Monday, July 18, 2011

The Tea Partiers are extortionists

If there is any lingering doubt in your mind that a U.S. default would be Bad with a capital B read this. The entire economy of the planet since WWII has been based on the assumption that a U.S. default would not happen. If that assumption is discharged -- and it's looking more likely every day -- then the rules of the game will have to be rewritten from scratch. What the net result will be is anybody's guess, but it's a pretty safe bet that it won't be pretty.

It is this threat of economic armageddon that the Tea Partiers are wielding in order to accomplish whatever it is they are really hoping to accomplish. Exactly what that is is far from clear. They say that they want to shrink the size of government, but their actions belie this.

...the consequences of any default would, ironically, actually increase the size of the government relative to the U.S. economy—the very outcome that Republican intransigents claim to be trying to avoid.

So there are only two possibilities: either they're stupid, or they really want to accomplish something else. Either way does not bode well for the future.

But their actual goal doesn't affect the fact that whatever it is they want to accomplish they can't do it via the normal legislative process. So they have to resort to the threat of economic armageddon with an outcome contrary to their stated goals in order to do whatever it is they really want to do. That is the very definition of extortion.

BTW, I am seriously considering going to the bank and withdrawing a rather substantial amount of physical cash, and I urge you to do likewise. There are two reasons for this. First, in a worst-case scenario, physical cash will be very useful, and if you wait until it's too late you won't be able to get any. And second, if We The People start to pose a credible threat of broad-based run on the banks before it is too late to pull back from the brink, maybe that will knock some sense into these morons.

I still believe that Congress will figure this out and we won't default. Certainly the bond market seems very sanguine about what is going on. But I think the odds are no longer 100% even to an engineering approximation, and that makes me very, very nervous. Because the Tea Partiers just might be crazy enough to take us over the edge.

And if they do, it will be Bad.


Don Geddis said...

Failure to raise the debt limit in time would, indeed, be horrible for the US and its economy.

But I bet, if it came to the worst case, a failure to raise the debt limit would not actually result in default on Treasuries.

In that horrible scenario, the likely executive (Obama) outcome would be to prioritize payments. Payments on debt interest would come FIRST (in order to avoid the financial chaos you're suggesting). Then probably payments to active military and critical infrastructure.

After that, you have two choices: you either stop paying everything else (social security, etc.), or else you ask the Fed to print cash, and you pay in (new) cash instead of adding to the debt.

Think about it this way: congress has passed inconsistent laws. They agreed to a certain budget, and also certain taxes, and also a debt ceiling. But expenses - revenues > debt ceiling. So they have ordered something that is logically impossible.

I've even got a suggestion for Obama: simply stop all payments ... to the citizens in the districts represented by the Republicans who refused to raise the debt ceiling. Meanwhile, continue all regular payments in nearby Democratic districts. Might as well get some political benefit out of such a disaster! And if the citizens in the affected districts are unhappy with zero government ... they can always vote their incumbents out!

Ron said...

> stop all payments ... to the citizens in the districts represented by the Republicans who refused to raise the debt ceiling

I'm pretty sure that would be illegal.

Don Geddis said...

In ordinary times, illegal, yes. But as I suggested, congress has mandated an inconsistent state of the world. No matter WHAT you do (as executive), you MUST necessarily violate some law.

At that point, don't you get the freedom to choose which law to violate? It is not possible to obey them all simultaneously.

And I note in passing that the 14th amendment ("the validity of the public debt ... shall not be questioned") suggests a Constitutional priority for interest payments over other uses of tax revenue.

As long as SOME law needs to be broken, why not choose one that yields maximum political benefits?

Ron said...

You're joking, right? I'm pretty sure what you suggest would not yield maximum political benefits. It's also pretty clearly a violation of the equal protection clause.