The Deal, aka, the Bad Deal

As of 7:30PM PDT there was supposedly a deal between Obama and the Republican leadership on how badly to hammer the economy with massive budget cuts during what Paul Krugman is calling the Lesser Depression, to distinguish it from the Great Depression. The "Lesser" is quite bad enough already. And this deal, if enacted, will make it worse.

To start off, I hope that the Progressive Caucus in the House can round up enough votes to kill this deal. That would force Obama to use other methods, such as coin seigniorage (coining trillion-dollar platinum coins, basically) and his 14th Amendment obligations to keeping the federal government meeting its legal obligations. I'm as confident as the bond markets that this would work. If Obama is such a pushover for the Republicans, the Progressive Caucus should show they can be just as pushy as the Reps.

Speaking of Krugman and the bond market, he notes an important fact that helps show how the panic around the debt ceiling was largely contrived in When People Pay You To Take Their Money 07/31/2011. Inflation-adjusted interest rates on both the 5-year and 7-year Treasury bond has turned negative. That means, as his post title indicates, that investors are willing to take a small loss on their principal for the safety and security of US Treasury bonds. Which means that even in the last days of the supposedly great drama, bond investors were not worried about the potential for US default to any amount detectable in interest rates. Krugman:

Negative rates at 5 and 7 years; all of 0.38 percent on 10 years. Borrowing to spend on useful infrastructure, or even just to put people to work in ways that enhance revenue down the road, would almost surely improve the long-run fiscal picture. Conversely, austerity now almost surely hurts the budget as well as the economy.

And it will.

While I'm borrowing 30ish labels for stuff from my favorite bloggers, Digby used a play on the New Deal to describe Obama's deal as The Bad Deal Hullabaloo 07/31/2011. Digby's analysis of this whole process has been far more sensible that most we've seen from our professional punditocracy. She was writing before the supposed deal later in the day. But this will likely apply to what they came up with:

For me this isn't a shocking disappointment. I have felt that this whole process was a disaster from the beginning and it really doesn't matter to me if the Democrats eke out a couple of concessions about defense cuts or close a few loopholes "in return" for these cuts. That isn't "shared sacrifice," it's asking the poorest, oldest and sickest among us to give up a piece of their meager security in exchange for the wealthy giving up some tip money and the defense industry giving up a couple of points of profit. It's stripping the nation of necessary educational, safety and environmental protections while the wealthy greedily absorb more and more of the nation's wealth and the corporations and financial industry gamble with the rest.

The idea that they are even talking about this at a time of nearly 10% official unemployment with the economy looking like it's going back into recession (if it ever left) makes this debate surreal and bizarre. To cut the safety net and shred discretionary spending in massive numbers at a time like this is mind boggling. That it's happening under a Democratic President and a Democratic Senate is profoundly depressing.

But it's happening. And sadly, I still think it will be mostly Democrats who end up voting for it.

And by the way, David Plouffe and The President really, really need to stop saying that progressives should want to do this bullshit. It's insulting ... and blindingly infuriating. [her italics; my emphasis in bold]

My immediate reaction is more sad disappointment that fury. But that's in the context of already being disgusted with the Democratic President proposals to cut Social Security, Medicare and Medicaid. My understanding of the deal is that it doesn't include immediate cuts to Social Security and Medicare. But it sets up a so-called Super Congress to try to ram through cuts in those programs and others a year and a half from now.

There's a lot of uncertainty about what the deal contains. And it still has to pass Congress, of course. David Waldman takes a stab at understanding that part of the deal in Troubling thoughts about the 'Super Congress' Daily Kos 07/31/2011. I especially like this part of his post:

Lastly, a thought that's still a little too inchoate to warrant its own bullet point, I'll note that when Members of Congress (and particularly Senators) try to design a procedure for themselves that they hope (perhaps beyond all reason) will actually work, they design one without a filibuster. Last year, when reformers proposed that the rules of the Senate be revised in order to avoid potential catastrophes like this (and yes, we had the debt ceiling in mind, among other things), it was just too kooky to contemplate! What a bunch of idiots those Cheeto munchers are! [his italics]

Finally, Glenn Greenwald is more hopeful than I for some kind of left-right alliance to emerge, maybe some sort of third party. But he's accurate about the cynicism of the Obama White House in Democratic politics in a nutshell Salon 07/31/2011. Progressives, including serious New Deal Democrats, have to find a way to make the Democratic Party leadership more afraid politically of them than they are now afraid of Blue Dog Democrats and Republicans. I'm very dubious about the effectiveness of a third party. But the pro-Social Security, pro-Medicare left has to find a way to run a far more effective inside-outside strategy with the Democratic Party.

Tags: barack obama, debt ceiling, democratic party, digby, paul krugman, paul waldman