Deal or no deal?

As the political theatre surrounding the discussions over the US’s debt limit reached new heights this week, I had to remind myself of a few things. One is that while real and substantial issues are being discussed, politicians are also positioning themselves in the eyes of the electorate. Some Congressional seats are coming up for election in November 2011, and Presidential elections are coming up in November 2012.

While the President stated the obvious in a news conference yesterday that “We are obviously running out of time,” we have to note that the time is being used up for at least two purposes. One is the get as much as possible out of Parkinson’s Law that work expands to fill the time available for its completion. Each side knows that it is not going to get all that it wants out of the discussions on the debt limit. So, the incentive to come to a quick agreement between the president and Congress lessens in the hope that time will allow a less bad compromise. The calculation to make is how will the compromises made by currently elected politicians look both in terms of what will work and help the country, but also in terms of what will hurt least in terms of having to face an electorate that will be looking to see how well promises have been kept. One also has to watch carefully and listen attentively to those who are positioning themselves as potential presidential candidates; they are not making their public appearances and utterances because they think they will be good for their health. A second purpose is the effect of brinkmanship–the various forms of political games that are being played, whether they are akin to poker, or chicken, or bridge, or spin-the-bottle.

The landscape for discussion about the debt limits keeps changing. Each side is involved in separate or joint meetings and press conferences and have many opportunities to ‘meet the press’ and ‘impress the people’. Last weekend it seemed we were close to a deal. Then that was dashed. This week we have had more open confrontation over various proposals that has involved some notable rebukes such as President Obama saying to House Majority Leader Eric Canton “Eric, don’t call my bluff. You know I am going to take this to the American people.”  The President then walked out abruptly from the White House meeting with Congressional leaders.

We know that we are fast approaching the key deadline of August 2, when the federal borrowing mandate will expire and the US government may face the prospect of not being able to meet its bills. Will that date arrive with no deal? I think it highly unlikely, given the many dire consequences about which we have been warned. So, the politicians have to use as much of the available time to try to make themselves look good in the eyes of their supporters, sound sincere, and try to make their opponents look bad or at least cast doubts in the minds of some about voting for them.

In terms of real debt limit issues, the bulk of the population has to hope that a deal will be struck and that the possible ripple effects of a US federal government default do not cause a financial tsunami passing through almost every American community as it becomes clear how the various layers of government are tied closely to actual funding that comes from the federal government and how many aspects of life that involve credit are tied to the price the federal government has to pay on its debt (see Ezra Klein’s article in today’s Washington Post about the linkages between federal government borrowing and the rest of the economy).

The public can also contemplate what it may mean for the US to lose its stellar AAA credit rating on its government debt if the threat of downgrades that surfaced this week from Moody’s and Standard and Poor’s come to pass. Whether the US government likes what the rating-agencies may be doing may not matter too much if investors react to the threat and even the reality of a downgrade.

So, I will follow the advice given by a friend this morning to maintain a positive disposition regarding the outcome of difficult negotiations. I will also keep my eyes focused and ears more attuned to what the theatrics are telling me about political positioning.


About The Grasshopper

Professional international economist, recently retired from an international organization. I use blogging as a way of organizing my ideas and thoughts about a range of topics. I was born in Jamaica, and spent many years being educated, living, and working in the UK. I lived in the USA for a few decades, and worked and travelled abroad extensively. My views have a wide international perspective. Father of girls. Also, married to an economist.
This entry was posted in Bureaucracy, Economics, Financial markets, Government, Human relationships, News, Politics, Public policy, US economy, World economy. Bookmark the permalink.

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