Advice to Investors, as the Federal Government Approaches the Cliff | Jeff Frankels Weblog | Views on the Economy and the World: There are other guys (and gals) in the car who are even more delusional. They are dead set on a policy of immediately eliminating the budget deficit.... This is literally impossible arithmetically, but they honestly don’t know this. It is as if they were insisting that the car can fly.... It seems likely that the man in the driver’s seat - House Speaker John Boehner - does realize that the other guys don’t have the facts quite right. But there is also a game of chicken going on within the Republican car.... The guy who is riding shot-gun in the car - the one who believes the car can fly — is trying to put his foot on top of Boehner’s on the accelerator pedal.
It seems to me that Boehner, too, is miscalculating. Given that the car can’t fly, the crazy guy is probably going to oppose him in the primaries no matter what he does. So I don’t see what his plan is....
As a result the Republican leadership is in the remarkable situation of refusing to agree to Obama’s offer to solve the problem so long as the solution includes raising tax revenue, even if it is via such measures as ending distortionary subsidies for ethanol, oil companies, and corporate jets.
If I had to guess: The financial markets will wake up just before August 3. US bond prices will finally fall. The market reaction will shock the Republican leadership into action.... But by then it might be too late.