Is the week-old debt ceiling deal now dead? Will the new promise to cut federal spending by $1.2 trillion over ten years be understood as woefully inadequate? And will conservatives find new political power to force deeper spending cuts?
The events of the last few days may have triggered a sea change. And the catalyst came from Wall Street: Black Monday, August 8, 2011.
We may now be seeing the lowest point in the Obama presidency. Veteran pollster Larry Sabato tweeted during the president’s address Monday: “Obviously this is Obama’s low point.”
President Obama has always had an ambivalent relationship with business. He happily accepted a record amount of campaign contributions from Wall Street. Goldman Sachs employees gave more money to him than any other donor. His White House staff recruited General Electric’s Jeffrey Immelt to join an advisory board.
But in general Obama has been hostile to business. Early on in office he declared open warfare against corporations. His staff declared war on the Chamber of Commerce. His economists hailed from academia and had no experience in writing a financial statement, meeting a payroll, or generating a profit. His regulators followed their anti-business instincts and were given the green light to pummel small, medium, and large businesses.
In the end, the issue of creating wealth in America was some sort of intellectual, textbook exercise. Wealth was bad and the cause of all of society’s problems.
The only time there was a flash of reality about economics was when the Labor Department released its monthly jobless statistics, which have been grim.
For the worker party, that is the Democratic Party, this is troubling. It also is important because many of these people out of work can vote.
So it is interesting that at last the sleeping giant — investors — woke up. These include seniors and young entrepreneurs, people with 401 (k) accounts, and corporate titans. And when they did, they roared. Home Depot co-founder Ken Langone recently underscored America’s antipathy toward Obama’s business hostility, complaining: “He is dividing us as a nation. He’s not bringing us together. He’s willfully dividing us. He’s petulant.”
But few inside the presidential bubble — including the president — could see that eventually economies can break. Regulatory and legislative strangleholds do have consequences.
While in the bubble, the president and his Democratic allies ignored last April’s warning from Standard and Poor’s. The idea of a sovereign debt downgrade was intellectual and a theoretical concept. It had never happened before. The president decided never to issue his own debt reduction plan. He ignored his own debt commission’s recommendations. He declared jihad against Rep. Paul Ryan’s debt reduction proposal. He ignored the bipartisan Gang of Six group that offered serious cost-cutting suggestions.
As a result, for the president this fight over the debt ceiling was merely another political fight like that over ObamaCare. It did not have real-world consequences.
Then came Friday. On Friday, Obama became the first president in American history to preside over a sovereign debt downgrade. Then he went strangely silent for the entire weekend. His only reaction was to send out his Treasury secretary to savage the S&P report. On Monday morning, his press office finally announced there would be some remarks.
While Wall Street tanked, all the cable networks keyed into his speech. The market had dropped 300 points. But the speech was delayed for more than an hour. Most anchors apologized for the delay. Then speculation grew. Why was there a delay? Was there a staff disagreement? Political infighting? Chaos?
When he emerged, the president appeared angry, as if there had been a nasty exchange within his office. He gave a cliche-ridden speech. There was no substance, only the repetition of worn slogans. He did seem partly in denial that a downgrade had actually occurred. He said defensively, “No matter what some agency may say, we’ve always been and always will be a triple-A country.”
During his remarks the Dow plunged more, breaking below 11,000. By the end of the day, Wall Street repudiated the president with a 634 point sell-off.
Now of course the president may still remain on auto-pilot and continue to complain about corporate jets and millionaires and billionaires. But for the moment, events may be moving well beyond the control of his political spinmeisters and mega-fundraisers.
In the near term, the most tangible change could be the death of the debt deal. The Wall Street fear factor is so palpable that it may force lawmakers, particularly Democrats, to rethink their original position on spending and cutting — that is, if they wish to save their political skin.
The fear may spread to the political class. Monday’s market bloodbath is sending a deeper warning that there is genuine trouble in the land. A real financial crisis is underway. And it’s not Bush’s crisis. It’s Obama’s. And the crisis is not about to happen in far off 2021. It’s here now.
Right now politicians of all stripes who want to save their political skin probably are retooling their messages. And those in the White House are sure to be in panic mode. Even the New York Times has discovered the term “double dip” in its lexicon. On Monday, the Times conceded that not only could there be a recession, but it could be deeper than Bush’s: “If the economy falls back into recession, as many economists are now warning, the bloodletting could be a lot more painful than the last time around.”
In the short term, it may derail the congressional super committee’s modest plans to reduce the debt. Congress is mandated to come up with at least $1.2 trillion in cuts by November. The group of six Republicans and six Democrats from the House and Senate will make up the so-called super committee. They will be empowered to cut domestic and defense spending. But there is nothing to prevent them from going deeper.
To avoid a further credit downgrade, Standard and Poor’s has notified Washington that it had to cut spending by at least $4 trillion over a ten-year period. President Obama and congressional Democrats agonized over those kinds of numbers. In the final deal there were $2.7 trillion in cuts.
Senator Tom Coburn (R-OK) said the debt deal was a sham: “In spite of what politicians on both sides are saying, this agreement does not cut any spending over 10 years. In fact, it increases discretionary spending by $830 billion.”
Conservative Rep. Jim Jordan (R-OH), chairman of the House Republican Study Committee, also rejected the deal. He warned the deal would not stave off a credit downgrade. He decared before the House vote, “Our AAA credit rating remains at risk.”
Now the pendulum may swing in Coburn and Jordan’s favor.
In a strange way Friday’s downgrade and Monday’s crash may have been good things. Maybe Washington needs a scare that $16.5 trillion in debt really is a bad thing. Rep. Blake Farenthold (R-TX) noted that the new super committee may be forced to dig deeper than $1.2 trillion. He concluded on Monday: “Anything that encourages the new committee to get the job done and get us back on a rational fiscal path is a good thing.”
But in the long term, Black Monday, August 8, 2011, also may mark the end of the Obama presidency — and the end of the liberal/progressive wing of the Democratic Party.