The Marx Brothers had a song about painless dentistry.
It went something like “Herman is the painless dentist/ Of his painless work we sing/ When he drills or hammers at you/ Herman he don’t feel a thing!”
I think it fits many of the policy decisions from Washington and certainly characterizes the debt ceiling debate.
Voters in New York this week voted ‘not’ to touch Medicare benefits. And thus the great deficit debate becomes more heated as everyone recognizes that our growing debt is unsustainable and that something MUST be done to cut spending as long as it doesn’t affect them. It’s a perfect symbiotic world: voters don’t want pain and politicians don’t want to cause it. It’s perfect up to the point that the next crisis develops and none of us have anywhere left to turn.
On the premise that spending feels good and not spending feels bad, feeling bad is inevitable. As a long-time member of the Sibley Memorial Hospital Board in Washington, I characterize the current economic quandary as the choice between a planned surgery and emergency surgery. The consequences, albeit delayed and temporarily softened, from twin bubbles in credit and housing have yet to play-out fully. Once again, markets have not been permitted to clear of their own free-market accord.
The US is facing a double tightening of both fiscal and monetary policies. Europe has raised rates twice, and they are nowhere near seeing daylight in dealing with Greece and her sister sinners. China has raised rates and bank reserve requirements. Global tightening is not a backdrop for economic expansion.