During the American Civil War there was a “high water mark” which the Confederacy reached and then started it’s long decline to surrender. At the time the high water mark happened nobody knew that it had been reached. The Civil War “high water mark” was the bloody angle in the third day of battle at Gettysburg,
Perhaps the Democratic Party reached its high water mark with the passage of the universal health care legislation. We are at a stale mate in direction as to how to solve the debt and deficit problems in the United State. The Democratic Party says they are willing to make budget cuts but the “rich” have to pay more. They say they want the tax increases now and will make the budget cuts over the next 10 years. This idea is like the Ole Miss direction play in football. Try and convince your opponent that you are going one direction and then go in the opposite direction.
In the past when we have had one of these confrontations the Republicans have been the party to cave and they may well cave again this time. They seemed to have staked out the ground that insists on cutting expenses and not raising any new taxes.
If the Republicans hold their ground and the Democrats agree to entitlement cuts the President will lose his base and the Democratic Party will start to decline from the “high water mark.” If the Democrats lose the Senate and the White House in the next election it will be based on the Democratic failure to respond to the public need to restrain the budget. How can we tell Greece, Spain, Portugal, Ireland and Italy that they must adopt austerity programs while we continue to spend and spend and get deeper and deeper in debt ourselves? Is that a misdirection play on the part of the United States?
As much as I hate to say it, I do not think we will find a solution by August 2. I know that everybody knows the outcome, or they think they know the outcome if we fail to act. The ground that has been staked out by both parties will not allow them to give in and find a solution. The one question that lingers in my mind is do they care if we default? Would Democrats rather see the country go in default rather than give up their entitlement programs? I think so. Would Republicans rather hold the line on tax increases at the expense of the country going into default? I think so.
I think, in either case, the great social programs that started with FDR are history and it is only a short amount of time before it all unfolds right in front of us. As I said before, watch the yield on the 10-year T-Bond as we get closer to the deadline.