Sitting offshore from the Guernsey Islands this morning and staring over at France is hardly likely to lead to illumination about where the debt ceiling drama stands at this moment, but like much of what comes out of Washington I have to wonder whether the axis of convenience between politicians and the major media that usually has everything wrong is just as wrong on this subject as well; namely, the view that a debt ceiling deal along the lines currently being discussed will avoid a downgrade for U.S. sovereign debt. I think just the opposite is likely.
To borrow from Power Line’s sports desk, the outline of this deal resembles one of those major league blockbuster trades that offers a fading star (the debt ceiling increase) in exchange for a player to be named later (a $1 trillion package of budget cuts to be specified by Thanksgiving). Do we ever hear about that “player to be named later”? And how often does the fading star approach his former glory? Much more likely, it seems to me, that the rating agencies will regard this weak deal that pushes serious decisions down the road again as one that will hasten a downgrade. On the other hand, would a failure to increase the debt ceiling really lead to a financial crisis? I’m sure the market would wobble for a few days, but several curious indicators suggest that a Congress that stands athwart spending yelling Stop! might actually spur an economic boom. (This is the view of one Power Line reader, who makes the case here.) It is curious to me that U.S. treasury bond yields continue to drift downward, which suggests that people with real money on the line don’t believe for moment at the U.S. would default on its debt. And the fact that Apple has more cash on hand than the U.S. government reminds us that the private economy—the parts unaffected by Obama’s new regulatory kleptomania anyway—is doing fairly well. Imagine how much better it can do if legions of regulators are laid off. A hiccup in the market this week or next is probably a buying opportunity.
I will fret very little if this fragile deal falls apart over the next 36 hours. At the same time, if it gets through I think we have some cause for some satisfaction about the first half of the game. While Obama is likely to think he’s come out of this deal with his principal objective—pushing the debt ceiling problem beyond the next election—it appears to me that the politics of debt ceiling increases has changed forever, no matter what happens in the next election. The Tea Party is right to grumble, but it is also true that they have scored some heavy blows already in American politics merely by electing a strong faction in just one house of Congress, and holding the GOP leadership’s feet to the fire. Over the last six months Obama had to retreat from a no-strings-attached debt ceiling increase and a big spending budget, to calling for a “balanced approach” that was code for more taxes, to agreeing to a short-term deal with no tax increases in which the balance of the discussion is on spending cuts. And besides, the deal has upset Paul Krugman, and any deal that does that has to have a little something going for it. Note also that the Wall Street Journal editorial page likes the deal, and they don’t often give the GOP a hall pass on budget deals.
But yes, the score at halftime is a tie, at best, and losing is not an option. We’ve made the quarterback scramble, but we haven’t sacked him for a loss yet.