I'm getting more anxious about a debt limit fiasco

So here we are in the middle of 2011, with an economy that isn't great. But it's still a heck of a lot better than it was in late 2008 and early 2009, when Obama took over the presidency.

Remember how horrible it was to watch your retirement or investment portfolio drop 30, 40, 50 percent? Maybe even more, if you were into really risky stuff.

I didn't enjoy those days. When the stock market went back over 12,000, I began to relax some, feeling that the biggest economic shocks were behind us and the United States was on a slow but steady road to recovery.

Now I'm getting anxious again.

A disturbingly large chunk of Congressional Republicans are fanatic about negotiating a debt limit increase on their own terms. Meaning, massive cuts in federal spending and no revenue/tax increases.

That isn't genuine negotiating. It's a ransom demand, as this Daily Kos post puts it.

Financial backers for House Republicans think this is all just a big joke, and that in the end, a deal will get done. Well, they simply aren't listening to what House Republicans are saying, which is that unless a comprehensive fiscal policy is agreed to, there won't be a deal, and that the only comprehensive fiscal policy they will accept is their own.

The only way the debt limit is going to get raised is if Republicans get reasonable. And I don't see that happening. Who knows what the exact odds are, but given the GOP's utter unwillingness to deal with the debt limit as a problem that needs to be solved, there is a very real possibility that we will enter into full-scale default on our obligations.

As they always do, Republicans are counting on Democrats to be the adults in the room. The only problem is that this time Republicans control the House. And unless they walk away from the ledge, this thing is going to go south—and fast.

My worry also.

I can envision the Tea Party wing of the Republican Party being so crazlly anti-government, anti-tax, and anti-Obama that they'd actually enjoy seeing the United States economy tank prior to the 2012 election.

I see them fantasizing that this would ruin Obama's re-election chances, along with producing a massive reduction in the size of government due to a massive drop in tax revenues when we enter a double-dip recession, or even a depression.

Such could happen if the U.S. defaults on its debt, if only briefly. Currently treasury bonds are a safe haven for international investors, not to mention many millions of Americans.

Imagine the shock if the government says, "Sorry, but we can't pay the interest that you're owed." Moody's already is warning about downgrading the United States' credit rating because of the standoff over the debt limit increase. And we're still several months away from the actual August default date.

Republicans, come to your senses. If you engineer another massive crash in the stock and bond markets, Americans aren't going to say thank you. Voters want a balanced approach to deficit reduction.

Raise some taxes on high-income earners; cut some spending on unpopular and unneeded federal programs (war in Afghanistan, farm subsidies, tax breaks for Big Oil, etc, etc). There's a way to get this debt limit deal done without jeopardizing our fragile economic recovery.

The debt limit increase has nothing to do with future spending. It simply allows the United States to keep its promises -- both to American citizens and foreigners.

Alan Greenspan, former chairman of the Federal Reserve, wants tax rates raised to 1990's levels because he's so scared of the catastrophic risks to our economy if the deficit and debt ceiling squabbling results in nothing substantive being done.

Usually I don't agree with Greenspan. But in this case, I say "right on."

Greenspan said Congress has no choice but to approve raising the debt ceiling as the US would risk catastrophe if it does not meet its obligations.

"The problem is we're all going and maneuvering around and as the days pass we're getting closer and closer to the debt ceiling," said Greenspan, who called Washington brinkmanship on the issue an "extraordinarily dangerous problem for this country."

Comments

[Jack Bog]

This is all about White House 2012. Congress is a muddy mess and likely to stay that way, and the Republicans know it. This is over POTUS.

Alas, this economy isn't coming back any time soon, and so that's the end of Obama. It might be time to switch parties and back the most moderate and intelligent Republican candidate you can find.

BTW, Moody's is a bunch of grifters. They were big players in the screw job of '08, and nobody should pay any attention to what they're suddenly barking about in the deficit debate.

[Randy]

A good time for you to get out of the stock market. Cash will soon be king.