With his approval rating moving up to 50 percent and higher in some polls, the pundits are all agreed. President Obama has turned the corner. He is now the winter-book favorite in 2012.
How, two months after his “shellacking,” did he do it?
First, by taking the wheel from Nancy Pelosi and Harry Reid, cutting a deal to extend the Bush tax cuts, bringing aboard Bill Daley, and separating himself from the demonizers of Sarah Palin and Glenn Beck as moral accomplices in the Tucson massacre.
Second, Obama has been the beneficiary of bullish news.
Corporate profits are coming in higher than expected. The stock market has surged. Nine of 10 economists surveyed by USA Today are more positive about the economy than they were three months ago. The ratio of businesses that anticipate new hires over businesses that anticipate new layoffs has not been better in a decade.
There is a feeling that at last we are coming out of the Great Recession.
But has the debt bomb really been defused?
On Jan. 20, The New York Times had two front-page stories that ought to concentrate the mind.
“A Path is Sought for States to Escape Their Debt Burdens,” was the headline over the first, which reported that bankruptcy lawyers were being consulted by congressional aides on how states like California might go into Chapter 9, “leaving investors in state bonds … possibly ending at the back of the line as unsecured creditors.”
Illinois, the story said, might, with federal help, do what GM did.
But GM bondholders were wiped out, as some of us know all too well.
Should states win the right to seek bankruptcy protection against their state bondholders, the $3 trillion municipal bond market, which has lately been taking hits, could crater.
The second Times story wrote of a rebellion in the House Republican Study Committee by conservatives and Tea Partiers who think the leadership is being too timid in cutting this year’s budget.
Rep. Paul Ryan & Co. want to cut $60 billion to $80 billion. But, says, Mick Mulvaney, a freshman from South Carolina, “We want more.” These conservatives want $100 billion cut from discretionary programs.
Among their ideas: a five-year freeze on federal salaries, a 15 percent cut in federal employees, a rollback to 2006 spending levels, $300 billion in long-term funding cuts from such programs as foreign aid, Amtrak, public broadcasting and the Washington, D.C., subway system.
As the Tea Partiers’ proposed cuts do not touch the military, Medicare, Medicaid, Social Security or interest on the debt, the biggest budget items, slashes in transportation, education, domestic security, law enforcement and medical research, said the Times, “would be nothing short of drastic.”
Undeniably. Yet, consider.
The federal deficit for the fiscal year 2011, which ends Sept. 30, is projected at between $1,200 billion and $1,500 billion.
Thus, the $100 billion in cuts the firebrands are pushing, and few think they will get, add up at best to 8 percent of the deficit and 2.5 percent of the $3.87 trillion budget Obama proposed.
Thus, at best, this Congress will only slightly reduce the rate of speed at which we are heading toward a debt default.
The last few days have brought other news bearing on the debt bomb hanging over the Western world.
The Irish, upon whom austerity has been imposed as a condition of an EU bailout, saw their government fall this weekend. Elections are in March, and the ruling Fianna Fail, at 13 percent approval, is expecting a wipeout.
Will the Irish accept endless austerity, or vote for populists who will default and let EU governments and banks take the hit?
Should Ireland default, she will not be the last to do so.
Also this weekend, the European Central Bank chief warned that inflation in the global economy — the rising prices for oil, food, minerals and precious metals — may mandate a rise in interest rates. That would be bad news for bondholders and governments everywhere, including our deeply indebted states that now borrow to cover operating costs.
Then there is the crisis in the housing market that continues to deepen.
”All previous postwar recoveries,” writes Mort Zuckerman, “have been able to depend on a growing U.S. housing market.”
But 8 million homes are today in foreclosure or their owners are delinquent in their mortgage payments. Some 5.5 million are occupied by families whose mortgages are at least 20 percent higher than the value of the property, making them prime candidates for foreclosure.
This weekend, Bank of America reported fourth-quarter losses of $1.6 billion and a 2010 yearly loss of $3.6 billion. Its credit card unit took a $10 billion write-down, and its home loan business is still reeling from the fallout of the exploded housing bubble.
Now, facing trillion-dollar deficits as far as the eye can see, House Republicans are balking at agreeing to raise the debit limit of $14.3 trillion, though the national debt just crossed the $14 trillion mark.
Are the happy days really here again?
Patrick J. Buchanan [send him mail] is co-founder and editor of The American Conservative. He is also the author of seven books, including Where the Right Went Wrong, and A Republic Not An Empire. His latest book is Churchill, Hitler, and the Unnecessary War. See his website.