Annapurna Capital Management, LLC is a private equity firm founded by Marshall Brandt, currently serving as a managing partner. I have no idea where he stands on social issues, but fiscally he is far tp the right of a garden variety Trump, or, for that matter, of Señor T himself. A regular contributor to The Bulwark, he wrote this morning about the entire Republican Senate caucus voting against his cherished capitalism today. What the Republicans did-- including the ones like Susan Collins, Lisa Murkowski, Mitt Romney and others who imagine they are mainstream or even "moderate"-- was to vote against doing anything to fix the debt ceiling. It's important to know that this was all money spent while Trump was president and the Republicans controlled the Senate.
No thing, and no person, has economic value in a vacuum. All value-- like all motion-- is relative. Value (and thus price) is the relationship of one thing to another.
The entire discipline of what we call “finance” is an exercise in making relative valuations. But to start, finance had to settle on a reference point-- a “risk free” thing which could be used as a yardstick for everything else, so that everything else can be priced accordingly. While everyone knows there is no such thing as a “risk free” investment in an absolute sense, the mechanism that finance chose made sense: government bonds. In particular, U.S government bonds. And in even more particular, the 10 year Treasury yield.
Every mortgage, every auto loan, every wage-- everything is priced relative to the value of the risk-free rate-- the U.S. 10 year Treasury yield.
The reason why government bonds are considered risk free is because they, by definition, are. A bond is an obligation of a country to pay a holder of that obligation at a future date. That obligation is met through something else owned by the country-- meaning currency. It is impossible for a country to default on its own bonds, because it could just create more currency to meet the obligations.
Which means that there is only one way to default on sovereign debt-- willfully.
But the debt!
Perhaps one of the most disingenuous (but effective) arguments put forward in modern politics was the case for conservative “fiscal responsibility.” You have to manage your own debt, so why shouldn’t the government?
[Even though the argument is bogus and geared towards people with below average IQs] That line makes sense to people. Building on this parochial bedrock, conservatives flirted many times with the idea of the businessman-president until finally nominating Donald Trump, a bankruptcies vitamin hawker who played the role of businessman on TV.
Under President Trump the size of government grew to its largest levels since the 1960s. Never mind the fact governments probably shouldn’t be run like a business, or a household because it turns out that there is no constituency for fiscal conservatism. Despite what conservatives have said for 40 years, their revealed preference is clearly for bigger government and more spending.
And you know what? As a policy matter, that’s okay.
Can debt grow so large it topples the financial order? Sure. But as of 2021, in sum, the United States has a net worth (assets-liabilities) of $132 trillion.
The Biden administration’s proposal to take on $3.5 trillion of national debt [a right-wing lie; Biden's plan is to force the super-rich to pay their fair share of taxes] over 10 years to reduce significantly the greatest risk to our mature civilization-- which is wealth inequality-- would lower America’s national net worth by around 2.25 percent. That’s it.
We would be spending 2.25 percent in order to cut child poverty in half. Would you as an individual donate 2.25 percent of your personal net worth to cut child poverty in half? I bet you would. I bet you would even donate 2.25 percent of your net worth over a 10 year period to cut child poverty in half for just one family. Prices are relative and this price isn’t all that high relative to the good we’d be purchasing.
Of course, there could be side effects. The plan might not cut child poverty in half. There could be inflation. There may be prudential reasons not to enact it. But to argue that the size is so onerous is wrong-headed.
Back to willful default. The Senate Republicans who now fashion themselves as champions of fiscal responsibility were willing to turn the risk free rate-- on which every asset is priced-- into a non-risk free rate by refusing to raise the debt ceiling.
They were voting for America to default. This isn’t just hypocritical. It is also another attack on democracy. Because if the risk free rate had been made risky, then then financial calamity would have been unspeakable. Because again: Functioning democracy is intertwined with functioning capital markets.
During the first and second Trump impeachments, a number of Republicans voted to remove Trump, and so we thought, Hey, as long as we have Mitt Romney and the others, there’s hope.
But the problem is that these Republicans aren’t thinking expansively enough about democracy. About what democracy is. About what democracy requires. It’s not just rejecting Donald Trump’s cult of personality. It’s understanding and supporting the policies which make democracy possible. Even when such support runs counter to the party’s daily marching orders.
All 50 Republicans in the Senate voted not to raise the debt ceiling and therefore willfully default on America’s debt. That vote was just as antithetical to a functioning democracy as was the votes to decertify the election results on January 6.
This morning, Jonathan Weisman wrote that "McConnell has long used the periodic need to raise the government’s borrowing limit as a moment of leverage to secure a policy win... But two weeks before a potentially catastrophic default, McConnell has yet to reveal what he wants, telling President Biden in a letter on Monday, 'We have no list of demands.' Instead, he appears to want to sow political chaos for Democrats while insulating himself and other Republicans from an issue that has the potential to divide them."
Democrats have only one path forward: The Senate Budget Committee must produce a resolution that includes instructions to raise the debt ceiling, which must then pass the House and Senate and weather a barrage of hostile amendments. Then the House must draft and vote on a separate bill to lift the debt ceiling, which would then go to the Senate, where it could not be filibustered but would again have to survive an onslaught of politically difficult votes. Any proposal could be considered, and if any were adopted, the measure would be forced back to the House.
And they have 14 days to do it.
Democrats are left to seethe at their opponents’ tactics.
“McConnell is singularly focused on winning control of the Senate in the 2022 midterm elections, full stop,” said Senator Chris Van Hollen, Democrat of Maryland and a longtime budget expert. “To his mind, that means using every tactic at his disposal to cause President Biden to fail, even if that hurts the country.”
Another factor might be at play: McConnell cannot control his members and is reluctant to risk the ire of Republican base voters. Senators Ted Cruz of Texas and Josh Hawley of Missouri have made no secret of their presidential ambitions, with uncompromising stands that appeal to the base.
With every passing day, the crisis becomes more unavoidable. Each day Democrats decline to give in to Mr. McConnell’s demands to use the reconciliation process makes it that much more difficult for the maneuver to be completed in time to avoid a default. And each day the Democrats demand that Republicans blink, they reply that Democrats are to blame for not using the process when they had time.
“You still have time before you get to the edge of the cliff,” Mr. Card said of the current debt-ceiling showdown. “And that time should be used for dialogue.”
How will it end? One option that Mr. Van Hollen said Democrats might have no choice but to pursue is changing the filibuster rules so the borrowing limit increase, and any in the future, can pass with 50 votes.
Mr. King, who has been unenthusiastic about changing the rules, said he had to agree.
“I have been very reluctant for nine years about modifying the filibuster rule, especially when it comes to policy, but this has nothing to do with policy,” he said. “This is about keeping the United States and world out of what could be a severe recession.”
How dare they? Where do they get this from? In her New York Magazine review of Stephanie Grisham's book today, Olivia Nuzzi wrote that as she read the book, she kept thinking that "it felt, in some ways, like the story of the Trump presidency was less about one demagogue than it was about the everyday choices of the smaller people working at the levels below policy-making, and how run-of-the-mill self-centeredness and expediency, when practiced by dozens or hundreds of people in an organization, amounts to the system that allows evil. The Trump administration was not possible because of Trump and his brain trust, as it were. It was possible because of the people like Grisham who let them, in minor and individual ways, function... Being inside the White House, she said, brought out the worst in her. 'You’re catered to and you do feel important and you do become power hungry. If people say they don’t love the powerful feeling in there, they’re lying. It’s kind of gross. I’m not saying something nice about myself right now. I was so proud that I was surviving over everyone else, and I had such a complex that I hadn’t been let into the inner circle in the beginning, so once I was there, I took a lot of joy out of it. You get into this bubble of behavior and you lose track of the outside world. You lose track of real life.'" Wasn't that how Naziism worked in Germany from the early 1930s until Hitler's demise a little over a blood-drenched decade later? Let's think about the desk murderers for few minutes: