Political Animal

Blog

December 05, 2012 10:49 AM Eye of the Austerity Storm

By Ed Kilgore

This lede from WaPo’s Neil Irwin sums up the strange dynamics of fiscal cliffsmanship better than anything you’ll find:

In Washington, debate over the “fiscal cliff” is cloaked in apocalyptic warnings of soaring tax rates and a crashing economy. On Wall Street, the tone is different: All will be fine.
The stock market has been little changed in the past three weeks, with few wild swings. That comes despite the Jan. 1 deadline when tax hikes and spending cuts are to go into effect unless politicians reach a deal to avert them.

Irwin goes on to air two very different theories of the divergence between rhetoric and market behavior: one is that investors assume a deal will be struck despite all the angry words being thrown about and the recent reports of renewed gridlock. And the other is that there really ain’t no “fiscal cliff” to begin with, but just yet another checkpoint in the long twilight struggle over taxes and spending.

In either event, the relative stability of markets has to be a bit embarrassing to Beltway fiscal hawks, who must be privately hoping for a stronger whiff of catastrophe, or at least some menacing rhetoric from Wall Street to match their own. What good is a “fiscal cliff” anyway if it doesn’t drive those approaching it into a panicky accession to the pre-ordained “bipartisan” solution of extended Bush tax cuts and an end to those ruinous entitlement?

“Wall Street and Washington are different worlds and speak in different languages,” said Chris Krueger, a political analyst at Guggenheim Partners who acts as something of a translator between those two worlds.

At some point, we’ll find out which world is closer to reality.

Ed Kilgore is a contributing writer to the Washington Monthly. He is managing editor for The Democratic Strategist and a senior fellow at the Progressive Policy Institute. Find him on Twitter: @ed_kilgore.

Comments

  • c u n d gulag on December 05, 2012 10:55 AM:

    Oh goodie!
    We get to see whether the DC Villager Bubble, or the Wall Street Bubble, bursts first!

    Why couldn't I have left the country back in the 80's, like I wanted to?
    I could be an ex-pat in Germany, watching all of this and laughing!

    Oh, the anachors that are family and friends...

  • bobbo on December 05, 2012 12:28 PM:

    I'm actually a little surprised at how calm the Street is. I assumed that investors were just as idiotic as CNN.