Republicans fostering instability in bond market, governor claims

New London - It started with a question about a headline in the financial press: Is the cost of state borrowing soaring because bond markets are afraid state governments might default on what they owe?

And that led Gov. Dannel P. Malloy into a sharp condemnation of Republicans, including his New Jersey counterpart, Gov. Chris Christie, who the Connecticut governor says are escalating instability in the bond market for partisan advantage.

"I think there needs to be a broader discussion about how politics are impacting the price of bonds," Malloy said Friday in a meeting with The Day's editorial board.

"When Republican members of the Congress talk about allowing states to go bankrupt - changing the bankruptcy law to allow states to go bankrupt - what do you think the reaction's going to be in the bond market? These are, in my opinion, dangerous statements to be making, and the people who are making them should be held accountable."

Malloy directed those words at a handful of public figures, among them Christie and former U.S. House Speaker Newt Gingrich, who have floated the concept of state default as a way of avoiding future federal bailouts for the states.

And they were a momentary departure from Malloy's tone during his current cushioned interlude between his inauguration last week and the budget proposal he will unveil on Feb. 16.

"We have people who for political reasons are inserting uncertainty into the bond market, and we're seeing the bond market reflect that," Malloy said. He went on to criticize some of Christie's other recent exhortations to fellow Republicans to hang tough against established interests and to eliminate tenure for schoolteachers.

"Hopefully I take a slightly more intellectual approach to this discussion than Governor Christie has demonstrated," Malloy said, adding that his counterpart "certainly understands the nuts and bolts portion of it."

"There are proven economic theories about sustaining economic growth, and we ignore those theories that have proven themselves at our own peril," Malloy said.

"We're going to see large-scale additional unemployment caused by governmental entities: local government and state government primarily, and perhaps the federal government," he said. "Can you tell me what the impact of that is going to be on the recovery?"

When an editorial writer responded that adding to unemployment might blunt a nascent economic recovery, Malloy replied, "But that's what he's calling for."

Friday's visit was the first interview Malloy has conducted with a newspaper editorial board since winning the election over Republican Tom Foley, he said. The wide-ranging conversation hit predictable areas of state fiscal policy but also revealed more about the historical context the new governor feels he occupies.

The current economic plight is "not unlike 1935, '36," Malloy said, referring to the years when the administration of President Franklin D. Roosevelt had seen some success but also heard calls to roll back its most aggressive economic interventions against the Great Depression.

"Do you pull back from a level of investment that has shown some ability to get the economy moving?" Malloy said. "Do you pull back now or do you pull back over a period of time? The Republicans in Washington want to pull back now. What I would argue is you need a better thought-out withdrawal from that market, which we're not going to get."

But Malloy also expressed sympathy with the intentions of politicians such as Christie, who say their goal has been to shrink the size of state government and improve its efficiency. Those same goals, which were central talking points of Malloy's campaign, have many in Hartford anticipating a clash between Democratic leadership in the legislature and the new governor, who seems more prepared to make cuts.

An ultimate reduction in the size of government is, "over the long haul ... probably a good thing," Malloy said, but he returned to his concern about driving unemployment. "Over the short run, all of that at once is a very dangerous thing."

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