One has to question: what are the Tea Party's goals? They claim to have been elected to shake up Washington, alternately claiming these "young guns" were elected as a public mandate on jobs or taming the debt. They've ridden into Washington to act as spoilers. But what is their real agenda? Or do they even have one? Their philosophy (if there is one) appears to be pure Nihilism perhaps crossed with a form of Anarchy. Loosely affiliated, they have no clear leader, no clear agenda, and so we can only look at their actions for clues.

In the recent debt debate we saw the Tea Party holding the US economy hostage. By refusing to raise the debt ceiling and tying it to the debt debate, they were playing a game of chicken with potentially dire consequences to America and the US economy. Since the US hasn't gone into intentional default before¹, it is unknown what exactly would happen, but most economists believe that a default would have triggered higher interest rates, potentially the loss of Treasury notes as the world's monetary standard, and even caused a run on banks. While Europe has been doing what it can to prevent a default of its member countries, the Tea Party was driving 100 miles an hour towards the Cliff of Default. Inevitably higher interest rates would cause the debt to rise. For every 1% in additional interest on the debt causes $140 billion in additional interest payments. Using an intentional default in Peru in 2000 and a 1979 very brief default in the US due to technical problems as a guideline, we are looking at a minimum of 50bps (50 basis points equals 0.5%) increase in the cost of borrowing. That would be a minimum of $70 billion in additional interest payments - with nothing to show for it and it would make it that much harder to balance the budget. Default would also have caused government workers to go unpaid and if Social Security payments were missed, consumer spending would cut back. JP Morgan² predicted a default would result in a 1% GDP loss. All this would result in higher job losses and bigger debt, hardly what the Tea Party claim they were elected to do.

However, we averted default and the Tea Party got everything it demanded. Trillion dollar cuts were enacted, no new taxes (or even loopholes closed), and Social Security and Medicare are on the table for cuts. The only thing they didn't get was a Balanced Budget Amendment, which would require an unlikely 2/3 majority in both houses and would be very unwise. As we've pointed out in prior articles, the difference between US government income and mandatory expenditures is a mere $55 billion to fund the rest of the government. Assuming we put it all towards defense, this represents a mere 7% of the current defense budget, and would assume that we stop guarding our borders, federal prisons or delivering any other critical government services. However, many of the Tea Party refused to take “yes” for an answer and voted against the new legislation. Congresswoman and Presidential hopeful Michelle Bachman ran a TV ad in which she trumps her "no" vote explaining: "I voted against raising the debt limit because it’s time to balance the budget and pay down the debt." She and other Tea Partiers wanted more - but what and how? Rather than coming to the table with solutions, they continued to stand on the outside and throw verbal grenades. Without solutions, or even realistic goals, it appears they really just wanted to hold out, to see what happens when the US economy went off the Cliff of Default. Economists, commentators, and pundits all said we’d get a budget deal. Wall Street believed. Although the stock market declined, it did not enter a free fall. There was no panic, no real belief that we’d go into default. A deal would get done.

But then it almost didn't, and the Tea Party led the rebellion. Right up to the end, they voted "no". Conservative talk show host Rush Limbaugh and other pundits stated that compromise (not that there was much) or at least being willing to avoid disaster was a sign of weakness. As an analogy, it would be like sitting around and someone brings out gun. They say they are going to shoot themselves in the foot. At first everyone would think they are joking. Who would do something so utterly and monumentally self-destructive? Then, BANG! The person shoots at his foot and misses. Suddenly, you'd look at the person in a different light. When they say they'd shoot themselves in the foot, you realize they are crazy. Similarly, Wall Street woke up to the realization that there may not have been bloodshed this time, but there are people - people in power - who think that way. They are really willing to shoot themselves in the foot for no good reason. In the next showdown, Wall Street and Main Street may not be so lucky. The stock market fell almost 700 points on the realization. Much of it worries about Europe. The Eurozone is in trouble. The boat is sinking and the realization occurred that even if Greece or Italy or another country might have caused the leak, there are some people - people in power - in some Eurozone member countries would be happy to let everyone (including themselves) drown; refusing to help bail on principle.

And now there is the matter of funding the FAA. A long term solution is out of reach since Republicans are demanding changes to the rules on unionization. Rather than a majority of voters, Republicans want to limit a union vote to be a majority of all workers affected (essentially making a non-vote a "no" vote). For a party that rails against government interference, this seems at best hypocritical. Due to this impasse, the FAA's budget has been extended 20 times in the past. Into the fray steps the Tea Party. Rather than a routine vote on a clean bill to extend it again, the Republicans chose to tie closure 13 airports (many conveniently in the districts of influential Democrats) of the Essential Air Service Program to save $16.5 million dollars. However, each day the FAA was out of business it failed to collect $30 million in taxes per day. If this impasse had extended to September when Congress went on vacation, it would have resulted in over $1 billion in lost revenue. Plus 4,000 FAA employees were furloughed along with 70,000 construction workers temporarily out of work due to the inability to fund and inspect $2.5 billion worth of infrastructure projects at various airports across the country. The demands of the GOP this time seem more petty than principle, but once again the Tea Party is holding the government hostage - rather than just send a clean bill (like they could have to raise the debt ceiling), they want to "shake up" Washington by refusing to pass any bill. However, in their zeal they were putting tens of thousands out of work and risked reducing government income by $1b, where all lost revenue results in increased borrowing. Furthermore, rather than targeting so called "wasteful" programs, this is targeting infrastructure upgrades - something our country desperately needs to remain globally competitive. Once again, their actions are self destructive to America, Americans, jobs, and the economy. Fortunately, there are those in GOP who rode the rescue and salvage sanity from the jaws of defeat. But for how long? How long will those in the GOP who value America be able to hold out against the relentless attacks of the likes of Rush Limbaugh and Michelle Bachman? Will Republican purity and insanity drive any sense of compromise from the GOP ranks? And will the Democrats respond in kind? Will we end up in hand-to-hand, take no prisoners combat? Already we see GOP Presidential hopefuls teetering - unsure of whether to sign purity pledges and take extreme positions with the specter of having to choose between selling out their own principles and beliefs and giving up any hopes of a serious Presidential run.

The real question is how one looks at the political process. Rush Limbaugh stated that he "wanted to see Obama fail". He reiterated his believe at the CPAC conference in Washington, DC. He sees it as a zero sum game. Republicans win and Democrats lose. If Democrats win, Republicans lose. However, we look at it differently. Sometimes the voters put Republicans on the starting line-up and sometimes Democrats are the starting players. But in either case we are "Team America". The success of country is much more important than the defeat of any political party. Seeing America’s economy collapse in an effort to gain political control is cowardly and traitorous. For the good of America and Americans we can only hope that this latest bare knuckled brawl is simply an aberration, not a sign of worse to come.

Meanwhile, the Tea Party goes on a rampage. It seems not to be interested in creating jobs, improving the economy, or reducing debt - rather "shaking up Washington" by destroying the system. Perhaps the hope is that with an economy and government on the ropes Republicans can ride to the rescue and capture all reins of power. The problem with this theory is that they will have dug ourselves a very big hole and done a lot of damage. Or perhaps there is no plan - just simple anger and destruction. Could it be Nihilism or, perhaps, Anarchy at work? Let's hope the sanity of the voters will come to the rescue and take the asylum back from inmates.

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Sources

¹ Although the United States never deliberately defaulted on US Debts and Obligations, it has happened. "There have been isolated instances (1790, 1933, and 1979) in which the government restructured debt or did not make some interest payments in a timely manner. Alexander Hamilton's plan to restructure US debt actually steeply discounted repayments on the prior government's obligations, and is now generally considered a default. Widespread defaults in the Depression years owing to going off the gold standard are encapsulated in Perry v. United States. And 1979 saw a brief technical default on some Treasury payments, which resulted in Treasury Bill rates spiking by around 60 basis points for several months - a small glitch that would translate into about $50 billion/year in increased debt service costs. $50 billion is enough to fund unemployment payments for around 6 months: default would instead hand those taxpayer dollars people who hold treasuries." http://theforvm.org/diary/jordan/everything-you-ever-wanted-know-about-debt-limit-were-blas%C3%A9-ask
² http://www.businessinsider.com/jpmorgan-on-the-technical-default-2011-4