Rule One: Don’t Make Threats You are Not Willing to Back Up

This is the part where the U.S. debt crisis could, maybe, perhaps, possibly get real.

If Congress refuses to raise the debt ceiling, so the tax-borrow-and-spend-some-more cycle in D.C. can not continue without change, then Congress and the White House would have to do something real about the debt ceiling.

Without the crisis of not raising the debt limit, the U.S. will simply never change — its deficit will not go down, the debt will not go down, the money printing will continue, inflation will rise and the dollar’s value will continue to drop.

All the fund managers and sovereign debt funds should be prepared for the outside possibility that the debt limit will not be raised, simply because The One refuses to do anything serious to cut spending.

All The One just wants is to raise new taxes by a couple trillion, that’s all.  Oh, and an unconditional increase in the debt ceiling.

And because the Senate Democrats who could force the White House to act, will not, there is a possibility that the debt limit will not get raised.

The Dems will refuse to agree to anything serious, in terms of spending cuts.

And as a result, the GOP will refuse to do business as usual, and the debt ceiling is not raised.

I’d say the odds of the GOP standing-to on not raising the debt limit are about 1 in 4.

The credibility of the GOP on the spending question is on the line — and the CBO report that only $350 million was cut from the great-let’s-keep-the-government-running-and-spending deal was a serious political body blow.

If the GOP can’t shoot the hostage (refuse to raise the debt limit) they should not be making threats that they can’t back up.

Oh, if the GOP is not willing to not raise the debt limit, then the White House will call their bluff, and then the GOP will fold.

Then, the GOP base will be really upset, because what the GOP will get will be more spending, more debt and fewer cuts.

The GOP will insist that it got the best deal ever, but the base and the American people will be treated to more spending and borrowing as usual.

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