You Guys Blew It.
You know, in the lead up to the 2010 elections one of the concerns I privately harbored was that I just didn’t see any depth in our leadership. 2010 came and went, and we were handed what in baseball terms is known as an unearned run, simply because the Moonbat Messiah and the Red Queen decided to piss all over the country with the Obamacare sham.
So here we are today with the debt ceiling business, and I’m reminded of the joke about the boy who was born with a golden screw in place of a bellybutton.
It goes something like this: there was this kid with a golden screw in his navel. He’s desperate to get it out. He consults with his parents and clergy, all of whom advise him against removal. Finally he travels to see a shaman deep in the mountains. The shaman advises him against it, but tells him if he really wants to proceed travel up the mountains to a clearing and clap three times. The boy does as instructed, and a cloud appears around a giant golden screwdriver which removes the boy’s screw. Elated, the boy jumps for joy. Then his bottom fell off.
The moral is, don’t screw around with stuff you don’t understand – you might lose your ass.
This is sort of what Congress is doing right now. Treasuries are very arguably the most important asset class in a universe of important asset classes. You guys are screwing around with the confidence of a 14 trillion dollar market. For reference, recall that all the Lehman liabilities were only 600 billion, or a drop in the bucket when compared to the treasury market, and I’m sure everyone remembers what that event precipitated. This is a dangerous game being played. When market participants lose confidence, everything gets liquidated, regardless of how safe the asset is. Are you guys sure you want to risk that just to piss on the other guy’s leg? Because that’s all you’re doing, none of the plans moving through either chamber do anything material with respect to our debt problem.
The time to force the issue was during the budget/government shutdown fight, and you guys blew it. Now we’re over the barrel and you suddenly find religion? Please. A lot of you clowns need to go back to B-school and re-take negotiation 101.
To the Tea Party folks I offer the following: to every thing there is a season. You want to end deficit spending and have a balanced budget amendment. Great, I hope you prevail on both items. But you need to hear this clearly – if we reduce spending as rapidly and as deeply as most of you want, it will certainly throw us back into recession and quite possibly depression. Look at what’s going on around the world. Asia is tightening and isn’t growing nearly as rapidly as last year. Our GDP growth is markedly slowing, the readings last Friday were pathetic. Unemployment in the U.S. is approaching 10%. The Eurozone is probably going to explode sooner rather than later, and Japan is a bug in search of a windshield. There needs to be a glide path approach to spending reductions, because if you rip the band-aid off we’re going to hemorrhage.
Take half a loaf. Any rational person knows that the debt spending of the past decades is an absurdity that needs a solution. Make deficit spending the issue of the 2012 elections. Get your mandate and go to work. But for God’s sake don’t crash the markets just to make a point.
Update: you “we can grow our way out of this” folks need to reflect on the graphs below. Essentially, it shows how we bought GDP growth and paid for it in home equity for the past ten years. That’s why consumer spending isn’t coming back to pre-recession levels, because there’s no leverage anymore and it comes from wages, which are flat.