Not Greece

Bastille Day in Los Angeles – and no one notices. This is not really much of a French place, save for the immediate neighborhood, and this building just above Sunset Boulevard, home to a good number of those elegant folks. Down on the corner, at the Directors Guild, once a year they screen all the newest French films, in their City of Lights festival – and the directors and actors give their talks, sometimes even in English. And Beverly Hills has a sister city in France – Cannes, of course. But that’s about it. France is somewhat imaginary here.

And people want to talk about Greece anyway. That’s what you hear in all the deadly serious discussion of what they say is America’s debt crisis, and in the current discussion of whether Congress should once again, as it did seven times during the last Bush administration, raise the debt limit. If we don’t do that we cannot borrow a dime more to pay the bills now due, and we go into default. In fact, we would have to immediately cut spending by forty-four percent – and someone is going to get stiffed – the elderly who depend on Social Security, or the sick and frail and poor who depend on Medicare and Medicaid and other such programs, or we don’t pay our soldiers, or maybe we don’t pay defense contractors and other vendors from whom we buy stuff – or we stiff those who bought treasury bonds. There’s not enough money coming in to do it all. Someone is not going to get paid. And if it’s those who bought treasury bonds, the Full Faith and Credit of the United States Government is gone, probably for good. And worldwide economic chaos follows.

And the Republicans know this, so, since they control the House, they can say they won’t vote to raise the debt-limit unless they get exactly what they want. And that’s where Greece comes in. We don’t want to be like Greece, so far in debt that no one wants to buy their bonds anymore, because it’s obvious they cannot possibly pay anyone back, or even pay interest. So we have to eliminate our debt – cut all spending to the bone, and then cut some more – and never raise our quite low taxes again, or even close loopholes for the rich, or end massive subsidies for the richer-than-God major oil companies. Taxes slow down business. We have to get our fiscal house in order. Look at Greece!

The key here is the bond market, and what they call the bond market vigilantes – those nasty masked men who ruined Greece, refusing to buy Greece’s bonds unless Greece paid fourteen or twenty or thirty percent on them. If we don’t get our fiscal house in order those nasty masked men will do the same to us. No one will buy our bonds unless we sweeten the pot, and money will flow elsewhere.

Megan McArdle offers a dense and clever discussion of this, if macroeconomics is your thing, but she thinks the politicians yammering away about those sinister bond vigilantes just don’t understand the folks in the bond markets:

They’re deeply knowledgeable about the math of default (a metric by which the United States is in basically okay shape, especially when you consider the most plausible alternatives – heavily indebted Japan, with its deficit even larger than ours; a European superstate that seems to be on the brink of a currency crisis; Chinese markets that are illiquid, less-than-transparent, and fairly tightly controlled by the government; and various small nations that don’t really have the asset base to absorb the amount of capital the world wants to stash somewhere “safe”.

Unless we default, as the Tea Party folks gleefully hope, to make Obama look bad, there really is no Greece problem here. We now pay absurdly low interest rates on our bonds. People love to buy them – they’re safe and liquid and just fine. But default would blow that away, and McArdle goes on to explain that the bond market folks don’t understand the politics here, just as the politicians don’t really understand the bond markets – so we’re heading for real disaster. It’s a depressing read, and she is also dismayed by the people who think that some sort of “technical” default wouldn’t be a problem.

But that is where we seem to be headed, and Felix Salmon in this item explains, that even if we manage to avoid default, there is the debt-ceiling-debate-wreckage:

The base-case scenario is, still, that the debt ceiling will be raised, somehow. But already an enormous amount of damage has been done: the US Congress has demonstrated clearly that it can’t be trusted to govern the country in a responsible manner. And the tail-risk implications for markets are huge.

Think of the speed with which the Egyptian government collapsed earlier this year, or the incredible downward velocity of News Corporation right now. When you build up large stocks of mistrust and ill will, nothing can happen for a very long time. But when something does happen, it’s much quicker and much worse than anybody could have anticipated. The markets might not be punishing the US government at the moment. But the mistrust and ill will is there, believe me. And when it appears, it will appear with a vengeance.

And Carmen Reinhart and Kenneth Rogoff, who wrote the book on the dangers of countries piling on too much debt, offer this:

Several studies of financial crises show that interest rates seldom indicate problems long in advance. In fact, we should probably be particularly concerned today because a growing share of advanced country debt is held by official creditors whose current willingness to forego short-term returns doesn’t guarantee there will be a captive audience for debt in perpetuity.

Those who would point to low servicing costs should remember that market interest rates can change like the weather. Debt levels, by contrast, can’t be brought down quickly. Even though politicians everywhere like to argue that their country will expand its way out of debt, our historical research suggests that growth alone is rarely enough to achieve that with the debt levels we are experiencing today.

So we should do something about our debt, but probably not default, and Kevin Drum carries this forward:

Interest rates are low today. Consumer debt overhang continues to dampen demand and generate massive unemployment. Because of this, government borrowing now not only makes sense because it’s cheap, it makes sense because it will put people back to work and help get the economy back to its long-term growth trend. Especially given the fragility of the world economy – including but not limited to the property bubble in China, the unsustainable flow of hot money into developing countries, and the crisis of the PIIGS in Europe – this is about the worst possible time to take any chances with economic recovery in America.

Yes, the PIIGS in Europe are Portugal, Ireland, Italy, Greece and Spain – it used to be PIGS, but Italy too just imploded and ruined the acronym. In any event, Drum is worried:

Reinhart and Rogoff have a point: investors can get nervous and start fleeing with virtually no notice. One month they’re fat and happy, the next they’re running for the doors. Although we should be spending more now to get the economy back on track, this is why a long-term deficit deal with teeth is something that both liberals and conservatives ought to be willing to compromise to achieve.

So we need to raise the debt limit – the apocalypse of default being unacceptable – and also keep spending borrowed money to help get the economy back to any kind of possible long-term growth trend – but we also need to keep the debt relatively low, over time, because those bond market vigilantes need to be kept calm.

That’s a tall order, and yes, that calls for real leadership, but John Dickerson notes that’s in short supply:

In their negotiations, which broke off last weekend, House Speaker John Boehner and President Obama were both showing a version of it. The two men struggled to resolve their differences – giving a little, assuming political risk, acting in good faith. One of the Washington clichés is that in tough deals, everyone has to hold hands and jump. By this standard, the two men were leading. Obama may have held Boehner’s hand for longer than a handshake but shorter than a street crossing.

And look at the trouble it caused him. For the last few days, Boehner has been at pains to stamp out the idea that he was ever interested in any kind of deal that would raise taxes. That’s not exactly so: He was at least notionally in favor of a deal that would raise taxes on some people in exchange for lowering them for other people. Still, in a party where supporting any kind of tax increase is deadly, Boehner has had to reassert his fortitude.

And it gets stranger:

To prove just how committed Boehner is against tax cuts, his office issued a press release citing a poll that says Americans want an increase in the debt limit only if it is accompanied by spending reductions and a promise to reduce the deficit. It also cites a poll that says Americans are against across-the-board tax increases. “Republicans,” it declares, “are standing with the American people.”

But isn’t leadership doing “what’s right” – no matter what the polls say?

And the polling data was flaky:

The first poll is by a GOP polling firm. In a recent poll by the generally more respected Gallup organization, only 20 percent of respondents support the GOP position of deficit reduction through spending cuts only. Among Republicans, this position wins only 26 percent support. The second poll is a nearly meaningless one from U.S. News and World Report that asks people whether they would like their taxes raised. In the current debate, that’s never been a question on the table. When you ask people about a specific increase that is on the table – such as allowing rates to increase for those who make more than $250,000 a year – the public is wildly for it. It has 72 percent approval, according to a recent New York Times poll. But Boehner is against that, which, by the standard of his own press release, is not standing with the American people and therefore not leadership.

And then there is Senate Minority Leader Mitch McConnell:

McConnell is not anxious to join Boehner and Obama’s negotiations. On Tuesday he offered a Plan B that would raise the debt limit without any deal on larger issues like spending or taxes. It offers a potential back door for negotiators who may not be able to reach an agreement before the Aug. 2 deadline for default. Now that’s leadership, you might say: McConnell offended his party’s most vocal constituents – Tea Party activists opposed to a “clean” vote on the debt ceiling alone – in order to get a deal. McConnell is willing to look cravenly political to achieve an end, in this case avoiding default.

The only slight problem is that the door may be blocked. Members of the House who support the Tea Party will not countenance the McConnell plan. It may be doomed.

And we may be doomed.

And then there is the new lead Republican negotiator, the Tea Party shill, Eric Cantor, and Joe Klein provides a take on Cantor’s leadership:

David Rogers over at Politico, who has been doing this – extremely well – for about as long as I have, has word that the President of the United States monstered down on Representative Eric Cantor in Wednesday’s deficit ceiling squabble. This is so refreshing on so many levels. Cantor has been using this crisis to undermine his leader John Boehner, by playing the Tea Party/Grover Norquist recalcitrance card. The boy badly needed someone to get up in his face and Barack Obama, of all people, apparently did, telling Cantor, in no uncertain terms, that he’d veto any short term deficit ceiling fix or, indeed, any plan that did not include revenue increases. Then Obama walked out, or the meeting ended, depending on whom you talk to.

So what we have now is the Republican Party in, yes, disarray – a word used to describe Democrats almost exclusively, back in the day before the crazies took over the GOP store. You have Cantor and the House Teasies opposing any revenue increases, including a tax loophole closing plan that Ronald Reagan and Edmund Burke would have smiled upon. You have Boehner, struck dumb apparently, after his attempt at bipartisan statesmanship with the President was greeted by tossed shoes and catcalls from the Teasies. You have Mitch McConnell. Well, I’m speechless about Mitch McConnell….

And even Lindsey Graham agrees, admitting to reporters that Republicans have been playing games all along:

Our problem is we made a big deal about this for three months. How many Republicans have been on TV saying, “I’m not going to raise the debt limit.” You know, Mitch [McConnell] says, “I’m not going to raise the debt limit unless we talk about Medicare.” And I’ve said I’m not going to raise the debt limit until we do something about spending and entitlements. So we’ve got nobody to blame but ourselves. We shouldn’t have said that if we didn’t mean it.

And Kevin Drum puts it nicely:

Republicans now seem to be a hair’s breadth away from outright panic. Graham is right: at this point, no matter how desperately they try to pretend that it’s Obama standing in the way of a deal (and that’s clearly the conservative talking point of the day), it’s simply too obvious that it’s Republicans who are unwilling to say yes. Obama is almost embarrassingly eager for a deal, but they won’t agree to send him a clean debt ceiling increase, they won’t agree to a grand bargain, they won’t agree to a medium-sized bargain, and they won’t agree to revenue increases even in the form of closing virtually indefensible loopholes on hedge fund moguls and other assorted members of the millionaire class. Hell, a sizeable chunk of the GOP’s tea party faction actively thinks that default would be a great thing. They’re practically slavering over the possibility while their leaders watch slack-jawed, wondering just how you explain to these guys that, yes pressing that red button over there would be really, really bad.

They should have known better:

The tea party was pretty useful to the GOP leadership for a while. But now it’s gone from being a handy campaign tailwind to a Force 5 hurricane on a path to destroy the country, and they don’t know what to do about it. Under other circumstances it might be fun to watch them all get their comeuppance over this, but not if it means turning America into a banana republic along the way. They better figure out what to do with their problem children, and they better figure it out fast.

But then one of the guys working on turning America into a banana republic is Eric Cantor, and see Andrew Leonard on Eric Cantor: The Most Dangerous Whiner in America:

The first time I took serious notice of House Majority Leader Eric Cantor came in late September 2008, in the immediate aftermath of the failed vote to authorize the TARP Wall Street bailout. The nation was in a state of profound crisis. Economic activity was shuddering to a halt across the globe and Wall Street financial institutions were collapsing by the day. Say what you will about the merits of TARP, but the magnitude of the stock market crash that accompanied the failed vote only increased the general sense of distress. The United States was staring directly at the greatest economic disaster since the Great Depression and our political system appeared incapable of responding.

The failed vote was a huge surprise, and naturally attention focused on the role of the House GOP leadership. Nancy Pelosi had managed to deliver most of her caucus, even though the prospect of bailing out Wall Street’s biggest financial institutions made most Democrats sick to their stomachs. But 133 House Republicans had voted no. At the time, Eric Cantor was deputy minority whip – his job was to wrangle votes. Although now he would like to pretend it never happened, he supported TARP and voted for it. So where did the train run off the tracks?

You remember – it was all Nancy Pelosi’s fault – she made a mean speech before the vote and hurt Republican feelings:

During the press conference that followed the Monday afternoon vote, Deputy Whip Eric Cantor (R-Va.) held up a copy of Pelosi’s speech, saying, “Right here is the reason, I believe, why this vote failed, and this is Speaker Pelosi’s speech that, frankly, struck the tone of partisanship that, frankly, was inappropriate in this discussion.”


Whiny, playing the victim, refusing to take responsibility for his own party’s behavior: Ladies and gentlemen, the great statesman Eric Cantor, during one of the darkest moments in the recent history of the United States.

And so, here we are again, hurtling toward a self-inflicted wound that could be far more devastating than one bungled vote in the fall of 2008. And who do we have standing at the center of the mess, effectively blocking any progress toward a deal that would preserve the credit-worthiness of the United States? Eric Cantor, now the majority leader of the House of Representatives. As the representative of the no-compromise House GOP, Eric Cantor is now the most powerful, and dangerous, politician in America.

And see Kevin Drum on Cantor:

Here’s a prediction: when all’s said and done and the debt ceiling fight is finally over, Eric Cantor is going to be a lot further away from becoming Speaker of the House than he was six months ago. Every day he’s looking more and more like a petulant child playing media games and less and less like a principled statesman working in the best interests of the country. He thinks he’s being clever and savvy, but the rest of the country is seeing a grasping, opportunistic politician who thinks that posturing for Fox News is more important than facing up to serious problems. He’s setting his career back a decade.

But Greg Sargent adds this:

If his intransigence on revenues is earning him high profile criticism from Beltway journalists and from the Senate Majority Leader and even the President, this will only turn him into more of a crusading anti-tax hero in some people’s eyes.

You see, Cantor said in his high school yearbook quote – “I want what I want when I want it.” He was born for this. He hardly seems to care whether America turns into Greece, or grease, or whatever.

But Greece isn’t that bad a place – there’s the sunshine and the lamb and garlic and goat cheese and that pleasant white wine infused with pine-tar resin, and ouzo, and Zorba – and Greece was the birthplace of democracy, where the people worked out issues in a forum that assumed there would be give and take. Their economy now is awful, but they have no control of their own monetary policy – they use the Euro and thus have no central bank or anything like that. They’re trapped. They have no tools to work things out, or at least ride things out.

But we have tools. And the world seems to want to lend us money at ridiculously low interest rates, and we do have time to sit down and work out how to slowly lower the debt burden we carry. Social security will go into the red in 2037 or so, if the economy stays awful for all the years until then. What’s the immediate problem?

The immediate problem is everyone is talking about Greece. Why?

About Alan

The editor is a former systems manager for a large California-based HMO, and a former senior systems manager for Northrop, Hughes-Raytheon, Computer Sciences Corporation, Perot Systems and other such organizations. One position was managing the financial and payroll systems for a large hospital chain. And somewhere in there was a two-year stint in Canada running the systems shop at a General Motors locomotive factory - in London, Ontario. That explains Canadian matters scattered through these pages. Otherwise, think large-scale HR, payroll, financial and manufacturing systems. A résumé is available if you wish. The editor has a graduate degree in Eighteenth-Century British Literature from Duke University where he was a National Woodrow Wilson Fellow, and taught English and music in upstate New York in the seventies, and then in the early eighties moved to California and left teaching. The editor currently resides in Hollywood California, a block north of the Sunset Strip.
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1 Response to Not Greece

  1. Rick says:

    One reason we’re not really like Greece, which is mentioned now and then, most recently by James Surowiecki on his Financial Page in The New Yorker, is most Greeks apparently avoid paying their taxes, usually by paying a bribe in a little envelope. Almost everyone does it there, so it’s considered normal. If your citizens don’t pay their taxes, you can’t pay your bills, and the bond market then sees you as a bad risk. Up to now, since our people pay their taxes, there’s no question about our country’s intention and ability to pay its bills, and that’s the main reason we have a triple-A rating. But that may change soon.

    And when it does, won’t Republicans have egg on their faces? I’m betting not. I’m betting they will blame it on the Democrats, saying, “See? We tried to warn you our debt crisis was threatening to make us like Greece, but the Democrats wouldn’t listen!” And I’m also betting plenty of Americans will buy that.

    Any chance the Republican won’t come out of this smelling like a rose? I think that will depend on how all this goes down. As long as they are not able to make it look like whatever resulting national catastrophe was the result of Obama refusing to go along with some deal, making the Democrats at least partly to blame, the Republicans will have a hard time explaining their way out of it, and their party may end up being doomed for at least one, maybe two election cycles. The fact is, there is a whole classification of American voter who is genetically disposed to like whatever it is that Republicans stand for, even after they trip themselves up now and then.

    By the way, about the only other time I ever see “bond vigilantes” in print is when Paul Krugman denies their existence, asking something like, “With bond interest rates so low, where are all these ‘bond vigilantes’ we keep hearing about?”


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