Ezra Klein Points Out We Are Already Screwed

http://www.washingtonpost.com/blogs/ezra-klein/post/a-small-deal-wont-cut-it/2011/07/11/gIQAJ17WVI_blog.html

 We yoked the deficit to the debt ceiling. We began negotiating everything at once. But rather than showing how responsible Washington was, the negotiations uncovered how irresponsible and unpredictable it had become.
...
The market did not tie the debt ceiling to a $4 trillion deal on the deficit. Washington did. But now that it’s not clear that Washington can get the deal, the market may not let it undo the knot.


So, awesome job, GOP.  Your super-suave negotiating ploy of tying debt reduction to the debt ceiling has created a crisis in the markets.


You know, one of the things we heard about reigning in deficits or lowering vs raising interest rates was that we had to listen to the bond market - the bond vigilantes - who would punish us for our profligate ways.  Only the bond markets didn't give a squeaky fart about our deficits.


Now, the Asian markets are going to open up for business and start selling American bonds and currency, triggering a collapse in the value of the dollar (at least that's the conventional wisdom).  One thing this could lead to is more expensive gasoline, as we have to import oil using a weak dollar.


And we all know how much we love paying more for gasoline.


Klein notes that Standard and Poors is prepared to downgrade the US credit rating even if we pass the sort of clean debt ceiling that we always have in the past.  


Why?  Because the nihilists in the GOP took the US credit rating hostage in order to cut Reading Is Fundamental.


In 1931, central banks made a conscious decision to try and maintain the value of their currency.  In doing so, they destroyed the world banking system and turned the market panic of 1929 into the Great Depression.


Are we about to see the same thing?