No Dealing On The Debt Ceiling, Part 19

I have been saying all throughout this series of posts that eventually, the Financial Powers That Be were going to start bringing massive pressure on the Republicans to raise the debt ceiling.  It looks like that day has finally arrived.

One of the most influential investors in the world of finance has a message for lawmakers -- particularly conservative lawmakers -- on Capitol Hill: rejoin the real world.

In a prospectus for clients, Bill Gross, a co-founder of investment management giant PIMCO, says members' of Congress incessant focus on deficit -- and in particular, the manner in which they obsess about deficits -- is foolhardy, and a recipe for disaster. What the country needs, Gross said, is real stimulus now, and a measured return toward fiscal balance in the years ahead.

"Solutions from policymakers on the right or left, however, seem focused almost exclusively on rectifying or reducing our budget deficit as a panacea," Gross writes. "While Democrats favor tax increases and mild adjustments to entitlements, Republicans pound the table for trillions of dollars of spending cuts and an axing of Obamacare. Both, however, somewhat mystifyingly, believe that balancing the budget will magically produce 20 million jobs over the next 10 years. President Obama's long-term budget makes just such a claim and Republican alternatives go many steps further. Former Governor Pawlenty of Minnesota might be the Republicans' extreme example, but his claim of 5% real growth based on tax cuts and entitlement reductions comes out of left field or perhaps the field of dreams. The United States has not had a sustained period of 5% real growth for nearly 60 years."

When Bill Gross speaks, Washington listens.  He's as big as they come in the financial world and he's clearly telling the GOP to knock it off on this austerity garbage and the fantasy of allowing the country to default.  Sure enough, it's looking like the GOP is during a 180 on the issue.

Politico's Richard Cohen has an interesting report this morning suggesting that House Republicans have turned on tax breaks, and perhaps even towards revenues, in a big way. The most surprising quote in the story is from Majority Leader Eric Cantor, who told reporters “We are not opposed to revenues. We are just opposed to tax increases." Coming on the heels of the consequential votes Senate Republicans cast against ethanol subsidies -- and for more revenues -- that's an important statement. If Republicans have successfully redefined tax increases as "new revenues that come from higher marginal rates" but not "new revenues that come from cutting tax breaks and closing loopholes," that opens up a lot of space for compromise.

I will say this again:  a sovereign debt default would hurt the business community and especially the financial community the most.  There is no way the Wall Street banks are going to let the GOP wreck their zero interest Fed gravy train over ideological warfare with Obama.

It's not happening.  The GOP will be made to fold by the real party bosses.  The question is how much the Dems will move to meet them.