Koch Brothers and Debt Crisis

I am responsible for managing a substantial investment portfolio, and consequently have been watching the government shutdown/debt ceiling discussions with considerable care. As early as late June I was turning some of that portfolio into cash (prematurely, as it happened), out of fear that the Republican radicals would shut down the government and cause a default on the debt, with virtually incalculably bad consequences for the country and the world, as well as the markets.

Noting that the stock market did not seem to share my concern I kept wondering why, and exploring all the possible reasons. The most plausible was that Bernanke's warning of the end of stimulus had caused bonds to drop in value, sending a lot of cash into the stock market seeking returns, while during the summer there were no significant new threats looming, China's slowdown seemed to have halted, and the European economy was gradually improving.

Last week John Boehner stated unequivocally that he would not allow a debt default to happen. I regarded this as a major turning point, because I thought Boehner could not say this without having some reason to believe that the crisis was in the process of resolution. I therefore put some of my cash back into the market. But over the weekend he seemed to reverse course, putting forward a new series of demands, and Eric Cantor voiced confidence that the Republican demands would be met. This made me think that Boehner is not as disciplined in his comments as one might expect of someone in his position.

Over the weekend there was another development, at least for me. A NY Times report detailed the long planning for this "crisis" on the part of the Koch brothers and similarly loony Republican billionaires. I had long thought that discussions of the Tea Party positions were deficient in leaving the money out of the equation and focusing only on the ideology of the radicals, since it was the money that gave them their teeth, convincing saner Republicans that they would lose their jobs if they did not hew the radical line. This article not only confirmed that view, but explained some of the more mystifying sideshows, such as the recently surfaced demand that to lift the debt ceiling Obama had to approve the Keystone pipeline, which the article said was 20% owned by Koch Industries.

My bottom line conclusion for the moment, therefore, is that the billionaires are running the show for the radicals, and dictating Boehner's positions. If so, then I return to a more optimistic view because despite their vicious and repellent views, these people are not actually crazy. They are excellent bluffers, and I believe they are running out a strong bluff here. Then they'll fold, because defaulting on the debt will be ruinous for them and they know it.