Debt Ceiling Craziness Already Hurting U.S. Finances


Maybe applying business practices to government wasn’t such a hot idea after all.

The 1990s panacea for government inefficiency is breeding new problems now as wingnut rhetoric drowns out economic reality in the debt ceiling debate and threatens to saddle the nation with higher borrowing costs.

Just as CEOs of publicy traded companies have been putting short-term profit growth ahead of everything else, including behavior that’s collectively damaging to their own companies and the national welfare in the longer term, the Republican Party has adopted the habit of advancing its own interests by any means necessary.

Regardless of the risk.

Like forging alliances with the bat-shit-crazies of the militia and anti-tax movements via the Tea Party or having Sarah Palin and her shoe-size IQ as vice president on the same ticket as 74-year-old John McCain. The U.S. Chamber of Commerce and its lobbyist allies are trying to rein in the Tea Party now, but it’s a lot easier to start a fire than it is to put one out.

The Aug. 2 deadline for raising the national debt ceiling hasn’t even passed yet and economists are already bracing for a credit rating reduction. Most top economists believe the U.S. economy and the federal government’s credit rating have been damaged by the partisan debt ceiling debate, which is all about the Tea Party’s quest for politicial power, rather than the greater good of the nation.

According to Reuters, 3McCain0 of the 53 economists surveyed during the past two days expect the United States to lose its AAA credit rating from one of the three big ratings agencies because of the debt ceiling fiasco. They also see a 20% chance of a new recession the next 12 months.

What happens if the Tea Party succeeds in forcing a federal default? We’ll see additional reductions in the federal credit rating, which could reduce the value of existing federal treasury bonds. That would hurt big holders of U.S. treasuries, like the Wall Street investors that help run the GOP.

It would be the economic equivalent of the old “trial by ordeal” tests that medieval inquisitors used to determine guilt or innocence. If the Tea Party sparks a federal default by refusing to raise the debt ceiling, which could trigger a worldwide global collapse and destroy millions of jobs, the economy is innocent. If the global economy doesn’t implode, it’s guilty. But guilty of what? No one in the Tea Party really knows.

A lower credit rating means the U.S. will have to pay more to investors to borrow money. And it means that cash-strapped cities and states will have to do likewise. The higher borrowing rates make everything cost more. They carry all of the cons of a tax cut, with none of the benefits.

A lower credit rating will mean more layoffs and benefit cuts for the needy at the state level, and it will make public works projects more costly. Ultimately, there’s a good chance it will also mean a bigger deficit and more pressure for the tax hikes the Tea Party abhors.
The federal scenario is very much like what would happen to your household finances if you were living off a credit card while you were unemployed and the interest rate jumped from 14% to 29% overnight. Or if your mortgage payment doubled because your interest rate suddenly ballooned. It’s hard to adjust to that kind of sudden short-term change.

So, why is the Tea Party doing this? Its newly elected representatives are trying to be relevant in an economic debate they really don’t understand. Holding the entire economy hostage via the debt ceiling makes them relevant beyond their limited numbers – much as bank robbers become more relevant when they graduate from stealing money to taking hostages.

It makes sense in a bat-shit-crazy kind of way and it’s hard to fault their logic in a Congress where even the longest-serving senators have almost no economic education, but regularly pretend they do. That’s why the government has a Federal Reserve and a Department of the Treasury for them to lean on.

The leaders of both the Fed and Treasury have already issued warnings against politicizing the debt ceiling, but the new guys in the Tea Party aren’t listening to them. They still think they know what they’re talking about when it comes to economics just because they found a way to win an electoral popularity contest

They don’t.
As some of you may recall, Treasury Secretary Tim Geithner explicitly warned against politicizing the debt ceiling in February. This is the same guy that served as head of the New York Federal Reserve Bank under Republican President George W. Bush. Hardly the protypical commie-pinko-socialist-liberal boogieman that’s regularly demonized by Fox.

Fed Chairman Ben Bernanke, who was first annointed by Bush in 2006, issued a similar warning in June when he said that failing to raise the debt limit could slow the recovery. Like his pal Geithner, Bernanke isn’t known for embracing leftist causes.

Neither warning made much of an impact on the Tea Party, which continues to push policies that threaten to turn this sluggish economy into something very much worse.

If you’re looking for someone to blame you can begin and end with the three-headed political monster of Fox News, the U.S. Chamber of Commerce and the Republican Party. They succeeded in reducing the tax burden of their wealthy core supporters during the eight-year presidency of George W. Bush by replacing that revenue with borrowed money.

The trio’s campaign playbook makes up for what they lack in numbers at the polls by forging alliances of convenience with some very strange bedfellows, which range from the militia and anti-tax movements to religious and racial extremists.

The trio’s win at-any-bernankecost approach to politics also has fostered an astroturf movement of useful idiots they can no longer control in the Tea Party.

The problem is that some of the strange bedfellows the trio seduced for a quick fling during the last mid-term election, just won’t leave. They don’t know they’re bat-shit-crazy. Even worse, they’d like to run things and think they know what they’re doing.

Their latest scapegoat seems to be the bond market.

Most government entities use bonds to spend future revenue in areas where existing revenues have already been spent by prior administrations. The practice is particularly popular as a way to finance large infrastructure projects, like bridges, tunnels and schools.

Bonds can be issued on any source of recurring revenue, from cigarette taxes to bridge tolls. Repayment periods of five and 10 years are quite common.

Some members of the Tea Party view this spending practice with suspicion and would like to replace it with something they call “living within your means.” The right way to do that is to build a budget surplus and make a steady and graduated shift from borrowing via bonds to living on existing tax revenue. Not to force a default on existing obligations.

That’s the kind of ridiculous short-term solution to a long-term challenge that creates more problems than it solves. It’s the kind of thing you expect from a college kid who has maxed out their credit cards and doesn’t want to exercise the restraint needed to pay them off. Not from someone who just won an election.

Sadly, these are the kind of bat-shit-crazy leaders we’re electing now that Rupert Murdoch and the paid liars of Fox News are selling the truth to the highest bidder and using the tactics of fear to build ratings.

The bat-shit-crazy inquisitors of the Tea Party really seem to believe they can make things better by burning it all down. They mean well, just like the medieval inquisitors that once blamed witches for the black plague, which killed more than 25 million Europeans between 1347 and 1351.
The Dark Age inquisitors had a handy dandy system for seperating real witches from the falsely accused, which was called “the water ordeal.” It involved tying a suspect up and dropping them into a creek or lake. If they sank to the bottom and drowned they were innocent; if they lived they were guilty. The inquisitors also killed off thousands of cats, which they viewed as agents of witchcraft. This practice actually increased the spread of the black plague by allowing the rats and mice that carry the bug to run free.

The Tea Party rationale for trying to foster a federal debt default utilizes similar bat-shit-crazy logic, as does their widely-held belief that reducing government spending in the middle of an economic slowdown will support growth, instead of undermining it. Most economists believe those tactics will simply exacebate the global economic crisis.

This is what happens when proganda and rhetoric are misreprepsented as truth and wisdom by an entire news network. Tea Party loyalists really think they’re a meaningful part of the Republican Party because Fox keeps telling them so (and TV news would never lie). They don’t understand that they’re just the latest crop of useful idiots co-opted by the GOP-Chamber-Fox trio to provide the votes need to push through policies that favor the few at the expense of the many.

This is the same scenario as the abortion battle that played out during the administration of George W. Bush, when GOP business interests aligned themselves with religious fundamentalists bent on overturning Roe v Wade.

teaThe GOP told that earlier crop of useful idiots it was in lockstep with their wishes, right up until it came time to appoint the new U.S. Supreme Court justice who would cast the deciding vote. Bush named two judges to the nation’s highest court – John Roberts and Samuel Alito – with one thing in common: neither was willing to risk a popular backlash by overturning Roe v Wade.

The moral of the story is that politics makes for some very strange bedfellows. That said, the GOP could do their fellow Americans a great big, fat favor by remembering that having some fun with bat-shit-crazy at election time is a completely different thing than marrying bat-shit-crazy and trying to build a stable life with them.