The US Default: Whose Fault?

It’s simple to figure this out. The Democrats are making deep concessions. The Republican leadership is working to find a way, but hasn’t made concessions as deep as the Democrats have offered. The Tea Party crowd is refusing to make any kind of deal at all. If August 3 shows up and the USG can’t mail out checks that day, blame the Tea Party.

Yes, I want fiscal responsibility in my government. Now is not the time to rip the entitlements completely apart. Tea Party talking heads say that raising taxes in a recession is a Bad Thing for the economy. This is true. But removing government spending is a Catastrophic Thing. We’re not ready for that level of drastic measure. If the Tea Party is serious about fiscal reform, they’ll have to do it gradually and make concessions.

Cutting government spending all at once would remove a bigger chunk of GDP than raising taxes by the amounts suggested. To keep the economy going the way the bankers would like, the Treasury and Fed will have to do QE3 in a highly flagrant way. The Tea Partiers break out in a rash when they hear “inflation”, but that’s what they’ll have if spending is cut. If they somehow got their wish and kept the money supply where it is, we’d have a complete crash, thanks to a liquidity collapse.

It’s basic economics, but ideology blinds the Tea Party the same way it blinded the Communist Part of China when it started the Great Leap Forward. Ideology ruined a nation before, and it can ruin one again. When the US defaults, I’ll blame the blind ideologues in the Tea Party.

2 thoughts on “The US Default: Whose Fault?

  1. LEJ

    A pretty good summary of the issue….I’ve been struggling to come up with a way to describe how we have choices betweeen bad and worse, and this does it perfectly.

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