A Keith Hennessey column illustrates why the bundle is not illogical.
The Tuesday deadline for budget negotiations is about liquidity (aka funding risk) – will the government have enough cash to pay its bills on time?The government budget constraint will bite at some time, and the time will come when an increase in the debt ceiling will not assuage financial market fears about solvency risk. Nobody knows the day and the hour: it could come at the end of the year or when Congress fails to pass a budget or when the indebtedness reaches 150% of gross domestic product or when the Cubs win the World Series.
The government also faces solvency risk – will policymakers close the large and growing gap between spending and revenues? Will they cut spending and/or raise taxes enough to make the U.S. government a financially sustainable operation?
Both types of risk result from policy decisions made by our elected representatives. The short-term liquidity risk was created by conservative Members of Congress who refused to raise the debt limit without cutting spending. The solvency risk accumulated gradually as officials from both parties promised government benefits in excess of the taxes they were willing to impose.
Investors and credit rating agencies should care about both liquidity risk and solvency risk. Both threaten the U.S. government’s and the Nation’s financial and economic strength.
The current legislative situation creates a tradeoff between reduced solvency risk on the one hand, and reduced liquidity and political risk on the other.
But for the first time in a long time, the deficit hawks have achieved sufficient influence in the halls of Congress to get something done. It is not the end. It is not even the beginning of the end. But perhaps it is the end of the beginning, if the Tea Party caucus recognizes the half-a-loaf they've gained.
The debt ceiling is a political hostage the GOP could never afford to shoot, and this deal is about the best Republicans could have hoped for given that the limit had to be raised. The Jim DeMint-Michele Bachmann-Sean Hannity alternative of refusing to raise the debt limit without a balanced-budget amendment and betting that Mr. Obama would get all the blame vanishes upon contact with any thought. Sooner or later the GOP had to give up the hostage.Betsy Newmark notes that other ideas were a long time in coming.
The tea partiers pride themselves on adhering to the Constitution, which was intended to make political change difficult. Yet in this deal they've forced both parties to make the biggest spending cuts in 15 years, with more cuts likely next year. The U.S. is engaged in an epic debate over the size and scope of government that will play out over several years, and the most important battle comes in the election of 2012.
Tea partiers will do more for their cause by applauding this victory and working toward the next, rather than diminishing what they've accomplished because it didn't solve every fiscal problem in one impossible swoop.
And like the historical metaphor that John Podhoretz used below, it took [Rev. William Lloyd] Garrison over 30 years to accomplish his goals of abolition. The fight was long, but we needed those who were regarded as extremists back then such as Garrison in order to move the fight forward just as we need those to the right of Boehner who are keeping us focused on the ultimate goal.And that with the moral force of some passages of Scripture being preached for many years before Abolition became a political cause. By contrast, new classical macroeconomic demolitions of the Keynesian system are forty or fifty years old and mostly hidden away in optimal control models in recondite journals.
But the old order is rapidly fading. Sunday morning's Meet the Press panel sure looked like a setup, with David Gregory hosting Jim Cramer and former Michigan governor Jennifer Granholm and Tom Brokaw and freshman Idaho Representative Raul Labrador. But the representative more than held his own, and Tom Brokaw himself chimed in with some observations to the effect that the current public course could not be sustained, and some work on the contingent liabilities of Social Security, Medicare, and Medicaid would be necessary in light of the government budget constraint.
On Sunday evening's Nightly News, Andrea Mitchell, whose work gives new meaning to the expression "on deep background", expresses astonishment that some Members of Congress cannot be bought off with committee appointments or earmarks or some of the other business-as-usual tricks.
Good night, David. Let the ruling classes tremble, Chet!
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