Why We Are Headed Toward Default . . . and Why It Matters

As continuing political turmoil freezes action in Washington, both the general public and investors are showing their concern. Seems we understand that this is serious business, even if some Republican members of Congress seem to think it isn’t.

Whether the financial world caves in if the Congress and the president don’t reach agreement on raising the debt ceiling, I don’t know. I do know that the most recent evidence from the sale of short-term U.S. debt indicates that we already have started to pay a price for playing on the edge of this particular precipice. That’s all of us, Republicans and Democrats alike. When the cost of borrowing (which, like it or not, the U.S. government must do, at least for the foreseeable future, even with incredibly drastic cuts in spending that Americans wouldn’t like) rises, all of us are effectively taxed.

There’s a lot of “blame game” going on, and the recent Pew Center poll indicates that Republicans in Congress are bearing a meaningfully higher percentage of the blame . . . but nothing like a wholesale majority rejection of their approach. Indeed, Republican voters tend to blame the president, and Democrats tend to blame the Republicans in Congress.

You might say, “What a surprise!”

But this obvious truth is more important than one might think. Because the core group of House Republicans who are one pole of this political field in which we are trapped come nearly universally from safe, conservative Republican districts.

In other words, they will not pay a political price in any way for sticking to their guns all the way over the default.

Democrats might. Republicans from swing districts might . . . but many of them are more fearful of an attack in the primaries from a Tea Party-backed opponent than they are of a Democratic challenger . . . and quite possibly rightly so.

So compromise . . . why would the core Republican block in the House compromise?

More to come


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