What the Hell is Sen. Kent Conrad smoking? And why it is that he won’t share (c’mon, Senator, don’t bogart that doobie!)? In today’s Washington Post Sen. Conrad enables the hostage taking of the Republican Party by saying that he does not think that the two trillion in budget cuts that the Administration is talking about is enough.
Worse, the Senior Dufus from North Dakota is actually tying these cuts to the Republican threat of not raising our debt ceiling. But don’t take my word for, here is a quote:
Conrad said he would agree to raise the debt limit for no longer than six months without a more serious effort to reduce future borrowing. And he told reporters that he is recruiting like-minded senators to “send a very clear message that some of us are not going to vote for a long-term extension of the debt limit unless there is a credible plan” to reduce borrowing.
This is not the first time that that Conserva-Dem has tried to hijack the raising of the debt limit ceiling. He was instrumental when we had a 59 seat majority in the Senate for holding up the last round of debt ceiling increase. At the time he rounded up 12 Senators and insisted on the creation of the Simpson Bowels Cat Food Commission as the price for their votes.
What makes me nuts about this whole thing is that it has no basis in economic reality. Yes our debt is high, we have been in the worst economic downturn (major recession plus an anemic recovery) that the nation has seen in 80 years, pretty much the life time of the majority of the nation, this tends to lead to higher debt.
However, the cost of borrowing is at historic lows. 3% is not a lot of interest to pay on new debt and the reality is that we need more stimulus not less. That is not just the opinion of a Liberal Blogger, but by someone who would be considered a real authority in such things, PIMCO founder, Bill Gross.
Mr. Gross just put out a prospectus that takes all the lawmakers who are focused on debt to the woodshed. From the TMP article about it:
Both parties, in fact, are moving to anti-Keynesian policy orientations, which deny additional stimulus and make rather awkward and unsubstantiated claims that if you balance the budget, “they will come.”
It is envisioned that corporations or investors will somehow overnight be attracted to the revived competitiveness of the U.S. labor market: Politicians feel that fiscal conservatism equates to job growth. It’s difficult to believe, however, that an American-based corporation, with profits as its primary focus, can somehow be wooed back to American soil with a feeble and historically unjustified assurance that Social Security will be now secure or that medical care inflation will disinflate.
Admittedly, those are long-term requirements for a stable and healthy economy, but fiscal balance alone will not likely produce 20 million jobs over the next decade. The move towards it, in fact, if implemented too quickly, could stultify economic growth. Fed Chairman Bernanke has said as much, suggesting the urgency of a congressional medium-term plan to reduce the deficit but that immediate cuts are self-defeating if they were to undercut the still-fragile economy.
This is a guy who has made his life and fortune on bonds, and even he is saying this “cut, Cut, CUT!” mentality is not only flawed but actively dangerous to the US economy. What is it that this fella that most would expect to be a bond vigilantly wants us to do? Here is what he says:
“Government must take a leading role in job creation. Conservative or even liberal agendas that cede responsibility for job creation to the private sector over the next few years are simply dazed or perhaps crazed…. In the near term, then, we should not rely solely on job or corporate-directed payroll tax credits because corporations may not take enough of that bait, and they’re sitting pretty as it is. Government must step up to the plate, as it should have in early 2009. An infrastructure bank to fund badly needed reconstruction projects is a commonly accepted idea, despite the limitations of the original “shovel-ready” stimulus program in 2009.”
Sounds like something you’d read in these pages doesn’t it?
Besides being just ass-backwards wrong on what the nation needs, Sen. Conrad is also playing really dangerous games, holding the debt ceiling hostage like this. Everyone and their brother from Wall St. to Paul Krugman to the Secretary of Treasury has said that defaulting or even coming close to doing so would be a catastrophe. Today the ex-Chief Economist for the IMF ,Simon Johnson, weighed in as well. He said:
“It would be very damaging, there’s no question about that,” Johnson said of a debt ceiling default. “It would really destabilize financial markets and lead to all sorts of unpleasant repercussions in the United States and around the world.”
Which is pretty much what everyone else has said, as well. The reason that it could be so devastating for the planetary economy is that U.S. Treasury bonds are the basis of planetary lending. They are, currently, considered the safest investment in the world. The full faith and credit of the United States has never been anything but money in the bank, but that would quickly erode if default for even a day on our debt.
The follow on effects are hard to exaggerate. The cost of our debt would suddenly be much higher, the teetering economies in Europe would be devastated. Our currency would plummet and that added to the higher cost of borrowing would push inflation into overdrive.
The real insanity here is that it would be a self inflicted wound. We can continue to limp along without a new stimulus. It will be incredibly painful for all but the top 1% of earners (you know, the folks who earn more than 20% of the total income of the nation) but we could probably get by. However if we play Russian Roulette with a pistol with six bullets in it, which is what failing to raise the debt ceiling effectively is, then we will put ourselves in a position where there are no good outcomes, for decades.
This is what our pal and soi-disant economic savvy Sen. Conrad wants to play with. He is a prime example of an ideologue. Even as he plays with fire he is giving cover to Sen. Mitch “Box-Turtle” McConnell’s horrible idea of extending the debt ceiling for only six months or so, while the two of them extort more draconian cuts out of the Obama Administration and Congressional Democrats.
As a life long Democrat I completely get why Progressives and Liberals are disgusted with the party. When people the leaders on economics are aiding and abetting the Republican hostage taking, when they are talking about continuing this extortion and keeping our creditors in a constant state of agitation about the credit worthiness of our nation, when those same leaders are talking about massive cut to programs that help the middle class and the working and unemployed poor, then it is not hard to understand the feelings of betrayal and abandonment.
If the price for electing Democratic Senators from conservative states like North Dakota is people like Kent Conrad, then I am think that price is too high. He and Ben Nelson and our caucus mate Joe Lieberman have done more to water down and derail any Liberal agenda in the Senate than Sen. McConnell ever has.
It seems to me that it might be time to tell Sen. Conrad that his opinion is not valued and that if he is really so comfortable with the policies on the other side of the isle, then he should just make the change and take his chances with a Tea Party primary challenge. Since Republicans are blocking our nominations anyway, cost benefits of having him in our caucus does not look that favorable.
The floor is yours.