Some historical accounts of the Great Fire of Rome, which destroyed three of the city’s fourteen districts and damaged seven others, depict it as an urban redevelopment project gone bad. Emperor Nero allegedly torched the district where he wanted to build his Domus Aurea. Hence any lyre-playing was not a sign of imperial madness, but a badly-informed leader not knowing his plans had spun badly out of control.She goes on to look at whether Obama can invoke the 14th amendment to unilaterally ignore the debt ceiling. (Answer: yes!)
President Obama’s plan at social and economic engineering, of rolling back core elements of the Great Deal out of a misguided effort to cut spending in a weak economy, is similarly blazing out of control. The debt ceiling crisis was meant to be a scare to provide an excuse for measures that are opposed by broad swathes of the public. Polls predictably show that voters want five contradictory things before noon: they are against cutting Social Security and care much more about more jobs than about less deficit, but yeah, they’d like that too if they can have it.
While members of the administration may dimly recognize what a firestorm they have unleashed, their crisis responses look to be no better than Nero’s. Obama has severely limited his options by playing up the rigidity of the debt limit. In the meantime, the Republicans are playing chicken and are looking very convincing by claiming the Tea Partiers had removed the steering wheel from the car.
Then she gets technical about what actions may/should happen as the US plunges into the abyss:
But a related question is why is the Administration not doing a better (as in any) job of crisis preparation as a way of calming rattled nerves? Of course, part of the answer is that since this is a manufactured crisis, they really feel they need to keep the heat on and are locked into their current strategy. But a piece by Gillian Tett of the Financial Times lists five areas where the Fed and Treasury owe the public answers on what takes place if there is no debt deal before official finances become strained. I’m not in agreement with all the questions on her list. For instance, “What might the US government do to support the US money market funds if American debt is downgraded, or suffers a technical default?” Paul Volcker was vehemently opposed to the backstopping of money market funds in the crisis, and the assumption underlying Tett’s question assumes that these reserves are entitled to some sort of official protection. Money market fund managers have reportedly raised cash levels substantially in anticipation of redemptions; Treasury-only money market funds won’t dump Treasuries; AAA only funds would presumably in the event of a downgrade (other types of institutional investors are seeking waivers, but I think it would be a non-starter in a product branded as AAA). But her general point is valid: the authorities have been way too close mouthed given the worries they have whipped up. It is astonishing, for instance, that the false August 2 deadline is still widely reported in the media when it is now widely acknowledged that the real drop dead date is August 10.And she sums up the mess that Obama has created by his craven "negotiating" strategies:
It is hard to come up with words that are strong enough to describe what an appalling display of misguided ego, inept negotiating postures, bad policy thinking, and utter disregard for the public interest are on display in this fiasco. But as a friend of mine likes to say, “Things always look darkest before they go completely black.”The whole thing is pathetic. The Democrats should get busy trying to find a real Democrat to run for the presidency in 2012.