Dean Baker says Wall Street won't let Republicans default on debt payments, so Obama should call their bluff:
Wall Street will not let Republicans pull the debt ceiling trigger, by Dean Baker, CIF: The tension is building in the budget talks as the calendar closes in on the August 2 drop-dead date. According to Treasury Secretary Geithner, this is the date where the government would no longer have the money to pay its bills and a default on the debt would be looming.
As many have noted, including me, a default on the debt would be an absolute disaster for the financial system. We would see the same sort of freeze-up of lending as we did after the collapse of Lehman in September of 2008, although this time would almost certainly be much worse. ...
This is why we knew all along that the Republicans in Congress were not serious about their threats over allowing the government to default. While these people might be happy to ... take hard-earned wages and benefits away from working people, and to shove retirees out onto the street, the Republican congressional leadership is not about to cross Wall Street. After all, who pays for the campaigns?
This meant that the Republicans were always going to fold if President Obama didn't cave. The only question was when and how. ...
Of course..., the whole debate over the debt ceiling was silly. If congress wants to cut spending then the way to do that is to send the president smaller spending bills. They can do that any day of the week.
The idea that Republicans in congress were going to force big cuts in the country's most important programs – social security, Medicare, and Medicaid – by taking Wall Street hostage with the debt ceiling is absurd. It was only necessary for President Obama to call their bluff.
The bottom line is that the debt ceiling is a gun pointed first and foremost at Wall Street's head. And, there is no way on earth that Wall Street is going to let the Republicans pull the trigger.
Why hasn't Obama called their bluff? Why hasn't he insisted, for example, that spending cuts and tax increases can be decided now, but must wait until things improve? Why does it suddenly appear that key social programs such as Medicare, Medicaid, and Social Security are not so safe as one might have hoped they would be under a Democratic administration?
Obama thinks this is an historic opportunity to work on what he views as the most important problem facing us right now. That problem is not unemployment, it's the national debt, and a large part of the public agrees (remember that most people still have jobs, an even larger share of voters are employed, most wealthy backers of political campaigns are more concerned with debt than unemployment, and many of the "Very Serious People" in the media have promoted this line of thinking). Obama is willing to take a chance on making things worse in the short-run in order to achieve what he believes would be an important achievement. And in his mind, that achievement requires cuts to programs such as Social Security and Medicare along with tax increases. He's been saying this since before the elections, and it's time to believe that he is serious (and take the appropriate steps in response) rather than hoping it's all a game that will somehow end up working to protect these programs from large cuts.