I'm Hoping The Republicans Shoot The Hostage

People are getting nervous about the GOP's refusal to go along with an increase in the debt limit that also includes higher taxes. The GOP is acting as if they are in a position of strength and that the Federal Government's finances are a hostage:

If Congress fails to raise the national debt limit by early August, the Obama Treasury Department will have to choose between defaulting on obligations to the country's creditors -- triggering higher interest rates and perhaps damaging the country's credit rating for months and years to come -- or freezing outlays to contractors, entitlement beneficiaries and others who are also expecting prompt payment as well. In either case, the macroeconomic impact will be staggering, according to Zandi.

"I think we go into recession and my forecast would be blown out of the water," he said. "I think if we get to August 2nd and there is no debt ceiling [increase] and there has to be significant spending cuts, I think even if Congress and the administration reverse themselves days later, I think the damage will have been serious and we'll probably be thrown into a recession."

Additionally, Zandi noted, "The cost to taxpayers would be enormous, because we would nail tax revenue and spending would increase because of the automatic stabilizers in the budget. So it would be just the wrong thing for the economy and the wrong thing for trying to address our long-term fiscal issues."

The truth is, though, that markets are excruciatingly-sensitive to uncertainty of this order. If the GOP pulls the trigger it will be rich Republican interests that will suffer immediately, and foremost. Remember, it is the rich who are primarily in the stock market in the first place.

Big budget deficits primarily serve the interests of those who want to shield the economy from the costs of boondoggles like the wars in Iraq and Afghanistan. Having the costs abruptly reveal themselves like this does not serve the interests of the Pentagon and its allies.

Democrats, on the other hand, can afford to wait, as Republicans first lose their shirts in the howling gale of calamitous stock and bond market crashes. Serves the GOP right, too, for such stupid mismanagement guaranteed to inaugurate a new recession. A new recession brought about primarily by Republican stupidity (aided by Democratic stubbornness), but for which the GOP will receive 100% of the well-deserved blame.

And it's all pointless anyway. We cannot seriously default on debt, because the Constitution requires us to make good on all debts, whether we like it, or not. It's really not up to Congress to assent to an increase in the debt limit: they are at the mercy of the Constitution, and have to make good on all debt, no matter what it is. Heck, Obama could wave a wand an increase the debt limit on his own authority, because he is as much in thrall to the Constitution as they are.

The Democrats hold the whip hand here, not the Republicans.

So, GOP, you feeling lucky? Go ahead: make my day!