The Mantra For 2011-12: Gridlock, Stalemate, Shutdown

I’ll have much more to say about this when the dust settles in the next 24 hours or so. But nothing happened yesterday to change my mind that we’ll all be using the phrase “gridlock, stalemate, shutdown” so often over the next two years that we’ll sound as if we’re chanting.

The bottom line:

1. Unless the White House is willing to capitulate completely, fiscal policy simply won’t be available to deal with the economy.
2. We need to hope (prayers might also be useful) that the monetary policy options available to the Federal Reserve will be far more effective than many think they are going to be.
3. The biggest fights in Washington over the next two years will be over anything having budget implications. These are likely to be epic battles with religious fervor the likes of which haven’t been seen in Washington since prohibition.
4. Multiple government shutdowns will be threatened; more than one is likely to occur.
5. It’s not at all clear that financial markets have priced in the disruptions and extreme uncertainty that are about to occur.

More soon.