Archive for July 29th, 2011

Gov. Pawlenty Speaks

I had the chance to go to a Meet and Greet with Gov. Tim Pawlenty across the river in Council Bluffs this morning. The setting was a nice little cafe, the Main Street Cafe, surprisingly enough, on Main Street. I won’t dwell on my first experience with Iowa retail politics, except to say that everything you’ve heard about it is true.

Pawlenty spoke well, but not outstandingly, in my opinion. He gave solid, conservative answers to the questions asked, and while some of the social issues did come up, the primary focus was on national defense, the budget, and economic issues. I thought his answers to the budget/debt questions were a little weak; he didn’t seem to grasp, for instance, that Boehner 2.0 incorporated many of the elements of Cut, Cap, and Balance, in another form.

The sound, I will warn you, is not that great. Pawlenty is near the tail end of qualifying for residency in Iowa, and his voice was a little weak, and trying to compete with a loud air conditioner in a small room.

Stump Speech
QA – Boehner Plan 2.0
QA – Family Leader
QA – Federal Overreach
QA – Congress and Public Employees Benefits
QA – Military
QA – Payment Priorities
QA – RomneyCare
QA – Taxes
QA – UN and International Law

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One More Thought on the BBA

There are a couple of ways that, skillfully used, the BBA could actually end up helping the Republicans, at least in this first round.

First, it’s a bargaining chip.  If the owners can give up an 18-game season that the players were never going to play, the Republicans may be willing to settle for a BBA vote (as opposed to passage), forcing the Dems to re-assert their Big Government bona fides.

More interestingly, if Boehner 2.1 (Boehner 2.0 with the BBA upgrade) passes the House with Democrat support, as seems likely, it’s going to make it harder for them to go back on that when it actually comes time to vote on the BBA.  And if it gets stripped out in the Senate, you may end up with the spectacle of House Dems, having vote against 2.0, and then for 2.1, having to turn around and vote for 2.0 when it comes back around.

Regardless, the Republicans need to hold firm on the smaller cap increase number. The benefit of having this debate again – and possibly yet again – before the election, both political and policy-wise, are too integral to the overall strategy to roll over on.

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Debt Markets React to Washington – Finally

People have noted the failure to demand higher yields for treasuries, and concluded that the debt markets don’t believe there’s any problem with August 2, or 10, or any other date we care to mention.  In fact, this was largely out of disbelief that Washington could fail to act.

In fact, this week, the debt markets have begun to react.  Banks are beginning to pull money out of treasury-heavy money market funds, which in turn are selling treasuries and putting their money in banks.  This has the effect of reducing the financial flexibility of each.  The repo market – where financial institutions lend securities money to one another, using treasuries as collateral – is beginning to demand higher interest rates.  Companies that don’t even like debt are issuing short-term commercial paper to make sure they have cash on hand.  Let’s not turn this into panic – it’s not.  But the markets are beginning to take prudent and overdue steps to protect themselves against a loss of liquidity in treasuries, even if it doesn’t mean technical default.

In the meantime, it appears that Speaker Boehner has agreed to a stricter Balanced Budget Amendment requirement for the 2nd round of cuts & debt limit increases – requiring passage rather than just a vote.  I think this is a mistake.

There is every indication that Boehner Plan 2.0 was pretty close to the plan that he and Harry Reid presented to the President on Sunday, and which he indicated he would veto.  But a close reading of the tea leaves also indicates that he was hoping that a strong enough statement against it would prevent him from actually having to make that decision.  If he had signed it, it would have strengthened the conservative case for governance immensely.

Now, the House has probably made it more likely that they will end up voting on – and probably passing – some compromise between McConnell and Reid.  That deal would, in fact, work towards marginalizing the Tea Party groups who have done so much to get us to this point.

I hope I’m wrong, and that the wording of the BBA is something that can get passed – it requires no presidential signature – and that the extra time we’re buying is put to good use making the case for it.  Certainly Obama & the Democrats’ desire to run the federal budget on auto-pilot helps in that regard.

But if not, and if the 30 or so Republicans end up setting the stage for an exact repeat of this in 6 months, with no BBA in hand, they may well end up moving the debate to the left, rather than to the right.

One other point – I do think reasoned analyses such as McArdle’s, which show what will likely happen if we don’t raise the ceiling, without the histrionics, actually help our case down the road.  If the markets do shudder a little bit, it should server as a spectre of what will actually happen, for real, when the debt markets finally decide to take that decision out of Washington’s hands altogether.

UPDATE: The Dollar-denominated Swiss Franc ETF, FXF, opened almost 2% higher this morning, and stayed there the whole day.  I went back and looked, and since 2006, the daily percentage change has been bigger than this – in this direction – only 10 days, so this is definitely a multi-sigma event.  One guess as to why it happened.


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