by John Hawkins | August 2, 2011 3:38 pm
The Democratic Party and their pals in the mainstream media have been having a conniption fit over the Republican Party’s failure to completely capitulate during the debt ceiling battle. In fact, liberal columnists like Paul Krugman have been comparing it to holding American hostage. Here’s Krugman in May of this year.
America Held Hostage
Six months ago President Obama faced a hostage situation. Republicans threatened to block an extension of middle-class tax cuts unless Mr. Obama gave in and extended tax cuts for the rich too. And the president essentially folded, giving the G.O.P. everything it wanted.
Now, predictably, the hostage-takers are back: blackmail worked well last December, so why not try it again? This time House Republicans say they will refuse to raise the debt ceiling – a step that could inflict major economic damage – unless Mr. Obama agrees to large spending cuts, even as they rule out any tax increase whatsoever. And the question becomes what, if anything, will get the president to say no.
…It’s hard to know whether the “what, us worry?” types believe what they’re saying, or whether they’re just staking out a bargaining position. But in any case, they’re almost surely wrong: seriously bad consequences will follow if the debt ceiling isn’t raised.
For if we hit the debt ceiling, the government will be forced to stop paying roughly a third of its bills, because that’s the share of spending currently financed by borrowing. So will it stop sending out Social Security checks? Will it stop paying doctors and hospitals that treat Medicare patients? Will it stop paying the contractors supplying fuel and munitions to our military? Or will it stop paying interest on the debt?
Don’t say “none of the above.” As I’ve written before, the federal government is basically an insurance company with an army, so I’ve just described all the major components of federal spending. At least one, and probably several, of these components will face payment stoppages if federal borrowing is cut off.
And what would such payment stops do to the economy? Nothing good. Consumer spending would probably crash, as nervous seniors started wondering how to pay for rent and food. Businesses that depend on government purchases would slash payrolls and cancel investments.
Furthermore, markets might well panic, especially if interest payments are missed. And the consequences of undermining faith in U.S. debt might be especially severe because that debt plays a crucial role in many financial transactions.
So hitting the debt ceiling would be a very bad thing. Unfortunately, it may be unavoidable.
Why? Because this is a hostage situation.
Fast forward to today and guess who wants to “take America hostage?” Here’s a hint: He has a beard, writes for the New York Times,, and you can see his ego from space.
I guess I have to be explicit at this point: yes, I would vote no.
What about the catastrophe that would result? Several thoughts.
First, what I keep hearing from people who should know is that Treasury won’t actually run out of cash tomorrow, that it still has a few more days.
Second, the people who claim that terrible things would immediately happen in the markets also claimed that there would be a big relief rally once a deal was struck. Not so much: the Dow is down 121 right now.
Third, the idea that a temporary disruption would permanently damage faith in US institutions now seems moot; if you haven’t already lost faith in US institutions, you’re not paying attention.
Fourth, those legal options are still there. Obama can move now; and even if he eventually loses in the courts, that gives him time.
Sure, it’s risky. But the whole situation is immensely risky, thanks to the extremism and bloody-mindedness of the right.
So, if Republicans don’t like the deal on the table and refuse to vote for it, they’re taking America hostage. But, if Krugman doesn’t like the deal, then voting it down just becomes a necessary risk? Maybe it’s my imagination, but aren’t liberals the ones who are always going on about what a terrible person you have to be to engage in this sort of hypocrisy?
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