The morning after

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By JOE SCARBOROUGH | 7/25/11 1:49 PM EDT

WASHINGTON, D.C.— Aug. 3, 2011

It was a financial storm that even an economics professor could see coming. The debt crisis that had gripped Washington for a month came to a sudden, horrifying climax that left America’s economy looking like a nuclear wasteland. Credit markets suffered life-threatening seizures as the stock market dropped a staggering 25 percent. U.S. Treasuries plummeted as Moody’s and Standard & Poor’s downgraded the United States’ credit rating — instantly adding trillions of dollars in interest costs to the national debt. Only gold was on the rise, and its price exploded past $2,000 an ounce.

European markets reacted with understandable alarm while shock waves raced across Asia despite the early morning hour. China remained still, issuing little more than bland assurances, while its leaders quietly relished the fact that the United States of America had undermined its economic standing in a way that the Middle Kingdom could never have done on its own.

The threat of exploding interest rates on home mortgages, cars, student loans and credit cards caused growing concerns. But it was the gutting of 401(k)’s and pension programs that would soon stir panic. Camera shots of citizens lined up outside banks, credit unions and Social Security offices caused commodity prices to collapse less than 30 minutes after those images began flickering on CNBC — and more than a few news commentators drew parallels between the chaos of this day and the early morning hours after the Sept. 11 attacks.

President Barack Obama went before TV cameras to try to calm Americans. Despite his shaky on-air performance, the president’s message was convincing and explained why the overwhelming majority of Americans surveyed in an overnight Gallup Poll blamed Republicans for the financial catastrophe that had quickly brought the world’s largest economy to its knees.

Obama began his short speech by quoting another president.

“Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations.”

The president paused for effect while Treasury Secretary Timothy Geithner and Federal Reserve Chairman Ben Bernanke stood beside him and watched.

“Ronald Reagan said that 24 years ago. It is time that Republicans running the House today follow the 40th president’s wise advice and do the right thing.”

With that, Obama, Geithner and Bernanke left the Rose Garden and walked back into the White House. For the next hour, markets continued to drop. By late afternoon, the New York Stock Exchange and NASDAQ took the extraordinary step of closing their markets.

But the damage was already done. In a day’s time, America’s credit rating had collapsed, the dollar had fallen into disrepute and the life savings of millions of Americans had been wiped out.

Inside the office of the speaker of the House, Jamie Dimon and Jeff Immelt joined Geithner and Bernanke to explain in the bluntest terms possible the stakes that lay before John Boehner’s Republican caucus.

Bernanke summarized their positions.

“Mr. Speaker, this Congress can either pass a long-term deal tonight to bring sanity back to the markets or can expect to face unimaginable economic consequences in the morning.” The Fed chairman stood up to leave but left Boehner with a final jab. “There is no Plan B. Not after Congress’s performance today.”

Boehner glanced over Bernanke’s shoulder to see breaking news on a bank riot in St. Louis. Another screen showed a late-night protest at a Richmond Social Security office. The image of a burning LAPD squad car seemed to be running on an endless loop on Headline News while a commentator was shouting about the “riots caused by the Republicans.”

The speaker knew his caucus was cornered. By the time he entered HC-5 in the bowels of the Capitol complex, most members sensed they were on the wrong side of an epic political rout. By late July, House Majority Leader Eric Cantor had realized that his future in national politics would depend on how quickly he could bring this crisis — which many on Wall Street were blaming squarely on him — to a close.

Boehner entered the grim caucus room and went straight to the podium, telling members that the events of the day had made irrelevant any ideological argument. He was finished in a few minutes and then turned the mic over to Cantor, who told conservatives that the only option left to them was to live to fight another day. Only Michele Bachmann and a handful of freshman members delivered impassioned pleas to keep waging their war on Obama. But those short speeches were written more as fodder for future press releases than to persuade fellow Republicans.

The meeting was quickly adjourned with the understanding that Boehner would immediately call a vote to stop the hemorrhaging of world markets by extending the debt ceiling. In so doing, Boehner and his conservative caucus would be giving the president what he had been asking for all along.

The $4 trillion deal that the speaker had once hoped for was now nothing more than an opportunity lost. His party could have had a historic deal to reduce the national debt. His caucus could have made a real difference. Instead, their intransigence crippled America’s economy and clinched the reelection of Barack Obama.

http://www.politico.com/news/stories/0711/59827.html

Edited July 29, 2011 by \

[Mr. Big Dog 10,747]

That's what happens when you elect deadbeats to govern.

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That's what happens when you elect deadbeats to govern.

It hasn't happened yet, to be fair. But it does appear to be the desired end game among some.

[Mr. Big Dog 10,747]

It hasn't happened yet, to be fair. But it does appear to be the desired end game among some.

It's what deadbeats do - incur debts and then refuse to pay them.

[Ban Hammer 14,372]

It's what deadbeats do - incur debts and then refuse to pay them.

there's deadbeats on both sides of the aisle. this is not strictly a republican disaster, although it may serve the agenda of some to blame solely one side or the other.

[Mr. Big Dog 10,747]

there's deadbeats on both sides of the aisle. this is not strictly a republican disaster, although it may serve the agenda of some to blame solely one side or the other.

There's a faction of deadbeats in Congress today and they're all in the GOP caucus. I haven't heard any Democrat suggesting that we should put the US into default. Not one.

[Ban Hammer 14,372]

There's a faction of deadbeats in Congress today and they're all in the GOP caucus. I haven't heard any Democrat suggesting that we should put the US into default. Not one.

they're both at fault for getting us to this point.

[Mr. Big Dog 10,747]

they're both at fault for getting us to this point.

No, they're not. We did not need to be at this point. They could have passed the single sentence piece of legislation weeks ago and we would not be at the brink of default nor would there be any discussion on the creditworthiness of the US. This is a 100% self-inflicted wound and it was neither the Democrats in Congress nor the President that inflicted this wound. It was the Tea Party and their GOP allies. Plain and simple.

[Ban Hammer 14,372]

No, they're not. We did not need to be at this point. They could have passed the single sentence piece of legislation weeks ago and we would not be at the brink of default nor would there be any discussion on the creditworthiness of the US. This is a 100% self-inflicted wound and it was neither the Democrats in Congress nor the President that inflicted this wound. It was the Tea Party and their GOP allies. Plain and simple.

and the democrats had nothing to do with running up any of this debt. gotcha.

[Mr. Big Dog 10,747]

and the democrats had nothing to do with running up any of this debt. gotcha.

Of course they did. To a lesser degree than the self-proclaimed fiscal conservatives. Fiscal conservatives. That's not the issue, though. That's not the crisis.

Edited July 29, 2011 by Mr. Big Dog

[dalegg 143]

By the way (stupid question coming I realize), but why does either side feel there has to be some sort of spending or tax deal to raise the debt ceiling? Don't they submit yearly budgets? Really, can't this argument be had at budget time?

[Mr. Big Dog 10,747]

By the way (stupid question coming I realize), but why does either side feel there has to be some sort of spending or tax deal to raise the debt ceiling? Don't they submit yearly budgets? Really, can't this argument be had at budget time?

You got it. That's where the debate about revenues and expenditures belongs. The debt ceiling is not about authorizing spending and setting revenues. It's about paying the bills that Congress has already incurred w/o securing revenues to cover them. Funny part is that Congress has already passed more in spending for this FY than the debt ceiling supports. By not raising the debt ceiling, they're essentially outing themselves as deadbeats - racking up bills they have no intention of paying.

[Zero Sum 305]

By the way (stupid question coming I realize), but why does either side feel there has to be some sort of spending or tax deal to raise the debt ceiling? Don't they submit yearly budgets? Really, can't this argument be had at budget time?

I would vote for you.

[luckytxn 2,265]

Please. The Socialists will get their huge deficit spending and soon. I have to agree that it has finally come that the credit worthiness of the United States of America is in question. It never had to come to this from a long time ago. We did set another example though for the world when many countries are now in financial disaster. It was America that has brought the world to its knees finally. I would have preferred if we had conquered the world by being a shiny example of not just fiscal responsibility but a beacon of light that we used to have. These two parties have destroyed America's prestige finally.

This could end now if a few more people would go for the status quo and ensure our destruction totally. My hats is off to the few that are hanging tough and demanding fiscal responsibilty NOW.

[dalegg 143]

Please. The Socialists will get their huge deficit spending and soon. I have to agree that it has finally come that the credit worthiness of the United States of America is in question. It never had to come to this from a long time ago. We did set another example though for the world when many countries are now in financial disaster. It was America that has brought the world to its knees finally. I would have preferred if we had conquered the world by being a shiny example of not just fiscal responsibility but a beacon of light that we used to have. These two parties have destroyed America's prestige finally.

This could end now if a few more people would go for the status quo and ensure our destruction totally. My hats is off to the few that are hanging tough and demanding fiscal responsibilty NOW.

But the question is why didn't they demand fiscal responsibility back in March? Only 59 Republican Congressmen voted against the budget back then. Most of the newly elected voted for it.

The budget sucked for fiscal responsibility, and they fought it for a while, but in the end they agreed to it. The time to stand firm would have been back then in my opinion when less was on the line. Did something change between then and now? Was some promise by the Democrats broken?