Valliere: Thank You, Tea Party Know-Nothings

As a long-time bond bull, my gratitude to the know-nothings in the Tea Party is profound.

So what if they played a major role in taking a thousand points off the stock market in the wake of the U.S. debt downgrade?

My bonds have rallied !!

Treasury bondshave rallied because investors obviously know a safe haven when they see one. There’s been an insatiable demand for U.S. Treasuries for the past decade, even as deficits soared, which is the dirty little secret that deficit hawks never acknowledge.

It’s debatable whether a credit rating downgrade was warranted, but you have to conclude that the appalling indifference toward default – proudly embraced by a large percentage of House Republicans – surely spooked the S&P analysts.

How stupid and reckless is the Tea Party? In addition to shrugging off a default threat – or perhaps welcoming one – they believe austerity is the correct medicine for a weak economy!! Where did they study economics, in a cornfield outhouse??

It defies belief that Tea Party members actually think spending cuts will create jobs. No – spending cuts will eliminate jobs. The Know-Nothings don’t understand that, but hey — it’s good for my bonds !!

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Amazingly, the Tea Party zealots aren’t challenged when they spew the laughably naïve view that the government’s budget is just like Mr. and Mrs. America’s household budget.

It isn’t, obviously.

If Microsoft or IBM want to build a new corporate headquarters, they issue debt. They pay back their debt, with interest, just as the U.S. government pays back debt with interest – defying the petty demagogues who proclaim that there would be nothing wrong with default.

The deficit reduction deal could have been better, but it was a good start – with a high likelihood that there will be even deeper cuts this winter. The deficit deal wasn’t why S&P downgraded U.S. debt – it’s the dysfunctional political climate in Washington, which the credit agency specifically cited. But that climate will stay poisoned; John Boehner doesn’t dare to curb the fanatics.

The rigidity of the Tea Party, and most cowering Republicans, is beginning to look like a self-parody. Would they take a deal that consists of 90% spending cuts and 10% tax hikes? Absolutely not, they’d rather talk about default. Would they take a 20-to-1 ratio?

No way.

So thank you, Tea Party Know Nothings. Despite your destructive ranting, you have produced the greatest irony possible – a flight to U.S. Treasuries, the safest of all safe havens.

Greg Valliere is Chief Political Strategist at the Potomac Research Group, a Washington-based firm that advises institutional investors on how government policies affect the markets. Greg has covered Washington for over 30 years, starting his career as an intern at The Washington Post, then co-founding The Washington Forum in 1974 to bridge Wall Street and Washington. He has held several positions, including Director of Research, for Washington-based firms, including the Schwab Washington Research Group. Greg is an exclusive commentator for CNBC-TV, where he appears regularly on most of the network’s programs.