The recent volatility of the stock market caused proximally by the brinksmanship over raising the Federal debt limit ceiling has precipitated much discussion over who is to blame. From my point of view, the chart below shows the major problem.
This whole thing started in 2008 when the subprime mortgage bubble burst. Congress had encouraged, even mandated, that banks lend money to unqualified real estate buyers in the name of social justice. The banks probably realized the folly, so they repackaged the mortgages in a variety of derivatives and sold them far and wide. When, not surprisingly, it turned out that the unqualified borrowers could not repay the loans, the whole thing collapsed.
Once again Congress came to the rescue with a series of bailouts and massive spending projects that were supposed to, according to Keynesian theory, save the economy and create jobs. We are still waiting for that Keynesian magic to work.
All that led to the debt limit crisis and the downgrading of America’s credit rating by S&P, something that our Turbo Tax Treasury Secretary said would never happen.
Hence the blame game. Thomas Sowell opines:
Why was there a financial crisis in the first place? Because of runaway spending that sent the national debt up against the legal limit. But when all the big spending bills were being rushed through Congress, the Democrats had such an overwhelming majority in both houses of Congress that nothing the Republicans could do made the slightest difference.
Yet polls show that many people today are blaming the Republicans for the country’s financial problems. But, by the time Republicans gained control of the House of Representatives, and thus became involved in negotiations over raising the national debt ceiling, the spending which caused that crisis in the first place had already been done — and done by Democrats.
It seems that Democrats are better at the blame game than Republicans.
Through all this President Obama pontificated but offered no real plan. That has prompted Walter Williams to ask whether that was through “Ignorance Stupidity or Connivance.”
The Congress is in its August recess so we are relatively safe for the moment, but when they return, if they are to show any real responsibility, they must make real cuts government spending.