Sunday 26 May 2013

Welcome back to the dumb season. It's debt-ceiling time again.

We've been at this two years now. It was back in 2011 when the Republican Party, seized by anti-government furor, first locked on the lifting of the federal debt ceiling – an utterly routine governmental mechanism that allows the Treasury to borrow to pay for spending already approved by the entire Congress, Republicans included – as a place to hold a showdown over . . . government spending. That first battle resulted in a "Mutually Assured Destruction"-type stalemate, in which both parties agreed that if they couldn't reach a deal by New Year's Day 2013, a series of brutal, automatic, across-the-board spending cuts would take effect. At the time, it seemed unthinkable Congress would let that happen. By the time we passed that date, the thing that seemed unthinkable was the idea that Congress would ever make a deal. The cuts took effect in March and we were headed for a full-on fiscal crash on May 19th, when fate intervened to stop this stupidest-in-history blue-red catfight in its tracks, if only temporarily.
In early May, Treasury Secretary Jacob Lew announced that the federal government suddenly had enough cash on hand to stay afloat until "at least Labor Day." We were saved by, of all things, a record quarterly profit from the notorious state-seized mortgage-finance company Fannie Mae, which is paying the state $59 billion, enough to keep us in the black through the summer.
But this reprieve is only for four months, and if anything, the latest stay of execution only underscores the utter randomness and imbecility of our political situation. If the one thing preventing Washington from seizing up in fatal gridlock for even a brief spell is a surprise burst of good fortune from a bailed-out financial zombie like Fannie Mae, we're screwed. The only thing that will rescue us from having to go through this over and over again from now until the end of time is for our increasingly polarized Congress to come to some broad agreement on tax hikes and spending cuts – the kind of routine deal that now seems politically impossible.
That leaves us in a state of permanent paralysis that is at once more dangerous and even more stupid than the time the business of our entire nation ground to a halt over a blow job. Americans at least know what a blow job is, and they understood how the white stuff got on the dress.
But the national debt? Nobody understands it, and anyone who tells you he or she does is almost certainly lying. In fact the supreme irony of this endless controversy over spending and austerity is that it has pushed the Federal Reserve as well as major European and Asian central banks, especially recently, to bypass the ignorant arguing public and take dramatic interventionist action on their own, tinkering with the world money supply in ways that are highly experimental and have no parallel in modern times. By all rights, this should be stimulating a profound debate around the industrialized world about who controls the process of money creation and about the role of government/central banks in the economy, but here in the U.S., that is exactly the debate we're mostly not having.
The debate we are having is childish, irrelevant and self-destructive, as has been proved by all the recent developments on the debt front, including:
ere's a quick and easy rule: any time any politician, pundit, TV talking head or self-proclaimed financial expert starts comparing the U.S. federal budget to anything other than the U.S. federal budget, that person is automatically full of shit and should be instantly voted off the conversational island, if not outright beheaded.

This whole debt debate really began devolving in earnest into total mindlessness once people like Oklahoma Republican Sen. Tom Coburn started likening the government spending deficits to family budgets, pushing to "make Congress live under the same rules as families across the country and treat the federal budget like the family budget. Families have to live in their means and so should Congress." Not paying our government obligations, Coburn said recently – remember, this is a U.S. senator talking – might be a "wonderful experiment."
Comments like these led to Tea Party protesters descending upon Washington screaming about how not raising the debt ceiling is like giving your kids the bad news that they can't afford to go to the movies – difficult but necessary, a kind of homespun tough love, except that a global superpower intentionally defaulting on its sovereign debt is actually way closer to an act of apocalyptic suicidal madness than it is to good parenting. ("It would be the financial-market equivalent of that Hieronymus Bosch painting of hell," said JPMorgan Chase chief U.S. economist Michael Feroli.)
Still, the mere fact that the Republicans made such hay with the household analogy forced politicians and economists on the other side of the aisle to respond with similar oversimplifications, in what amounted to a desperate attempt to plant their own flags in the growing mountain of popular anti-knowledge. Even Fed chairman Ben Bernanke has reached for household analogies in his efforts to explain what a default would mean. "This is sort of like a family saying, 'Well, we're spending too much – let's stop paying our credit card bill,'" Bernanke said.
The next agonizing step was the Republican constituency's slow realization that "not paying our bills" is bad. This should have actually been a good thing. But it only led to this month's latest harebrained idea: the so-called Full Faith and Credit Act, a Republican bill passed in the House that would direct the U.S. Treasury, in the event that we hit the debt ceiling, to pay interest to bondholders before making any other payments. In other words, we'd pay people who loaned us money by buying treasuries – China's, for instance – before we'd pay, say, veteran benefits or Medicare.

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