US markets trended downward all last week, as Congressional Republicans refused to get serious about raising the debt ceiling.
Now, international markets are jittery. And as the August 2 deadline for resolving the issue looms, there is growing concern about a radical response to the political meltdown that occurred when House Speaker John Boehner, R-Ohio, and the House Republican Caucus decided Friday to abandon realistic negotiations to resolve the debt-ceiling standoff.
There is suddenly talk, serious talk, that the faked up crisis created by Republicans who are refusing to allow a Democratic president to do what Ronald Reagan and George Bush did repeatedly—borrow the money needed to pay for spending approved by Congress— could cause a “crunching global recession.”
That’s what a fresh report from the International Monetary Fund describes as the potential playout of a failure to raise the debt ceiling.
“A crisis in the US faith and credit has global implications,” says IMF director Christine Lagarde, who is circulating the IMF report on the “crisis of confidence” that is evolving as an increasingly dysfunctional Congress—in particular, but not exclusively, the Boehner-“led” House—struggles without success to meet even the most basic requirements of economic stewardship.
What had been an absurd political game took a dramatic turn Friday, when Boehner decided to abandon fiscal realism and position himself with the Tea Party fringe of his own party.
As House Minority Leader Nancy Pelosi, D-California, told the chamber Saturday, “The Speaker chose, when he didn’t have the votes, instead of to reach out in a bipartisan way to see how we could work together, he chose to go to the dark side.”
Even when Republicans shouted objections, Pelosi pressed her point.
“Let me repeat,” she continued. “And I repeat: He chose to go to the dark side by putting forth a bill that he himself told his Members [it] would sink in the Senate—and I add, lead to default, lead to default. We cannot default. We are the greatest country that ever existed in the history of the world.”
The instability in Washington has got global markets—and key financial players—spooked.
Lagarde stepped up Saturday and Sunday with a no-holds-barred statements of that concern.
”I am worried because this debt ceiling issue has not been cracked,” the head of the IMF said in an interview with CNN International. “The issue is being addressed from multiple angles but the debt ceiling is still on the table. The US is the largest economy on the world, one that matters, one that has spillover effects, not just around the borders but on a complete basis, globally. And it’s an issue that is lurking in the background of each and every economy in the world, which is why I think there is a very every high level of pressure and tension so that issue can be addressed and dealt with properly with a solution.
Lagarde says she is still hopeful that a catastrophe can be averted. And she may be right.
Negotiations in Washington continued Sunday morning. And there are indications that President Obama’s “Senate solution“—an effort to forge a bipartisan deal on the Senate side and then use it as a tool to split House Republicans and get a responsible mahority in that chamber—might yet come together.
But it is becoming all too clear that the “right-wing nutter” fantasy that the debt-ceiling debate could be gamed for political points is crashing into the prospect of a “crunching global recession.”
Boehner, House majority leader Eric Cantor and House Budget Committee chairman Paul Ryan may not know much about economics. But they should recognize the name “Herbert Hoover.” And they ought to be considering whether they really want to renew the image of Republicans as the Grand Old Party of crashed economies.