Disaster

I don’t think my readers will be surprised to know that the only opinion I wanted to read about on the debt ceiling deal this morning was Krugman’s.

The President Surrenders

”A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.”

”Make no mistake about it, what we’re witnessing here is a catastrophe on multiple levels.”

The Republicans threatened to shoot the hostage. When they cocked the hammer back last Friday, the Democrats caved. They got their ransom and they have left the building. The only thing left to see is if the Republicans make it to their getaway jet at the airport. It is worth pointing out that the fat lady hasn’t sung yet. The actual vote hasn’t been taken yet. But, realistically, it likely will pass.

That reality might provide you with an interesting thought to ponder. Why does it seem certain that Democrats will follow their leadership and compromise when it wasn’t that way for Republicans? Remember? Boehner had to delay the vote on his Bill and change it.

It this compromise does stand, it will be a disaster. The politics of it are horrendous. I want to dismiss them but I can’t. Here, in the blog post immediately preceding this one, a leading economist is telling us it will be an economic disaster. And yet, the position of the political operator on the same panel with him prevails. The politics trumps the economics.

Every responsible adult in economics and finance agrees that this is exactly the wrong time to pull money out of the economy. Whether you recognize it or not, Federal stimulus funds have been propping up local governments. That is coming to an end. Personal and government bankruptcies are in our immediate future.

Yes, I get all this from reading Krugman.

”The worst thing you can do in these circumstances is slash government spending, since that will depress the economy even further. Pay no attention to those who invoke the confidence fairy, claiming that tough action on the budget will reassure businesses and consumers, leading them to spend more. It doesn’t work that way, a fact confirmed by many studies of the historical record.”

Lest you forget, Krugman was rated the most accurate pundit. His economics credentials are somewhat more substantial.

Don Brown
August 1, 2011