Today's economy

A grand experiment

By Kevin Press,

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I’ve lost count of the number of times commentators have paused during debates about the U.S. debt ceiling and asked: “Can you believe we’re talking about this?” Is it really possible that the White House and Congress will fail to reach a deal to increase the debt ceiling, that self-imposed limit that has been raised 77 times since its institution in 1917? Really?

Our astonishment comes from years of watching politicians make the compromises necessary to get things done. There’s nothing wrong with campaigning to your base (be it left or right wing), but seasoned politicians understand the importance of governing pretty close to the centre. Of course, the leadership of both the Republican and Democratic parties get this.

Appearing on ABC News’ This Week with Christiane Amanpour, Treasury Secretary Tim Geithner echoed what a lot of us believe about the fundamental reasonableness of U.S. political leaders: “[T]hey’re going to pass a debt limit increase,” he said. “Speaker [John} Boehner, Senator [Mitch] McConnell have said unequivocally that this country will not default, we will meet our obligations.”

My own optimism was based on this same assumption. The leadership of both parties recognizes the risks involved in a technical default or even a rating downgrade, so they will find a compromise.

But look at what Geithner said next: “The problem is, they have a vocal, loud, frankly, irresponsible minority in their parties who … want to take this country to the edge of default.”

What’s unique about this negotiation process is that House Speaker Boehner, Washington’s senior Republican, may not be able to convince the Tea Party members of his caucus to accept a debt limit increase. Without their support, legislation isn’t likely to pass.

Traditionally, party leaders like Boehner have been able to ensure support for key pieces of legislation among members. This is part of a functioning democracy.

We will soon learn whether or not Boehner has that kind of power. After coming close to an agreement with President Obama that included spending cuts and tax increases (the so-called grand bargain), Tea Party representatives refused to support the deal. Having appeared to win the tax hike debate, they’re now refusing to accept a debt limit rise without sufficient cuts in government spending.

Some Tea Party members won’t even consider a debt limit increase, period. Listen to Mark Meckler, co-founder of the Tea Party Patriots on CNN last night. “We say don’t raise it,” he said. “We are not looking for compromise, we’re looking for cuts.”

Given that technical default appears to be just a few days away, this position accepts both a default and a credit rating downgrade as the cost of making genuine U.S. government reform a reality. Whether or not this will do the country good in the long term remains to be seen.

Meantime, I’m afraid Washington has chosen a very grand experiment over its grand bargain. Hang onto your hat.

When was the last time you reviewed your personal economic plan? Talking with your advisor can help ensure you’re on track to meet your financial and retirement goals. Don’t have an advisor? Visit Sun Life Financial Advisor Match to help you find one in your area.

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