Free Market Carnivore's Blog

President Obama referred to Washington’s inability to handle the debt limit “crisis” as the government proving “dysfunctional.”

That depends on your perspective.  The conservative and/or disgusted voters who sent a whole raft of lawmakers to, mostly the House, have got to be happy their members are functioning exactly as they were directed  — to not cave in on new taxes and on cutting expenses now.  The main problem becoming evident, even more so than Reid and Pelosi, is President Dysfunction himself.  He has indicated he will veto any bill sent him that doesn’t raise taxes.  Even the left holds a number of Senators and House members who do have to run for re-election next year and they see the “tea leaves” lining up on the side of cutting spending more and more.  Increasingly, the image is of a President on an ice floe drifting away, looking increasingly lonely as he still blames everything on Bush.

Stephen Moore of the Wall Street Journal and Peter Morici, economist at the University of Maryland and former International Trade Commission chief economist had an interesting conversation about the downgrading of U.S. treasury instruments with Martha McCallum on Fox News Tuesday (7/26/11).  Regarding the U.S. losing its AAA rating, Moore said its going to happen regardless of when or what kind of deal gets done in Washington, given the horrendous spending and debt load.  He and Morici agreed that its hard to tell how important the downgrade will be.  It’s not really the rating services that decide.  It’s the investors through the market who decide how much interest they will demand.  Interest rates on T-bills have actually been going down lately, Moore said.

Morici noted that Standard & Poors has outlined a set of requirements to keep our AAA rating that “it’s clear this President is not willing to accept and Congress will not countenance.”

But the saving grace, at least for now, given the world economic situation a la Greece, Spain and Italy, as Moore expressed it is, “If U.S. Treasuries are not AAA, what is?”  He noted that Japan lost its AAA rating earlier this year and nothing happened.

Morici had some tart words for those blaming the economic situation on President Bush.  In 2007, despite two wars and the prescription drug benefit, the deficit was $161 billion.  Then the Democrat Congress, led by Pelosi and Reid took over, Obama came along to help and now the deficit is 10 times that amount annually.  Pelosi-Obama-Reid created this deficit, Morici said.  By comparison, Bush paid for his policies.

Ohio Gov. John Kasich, who was Budget Committee chairman when budget battles happened in 1997, warned that the Republicans need to insist on real front end spending cuts to entitlements, not some promise that a committee will do it later.  He wouldn’t take deals like cutting tax rates for everybody while closing some loopholes off the table too easily.

Fox’s Neil Cavuto asked Kasich about the rumors that even while President Obama is telling Americans that America won’t make its debt payments or threatening seniors with the possibility of no checks, White House officials are privately telling Wall Street types that the debt will be serviced.

Kasich replied the American people don’t like a president who demagogues them about debt payments and scares seniors and then tells bond people they’ll get paid.