One should always take second hand accounts from secret meetings with more than a grain of salt, but the Wall Street Journal's account of President Obama's position in his negotiations with Speaker Boehner should raise some concern. The WSJ told readers:
"The president told him [Boehner] he could choose one of two doors. The first represented a big deal. If Mr. Boehner chose it, the president said, the country and financial markets would cheer. Door No. 2 represented a spike in interest rates and a global recession."
Huh, a spike in interest rates and a global recession? What exactly could President Obama mean if he really said this? If there is no deal over the course of 2013 [not by January 1, that is a fairy tale told for children and Washington pundits] then it is likely that we will see a recession, as the Congressional Budget Office and others have projected. But a recession is associated with lower interest rates, not higher interest rates.
If President Obama really thinks interest rates will spike because of a big tax increase coupled with the cuts in the sequester then he badly needs some new economic advisers. I'm always open to new economic theories, but it's hard to see how you can get from standard economics to this sort of story.
If the WSJ is confident in the reliability of its sources it should be running a news piece on President Obama's loony economics.
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