Capital Markets

By Louis S. Barnes                                                          Friday, October 11, 2013

     Thursday's explosive market reaction to a potential Shutdown resolution demonstrated perfectly our national tension. Final resolution will get a similar reaction: a relief surge in stocks, a brief rise in rates, and then a new wait to see how much damage the fiasco has done to the economy.
     We wondered here last week if the vacuum of economic data meant that September did not take place, and now we have confirmation: it did not. Reports are not just suspended, so is the data collection itself. October also may be a hallucination.
     The very limited private data is reassuring: the NFIB small business survey for September was unchanged, and in a minor miracle the University of Michigan consumer confidence measure slipped only from 77 to 75.
     Janet Yellen! Come on down! On the way to senate confirmation she must endure gnawing by Lefties who want more blood from the bank turnip, and by deeply foolish Righties who wish to shackle the Fed and unleash markets. The latter group also believes that "price stability" involves fighting inflation only, and cannot comprehend the deflation hazard following a free-market credit meltdown. Yellen will do very well.
     Then, the Shutdown.
     At this hour the situation reminds me of James Thurber's short story, "If Grant Had Been Drinking at Appomattox."
     Mr. President, we're here to surrender.
     "What's that? Speak up!" Some of us want to give up. About half. For a while.
     "Well, then, surrender. Get on with it. Raise the debt limit, promise never again to use it to hold me hostage, and begin to negotiate with me. I like negotiating. Sit quietly for six hours while I explain the error of your ways and then agree to do as I say. Or I'll talk some more."
     If we agree, our own people will shoot us, but your proposal is worse than death. A fig leaf of some kind…?
     "Unconditional. I lecture, you sit and listen."
     It's not really this bad. Possibly worse. But there is a clear path to resolution, paved, well-lit, terrific signage. The National Commission on Fiscal Responsibility and Reform. AKA Bowles-Simpson. In Alan Simpson's judgment, "The only way to get this job done is to harpoon every whale in the ocean." Un-Green, but perfect wisdom.
     In early 2010, pre-occupied by creating ObamaCare, Mr. Obama punted the budget deficit to the Commission. The 14 members could not agree, but the two, fine chairmen did and issued a report in December 2010 which stands as one of the best documents in US history.
     www.fiscalcommission.gov: establish an upper limit for government as a percent of GDP (24% sliding over 15 years to 22%, roughly the same services as government provides today, a little higher than post WW II average), then fund it, requiring a boost in tax revenue from 18% of GDP (post WW II average) to 21%, and the small resulting deficit over 25 years would reduce national debt from about 80% of GDP back down to the safety zone of 35%. Reduce tax bracket percentages, but increase net dollar paid by higher-income earners by closing all tax freebies, and reduce future spending by raising the retirement age, and means-testing all payout goodies.
     Upon delivery Mr. Obama gave a cursory, impolite "thank you" and ash-canned the deal. Democrats have made a living for 80 years by increasing the size of government and "paying bills" by borrowing. That is not "paying bills" -- it is deferring them. Utterly phony propaganda from a bunch of debt junkies.
     The Republicans were worse. Self-anointed saint Paul Ryan, seated on the Commission voted "no" on the report. To insist that government shrink and the greatest sacrifice be borne by the least of our brethren, by chopping social support? That transcends addiction. That is immoral, disgusting.
     If Mr. Obama tomorrow embraced Bowles-Simpson and devoted his remaining term to enactment, we'd add him to Mount Rushmore.
     As it is, everything somebody else's fault… the sickly sweet scent of decadence.