The latest steaming pile of garbage from the right to justify continued inaction on the economy is that Obama giving a speech on April 13 sank corporate confidence and ruined everything. Aren’t these the same people who grudgingly admit that Obama gives a good speech, but that actions mean more than mere words? Apparently accurately describing Paul Ryan’s budget was an action all by itself.
Actual things have happened since April 13, including higher gas prices, falling housing prices, and two more months of an economy that simply cannot support itself without stimulative economic measures that aren’t coming to the rescue. I’d put my money on those factors more than somebody making Paul Ryan cry. And there’s also this question:
Which is more likely to subtract from business confidence: a lame speech by the president – or a highly credible and sustained threat by the majority party in the House of Representatives to force a default on the debts, contracts, and other obligations of the United States?
That’s still happening, you know, and according to Stan Collender it is starting to have a market effect. The credit agencies actually are warning that they will downgrade US debt in the event of default, and whatever their reasons or their credibility, that has an impact. In addition:
The best indication of all that the market has already started reacting negatively is the current trading of credit default swaps on U.S. debt. As of late May, the number of CDS contracts — essentially insurance policies on the possibility of a default — had risen by 82 percent. Equally as important, the cost of a CDS — the best indication of how much riskier U.S. debt has become — rose by more than 35 percent from April to May. Last week I spoke to a number of people who calculate such things for a living, and they said this change means that the interest rate the U.S. government has to pay has already increased by as much as 40 basis points compared with what it otherwise would be. This means higher federal borrowing costs and deficits, and overall higher interest rates on everything from car loans to mortgages to credit cards.
Those aren’t theoretical but very real changes. And this won’t come in a rush – small hits to creditworthiness reflected in increased borrowing costs will just inch up over time up through a default event.
Eric Cantor now says he’s optimistic about a deal. That shouldn’t really come as welcome news until we see what he means by that; he claims that the demand of spending cuts equal to the increase in the debt limit will be met. But in at least some sense, damage has begun.