"The political system is “broken” all right, as commentators keep saying, but it is not broken in the way they contend. The problem is not that Republicans and Democrats can’t agree on enough deficit reduction. It is that one party has been taken over by extremists who seem to enjoy watching things burn, while the other party is in the hands of a president who seems clinically depressed and can’t bring himself to lead the country in a direction that defies the conventional wisdom."
In the financial crisis, the signature of the credit rating companies has been that they are a day late and a dollar short. In this case, two trillion dollars. S&P made a two-trillion dollar error in the computations that were the basis of its rationalefor downgrading Treasury securities.
But that was petty cash compared to what credit rating companies cost the world economy when they corruptly took money from issuers of sub-prime bonds to help them come up with a formula to justify a triple-A rating.
The entire financial collapse is on the conscience of the credit-raters. If they had the most elementary competence, they would have known that a bond backed by junk had to be junk itself.
So where do these guys get off downgrading the debt of the United States? And why do it after a deal was struck to avoid default rather than before?
Simply put, the Gang of Six plan, airdropped into the debate with two weeks until default—after seven months of talks—adds another layer to the available options and makes the already tumultuous negotiations even more complicated. That was the last thing anyone needed this late in the game.
Three days ago, Washington was preoccupied with the prospect of a “grand bargain” between President Obama and congressional Republicans over deficit reduction. Obama would offer $3 trillion in spending cuts – including changes in Social Security and Medicare – and in return, Republicans would provide $1 trillion in additional revenues and lift the debt ceiling. For Republicans, this was a great deal. Democrats were handing them an opportunity to defund vital parts of the welfare state, a long-time conservative goal. All the GOP had to do was take it. They refused.
If we miss the August 2 deadline, and the dollar starts wobbling and the bond-market goes haywire, that might finally put some salutary pressure on the Republicans to meet the Democrats more than halfway. They control just one house. The Democrats have the Senate and the White House. They should start acting like it.
Alternatively, if Obama “succeeds” this weekend in brokering an austerity deal, the Democrats, American progressivism and the economy will all be the losers.