The Debt Debacle Enters Its Final Hours


One hopes it’s Kabuki; a highly stylised drama.

Veterans of the Beltway — old pro legislators and long-serving journalists — have been saying for months that deficit reduction and raising the debt ceiling required a market swoon. It needed its version of the first failed vote on TARP, followed by panic in the financial markets, followed by the second vote on TARP, which passed.  The idea being that Congress had to be scared witless before it would agree to what was required to get something done that would preserve the “full faith and credit” of the United States of America.

One way to look at the events of the last 72 hours is to see a Kabuki set-up for the needed market swoon.  The Foreign Exchange Markets open at 4pm Eastern Time today.  The Asian Markets open later in the evening.  Maybe they will produce the panic that produces the compromise that produces the legislation that raises the debt ceiling and lowers the deficit over 5 years or 10 years or whatever.

But those “old-hand” legislators and journalists don’t think that what has transpired in the last 72 hours is Kabuki. They think it’s dysfunction and incompetence. And they think it’s at least 50-50 that the Obama Administration and the Congress and all the sclerotic Beltway interests that influence legislative outcomes will drive the bus straight off the cliff. 

Playing with matches is always a bad idea.  Playing with matches in the geo-political equivalent of a sea of gasoline is a spectacularly bad idea. Europe hangs by a thread. The Middle East is on fire. One can go on (and on). Adding the default of the United States of America to this mix is literally insane.

That’s where we’re at. The Obama Administration and Congress have roughly 72 hours to set things right. If they don’t, we inherit the conflagration.


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