–Retransmitting Updated Story Published 11:41 ET Friday

By Denny Gulino

WASHINGTON (MNI) – On a day when overnight shoppers and
highly-promoted super bargains rev up the retail economy, the nation’s
capital faces a collapse of the “policy economy.”

Government is days away from running out of money, the fiscal
year’s appropriations bills abandoned. Huge congressional decisions are
pending under an impossible Lame Duck voting schedule. And, perhaps most
instructive, the constituencies of both parties have been led to expect
a ticking time bomb of a Christmas present, extension of tax cuts that
will add up to trillions of debt to an already monumental national debt
burden.

In the coming week, a Lame Duck Congress resumes a session that has
its conflicted priorities still buried beneath a smothering blanket of
political animosity. Tuesday’s meeting at the White House of Republican
and Democratic congressional leaders seems doomed as a way to break the
logjam. President Obama has refrained from sending firm signals about
what strategy he may have to get things moving.

In the last spasm of activity by the “old” Congress, which was
gridlocked into paralysis in its final months, Democratic majorities in
the House and Senate can still jam through a measure to keep government
running beyond the end of next week when much government spending
authority runs out.

As Market News International’s John Shaw reported Wednesday,
Congress, with its fading Democratic majorities, is expected to pass
another stop-gap spending bill that funds the government only until
February. That’s when the new Congress, even more gridlocked than the
old, will have to find a way to keep government running for some more
months despite its differences.

Having thrown what used to be called fiscal policy out the window,
Congress has still another potential killer roadblock to manage besides
outright spending votes, the pending vote on whether to raise the debt
limit beyond $14.3 trillion. Any analyst will say there’s no “whether”
about it. It must be passed to avoid unthinkable U.S. default. And yet
there promises/threatens to be an extended debt-limit debate, and delays
and political brinksmanship.

When exactly Treasury’s borrowing power needs to be reset no one
knows. Perhaps early spring, perhaps as late as the summer. And no one
knows how the leadership of a newly reconstituted Republican House and a
weakened Democratic Senate will treat that vote. Will it be a call to
battle or, more sensibly, be treated as the routine action it is,
necessary to functioning credit markets? Many expect that nothing will
be routine in the new Congress.

The outside observer, say the visitor from Mars or Amish
Pennsylvania, would be inclined to see an easy out for Congress. The
people’s representatives could in one stroke of non-action postpone
raising the debt limit, make the eventual new limit lower than it would
be otherwise and begin the process of turning around U.S. deficit
spending that aims America straight to the fates of Greece and Ireland.

That decision, of course, would be not to decide by the year-end
deadline to keep the current tax rates. Instead through non-action the
Bush-era tax cuts would disappear and the nation would begin to confront
the consequences of its many years of overspending and crisis repair.

Instead, both political parties and even the Tea Party have
promised to keep the tax cuts for now, perhaps for many years, perhaps
permanently, adding trillions to the $14 trillion national debt. No
prominent political figure of any stripe has argued against the
pervasive aura of entitlement that suggests Americans can have it all,
the world’s largest debt burden by far, on and off budget, along with a
recovering economy and a prosperous future.

It’s a combination that doesn’t sustain itself indefinitely in the
real world. It’s an illusion that eventually is shattered one way or
another. And when if and when it is shattered, the demoralization and
national angst would make today’s political polarization and legislative
paralysis look like a summer picnic. Because it will bring with it real
misery, not just discord and disagreement.

There’s a long list of reasons why that won’t happen, at least any
time soon, but they ring increasingly hollow month by month. The fact
the U.S. prints the money the world uses to buy necessities like oil
means foreign exchange dislocations don’t bite like they do in other
countries. The fact that so much of the nation’s debt is owed to itself,
that exports are a relatively small part of the U.S. economy,
additionally argue that America is well-insulated from the consequences
other countries face when their debts skyrocket past their capacity to
repay.

There are still only a few red flags being raised in U.S. public
discourse. When in retrospect, the output of the nation’s media these
days, and the sum total of political debate is scanned for signs of
imminent trouble, as was done after the financial crisis, there won’t be
many. The next crisis will, therefore, be a surprise to a lot of people.

But there are a few, scattered warnings, and they can and are
easily ignored. Take the Bowles-Simpson proposals on which there will
likely be fatal disagreement among the 18 members of the National
Commission on Fiscal Responsibility and Reform when the final report is
voted on Wednesday, the day after congressional leaders of both parties
meet with Obama.

Their preliminary proposals for how to save perhaps $300 billion to
$400 billion a year, and cut the so-called primary deficit — excluding
debt service — to about 3% of GDP, did get an exceptional amount of
attention on front pages and newscasts, a sign there is some nascent
anxiety about what is happening.

But again, as MNI’s John Shaw reported, there was very little
effort made to connect the dots. There was very little comparison, for
instance, how much Bowles-Simpson would save with how much Congress has
promised to spend in renewing the Bush tax cuts. Their savings and the
pending tax-cut spending are about the same, roughly a wash.

The head of the agency that insures U.S. bank deposits, FDIC
Chairman Sheila Bair, Friday called Bowles-Simpson proposals “credible
first steps toward recognizing and addressing the nation’s fiscal
problem.” In an Op-Ed in The Washington Post, Bair said of the next
financial crisis, “I fear that one will start in Washington. Total
federal debt has doubled in the past seven years.” She added,
“Eventually, this relentless federal borrowing will directly threaten
our financial stability.”

Deep savings, so controversial that it’s doubtful the necessary 14
members of the bipartisan Commission will agree. Huge spending on which
the necessary majorities of Congress are set to agree. The contrast
between the two is telling, and as far as the American people are
concerned, a contrast hardly being drawn at all in the public discourse.

Can the Lame-Duck session even begin to tackle its challenges?
While it debates ratification of the lapsed START treaty, a debate which
at its heart is about spending much more updating the nuclear arsenal,
can Congress ignore the din from outside the nation’s borders? Will
Congress be watching LIBOR, or the EU? Will it acknowledge the price of
gridlock? Not likely.

Meanwhile, readers and viewers will be inclined to continue to
discount or ignore the warnings, find reasons to discredit the
“nattering nabobs of negativism,” to pull a phrase authored in another
era by one-time Nixon and Agnew speechwriter William Safire.

Only later did Safire become a New York Times writer. One of that
newspaper’s current crop of columnists, who reported for the New York
Daily News when this writer worked in the same building for UPI many
years ago, made a memorable attempt — likely futile but memorable — to
raise the red flag in his column Nov. 19. Wrote Bob Herbert, “We’re in
denial about the extent of rot in the system, and the effort that would
be required to turn things around.”

** Market News International Washington Bureau: 202-371-2121 **

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