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The Democrats and a Debt-Ceiling Induced Market Panic

Wednesday, June 22, 2011  |  posted by Hugh Hewitt

Nancy Pelosi is looking at a long winter of irrelevance. She knows her brand is broken, that she remains poison in the voters’ minds, and that many parts of her party wish she would do the decent thing and retire.

But she loved being Speaker, being the big boss, and no matter the utter catastrophe of her tenure, she accepts no responsibility for the fiascos of Obamacare, the stimulus, the vast deficits and Dodd-Frank. She just wants her gavel back.

It would take a miracle to retrieve it. Redistricting is helping the GOP in many places, and where it is hurting the Republicans it isn’t crushing them. No, it will take a miracle.

Or a crisis. In Nancy’s never-quite-rational mind she could easily be equating the fall of 2008 with the best of times, as a market panic destroyed John McCain’s campaign and brought President Obama and Democrats across the country a huge win.

In Pelosi’s “we have to pass the bill to see what’s in it” world, another financial crisis could be just the ticket back to the big chair int he front and center of the room and all that wonderful press attention, and the plane, and especially the deference.

So how to trigger the crisis? Insist on recovery-destroying tax hikes as part of a deficit deal, which the GOP will never agree to and which themselves would deliver another body blow to the jobs picture. But the demand will cause gridlock, and the gridlock a market panic or a GOP collapse. Pelosi and her team know that the Speaker and his team are woeful communicators, and have done little to try to shift the political burden for a fiasco onto the Democrats who still, in the face of rising unemployment and massive deficits, refuse to tackle the toughest issues of spending reduction.

Read Politico’s account of the debt ceiling negotiations all the way through to the end. There’s Pelosi’s last loyalist, Chris Van Hollen, opining this way:

Monday’s meeting at the Capitol dealt with health-care-related expenditures, but revenue was never far away as an issue.

“We’re slogging through some very tough issues. We’re getting in very serious conversations, trying to bear down on some big issues,” said Maryland Democratic Rep. Chris Van Hollen, ranking member on the Budget Committee. “And we’ve also made it very clear that any balanced deficit reduction plan has to include revenue – we got to get rid of the pork barrel and the tax code and special interest spending in the tax code.”

“That’s got to be part of any deficit reduction deal.”

So the Democrats demand what they know the GOP won’t give and which most sane economists know would be a disaster and the GOP says no, and the debt ceiling crisis arrives. The Beltway-Manhattan media elite have been busy defining the GOP as the obstacle to a deal, and the GOP has been doing the turtle-on-its-back imitation again, so the responsibility for the deadlock becomes a GOP rather than a Democratic burden, even though it is the Democrats who are refusing to do what the vast majority of Americans want, which is to deeply cut federal spending.

If a deadlock does develop, and if the markets do panic again as they did in the fall of 2008, Democrats will blame the GOP and the MSM will be a vast echo chamber for the charge. Pelosi will have her crisis and her comeback platform.

But only if the GOP leadership allows this storyline to develop. There is plenty of time to make the case for deep spending cuts, to show the map to the solution and to bring pressure to bear on the Democrats and to expose the demand for higher taxes as insanity. At a minimum the GOP ought to be demanding that Van Hollen and Joe Biden articulate what “revenue enhancements” they are asking for.
Somehow the GOP allowed itself to get talked into a gag rule on the key debates even as the MSM drums out the tax-hike message.

The House GOP remains in the grip of a “don’t communicate” strategy, even after the fiasco of the Continuing Resolutions and earlier bursts of support-killing insider politics. If this falls apart the conference will have to consider shaking up the leadership, but perhaps the leadership already knows that and is preparing a brilliant end-game strategy as we speak.

Or they might be golfing.


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