Simon Johnson on Boehner Just Blowing Smoke

Simon Johnson, a former IMF chief economist and current MIT professor, is pro big government spending, so he should not be looked at for guidance on how to cut spending, but because of his pro spending view, he is a good source for understanding why House Speaker Boehner is blowing smoke when he talks about big spending cuts. Writes Johnson:

John Boehner, Speaker of the United States House of Representatives, is leading the Republican Party’s charge on fiscal policy, arguing that his side needs to see “trillions of dollars” in spending cuts in order for Congress to approve an increase in the US government’s debt ceiling. But framing the issue this way creates a major problem for Boehner: it will directly, completely, and quickly antagonize one of the Republicans’ most important constituencies – the US corporate sector.


Focusing on the debt ceiling creates a political trap for Boehner and the Republicans...

If the Republicans’ threats were credible, any news that increased the likelihood of a problem with the debt ceiling would send Treasury bond prices down and yields up. This is not happening, because bond traders cannot imagine that the Republicans would be able – or even willing – to follow through...

Among others, the US corporate sector – big and small business – would be livid...Symbolic gestures are to be expected, as with the threatened government shutdown earlier this year, which merely created fodder for political advertising by both parties. But any manufactured debt crisis now would deeply antagonize the corporate sector – and most of the electorate...

The Republican leadership is making threats that are not credible.

Bottom line: Expect theatrics but no real cuts. Congress is owned by lobbyists and Congress is not going to fail them. Johnson, an insider, speaks the truth more often than most.