Sunday, July 24, 2011

Congress needs a preliminary deal today, before markets open; but the "Chaos Experiment" continues; If no deal today, do investors panic Monday?

Dana Milbank has a particularly alarmist column Sunday morning Washington Post, “Dangerous Dealings with the Default Crisis,”  link (website url) here.  All of this appears while the media Sunday morning grill Congressional leaders and Timothy Geithner (note the lisp in the name) on whether Congress can reach broad outlines of a deal before Asian markets open Sunday evening and particularly US markets on Monday.  The scuttlebutt is that Democrats are still refusing a two-extension deal, insisting on enough debt extension to maintain financial stability through the 2012 election.  Yet, a "plan" needs to get posted on the Internet today (they're free to ask me to post it on this blog -- stay tuned.) 

On the latter, Benjamin Applebaum and Eric Dash have a sobering story on p 14 of the Sunday New York Times, “Default seems unlikely, but markets prepare; stalled debt talks jar wary investors”, link here.  Particularly scary is the idea that investors should dump stocks and even bonds quickly for cash, raising the possibility of a panic Monday. Then if there is a settlement, many investors and retirees could have suddenly lost a lot of principal.  It might be wise to hold on if you don’t have too many immediately pressing bills.

As for Milbank’s piece (somewhat in the style of Andrew Sullivan’s, quoted yesterday), it reflects a sandbox mentality associated with bullying. “You’d better blink because my side has some crazies, and they might just blow us all up.”  So the side with more radical members now gains an advantage.   It sounds like a kind of “chaos experiment” (or “steam experiment”).

This morning, Diane Feinstein, answering a question from Candy Crowley on CNN on whether she was optimistic or pessimistic on the deal to extend the debt ceiling:  “I am neither. This is the first time in my 19 years in the Senate that something that can be done being very simply is being held hostage for a very high stakes game.” 

Just remember, though, the math of all this (which Rep. Price mentioned on CNN). It really is possible to pay everything for a while after Aug. 2 through some more obscure tricks, but not "forever".  

Make no mistake: I'd like to see Congress extend the ceiling one more time through 2012, and commit itself to the $4 trillion cuts in 10 years, what the ratings agencies are telling Congress it must do. (You don't need a constitutional amendment right now, just a statute.)  It's that simple.

CNN video, "the debt crisis is being driven by math" (Price).  Yup, I've been a math teacher myself. Learn to work the Algebra I story problems:



Here is White House Chief of Staff on debt ceiling and deficit this morning:


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