Is the world headed for a debt crisis to dwarf the one that befell us in 2008, when Treasury Secretary Hank Paulson stood aside and let Lehman Brothers crash?
No one knows for certain. As Yogi Berra said, “it’s tough to make predictions, especially about the future.”
But the probability of a financial crisis increased this week after President Obama’s trashing of Rep. Paul Ryan’s deficit reduction plan as dragging us all back to the Dickensian days of “Oliver Twist.”
For the savagery of Obama’s attack persuaded Standard & Poor’s to begin to move to downgrade U.S. sovereign debt from the triple-A rating it has held since Pearl Harbor.
The British newspaper The Guardian wrote of the dramatic news:
“With the political infighting between the Republicans and Democrats on the deficit now so bitter that there was a risk of the US government being shut down earlier this month, S&P said it had taken the decision to change its outlook because ‘the path to addressing these issues is not clear to us.'”
“We believe there is a significant risk,” said S&P credit analyst Nikola Swann, “that congressional negotiations could result in no agreement on a medium-term fiscal strategy until after the 2012 congressional and presidential elections.”
Obama adviser Austan Goolsbee challenged the S&P rating and rationale behind it. “They are saying their political judgment is that over the next two years, they didn’t see a political agreement. … I don’t think that the S&P’s political judgment is right.”
But the S&P’s projection of gridlock got support this week when two polls showed that the nation is much closer to Obama’s resistance to Ryan’s plan than it is to Ryan.
A Washington Post-ABC News poll found 78 percent of Americans oppose cutting spending on Medicare to reduce the deficit, and 69 percent oppose cutting Medicaid. Obama’s plan to raise taxes on couples earning $250,000 a year or more wins the support of 72 percent of voters.
A McClatchy-Marist poll found 2 in 3 Americans favoring raising taxes on those earning more than $250,000 but 4 in 5 voters opposing cutting Medicare or Medicaid.
Obama’s position is in sync with three-fourths of the nation.
Why would he retreat from this unassailable high ground to seek a compromise with a hugely unpopular Republican proposal? Why not pound the Ryan Republicans remorselessly as defenders of the rich and slashers of the social safety net if America agrees with you?
Obama may have found an issue to save his presidency.
He is today upside-down in every national poll. Many more Americans disapprove of the job he is doing than approve. Why would a president who has lost the support of half his country surrender a strong position that three-fourths of his country agrees with?
Democratic allies on Capitol Hill would regard this as madness.
What of the Republicans who appear today to be on the wrong side of the deficit reduction debate? Will they look at these polls and say, “We must stop trying to reform Medicare and Medicaid and move closer to Obama and impose higher taxes on successful Americans”?
To ask the question is to answer it.
Should Republicans revert to their venerable role of pre-Reagan days — the tax collectors for the welfare state — what would be the argument left for the existence of the party?
Not only does S&P’s grim assessment of the prospects for U.S. deficit reduction seem sound. News from across the pond points to a fast-approaching day of reckoning in the financial world.
European investors are now demanding and getting 22 percent interest on two-year Greek bonds. And with Greek debt at 150 percent of its gross domestic product — the same as Zimbabwe — the question is no longer whether Athens will default, but when, how and what will be the losses to European citizens, banks and governments who hold Greek paper.
Will Greece be the only domino to fall, or will Ireland and Portugal follow and the contagion spread across Europe and leap the Atlantic?
What makes this appear more imminent was the triumph this week of a Euro-skeptic and ethnonationalist party, the True Finns, which vaulted from five seats in the Helsinki Parliament to 38 and will almost surely be in the new government.
High on the True Finns’ agenda: tougher terms for any bailout of Portugal and using Finland’s EU veto to kill Angela Merkel’s plan for a super-bailout fund after 2013. Like other northern Europeans and even Germans in Merkel’s party, the stolid Finns are sick of subsidizing the self-indulgent deadbeats of Club Med.
And here is where the risk to Obama comes. Playing off Ryan may be smart short-term politics, but if the world financial system were to come crashing down — in part because of the absence of a U.S. deficit deal — no one would blame Paul Ryan.
The Herbert Hoover of that depression would be Barack Obama.
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.