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Political Hay
Close Call
For congressional Republicans, it’s a good thing the Wall Street slide didn’t happen a week earlier.
What a difference a week could have made on the debt limit. Had last week’s market slide happened the week prior to a debt limit deal — instead of the week following — leverage for the Republican proposal could easily have evaporated. Instead, the market’s performance has undercut the argument that Wall Street was really so focused on the debt limit stalemate.
Last week proved that markets have plenty of fear to spare, and disproved the Administration’s contention that a debt deal was necessary to calm market fears. On the Monday following Sunday’s announcement of the debt limit deal between the Congress and Administration, and on the day the House passed it by 100 votes, the markets fell slightly. On Tuesday, as the Senate was passing the deal by 3 to 1, the markets fell even more — the DJIA dropping 265 points. The markets’ real spanking came on Thursday, when the DJIA fell by over 500 points.
Even Friday’s brief rally, on what passes for good economic news today —117,000 new jobs created and the unemployment rate dropping 0.1% to 9.1% — quickly reversed itself.
Apparently the financial markets were paying far more attention to economics than politics. While the negative tone of the former would seemingly have a long way to go to drown out the negative tone of the latter, it did. Negative economic news — encapsulated most clearly by the earlier downward revision of America’s overall economic growth to just 1.3% in the second quarter — took its toll. It also delivered its message: the contention that debt limit uncertainty was negatively affecting financial market performance, much less fundamental economics, was hokum. Markets matter. Apparently Washington does not.
The financial markets seemed to be ignoring Washington all along. It has been stated that the opposite of love is not hate, but indifference. That certainly seems to be the markets’ response to their political suitor.
While Washington does not appear to make much of an impact on the financial markets’ performance, this doesn’t mean that the markets don’t have an impact on Washington. As is the case with all one-way love affairs, the object of unacknowledged adoration has an inordinate impact on its admirer.
If you don’t believe it, just look at Washington’s TARP experience almost three years ago. That experience indicates what the markets could have done with a well-timed come-hither look the week prior to the debt limit vote.
Back in 2008, Congress and the Administration were again embroiled over legislation to buy troubled assets (hence the acronym: Troubled Asset Relief Program) to soothe the markets. However, the markets were far from indifferent then.
Although the Administration supported it and the Senate passed it, the House rejected it. The next day, the markets suffered a DJIA-777-point-drop. That was enough to set political hearts aflutter. Congress changed course and promptly passed a revised version of TARP.
Based on its own track record, imagine what would have happened if last week’s market meltdown had occurred a week earlier — while Washington was still mired in a debt deal impasse? The calls for a conservative cave-in on its debt-limit demands would have been enormous. All the claims that the markets were really watching Washington — rather than economic fundamentals — would have seemed to be verified.
The press would have had no hesitation to report it as such. Calls for a quick — and likely “clean” — debt limit increase would have been deafening from liberals. There would have been an economic echo chamber, with the markets seeming to shout through it. Suddenly the leverage that conservatives held would have been turned against them.
While it is valid to ask whether the same event could have been used to bolster conservatives’ case — that a debt limit increase combined with deficit reduction was really the right prescription — we all know it would not have been played that way in the media.
The question is: Could conservatives have held out under the enormous pressure that would have been brought to bear? Fortunately for all concerned, we will never know.
Liberals have a right to think that the financial markets have left them at the altar all too often. The economy has not shown up for them for almost three years. Their best-laid plans have been undone, time and again, by economic woes. While liberals fervently yearn to say “I do” to the markets and the economy, the markets and the economy continue to say “I don’t” to the liberals.
Here was another opportunity for the markets to come through for them. Once again they didn’t. It leaves us, and liberals, to think about what might have been.
About the Author
J.T. Young served in the Department of Treasury and the Office of Management and Budget from 2001 to 2004 and as a Congressional staff member from 1987 to 2000.
Dan Hirsch| 8.8.11 @ 8:20AM
J.T.:
Causes usually precede effects.
'nuff said.
Don't tread on me.
buckeyeman| 8.8.11 @ 9:41AM
Dan, You have apparently forgotten that Obama and the god-like dems are immune from the laws of cause and effect and all the other laws of economics as well. The stuff being spewed by the leftists currently is simply beyond belief.
Alan Brooks| 8.8.11 @ 10:30AM
face it:
Asia's star is on the ascendant, our's is on the wane.
George True| 8.8.11 @ 11:36AM
This has nothing to do with whose star is rising and whose is falling. It has everything to do with the US government demonstrating for all the world (and markets) to see that it has no intention of addressing its spending addiction and resultant debt problem.
simon templar| 8.8.11 @ 4:10PM
Does that just give you the giggles, Alan? Did you feel all fuzzy and warm when you said, face it. Some sort of self hating thrill? Some sort of perverse nihilistic orgasm?
The world is hurting to day and that includes Asia, jackass, such as the Japanese markets are tanking as well and the Chinese are up to their own serious debt and problems as well.
Theo Prinse| 8.8.11 @ 8:24AM
The Germans have a 61 billion USD stake in US Debt and the Chinese 1,150 billion.
http://developmentseed.org/blo.....e-and-whom
Germany has a per capita GDP of 36,000 (index) and 82 million inhabitants
China has per capita GDP and 7.500 (index) and
1.330 million inhabitants
http://en.wikipedia.org/wiki/L.....es_by_GDP_(PPP)_per_capita
This yields per capita:
Germany: 743 USD
and for China: 884 USD
Comparing the German 22.420 and the Chinese 910 GDP per capita this yields
Germany 1 (index)
and China 4.8 = 5.5 trillion and China (5,520 billion)
This Chinese 4.8 local price index number in comparisson to Germany 1 indicates raisor sharp what China could buy with it's 1.150 billion Chinese stake in US Debt ... in Chinese grown domestic goods.
It is so much money that it will take decades to spend (ie minus inflation)
This revealed economic time delay leads to no other conclusion than that the Chinese government can and must be held responsible for having known all along they were stealing from the Chinese workers and are now to be held accountable for destroying the monetary economy.
The requirement of both free trade and the appreciation of the Yuan / Renminbi is justified and desparately urgent.
If the Chinese refuse .. the world economy will certainly collapse with an asymmetric World minerals War as a result and China must be removed from the WTO and the Chinese claim on US treasury declared void
Purple Lips| 8.8.11 @ 10:15AM
The CHICOMs are in a worse position than we are. All of the bluster hides the fact that they consciously were our enablers for the last 15 years. Now they hold over a trillion dollars in T-bills that don't dare unload. If the Renminbi soars against the dollar they would have no choice but to inflate thier own currency or risk pricing themselves out of the North American market. China is a one-trick poney. Without its hundreds of billions in trade surpluses it is just another crappy 3rd world nation. And its trade surpluses were created through currency manipulation, as well as radical price controls on wages.
We should also remind ourselves no one outside of Bejing knows how much the CHICOMs have borrowed against thier cash reserves to pay for thier massive public works projects. Goldman Sachs believes (rightfully) that China's banks are leveraged to the hilt. Real estate and commodity prices in China have gone through the roof in recent years.
simon templar| 8.8.11 @ 4:15PM
PL, do not forget the literal 10 cities that have built and no one lives in them and can afford them. It economics strength is a mirage, a paper tiger. It is stealing our technology, our science, and our intellectual capital by reams and bounds because it lacks the people, the brains, and the capitalistic incentives, and the freedom that produces these elements.
Louis Jenkins| 8.8.11 @ 8:37AM
One gets the distinct feeling that the markets do not like the "deal" tacked together by the DC crowd. Businesses do not like Obama economics-the truth plain and simple. Hope and Change are just that, a slogan that has gotten Obama no where.
simon templar| 8.8.11 @ 9:56AM
First, I do not give rats ass when the sky falls relative to congressman's career or reelection. I care about the economic damage to my wealth and MY NATION! Second, The "liberals", or whatever they are now calling themselves, are getting EXACTLY what they have been seeking...another gigantic crisis whereby they can justify transformation and gigantic overearch of government to fix the problem that 'capitalism has wrought' and the opportunity to advance greater government and more socialism. This crisis has largely been manufactured by the policies of a progressive corrupt government and nearly 80 years of agitation and manipulation of the progressive movement. As long as the premise that 'liberals' are somehow earnestly but ignorantly enacting policy that is detrimental but well meaning is accepted, we are doomed. What is it going to take to get it into the heads of people that there are RADICALS sitting in the media, government, and the educational institutions that are hell bent on TRANSFORMING this country to a socialist state and away from a capitalistic constitutional republic? The last democrat and liberal died around 1963.
Bob K.| 8.8.11 @ 10:13AM
A big conspiracy among the Liberal or Progressive or Left Wing (call it what you will) leadership against Capitalism. Correct?
But, some of the biggest capitalists in the world support the Liberal agenda, don't they? Soros, Feinstein and her Husband; Senator Jay Rockefeller from his gated mountaintop in West Virginia, all those billionares from the digital industries on our west coast; Senator John Kerry and his trophy wife, the widow Heinz. All those Hedge Fund Billionaires too. These kind of Capitalists are all over, and you can't count them all; and they want to destroy Capitalism?
I think not.
George True| 8.8.11 @ 11:42AM
You are confusing crony capitalists with business in general and the free market in general. The crony capitalists you named all have a special deal with the government in general or this administration in particular. What do they care if the economy in general is ruined, as long as their future is assured?
Bob K.| 8.8.11 @ 12:50PM
I don't have them confused at all. I know what categories they fit into.
They all have businesses. They do business with different and various entities and they support the people they do business with, and they spend what it takes to make their businesses successful.
It is the movements within the democracy of our Democratic Republic which determine the way they must "play their cards" and then they must play them that way to be successful. This is the essence of successful Capitalism in our country which has not known for quite sometime whether it is "liberal" or conservative.
Like it or not there has been an enormous inflation of bureaucracy in our nation since 1960 or so. This enormous bureaucracy has vast needs and someone has to supply them. Who better than Capitalists to do this? It is no wonder that many of them have gone over to the "dark side."
Have you also considered that there are forces of "liberal" populism in our country that push these "liberal" Capitalists in the direction of "Crony Capitalism?"
pickwick| 8.8.11 @ 2:09PM
You conflate "capitalism" with "free markets". In a Venn diagram, these groups would overlap somewhat, but they are distinctly different things. I would not dispute that the people you name are capitalists, but to use this fact to discredit the efficacy of free markets is ludicrous. Many "capitalists" are perfectly happy to get in bed with big, intrusive Government in an attempt to subvert free markets to their benefit. The ones you cite are generally all pretty good examples of these anti-free market capitalists. They may not want to destroy their version of capitalism, but they are happy to impair a more free market approach to capitalism.
Bob K.| 8.8.11 @ 9:37PM
You cannot find anything in my post where I attacked the efficacy of free markets which I support. I pointed out that it is easier now "in our country" to be successful practicing crony capitalism. Otherwise it appears that we agree. And I agree completely with your last sentence.
simon templar| 8.8.11 @ 8:30PM
I am hoping you are a high school student who just stumbled onto this site and has yet to learn that there are no armchair sociologist and political scientist or economist nor are all opinions on such matters equal.
Your opinions as they are, are so wrought with errors in thinking it is hard to know where to start.
Let us start with this....
"This enormous bureaucracy has vast needs and someone has to supply them. Who better than Capitalists to do this? "
First, this makes an implied assumption that this 'bureaucracy' is a entity seperate unto itself that has needs that MUST be met. We live in a constitutional Republic that is self governed by the will and direction of its people. This goverment does not exist but serve the needs of its people, not the other way around, and it is not there to put demands on capitalists, the people, or the private sector. It does not have needs seperate from the people that must be fullfilled. We determine its needs, its purpose, its reach, its size. Furthermore there is no liberal or conservative capitalism. There is just capitalism. As of 2008, we lived in a capitalistic society. Capitalism is an economic system with specific aspects, features, and elements that of wich define it as capitalism. Free markets, free entreprise, private property and ownership, business law regarding contracts, demand and supply factors, channels of distribution, marketing practices, private investment mechanisms, etc. are not political per se but economic realities. Accounting and finance are not political but techniques or methodologies.
"Forces of liberal populism that push these liberal capitalist to crony capitalism?" Wha?
Please explain how populism would push these capitalist to collude with big government for special favors, favorite status, monopoly control of their industries with gov support, laws that favor them and drive out competition, and laws that restrict new comers and competitive forces... or special gov supported bail outs or gov subsidies? Think about it. You make no sense.
There is some homework for you.
Bob K.| 8.8.11 @ 9:26PM
"This government does not exist but(?) serve the needs of its people, not the other way around, and it is not there to put demands on capitalists, the people, or the private sector."
Right, I couldn't agree with you more. That was the way it was planned but not the way it worked out.
And yes, the bureaucracy has become an end to itself. That wasn't planned either but that's the way it worked out.
"We determine it's needs, it's purpose, it's reach, it's size." Of course we did. How else could it have become the bloated monster it is now?
"As of 2008, we lived in a capitalist society." If that is so how did Obama get elected?
"Please explain how populism would push these capitalist(s) to collude with big government for special favors,.....?" Basically it is because the people want it that way, but I will let Professor John Lukacs, a conservative, explain it to you.
Here is some homework for you: Read his "DEMOCRACY AND POPULISM Fear and Hatred," published in 2004 before we heard of Obama. Only 244 pages.
simon templar| 8.8.11 @ 4:33PM
Yes, you are right...you think, not.
Well, perhaps your grand mind might explain why these so-called 'capitalist' you named are associated with groups and movements that decry capitalism and promote greater socialistic big government, regulation, and control over the economy. Take a look at their literature and what comes out of their mouths on a daily basis. Hmmm. I am waiting.
Gee, just what is capitalism? Is it being rich? Is it owning land and resources? Kings and monarchies, feudal systems had these qualities. They were not capitalist. Gee, if that is the case, then how would you explain the fact that s0-called business owners and corporate entities supported both politically and financially both Germany's and Italy national socialist and fascist parties, both political movements that decried capitalism and democracy?
You really need to do a little more reading before you shoot your mouth off.
Now, that is all for today's lesson, go to your local library and start your education. A mind is a terrible thing to waste.
Bob K.| 8.8.11 @ 9:43PM
"A mind is a terrible thing to waste." The slogan of the United Negro College Fund, and a good one!
Take it to heart. See my recommended reading for you in my answer to your earlier post above.
George True| 8.8.11 @ 11:49AM
As Dan Hirsch said, the deal to raise the debt ceiling is what CAUSED the precipitous market slide of recent days. It is indeed an efficient market. And intelligent, too.
Jack London| 8.8.11 @ 8:01PM
You really do live in an alternate universe, don't you George.
George True| 8.9.11 @ 4:22AM
And you are living is a state called denial. Deny all facts, all evidence to the contrary of what you wish to believe, because it does not fit your hard left narrative.
Pecos Pete| 8.8.11 @ 4:15PM
DJIA at the close = down 633 or 5.54%.
fmm| 8.8.11 @ 4:46PM
Apparently your three year comment refers to the market essentially electing Obama with the financial meltdown crisis which the progressives used beautifully to their advantage, even though their policies caused it.
As for this article, see comment number one.
グッチ 財布 | 8.8.11 @ 10:02PM
You really do live in an alternate universe, don't you George
POST American| 8.8.11 @ 11:30PM
--------------------BOTTOM LINE--------------------
USURY is ABOMINATION
SIN is NEVER STATIC, but
always on the move and
ALWAYS LINKED
Glow-Ball--IST capastone RED China TREASON
is ----REAL
---------THE ABSOLUTE BOTTOM LINE---------
-------------------------AMEN-----------------------------