In the Wall Street Journal today, Alan Blinder noted about the debt-ceiling fight in Washington, “[M]arkets now assign essentially zero probability to the U.S. losing its fiscal mind.”
That’s clearly true. So far, there’s been practically no negative reactions from the financial industry — at least so far — in the wake of congressional Republicans’ hostage strategy. Why? Because nearly everyone simply assumes that cooler heads will eventually prevail.
Republicans may engage in more than their share of recklessness, but when push comes to shove, the assumption is that they love their country. When push comes to shove, GOP officials won’t create a recession and a global economic crisis, on purpose, as some kind of bizarre fiscal strategy — especially when a simple roll-call vote on a simple bill would prevent the disaster.
Republicans are crazy, in other words, but they’re not that crazy.
And yet, there’s a reason for nagging doubt that these assumptions may be overly rosy.
Several Congressional Republicans, including Sen. Pat Toomey (R-PA), have posited that failing to raise the debt ceiling — and thus forcing the U.S. to default on some of its obligations — would not be bad for the economy. “I don’t think it’s going to have an adverse impact on the economy for the days or weeks or perhaps even months that this would continue,” Toomey said.
These “default deniers” don’t believe that failing to raise the debt ceiling would have the negative consequences that most economic analysts say it will. Radio shock-jock Rush Limbaugh even said yesterday that failing to raise the debt ceiling will improve the nation’s creditworthiness.
Rep. Devin Nunes (R-CA), though, believes that default would cause a “crisis.” But, as he told Politico, he actively wants it to happen anyway.
That’s not a misquote. Nunes said, “By defaulting on the debt, in the short and long term, it could benefit us to go through a period of crisis that forces politicians to make decisions” on major policies that affect the budget.
Something Ezra recently wrote continues to ring true: “The danger in this is that as the rhetoric ramps up, the market may not realize this is all just more of Washington’s fun and games. Brinksmanship runs the risk of misjudging what is the last minute, or the maximum amount of uncertainty, that the market will accept before it reevaluates the American government’s capacity to pay its debts back in a timely and smooth way.”
That congressional Republicans continue to warn against the scourge of uncertainty is an irony lost on the party.