Kicking the tranche down the road
posted at 9:08 pm on July 31, 2011 by J.E. Dyer
The US looks likely to enter a select club of nations this week: those that mark off the days and years of national life in “tranches” of borrowing. The best thing to be said about this is that it could be worse.
In the last 30 years or so, familiarity with the word “tranche” has been related almost exclusively to finance deals for borrowers whose creditworthiness is iffy. Generally meaning “slice” or “portion,” a tranche in finance is a portion of a structured deal in which borrowing power is released serially. The tranche usually has an element of contingency about it: performance with the previous tranche(s), a review requirement, etc. Suffering industries and overextended countries have been the usual-suspect tranche borrowers, and have been supervised by national governments, the IMF, the World Bank, the EU, and so forth.
In typical American style, the US Congress is putting together a self-imposed tranche borrowing deal, and girding its loins to supervise itself. Who else is going to supervise it, after all? The US is not, in fact, Greece. Besides being way bigger than Greece, we have reached our current impasse, for all intents and purposes, through a clash of ideologies between members of a largely homogeneous public. The clash of ideologies is the real issue, not the structural or ethnic animosities of history. The clash of ideologies is about the tide of ideas in world affairs, and it’s playing out in our budget crisis.
Unlike Greece, we haven’t needed (since at least Reconstruction) to pay off large, disaffected constituencies with public monies, in order to prevent them from taking up arms against the central government. Our public largesse has not been a desperate attempt to hold the republic together. Rather, the American version of the lifestyle state has been cobbled together over decades as a series of ideologically motivated policy measures. A relatively uninterested public has tolerated the growth of the lifestyle state because for the most part, times have been good, and the cost hasn’t confronted us directly. It has been easier to let it happen than try to oppose it.
How much to oppose it, and how, are the central questions in the current confrontation. The answers are not preordained. The events in Wisconsin in 2011 have shown that it is possible – at least in some parts of the country – to break the stranglehold of an entrenched dependency like the public workers’ unions without inviting cataclysm. Wisconsin hasn’t fallen apart, nor has the rest of the nation.
On a national basis, we have gone a very long way toward the point of no return, at which the relationship of the entrenched dependencies to the government is the only thing holding a semblance of civil life together. But we aren’t there yet. Wisconsin showed that it is possible to halt the progress down that path.
If the tranche borrowing deal for raising the debt ceiling is approved this week, there will be reasons for optimism as well as pessimism. The deal is basically an agreement to let out some more borrowing power now, but not enough to get the issue off the table for campaign season. Others have observed that all the same issues will hover over the review required to release another tranche, and that’s true. It’s also the point. Neither side is willing to settle the issues now.
This is because the issues are the biggest ones there are for a nation. The borrowing-authority limit and the 2 August deadline are artificial, contingent conditions; they are like the plot devices in a Hollywood script that make it seem obvious to fictional characters that the only option is to compromise on principle. The quarrel over principle is the real point of contention in Congress, however. And by kicking the tranche down the road, both sides see a guarantee that the quarrel over principle will not be lost this week, even if it isn’t won.
As unsatisfying as this is for many voters, it is probably the best the Republicans can get while they hold only the House of Representatives. It’s better than the outcome in 1995, when –holding both houses of Congress – they simply folded. The better outcome looming in 2011 is what the Tea Party movement has accomplished.
The big-government Democrats aren’t going to simply fold either – not while they have the Senate and the White House. But they rely heavily on the public not paying much attention to what they’re doing. The failure of the Democrats to pass a budget has been a key manifestation of the long-running fight over how we Americans will govern ourselves, and one big reason for the Democrats’ indecision is that the Tea Party and the independent media have made it very difficult to avoid scrutiny. The Democrats will seek to continue their avoidance tactics in 2012, but the tranche-deal requirement for budget cut recommendations and a review before releasing more borrowing authority will force them to participate in the debate on spending and the size of government.
There is no question that a tranche borrowing deal will keep us balancing on the precipice. But we were never going to get agreement on walking away from the precipice in the summer of 2011 anyway. Kicking the tranche down the road keeps the philosophical debate alive, and that’s a victory. It also gives bond raters, the securities markets, and foreign governments a reason to not revise their strategic assumptions for the time being. It’s an agreement to continue the standoff. If Republicans want more, we’ll have to take the Senate in 2012 – and we can’t try to put just any old Republican in the White House.
Recently in the Green Room: