Maybe Default Could be a Good Thing -- Sort Of

07/12/2011 10:06 am ET | Updated Sep 11, 2011

After Monday's Presidential press conference, the Republican leadership told the nation -- with a straight face -- that a balanced deal means they get everything their way, and the nation gets to live. So unless they're willing to go back to their base and tell them they were just kidding, it seems catastrophe is upon us.

And in this pass, the folks that gave it to us are prescribing heavier doses of the same as the cure -- our old friend: Voodoo Economics. They're obviously hoping nobody remembers that they've been telling each other for decades that this was their strategy -- force a crisis so they could shrink government.

Since we're already trending toward a double-dip recession, and the economy is creating no new jobs, the resulting leap in interest rates can only result in even more job losses in a consumer-driven economy. As the night the day, that will create even lower consumption, bankruptcies for debt-financed manufacturers and retailers -- that is, most of them -- and in a word, depression.

That could well accelerate the IMF move to replace the dollar as the world's reserve currency, which could mean a worst of all possible worlds -- an America without a AAA bond rating, and a business sector losing earnings per share because of the added overhead. Since depression in the US will mean depression in China -- well, you get the picture.

But if you forget about losing your house, 401(k), and needing to work 'til you're 80, this may turn out to be a good thing.

Here's why. Everybody has seen the Republicans do this, and most or many will remember it come November 2012, despite any possible constellation of explanations, denials, or outrageous lies.

Why won't they forget, as has been their wont lo these many years? Because it'll be coming out of their hide, the country will be looking for somebody to blame, and it was the GOP that walked away from a deal in front of everybody and forced America over the edge-claiming all the while that it would be no big deal.

It will be a horrendous price to pay, but something like this is what it took to get rid of these people in 1932, so maybe the US will have to pay it again.

I'm not advocating it; it's just that everything worth having costs more than you want, and if the right wing can be again consigned to the wilderness, and for another 50 years, it may be worth that price.

And in fact, I've been nursing a crackpot theory of history that suggests that the financial collapses provoked by an unfettered free market since the end of the Civil War have been America's keys to creating a more just and stable commonweal.

Once business captured the Republican Party during Grant's Administration, the economy was in a boom-bust cycle in which the booms got more manic, and the busts more profound. The reaction was the Populist Movement, the rise of unions, the Ida Tarbells of the world, the beginning of the end of the monopolies-and a general recognition that if capitalism was going to survive, it needed to be regulated.

Nothing proved that as much as the Panic of 1907, which was so serious that the country's leading banker, JP Morgan, invited New York's bankers to his library, locked them in, and kept them there until they cut a deal to save the economy.

That temporarily solved the problem, but even the most avid capitalists realized America couldn't rely on having another JP Morgan around next time, and the wheels were set in motion to join the rest of the world's advanced economies by creating a central bank, which America had not had since Andrew Jackson abolished the Second Bank of the United States in 1832. Thus was created the bete noir of the John Birch Society, the Federal Reserve.

Also: The mainstream of American politics in the 20th Century, the Progressive Movement, given muscle by a Republican, Teddy Roosevelt, and extended by Woodrow Wilson.

The free market-based Republican reaction after World War I gave us the Roaring 20s, followed by the Great Depression, which discredited Republican theology so thoroughly that it was out of favor until Reagan's election in 1982 -- fifty years.

What I'm suggesting is that we're there again, that right wing theology has given us another crisis that can't be solved with their prescriptions, that things will get bad enough for the nation as a whole to demand something be done -- ideology be damned -- and that this will open the door to a new Progressive Era.

At least, that's what history teaches us -- that order emerges from failure and the resulting chaos. The cost, as I say, will be enormous. But if I'm right so will be the benefit.

Could I be wrong? Sure. Like I say, this is just my own crackpot theory. But I sure hope I'm right. Something good has to come out of this mess.

Visit my website, Reinbach's Observer.