Could it be that an economic backlash is the necessary impetus to push some reticent legislators to compromise on an unsavory bill?
“There’s a real chance that they reach a deal and it fails in the House, and then you get something like TARP—a severe market reaction and then they come back and do it,” said American Enterprise Institute scholar Norm Ornstein when he spoke to National Journal earlier this week.
Ornstein wasn’t alone among D.C. political types in suggesting that TARP could be a blueprint to a deal. But it’s a scenario economists and political risk experts have a hard time envisioning, in part because they are so confident a deal will be reached in time to avert the combination of tax increases and automatic spending cuts set to hit the economy next year.
“Right now I think the markets are assuming that there’s going to be a deal at the 11th hour,” said Joseph Lavorgna, the chief U.S. economist at Deutsche Bank.