Gambling with uncertainty
by digby
Boehner and other Republican leaders said the private session in the White House’s East Room yesterday largely focused on the impact of the government’s debt on the economy and jobs.
“If we’re going to get serious about creating jobs in America, we’ve got to reduce some of the uncertainty” within the business community, Boehner said outside the White House. “Some of that uncertainty is caused by the giant debt that is facing our country.”
Remember when Wall Street and the banks nearly brought the world economy to its knees because of a gambling addiction that led them to a pathological dependence on reckless short term thinking? Well, it looks like they spread it to their servants:
One thing seems clear: America’s government is making its economic road harder than it needs to be. Debt problems loom, but there is no immediate fiscal crisis and no need for drastic short-term cuts. When debt issues came up during my trip to China, officials had a consistent message: China is a patient investor. It wants America to take steps toward fiscal sustainability, but it’s happy to have this happen over a 5- to 10-year period. By cutting drastically now, America is undermining its economy for no good reason.
Treasury yields tell the tale; they continue to tumble. The yield on the 10-year Treasury fell below 3% on today’s bad economic news. Treasury yields have fallen on reduced American economic prospects, but they’ve also moved down as part of a broad flight to safety. Trouble in Europe and a slowdown in Asia have made the safe haven of American government debt more attractive. Which makes the tussle over America’s debt ceiling look even more unnecessarily dangerous. The other consistent message from Chinese officials on debt matters was that any failure to make good on American obligations would be catastrophic. Even a very short disruption in payments, of a week or two, would be totally unacceptable.
Neither Chinese leaders or markets think a disruption is likely. Today’s downward move in Treasuries followed on the heels of the failure in Congress last night of a “clean” (that is, without tacked on spending cuts) increase in the debt ceiling. And Congress will almost certainly lift the debt limit. But the decline in Treasury yields indicates the nature of the fire with which legislators are playing. If Congress called into question the safety of the one safe asset for which markets have an almost unlimited appetite, all hell would break loose.
The thing is that they are going to raise the debt ceiling. Everyone knows that. But acting like lunatics with an economy that’s clearly sputtering is insane. There is “uncertainty” about the real economy at the moment and the last thing we need is a bunch of idiotic Randroids playing games. You just can’t predict how people around the world might interpret this.
Last night David Gergen parroted the conventional wisdom that says while the economy may be getting worse the president simply must agree to build in long term debt reduction with the entitlements right now. He didn’t say why.
So that’s that.
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