We have good news and bad news today: The White House has a secret plan to deal with a fiscal crisis.
The plan’s existence is revealed in a book called The Escape Artists: How Obama’s Team Fumbled the Recovery.
“In May 2009,” writes journalist Noam Scheiber, “the president asked [White House budget director Peter Orszag] to draft a secret memo laying out the government’s options in the event of a fiscal crisis, in which a runaway deficit sent interest rates spiraling upward.
“No other member of the Obama economic team was even aware of the assignment.”
We pause here to tease out Mr. Scheiber’s narrative in which “a runaway deficit sent interest rates spiraling upward”:
- As mentioned yesterday, the government ran up a record monthly deficit of $231.7 billion in February
- Rates on a 30-year Treasury bond have jumped 15% in the last two months. As of this morning, they’re 3.36%. Rates on a 10-year note are up 22% in roughly the same time frame.
- And five-year yields… yikes:
Of course, these rates are still ridiculously low by historical standards. But Mr. Scheiber’s crisis is creeping up from behind.
What’s in the Orszag memo? We don’t know. We’ll explain why in a moment. But we do know neither the White House nor Congress has a plan to wrestle with the rising national debt.
So “instead of developing a long-term plan to avoid the worst-case scenario,” writes James Pethokoukis of the American Enterprise Institute, “it has chosen to plan for the worst-case scenario…
“Maybe the crisis plan is the long-term plan,” Mr. Pethokoukis speculates, “Maybe it’s something like this: a) do nothing; b) keep implementing the Obama health care and environmental agenda; c) wait for markets to finally freak out over rising U.S. debt; d) break the glass and grab the 2009 Orszag plan.”
The glass covering the Orszag memo might well get cracked, mostly by accident, on Jan. 2, 2013.
Under the law passed last minute in August 2011 raising the debt ceiling, something called “sequestration” is supposed to kick in shortly after the new year. “Sequestration” is wonk-speak for automatic spending cuts totaling $1.2 trillion over 10 years.
The cuts will come entirely out of “discretionary” spending. Meaning Social Security and Medicare would be left alone.
Congress and the White House can avoid sequestration if they reach agreement sometime this year on spending cuts and/or tax increases totaling that same $1.2 trillion. The odds of an agreement happening this year? Well, we’ll leave that conjecture up to you.