The latest news has muted, but falling, markets in the wake of Republican Speaker John Boehner walking out of debt-ceiling negotiations with the President. The Sunday night deadline the President set for congressional action passed without any new agreement to raise the debt-ceiling.

Markets are jittery – and take note: there will be little warning before the exact moment a new financial crisis starts, and jitters turn into an avalanche of selling US Treasuries.  over a fundamental shift in confidence of foreign owners of US debt that they will ever be paid in full will create panic. Economists call it a ‘Minsky moment”, after Hyman Minsky, who is back in vogue after being exorcised academically for decades for calling capitalism “inherently unstable”.

Its looking more likely now that Congress may  cross the complete-gridlock line. It may not be able to pass legislation raising the debt-ceiling. The Presidents remarks to the nation said it straight – a grave crisis is approaching. He is not bluffing.

There is a faction in the Republican party that simply wants to strangle public goods and public works. Period. It does not matter if this reckless arrogance is born of stupidity, or meanness, greed. Under the extreme pressures of this depression, some are captured by, and cannot seem to escape – no matter the contrary arguments and common sense presented – bankrupt ideologies like Reaganism. The latter ALWAYS advocated progress through soaking the working people, fixing unemployment with more layoffs and tax cuts for the rich, and other completely refuted, dead-end, and used-up so-called “market fundamentalism” ideas.

We are in this crisis because the Reagan framework of privatization, union busting and financialization of the post-Vietnam war economy has collapsed in pieces – it does not work. A new industrial and financial policy is needed. It must include a conceptual framework that redefines the proper relations between public and private to match a world rich in human capital, services, and more public goods and works, alongside a more transparent, less corrupt private financial sector focused on innovation. How we get there – that's the “what is to be done” for this era.

What lies immediately ahead is unknown. Even if a deal is struck at the last minute, or if the President invokes power under the 14th amendment to raise the debt ceiling on his own, this controversy reveals a political system in serious need of repair, as system becoming increasingly paralyzed. A new financial crisis is a certainty if we go into default, but not unlikely even if we avoid technical default. Confidence in the United States is being shaken. The road to austerity is the only matter now being discussed – and that road leads to national disaster, in my opinion. The slightest externality – say, the unwinding of the Greek default beyond what the EU can handle – can sink the ship.

Time To Look Deeper

Its time to look deeper, and ask some basic questions – in case we survive the imminent economic tsunami and decide to mount a successful economic and democratic revival in our country.

Deep Question number one: The only regime capable of redressing this crisis is one AT LEAST as democratic, as progressive, as working class oriented, as Franklin Roosevelt’s. For many reasons, some likely personal style and philosophy but most rooted in different historical relations of forces, Obama, so far,  is governing from a more centrist, friendlier-to-Wall Street position. This is seriously compromising a turn away from austerity politics. How do we shift the center leftward?

Deep Question number 2: The first question implies an effort on the scale of World War II, both economically and politically. If Hitler had not attacked, Roosevelt would have left office in 1941 with 16 percent unemployment! What is the analog to World War II that works as the great mobilizer today?

Deep Question number 3: How, and in what forms can necessarily market-based sectors of the economy both grow, and  be stabilized – in what will be a mainly services, knowledge-based, more socialized economy of a better future? The “more socialism” comes from the need to curtail “too big to fail” private enterprise, and from strengthening the safety nets and investment in the abilities of our people, and from a more coherent industrial policy that addresses public private partnerships in “green” challenges on a large scale.. Clearly the Reaganite-financialization model has failed. What, exactly, replaces that model?

Deep Question 4: another financial crisis coming short range threatens to create pre-World War II Germany, Versailles-like pressures on society. Is the Norway mass  murder spree a wake-up call for us all? Are there not serious fascist, anti-democratic dangers emerging and reflected in far right Republican efforts to “reduce government to a size where it can be drowned in its bathwater”?

As we approach the 2012 election cycle, the debt-ceiling showdown is showing that big questions are becoming immediate ones, not just subjects for long-range speculation. The stakes are immense, both nationally and globally. What we do – will “light us down in honor or dishonor to the latest generation.”