Tuesday, July 26, 2011

To Veto or Not to Veto

Okay so here's what we got:

It took until today for a 2nd degree "veto threat" of the Boehner plan, which Wall Street and CBO has also warned would not avoid a downgrade in our AAA national credit rating by S&P.

Key to understanding the current political theatre is bearing in mind how presidential elections are won in the end: within 2%. So winning the presidency, after the primaries, is thus: scare the base + motivate the base + independents = 51%.

So all of the fight for the incumbent presidency is about a fight for the middle 2% of the electorate. I think that's why the President kept a mostly moderate tone and didn't throw any serious jabs; at one point even paid credit to Speaker Boehner. Most watchers, including me, wondered if he was going to issue a 1st term Clintonesque unequivocal veto threat. That would have pushed away the middle 2%.

Instead, today, only under the light of us wonks following every move, the White House issued the 2nd degree veto threat of the Boehner plan by saying that the Presidents "advisers" would recomend he veto it (namely a short term bill instead of one that Wall Street prefers and we need which would extend the debt ceiling through 2012). The 1st degree threat is an outright declaration from the President himself. I doubt that's forthcoming. It would be like rubbing your feet on the carpet in a room full of gas.

The markets still aren't reacting to the made-up crisis. That's encouraging. But Wall Street and Bloomberg News and the head of the IMF made clear today that the time for resolution is immediate. We'll see how seriously the "serious" people in Washington take that message.