Flippers

Airplane control surfaces are called "elevators", but they didn't always have that name.  Originally there were called "flippers", because they didn't elevate the airplane.

Words contain a great deal of power, and while this example seems silly, it's actually deadly serious:

The flippers primarily control airspeed,⁴ not elevation.

Of all the oversimplified wishful-thinking ideas, the notion that the yoke is the up/down control is the most deadly. You may think that neither you nor anybody else would be dumb enough to keep pulling back until the stall occurs — but the accident statistics indicate otherwise. The stall/spin accident is the #1 most-common type of fatal accident, year in and year out.

As the ground fast approaches and panic begins to set in, a lot of trained people look to the "elevators" to gain some elevation, when what they actually need is airspeed.

I am watching the Debt Ceiling Talks with an increasing sense of wonder, in how it's entirely divorced from the real problem facing not just the US, but the World economy.  Both of the political parties here, and seemingly everyone in politics in Europe seem to think that moving the "elevators" is what the economies need right now.  I have this sense that they're pulling back as hard as they can on the control yoke.

Europe's glide path looks like it will take them all the way to the scene of the crash:

Here are the facts: The yield on Greek sovereign debt is now at record highs for the euro era. Last week’s state-managed bond auction in Italy almost failed. And, while few seem to have noticed, the overnight repurchase market -- for short-term, secured, corporate debt obligations -- nearly seized up amid what Combs described as “an almost panicky scramble” for less- risky paper.

Indeed, investors’ manic desire for safety last week reached levels not seen since the most acute days of the financial crisis in September and October 2008. Ironically, though, given the pathetic display in Washington and the country’s ongoing fiscal troubles, people turned in droves to the perceived security of the U.S. Treasury market, even though it has never looked shakier.

Greece for certain, and very likely Italy, Spain, and Portugal are too far from the runway to make it.  Money is bailing out of the Eurozone so fast that short term Treasuries now have negative interest:

U.S. Treasury bills shorter than three months in duration traded at negative yields last week. Three-month bills were trading a yield of 1 basis point. Six-month bills traded to yield 4 basis points and one- year U.S. Treasuries were trading to yield 13 basis points.

In short, demand for the perceived security of the debt obligations of the U.S. government was so intense that “it was virtually impossible to find ANY amount of certain maturities of short duration Treasury bills,” Combs informed me.

Bond prices and interest rates are inversely related: as price goes up (in this case, from increased demand), interest paid falls.  It's now negative, which means that European financial markets are paying the US Government for the privilege of holding Treasury notes.

All the PIIGS countries look like they've dropped below the financial Power Curve.  Interest on government bonds from Portugal, Ireland, Italy, Greece, and Spain have all risen above the 6.5% rate beyond which maturing (old) bonds that have to be rolled over cause more fiscal pressure (higher new interest rates), requiring more revenue to pay the interest (which isn't available), which causes more borrowing (which leads to higher interest rates).

The question is not if Greece will leave the Euro, it's when.  And the question is when the others will, too.  Those countries desperately need airspeed, and the only way to get it is to devalue their currencies.

Which they don't have.  Yet.

And so, back to Washington, which looks oblivious to this incipient meltdown.  Europe's crash is going to be hard - markets do not handle this sort of large scale default gracefully, and so the European economies will take a hit.  A big hit.  That's going to effect us.

With 9.2% unemployment and maybe 1% GDP growth, we don't have much margin for error.  The political parties keep treating this as a problem of altitude - raise the debt ceiling to avert the crisis.  They don't get that it's an airspeed problem, where we're drifting at just a hair over stall speed.

Airspeed. 

A veteran pilot knows what to do here - push the yoke forward, hard.  Don't correct, over correct.  You can adjust later, but right now lift is the only thing holding you away from Mother Earth's crushing embrace, and you're just about out of that.

We need economic growth and lower unemployment, now, and yet the Obama administration is pulling back on the control yoke as hard as it can.  The markets are slipping into a panic; the herd is starting to break, and once the stampede begins, anything in its way has just about enough time to prepare to see its maker.  The markets want to see grown ups at the controls.

They don't:

As Kevin Drum points out, "This is not, repeat not, a good time to be screwing around with the possibility of defaulting on U.S. debt".  Yet as Stan Collender notes:

On the one hand, much of Wall Street is insisting that the whole fight is political theater and that Congress and the White house will work something out. On the other hand, congressional Republicans are insisting that Wall Street won't react negatively if a deal doesn't get done.

In other words, financial markets aren't yet reacting because they think a deal is in the offing and the GOP isn't cutting a deal because it doesn't think Wall Street cares.

I'm having a hard time seeing how any of this ends well.

Yeah, me either.