In a prime time speech of about 22 minutes last night, President Barack Obama made an impassioned plea for political compromise as the hours tick down toward a debt ceiling raise deadline - and possible default. The consequences of the latter, as I noted before, would be unimaginable and could well hurl the country into a much more severe recession or even Great Depression. This is not mere idle speculation or "scare mongering".
And given all that Obama has offered, what was the GOP answer? To essentially spit on him with total contempt, as House Speaker John Boehner followed in a deceitful 9 minute screed redolent with distortion (including saying that his 'cap, cut and balance' law was "bipartisan" when only 5 house Dems voted for it)! Boehner's speech, basically appeasing the Tea Party crazies, disclosed that the Reeps are not prepared to deal nor were they ever. Their objective is not to cut any deficits, but to make Obama a one term President by either: a) hobbling him politically with incessant debt ceiling votes (and Repuke nay votes on debt ceiling raises), or b) enticing him to cut spending massively thereby paving the way for a total collapse in aggregate demand and massive increases in unemployment.
In respect of the last, and playing into the Dem yen to appease the Repukes at all costs, has been the latest plan put on the table by Sen. Harry Reid (who I've always seen as a classic wobbly knee wimp, especially with that weak cracking voice of his). Actually, any acceptance of the "Reid Plan" will also fully ensure a horrific collapse of aggregate demand and spiking unemployment. That plan, with $2.7 trillion in spending cuts and NO revenue, will deliver a massive and debilitating punch to the nation's economic solar plexus by driving aggregate demand down further.
What we need now is more spending not less, since aggregate demand is low. This is not really that difficult to comprehend and is based on "the Paradox of thrift".
The paradox of thrift is that while a once spendthrift family can save itself further financial grief by pulling in the purse strings, it doesn't apply to a nation. When massive saving is done nationally disaster results, namely entrenched deflation such as stalked Japan over the 90s. As deflation sets in, prices collapse (which sounds good on the surface) but employers - lacking any revenues from consumer spending - are forced to cut jobs en masse.
The Wall Street Journal (July 21 edition,'Layoffs Deepen Gloom') already sounded the warning noting that job losses are even greater now with companies at their lowest hiring levels in months. As the article noted:
"Consumer spending is a central worry.. Businesses are worried about the effects of a challenging economy on consumer spending habits"
In other words, unemployment is increasing again because of ailing aggregate demand, mainly since the consumer demand is not keeping pace. People are purchasing less, including eating out and in response, nervous companies (like 'Cracker Barrel') are paring down their work forces not increasing them. So, if this is the case, why on Earth would any sane politico - Reep or Demo- institute a deficit reduction program that ensures an even more challenging economy, and consumer spending tightening even more - with further employer retrenchment? Why do that? In other words, WHY accept the Reid plan (no revenues at all) when it will have as catastrophic an effect as a default ...though likely take somewhat longer?
Spending cuts across the federal board, to the extent they affect or impinge on citizens (transferring risk to them and making them spend more, e.g. on health care, or other necessities) means they will collectively tighten their purses, so the consumer demand will plummet. When it does, investor demand will also plummet because prospective business starters will see no upside in a mass saving environment where consumers aren't prepared to spend a dime of disposable income.
Thus, effectively, the total aggregate demand drops and this means unemployment will increase dramatically as the nation loses whatever remaining vestiges of fiscal stability.
Politicians like Reid and others who spin these stupid debt solutions don't have these issues on their radar for a number of reasons, but one is because they aren't faced with the financial risks and costs many Americans are. As an example, an article in Smart Money ('The New Parent trap', August, p. 38) noted that 49 million Americans or about 20 percent of the population, care for someone over 50 who is ill or aging. This is a number that has steadily increased over the past decade according to the National Alliance for Caregiving. It must be noted ALL of this is done with NO remuneration, and often with employer penalties and salary cuts or benefit cuts because of the need to take time off. These 49 million people are not in any fiscal position to withstand federal cuts that may impact negatively on their current financial positions - which are already shaky. For example, a massive cut in Medicaid or Medicare assistance (affecting those they care for) may well be the last straw. As it is, the contraction in consumer demand follows from the parlous 'tightrope'-walking, expenditure straits many people find themselves in.
Spending cuts of the order of > $2 trillion that affect their welfare are therefore the worst solution imaginable. They not only ensure more employer cuts in jobs, but also less business (capital) investment while making for a hostile economic landscape and one in which it is doubtful Obama could benefit from next year.
No, it is time now Obama stop talking and special pleading and realize the Repubs are Barbarians at the Gate of National Fiscal Sanity who must be stopped. Saved as it were from their own extremism. By further engaging the Repukes as "rational" Obama only makes himself look weak, wimpy and pushed around. He has thus exhausted his cards for playing the "adult" in the room and now verges on looking like the Wimp in the room. No one wants a wimp as president, sad to say.
What Mr. Obama so far refuses to consider is that it's all about politics and WINNING for the GOP. As the authors of Banana Republicans pointed out, for Republicans politics is conducted as warfare, while most Democrats (like Obama and Harry Reid) treat it as a Debating Society meet. This is why Dems always get their asses thrashed. Hell, most times they even get their collective brains thrashed because the Repugs out-gun them in co-opting the language and making it work in their interests (think death taxes and death panels.) Meanwhile, with each language coup the Dems are sitting there like clueless dweebs scratching their butts and wondering what happened. (As I've repeatedly said, this is why Dems need dedicated think tanks along the lines of the Heritage Foundation and American Enterprise Institute for the Repukes).
Both Reid and Obama need to grasp that the Repubs are not, and never have been, the least bit interested or invested in a "kinder, gentler, conciliatory government." No, they want to destroy it to make it unworkable for any Dem, or for any Dem President to ever again get elected.
What is the way out? I already explained it in my July 4th blog but it necessitates Obama finding enormous reserves of cojones and testosterone on the level acquired by JFK when he faced down the Joint Chiefs over the Cuban Missile crisis in October, 1962. (At that time the JCS demanded JFK invade and bomb Cuba, but had he done so an immediate nuclear strike would have resulted since we now know 93 IRBMs were aimed at the U.S. East coast) JFK's solution was to tell the JCS to stuff it, and he employed the naval blockade measure. It required thinking outside the box.
In like manner, the solution for Obama to take, given the Reeps have demonstrated they aren't serious about negotiating, must be from outside the box. But it requires a major character change, i.e. that Obama cease his practice of being the National Conciliator-in -Chief (as well as Professor in chief) with vile, irrational vermin who have no intention of conciliation or compromise.
To that end, Obama's last best choice is to enact the debt ceiling increase on his own, and tell the Reeps to screw themselves. He can do this under the provision of the Constitution (Amendment XIV, Section 4), which stipulates:
"The validity of the Public Debt of the United States, authorized by law, includes debts incurred for payment of pensions ....and shall not be questioned."
It is clear to me that if the Republican Congress refuses to act to raise the debt ceiling (and thereby honor the validity of paying the Public Debt) then President Obama can and MUST issue an Executive Order to override a putatively derelict Congress and invoke Article 4 of Amendment XIV to raise the debt ceiling himself. The alternative, of not doing so, would also violate Article XIV and be lawless while also violating Sec. 4 of Article I. For example, payment of "pensions" (interpreted as Social Security monies) would likely not be made in case of a default. Therefore, debts for such payments cannot be avoided by law and the president must seize the initiative if a derelict congress abdicated its responsibility!
Yes, the game-playing reptile-controlled House (trying to use the debt ceiling as extortion to hold the whole nation hostage) may squeal like stuck pigs and perhaps even initiate a Constitutional crisis, but they have no ballast, no precedent to base it on. Obama can simply argue (or more likely his Solicitor General) that the Republican House has demonstrated fiscal irresponsibility and recklessness in jeapordizing the full faith and credit of the U.S. by gamesmanship, which is what it is. He can refer to the fact that Congress has already enacted 75 measures to raise the debt, including 17 under Ronald Reagan.
Time to step up to the plate, Mr. Obama and rise to the occasion. These are the times that measure the stature of a man, and indicate whether truly great - as JFK was in his hour- or a mouse.
Don't let the Aug. 2nd date pass finding you in the latter class!
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