Slim chances for a grand bargain sends market lower

Shortly after the networks called the election for President Obama on Tuesday night Senate Minority Leader Mitch McConnell (R-KY) issued a surprisingly firm statement. The eye catching portion of the statement was this:

“Now it’s time for the president to propose solutions that actually have a chance of passing the Republican-controlled House of Representatives and a closely divided Senate, step up to the plate on the challenges of the moment, and deliver in a way that he did not in his first four years in office.

“To the extent he wants to move to the political center, which is where the work gets done in a divided government, we’ll be there to meet him half way.”

This statement may indicate that the Republican led House may dig in and make things difficult for a so-called grand bargain in the short term or one year from now.

The goal of the next two months will be to achieve a successful can kick regarding the sequestration portion of the fiscal cliff. It is likely the Bush tax cuts will be allowed to expire.

The concern is that the reality of the expiration of the Bush tax cuts will anger the Republican base the the extent that will make compromise difficult for Republican leaders.

In reality even the steepest version of the fiscal cliff will only lower the projected rise in the trajectory of yearly deficit. It would not even touch the debt. And the panic level is already strong. One can only imagine what addressing the debt in a serious way would do to the markets and the general outlook for the short term across the country.

If Republicans on some level understand this reality of inevitable collapse of either the debt markets or the US dollar, and they must, they have little to lose by digging in and remaining the party of NO with the hopes of being the last man standing on principal when the economy is finally cleansed. There is no question that has been their mode of operation since the 2010 midterm election up until this point.

Filed Under: National Politics

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