only my latest screed on Japanese fiscal mismanagement), and this is even before the Chinese bond market develops.  At any rate, one suspects that the search has intensified in recent weeks for an alternative to the U.S. treasury market, and thus to the dollar, that has somehow put itself in a position of being at the mercy of the whims of a pack of poltroons and popinjays who feel allegiance to nothing so much as their own visages in the paper, on television, and in the mirror.

Maybe I’m wrong; Treasuries have caught a big bid today, with the ten year yield down to 2.60% as I write this.  But gold and silver have also caught big bids today.  And the dollar is down virtually across the board.

As I have said ad nauseam in the past, one can’t draw conclusions from one day’s trading.  But yours truly’s enthusiasm for gold and silver, always present and always disproportionate, is only growing, as is my enthusiasm for foreign markets in general.   And yours truly is far from alone.

THE DEBT CEILING “CRISIS” AND THE CREDIT CARD ANALOGY

10/11/13

The other day, a regular reader asked why I haven’t written anything on the debt ceiling imbroglio or the government shutdown inconvenience.   The reason involves more than a lack of time as I toil more on other endeavors:  I haven’t written on the debt ceiling and the government shutdown because until (maybe) today, I haven’t had anything unique, or at least different, to say about these twin situations.  As loyal readers know, unlike many commentators who make vast money flapping their jaws or drying out their pens, I am not in the habit of parroting what others are saying in order to increase the quantity of red meat thrown to the true believers; I try to say something no one, as far as I know, has said about a situation.  That what I write becomes common knowledge a few days or weeks after I write it is a recurring phenomenon over which I have no control.

Note that I used the term “situations,” “imbroglio,” or “inconvenience” when referring to the debt ceiling or the government shutdown when the rest of the world refers to them as “crises.”   As I have said before, but not lately, in my various commentaries, the term “crisis” and its plural have been overused to the point of trivializing the term, as has been the case with many words in our modern world.   Everything, it seems, is a crisis.   This reflects the current tendency to assume that life should be free of risk, discomfort, or inconvenience.   Anything that threatens the presumed right to live in a manner that would make a renaissance potentate envious while being completely free of genuine concern or care thus becomes a crisis.   Thus, genuine crises, like the Cuban missile crisis, which had the potential to incinerate much of the world, become trivialized, put on a par with, for example, not being able to get all the gasoline we want at prices we consider fair (the OPEC oil “crisis” that prevailed when I first started to drive), the movement of a few warships in the Mediterranean, or the inability to visit a national park or a national monument for a few days.

That having been said, while the so-called “government shutdown” that somehow doesn’t affect vast reaches of the government bureaucracy, is something of a yawner to the vast majority of people, a genuine default by the U.S. Treasury would approach the scope of a crisis, not on a par with the Cuban missile crisis, but a crisis nonetheless.   Most people, however, don’t understand what is going on here and use some oversimplified analogies to explain the situation.  

John Kass, Chicago Tribune columnist and WLS radio talk show host, yesterday used the analogy of a credit card when attempting to explain the debt limit situation.  He said that extending the debt limit is akin to giving the government our credit card to do with as it pleases.   Since Mr. Kass, a good fiscal conservative with libertarian instincts, knows at least as well as anyone else that the government has had our credit card for generations, one assumes that he meant that extending the debt limit is akin to increasing the debt limit on the credit card the government already has.

This analogy is good as far as it goes, but it misses one side of the equation.   The government takes on debt to cover spending that has already taken place, money that has been appropriated and spent, or, to use the analogy, charges that it has already made on our credit card.  So when the government looks to expand the debt limit, what it is asking for, to use the credit card analogy, is permission to pay the bills on that credit card.  To extend the analogy, if you refuse to pay your credit card bill, that doesn’t make the charges go away; it only gets you into deep, deep trouble…or at least it used to before the government decided that those who abuse credit are somehow victims and therefore entitled to succor from an always benevolent, with your money, government, but I digress.

So if we refuse to extend the debt limit, we won’t be cutting spending; we will just be refusing to pay our bills.  While this has become fashionable for individuals in the last five or so years, the markets won’t look kindly upon the government mimicking the “What, me worry?” approach to finance that it has made possible, indeed desirable, for its citizens.

But let’s take a step in the other direction.   It is entirely responsible for, and even incumbent upon, the GOP to insist on fiscal restraint in exchange for extending the debt limit.  To use the credit card analogy, this is like a benevolent, but stern, dad agreeing to pay his presumably grown child’s foolishly inflated credit card bill in exchange for tight restraints on future spending.   While the GOP may be a poor candidate for playing that role (Note the “fiscal restraint” the GOP showed when its man George W. Bush was in the White House and the nagging and justified belief that the Republicans would like the government to stop blowing money on the President’s misguided priorities so that it can blow money on the GOP’s misguided priorities, usually involving foreign conflicts in places where we have no business.), somebody in Washington should be playing that part, and as the almost microscopically less boobish of the two boob parties that populate Washington, the GOP, I suppose, by process of quick elimination, is the party to play the role of fiscal disciplinarian.

The problem is it’s very hard, and irresponsible, to enforce fiscal discipline under these circumstances, when, unless some kind of deal is reached today or soon thereafter, the U.S. Treasury will default on its obligations.  To further employ the credit card analogy, if the account that one’s presumably grown child is abusing is a joint account with his or her father, dad cannot credibly threaten to not pay the credit card bill; to do so would damage not only his kid’s credit but his credit as well.   His name in on the credit card; if he defaults, he and his entire family suffer.  Our name is on the federal credit card; if we default, we hurt ourselves, the entire country, and the entire world financial system.

So threatening to default on our obligations, to not pay our credit card bill, if you will, is very much akin to holding a gun to our own head and threatening to shoot.  The Democrats aren’t stupid; they understand this and consequently hold most of the cards here.  One wonders if the GOP has figured this out yet.