The Republicans capitulated this week. This comes as no surprise. Resisting the increase in the debt ceiling was a charade.
The debt ceiling was breached in the week of May 17, but that was officially ignored by all. Treasury Secretary Lew set the rules, and Congress played his game. The House for 150 days accepted Lew’s performance: pretending that he had somehow met the law by cooking the Treasury’s books.
There were no calls in Congress for an investigation of his “extraordinary measures.” The capital markets remained stable. Fraud? Of course. It was business as usual inside the Washington Beltway.
Why did Congress let him get away with it? Because the debate was obviously a performance played for the voters back home. “See? We tried. But we just did not have the votes.”
An obvious charade was taken seriously in the media. The media were filled with stories: “Will they or won’t they?”
Their lips said “no, no,” but their eyes said “yes, yes.”
Everyone in Congress knew the resistance was futile, so no one bothered to hammer at the fact that the rule of law in Washington is a charade. The voters back home accepted it. As long as the voters do not care, Congress does not care.
The House had already voted unanimously to pay the returning workers 100% of their back pay, converting the unpaid furloughs into paid vacations. But the federal government ran smoothly without them. There was no crisis.
What was the fight all about? Delaying ObamaCare for a year, we were told. But what would that have accomplished?
Ron Paul appeared on Jay Leno’s show in late September. Leno’s first question was on the shutdown. Will it happen? Paul said no. The people want their goodies from Washington, he said. Congress will fuss and fume, but at the last minute, the ceiling will be raised.
How seriously should we take Congress? Not very.
The public thinks government accounting is irrelevant. The voters think that deficits don’t matter. Congress agrees. The deficits will not be rolled back. They will continue until investors finally conclude that deficits do matter. Then the accounting tricks will no longer delay the day of reckoning: rising interest rates on Treasury debt. All over the world, investors agree: deficits don’t matter. And so the deficits grow in every nation. They will build up until the fraudulent accounting no longer can conceal the fact that, apart from central bank counterfeiting, the debt ceiling cannot be sustained at low rates.
As surely as the voters did not ask how the books were cooked, and as surely as T-bill buyers were willing to buy them at one-tenth of 1% per annum, the game will go on. Governments will kick the can at zero political cost.
And then, one fine day, the bills will come due.
Will there be a Great Default? Count on it. Plan for it.
Deficits do matter.