So this is interesting. President Obama did a set of phone calls today with Patty Murray and Jeb Hensarling, the co-chairs of the Super Committee. The readout is here. It included the usual platitudes about reaching a deal, a balanced approach, etc. Everything Obama has said a hundred times before. This was new, however, and I assume precipitated by the chatter that the trigger will never be pulled, that Congress will find a way to back out of the cuts, particularly the defense cuts:

The President also made clear that he will not accept any measure that attempts to turn off part of the sequester. The sequester was agreed to by both parties to ensure there was a meaningful enforcement mechanism to force a result from the Committee. Congress must not shirk its responsibilities. The American people deserve to have their leaders come together and make the tough choices necessary to live within our means, just as American families do every day in these tough economic times. The President urged the leaders to get this done.

That’s not a veto threat, but it’s pretty darn close. And it’s clear that Obama envisions the trigger as a forcing mechanism to get to a deal. But he surely knows the score. There has not been anything close to an agreement on the committee, and the two sides are trillions – with a T – apart. Maybe something can be pulled out of the fire, but it’s not likely. That would leave us with the trigger, and here we have the President telling the committee co-chairs not to mess with it. That puts Obama in contrast with his own Defense Secretary, who thinks that Congress must sink the defense trigger or we’ll all be killed in our beds by scary Terrorists.

Obviously Congress has a year to deal with the trigger, the contents of which would not hit budgets until January 2013. But with this statement, Obama is basically telling Congress that he’s having none of that – and dangerously close to saying he will veto anything trying to nullify the trigger. And he had to do this, because that’s the direction in which things have been moving.

Sam Stein noticed this as well, and added some remarks from an off-the-record briefing with reporters this week:

In a briefing with reporters on Thursday, a senior administration official explained the president’s thinking on this front. “Our view has always been that Congress should do its job,” the official said. “These trigger mechanisms serve a purpose, which is to force action and we have always been opposed to efforts to take away the consequences for Congress’ failure to act.”

Added another official at the same briefing: “They just voted on this a couple months ago. To me, this is an issue where folks are looking for an easy off-ramp. Our view is the only way to avoid the sequester is to do the job that they have been mandated to do.”

Meanwhile, Third Way rolled out a fallback deficit reduction plan, that includes defense-heavy spending cuts, a lower amount of revenue increases without a final status on the Bush tax cuts, and virtually no cuts to Medicare and Medicaid. It signifies their attempt to salvage the Super Committee, punting most of the more controversial issues until after the election (chained CPI is still in there, however, which ought to be a dealbreaker). Obama’s preferred option on that appears to be letting the trigger do its business.

UPDATE: A bit more from the press gaggle aboard Air Force One after these phone calls were made:

Asked later if the president would veto a measure that does that, (Press Secretary Jay Carney) said he would not “speculate about how this would play out.’’

Why did the president deliver that warning? Jay said there have been discussions on Capitol Hill about “changing” the sequester.

Doesn’t look like there was any correction of the characterization of this as a “warning.”

The special pleading for the military-industrial complex on the part of Defense Secretary Leon Panetta has reached truly disgusting levels:

Defense Secretary Leon Panetta has been steadily escalating his warnings about the impact of the deep cuts facing the Pentagon if the congressional super committee fails to reach a deal. On Thursday, he played the last – and strongest — card in his deck, arguing that the hundreds of billions of dollars of mandatory cuts would directly imperil U.S. national security [...]

He went even further on Thursday, using arguably the strongest rhetorical weapon in his arsenal. Mandatory defense cuts, he warned, would weaken the armed forces to the point that enemies would be emboldened to attack the U.S.

“In effect, it invites aggression,” Panetta said during the new conference, just his second since taking office in July.

That’s right, reducing the size of the military from bigger than the military of every nation on earth combined to just slightly smaller than the military of every nation on earth combined leaves us terribly vulnerable to attack. Keep in mind the last “military” attack on the United States, outside of the War of 1812, was pulled off by 20 people with boxcutters. I don’t know that having the extra $300 billion in advanced weapons systems at the ready plays a role in stopping that. He actually said that these reductions, which would take the military to a size recommended by bipartisan panels, would turn the US into a “paper tiger.”

And rather than cutting the military, Panetta has openly called for exemptions that would force the cuts to fall on social safety net programs like Medicare, Medicaid or Social Security. Even internally at the Pentagon, Panetta is more interested in cutting the health care benefits of veteran retirees than reducing the bloat.

First Democrat running the Pentagon in 15 years, folks.

The Economist has a great elegy for my favorite soon-to-be-deposed leader, Silvio Berlusconi. If you gave me a list at the beginning of the year of Hosni Mubarak, Moammar Gadhafi and Berlusconi, I would have said that Berlusconi would have been the hardest one to dislodge from power. It took him almost destroying his country with his governance – for the second time – to finally bring the hammer down.

Mr Berlusconi has governed it for eight and a half of the past ten years, and has probably done more to mould it in his image than anyone since the country’s fascist dictator, Benito Mussolini. For the past 30 months he has clung to power with improbable tenacity, shrugging off scandals that would have felled the leader of almost any other country [...]

Alarm was also spread by Mr Berlusconi’s initial insistence on a general election as the only way out of the political deadlock, and by his naming of a perceived stooge, Angelino Alfano, the secretary of his People of Freedom (PdL) movement, as his likely successor: the man who, as justice minister, introduced a 2008 law, later ruled unconstitutional, that provided Mr Berlusconi with immunity from prosecution. Not even an agreement by parliamentary business managers to pass the economic reforms by November 14th stemmed the run on Italian debt.

This is Berlusconi’s legacy. Parliament under his rule served mainly to extricate him from any of a number of extra-curricular legal problems, when it wasn’t designing policies almost entirely for the benefit of his businesses. Anyone who thinks that Berlusconi will spend a minute in jail hasn’t been paying attention to how he has run the political sphere for the past two decades, quietly reducing his own exposure to prosecution.

The Prime Minister ran the country into the ground, and even under the circumstances, his exit is welcome news. Berlusconi’s unflagging optimism actually bordered on dementia: his response to the current bond crisis, initially, was that the restaurants were full, so the economy must be doing fine. The country is a mismanaged wreck, where powerful monopolies hold the vast majority of wealth, poverty rises, and protection rackets are the norm. It can be said that, at least when the entire government was under the sway of the mafia, the trains ran on time. This Berlusconi/Mafia hybrid – his ties are well-documented – was just inefficient. Growth over the past 15 years has averaged a paltry 0.75% (of course, this doesn’t take into account a very large black market economy).

None of this is to say that the alternative will be sunny for Italy in the near term. They are being forced into crushing austerity, which will not work in providing economic growth. Spending cuts will merely lead to revenue reductions. There is not nearly enough time to just wait around for growth when bond yields are elevated. Things may not be able to get worse, but yet it can.

And this is premised on the notion that Berlusconi still won’t be wielding influence behind the scenes. In this reading he goes back from being Prime Minister to just being Rupert Murdoch, in control of most of the media Italians see. He can hide there in the shadows before coming back to life, like he did after the reign of Romano Prodi, and returning to power.

More broadly, the only way Italy has out of their own troubles is the European Central Bank, which is completely unwilling to act as the lender of last resort to avoid an outright depression. Paul Krugman has the best word on this:

What has happened, it turns out, is that by going on the euro, Spain and Italy in effect reduced themselves to the status of third-world countries that have to borrow in someone else’s currency, with all the loss of flexibility that implies. In particular, since euro-area countries can’t print money even in an emergency, they’re subject to funding disruptions in a way that nations that kept their own currencies aren’t — and the result is what you see right now. America, which borrows in dollars, doesn’t have that problem.

The other thing you need to know is that in the face of the current crisis, austerity has been a failure everywhere it has been tried: no country with significant debts has managed to slash its way back into the good graces of the financial markets. For example, Ireland is the good boy of Europe, having responded to its debt problems with savage austerity that has driven its unemployment rate to 14 percent. Yet the interest rate on Irish bonds is still above 8 percent — worse than Italy.

The moral of the story, then, is to beware of ideologues who are trying to hijack the European crisis on behalf of their agendas. If we listen to those ideologues, all we’ll end up doing is making our own problems — which are different from Europe’s, but arguably just as severe — even worse.

Sad.