Comments on downgrade and market

Tom replied over at IPS to my post about the S&P downgrade and market crash. Read his post for some insightful analysis. I responded to him in part below, his comments in italics.

The option not bargained in the debt deal is the only eventual solution....trade cuts to domestic spending for tax increases.

You say the Dems can convince the Reps to agree to this because if they don't the automatic cuts to further spending, including military spending, will kick in. Yet tax increases, or even closing tax loopholes and ridiculous subsidies, was forbidden on the conservative side from the beginning and why we got the shitty deal we did. You really think 1) the Dems will grow balls that fast and 2) the Repubs will shrink theirs? There has been no evidence of either to date.

The system will continue in its main mode of wealth creation until forced to change by threat of survival arising from within itself.

But there is no such threat. One might think the '08 crisis would have accomplished this but the financial system knew it would be bailed out, in fact counted on it because they had placed in the Treasury one of the chief architects of the mortgage-backed junk bonds (er..securities).* The only way to get such an inside survival option if for an outside force, i.e. one not bought and paid for, like the government to break up the big banks so that when they fail they just plain fail without taking the whole economy down with it. But again, the system is so corrupt that this will not likely happen in any foreseeable future, given even Obama, the great liberal hope (gag), is part and parcel of it. Unless...

Watch for tipping points along the way to that threshold.

We saw one last night in Wisconsin, where 2 of the 6 Republican State Senators were replaced in the recall election. Yes, the Repubs still control the Senate by one vote but the recall of 2 of them in heavily conservative and specifically gerrymandered districts is one of those signals the people have had enough and are motivated and willing to do something about it. The recall of Governor Walker is next and if this works you'll see other States follow suit in rapid succession. This change will come from without, meaning the people, not within the system.

* Check out AIG's lawsuit against BoA and threats to do likewise to Goldman. And as already noted, those junk bonds were rated AAA by S&P.