The game

Democrats hate tough budget votes — as evidenced by the Senate’s failure to even bring up a budget for so long. And Republicans love tough-sounding votes but often fix the deck so they lose and can score political points without having to live with the results.

That’s why the debt ceiling presents such a quandary: It requires both parties to take a tough vote — and it must pass.

From Politico, here is further analysis.  With this and the euro crisis, in the next few weeks (days?) “the world” is going to have to step up to the plate in a big, big way.  Stay tuned.  If you’re not afraid, you haven’t been paying attention.


If it's true we're on a path to total bankruptcy, better now than later. It may be the only way we'll avoid another Civil War, because we're surely headed down that path today. So, yes, I'm very afraid.

We aren't. All we have to do is restructure entitlements. Easy peasy. Now they can't claim ignorance. Progress.

I know it's hyperbole, but that's where the "Civil War" comes from. Half the country (or more) doesn't want any restructuring of entitlements. I think the political situation of the last 5 years or so is fascinating. The country is now so divided that its two halves want totally different and totally incompatible things. Either side would be OK by itself, by politicians have tried to satisfy both sides. Today, they can't and have to decide which side gets the shaft. Yoram Bauman, the "stand-up eoncomist" has a great bit on this. "We don't have a problem because the left believes in entitlements or the right believes in tax cuts. We have a problem because the center believes in *magic*".

I think it's more like 2/3 want to reform entitlements (in the broader context of reining in our ever-expanding government)and 1/3 want to march on to a larger state, on the backs of the "rich". If you don't believe that, you only have to wait for another 16 months to find out.

That is not true, at least according to these two polls:

I don't think either side would be okay by itself. The folks receiving the entitlements need the productive people or they would have to spend savings, work, or starve.

If we were to split, things would get better for the givers and worse for the takers.

Still easy. Explain:

1) People making $200k+ are busting their ass and are not the idle rich.
2) They have no obligation or desire to pay for all of your old age cash transfers
3) There isn't actually enough money in the actual idle rich to pay for the middle class to be on generous entitlements
4) Draw your own conclusions

This country is a dead man walking. Better to end it now.

So, let's review. The rural and Southern US doesn't want a federal government, yet would lose most of the money if we ripped up the Constitution, as Republicans obviously want to do. Sounds fine with me, I'm a New Yorker.

'it must pass', eh? Why is that? It's like a retread of Hank Paulson's histrionics from 2008. If Congress thinks it can just spend without any limit whatever, maybe it's time for a wakeup call. Besser ein Ende mit Schrecken als ein Schrecken ohne Ende.

"If you’re not afraid, you haven’t been paying attention."

Everyone paying attention will be dead in <80 years. We can all rest knowing our era won't be considered boring.

This is as close as you come in predictions. As usual, it is formulated as vaguely as possible so that just about any outcome will do. How about actually making concrete prediction that can be checked "in the next few weeks (days)"?

people vastly overestimate the effect government spending has on day to day life. (while underestimating the effect of regulations)

When push comes to shove the Republicans will do what the moneyed class wants, and the moneyed class wants the debt limit to be increased. So it will be increased.

That's fine. I call this progress.

Good link Tyler. As Politico so diplomatically demonstrates, it is clearly all Republicans' fault. If we could all just allow the smartest guys in the room to spend more money with no restraint everything would be fine. The stimulus will no doubt kick in any day now, and we will be off to double digit growth. Here is what I think I have learned in the last 4 years:

1. Economists, irregardless of their inability to model the economy, can not be relied on to set interest rates.
2. Taxpayer support of bank debt prevents economies from repricing and resetting, and guarantees stagflation and fraud.
3. The triumvirate upon which America was founded was explicitly meant to prevent power accumulation. Now that power is ingrained, the system is particularly inept at divesting it. The parliamentary system with its many issues at least favors action.
4. The specter of default, like TARP (perhaps the worst legislation ever enacted), is being generally over-blown, which coincidentally gives impetus to the Democrat spending position while giving short shrift to the seriousness of now looming debt calamity. We have little room to kick the can as academics and politicians wish to do, but that any Finance executive could model in about 10 minutes.

It is time to reset the system and get out of debt. I suggest we sell assets, beginning with the universities and public schools.

irregardless, indeed.

Why "must" the debt limit be increased? Is the USG literally unable to pay its bills and service existing debt without going into more debt? If that is the case, then the jig is already up. We are broke and just need to let the chips fall.

I suspect, rather, that certain people's lifestyles are financially dependent on ever-increasing levels of government debt, and they have the government's ear, so that is why the debt limit will be raised.

All of this (not just the US but the EU as well) is reminiscent of nothing so much as the runup to the start of World War I.

As historians like Niall Ferguson have noted, the financial markets remained remarkably sanguine right up until the very outbreak of hostilities. Bond investors were caught off guard when politicians stumbled and sleepwalked into cataclysm.

Just like 1914, this is the final summer of the end of an era, the end of all of our termite-hollowed certainties, of our Western exceptionalism. Whatever happens next, we will live through it (God willing) while not quite believing it is happening. The hour is upon us, and everything since 2007 and up to now has just been a "phony war".

"The muffled tongue of Big Ben tolled nine by the clock as the cortege left the palace, but on history's clock it was sunset, and the sun of the old world was setting in a dying blaze of splendor never to be seen again." -- Barbara Tuchman, The Guns of August.

To clarify for FYI (below), this post isn't invoking the specter of an actual world war (that would be a true black swan, by definition impossible to predict based on existing knowledge). Rather, the analogy to the prelude to WWI is contained within the second paragraph above.

A citation for the above:

"Political risk and the international bond market between the 1848 revolution and the outbreak of the First World War"

Niall Ferguson

The Economic History Review
Volume 59, Issue 1, pages 70–112, February 2006

DOI: 10.1111/j.1468-0289.2005.00335.x

Excerpts from the abstract:

"... I ask why the outbreak of the First World War, an event traditionally seen as having been heralded by a series of international crises, was not apparently anticipated by investors. [...] why the London [bond] market was so slow to appreciate the risk of war in 1914. To investors, the First World War truly came as a bolt from the blue."

Oh Tyler, look at the crows you are attracting with this end of the world hyperbole... civil war, world war, wonder why no one has brought up alien invasion yet.

You have to calm down people. McConnell already said that they will allow Obama to increase the limit if they don't get to an agreement. I understand that some of the rethoric floating around is irresponsible but it is just that: rethoric. It is all aimed at 2012. No one will assume the responsability of allowing a default to occur.

InTrade is giving 52% of chances for the deal to be approved before July 31 and 78% for being approved before Aug 31.

Considering that the deadline is August 2, those are kind of terrible odds.

The aliens don't want to assume our payments.

I'm paying attention and the only thing I fear is that there will be a deal. When both sides win, we lose.

As someone else said, we're going to facethis music now or later, and I want the people responsible for the mess to face it, not their children.

If it were up to me, I'd dig up FDR's corpse and put it on trial.

Debt and the deficit has become a religion on the right. They will sacrifice the whole country just so the could claim they "reduced the deficit". Eventhough, defaulting would do nothing of the sort.

But this raises another question. And I specifically want to direct it at the first two commenters. Why do you want a balanced budget and fiscal discipline? Isn't it because you want to better this country?? Isn't it because you think it will make life better in this country? Or is the real reason..

That you are on some holy jihad where no amount of sacrifice even matters just as long as Obama doesn't get his way. Hell, you'll throw the whole country over board before you let Obama get his way. You are not in it to improve this country. Like you said yourself, you don't even care if the entire country fails...

Oh, and btw, just in case you were wondering. There is no debt problem. Interest rates are low. The debt of McDonald's is seen as a riskier bet than that of the government. Or do you not think the market is right??

Please. Some of this site's readers started criticizing government spending years before it became the hip(ocritical) thing to do. As far as interest rates on Treasury bonds, maybe we should wait til they go up to 10% and we have even more debt before we start worrying about it. Regardless of whether or not a default next month would be catastrophic and even increase the debt with higher interest rate payments, the fact that the government needs to borrow 44% to pay its bills should be indicative of the level of our overall problem.


I've been doing it for 12 years and I was late to the party.

The deficit is almost a Democrat strawman. The serious people want entitlements restructured. I don't really care if you kids want to dink around with short-term Keynesian stuff.

Probably ideally, we reduce spending gradually over the time period when interest rates are low with a credible commitment to restructure entitlements which should help keep interest rates low. We roll over debts to lower interest rates and longer maturities.

Of course, the debt ceiling is a blunt instrument for this because of just how screwed we are, but if we get started it's a start.


Nothing personal, but I'm sorely tempted to stop reading the moment I see the phrase "a credible commitment".

The legislative branch simply can't "do" credible commitments, not anymore, if it ever could. Any repair job that invokes pulling that tool out of the toolbox is a nonstarter, because it seems to have gone missing along with the fairy dust and Harry Potter's magic wand.

Gramm-Rudman was a "credible commitment" to solve the deficit problem once and for all, and some of you weren't even born when it was passed (25 years ago!)

The fact there are reasonable solutions to addressing long term debt, but the process seems to be diverging from these solutions seems to be the problem. What's the point of being sensible when you cam act like a hysterical maniac?

We are here because people didn't listen to libertarians 10 years ago. I was there. I didn't see anyone tripping over me to get ahead of the curve.

Vague prediction and It could just as likely become a crisis even if it passes.

Igor Panarin's prediction was better; that in 2010 the U.S. will enter a civil war -- ignoring the year of course.

"...Treasury Secretary Timothy Geithner is privately warning leaders that financial markets won’t discern the difference between political base-building “show” votes and real decisions on the debt."

I don't understand this, his mindreading aside, bond buyers are good at decision trees. Why do they not discount these possibilities beforehand?

Why do they not discount these possibilities beforehand?

Because, in the end, they're human like us and prone to inertia, complacency, sudden panic, equivocation and irrationality like the rest of us.

You *do* realize that finance is run by exactly the same human beings as you find everywhere else. Smart, stupid, overconfident, insecure, afraid to be left behind, afraid to be out in front alone, making guesses and calling them fact, and terrified of looking stupid in front of their colleagues.

There is no magic. There is no-one who "understands" or "gets it". Just us humans bumbling along in the dark.

I guess a pox on both their houses is as tough as Politico can get. Say what you will, the House Repubs took a huge risk to pass a budget that reformed entitlements. As evidenced by the attack ads already sent by the Obami. They may be wrong, foolhardy, insufficiently brave, whatever, but it was a huge political risk.

That seems to be paying off. Which is why the DC establishment of which Politico is firmly a part is so upset.

Tyler: I'm not afraid and I've have been paying much more attention than you to everything that is going on in the world. I'm not afraid because I've seen terrible situations in the past 60 years, and I know that in democracies politicians are usually fraudulent clowns. In addition to being liars, they are cowards. You should worry about the leaders of dictatorships because usually they are serious about their intentions to destroy their enemies (everyone except the most loyal comrades).

So advanced economies are facing big crises and fraudulent clowns have to take decisions. Nothing serious will happen as long as the clowns are not pressed by a large majority to take hard decisions. Please don't tell me that the clowns are concerned about high unemployment of young people (a problem has been created by the policies of the past 60 years everywhere) or poverty or social justice or whatever. You are supposed to be a public-choice scholar.

Europe's fraudulent clowns may have to regret their diminished expectations about the concentration of power that a Union could have brought about. Let me tell you about Spain. There you can see the worst of progressivism: the Zapatero government is so inept that its corruption is a secondary issue, and the clown appoints as his successor his deputy and this poor clown claims that he will run for the coming election (at the latest in March 2012) by opposing the policies that Zapatero has been announcing and hardly implementing. In a decent world, these people would be in jail --the late Italian socialist clown Benito Craxi was a much better person than Zapatero and particularly than Zapatero's deputy.

America's each party of fraudulent clowns regret that the best they can do is to prevent the other not to impose its policies. The on-duty clown has cornered himself on a position that he needs a big deb/budget deal now to have any chance of being re-elected (as I said in a comment a few days ago he supports a second ObamaCare to pay for the first one and for the support of his cronies). The off-duty clowns know that they will have to prepare for November 2012 (this week House vote is to make clear that the fight is far from over). It's quite clear that only through a national election Americans will be able to overcome the crisis, and the only question is whether this will be the 2012 election or the 2016 one or the 2020 one or.....

The question for you and people like you is how to contribute to a compromise supported by a large majority of Americans. Unfortunately pundits and bloggers are the worse example of short-termism --you prefer 15-minutes of front page today to anything that may happen tomorrow. If you want to contribute, you may start reflecting on the experiences of countries that have gone through similar crises for a long time.

Robert Hall is right --it will be a long slump.

From the diary of Representative "X":

A fellow I tried to ignore
Cleared out the Congressional floor
With the unpleasant facts
Of budget cuts, tax,
And Medicare, pensions and war.

If you’re not afraid, you haven’t been paying attention.

That's false. This is just another hysteria, like carmageddon, Y2K, Global Cooling, Global Warming, global epidemics, global food shortages, too much offense in baseball. This one, like the others, has a core group consumed by a particular topic and seeking attention by cataclysmic hyperbole.

People always worry that things are getting worse, but they just get better. I'm going to enjoy my day at work (which includes studying the budget developments), have a swim with the kids, read whatever Amazon delivers, kiss my wife goodnight, and get a good night sleep.

“If you’re not afraid, you haven’t been paying attention.”

If you are able to keep your cool when everyone else is stressed... you've missed out something.

Comments for this post are closed