Here’s a sure-fire prediction, assuming GOPers in the House actually are willing to engage in an eyeball-to-eyeball confrontation with Obama on the debt limit.
o There will be lots of political drama.
o We will get to a point where the federal government exhausts its borrowing authority.
o At that point, either Geithner or Bernanke (or probably both) will make some completely dishonest statements designed to rattle financial markets.
o The establishment media will echo those statements.
o The stock market and/or bond market will have a negative reaction.
o Republican resolve will evaporate like a drop of water in the Mojave Desert.
o The debt limit will be increased without any meaningful fiscal reform.
For all intents and purposes, this is what happened with the TARP vote in 2008. There were basically two choices of how to deal with the financial crisis. The establishment wanted a blank-check bailout, while sensible people wanted the “FDIC-resolution” approach (similar to what was used during the savings & loan bailouts about 20 years ago, which bails out retail customers but wipes out shareholders, bondholders and senior management). Republicans initially held firm and defeated the first TARP vote, but then they folded when the Washington-Wall Street establishment scared markets.
Republicans will puss out on the debt limit
Sadly, I think it's going to play out exactly as Dan Mitchell says:
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There are very few financial problems that can't be solved by a suitable application of asset bubbles.