Deal Will Come, but May Disappoint
Confusion usually reigns in Washington, D.C., negotiations just before a solution emerges.
Thus, small signs can signal big things to come.
As Federal Reserve Chairman Ben Bernanke concluded his testimony Wednesday morning before the House Financial Services Committee, Committee Chairman Spencer Bacchus made an interesting and perhaps important comment. In short, Chairman Bacchus said that members of his committee and many members of his partythe difference between raising tax rates and closing tax loopholes.
Chairman Bacchus hardly qualifies as a RINO nor is he considered a renegade Republican. His remarks, therefore, may well hint that the many senior members of the House Republican caucus are beginning both to tire of the ideological rigidity of some of their "Tea Party" members and to believe that it is time to stop playing games with the debt limit negotiations. In recognition of the coming reality of a debt ceiling increase failure, Rep. Steve King of Iowa introduced a bill today in the House that would require payment of the sovereign debt, military pay and pensions above all other payments that might be owed by the federal government. Thus, King acknowledges that failure to raise the debt ceiling would lead to utter chaos within the government and would have catastrophic impact on United States military activities oveseas. Soon, we will see similar bills to protect Social Security, education, Medicare, and so on and so on. CYA is in full throat.
Clever legislation announced yesterday by Senate Minority Leader Mitch McConnell would essentially empower a President to raise the federal debt limit himself, subject to a two-thirds vote to the contrary by Congress. One begins to sense the uneasiness of Congressional Republican leadership and even among many GOP backbenchers as the real results of debt default becomes clearer to them. McConnell's gambit, as one would expect from a consummate Congressional leader, does the most important thing that the GOP needs right now--to change the trend of the debate.
As we have said often before, when the face of the Republican Party on debt negotiations is Rep. Michele Bachmann, Rep. Eric Cantor, Sen. Pat Toomey or Sen. Jim DeMint, the party loses ground in the public relations battle. "Hell no, we won't go" over time becomes a losing message. McConnell has said, "Yes, raise the debt limit, let's dispose of all this Congressional-Presidential hostage-taking, and bring some stability to paying the nation's bills." McConnell's suggestion avoids direct confrontation over spending versus taxes--it begins to change the subject.
We smell a deal in the works. It will be small, it will be disappointing to those of us who fear the fiscal future of the nation, but it will get the debt ceiling increased. The fact that it will be relative trivial will be, in the short run, of little moment. Market participants, who expect nothing useful from Congress in most fiscal matters, can breathe a sigh of relief that their financial engineering will be safe for another 6, 12, or 18 months. The debt default question evaporates until 2013. American debt as the "best house in a terrible neighborhood" will continue to be a safe haven while turmoil throughout the rest of the world continues.
Then in the midst of the most anemic economic recovery in America's post-World War II history, Congress can revert to political manuevering and the American people can safely revert to concern over whether or not they or their neighbors will have jobs later this year.
The true dis-connect between both parties in Congress and the fundamental concerns of Americans in the work force will increase. Anger will continue to mount, demagogues will flourish, our national debt will increase, and loss of faith in America's governance will expand. This cannot end well.