The Congress problem.

Today Democrats roaming Washington, D.C., have the self-satisfied look of the cat that swallowed the canary. If the November congressional elections were held today, the Republicans would risk losing both houses of Congress. Conventional wisdom says the GOP is more vulnerable in the House of Representatives. Yet if you classify all the Senate races according to those judged highly vulnerable, Republicans may have more trouble in the Senate. Today six Republican Senate seats fit that category, but only two Democratic seats are described as highly vulnerable.

With today's risk spreads unrealistically narrow, this situation for global markets bears watching. With the President sidelined under such a scenario (under a Democratic majority even in one house, the White House would likely face a miserable final two years answering Democratic subpoenas) and the partisan Congressional leadership engaged in internal warfare, the U.S. Congress would be subject to its own, sometimes reckless impulses. The issues of China, financial globalization, and general trade could all be up for reevaluation at a time of huge U.S. current account imbalances and the ever-growing need for foreign capital. Think this is all an exaggeration? Consider the recent Dubai ports episode. What shocked Washington insiders was the broad-based, spontaneous, and visceral response of emotional distrust on Capitol Hill toward the foreign element. One old Washington hand said he had not seen such reckless abandon since the days of internment of Japanese-Americans following the attack on Pearl Harbor. One informal poll showed that 75 percent of the members of Congress said the actual facts of the Dubai situation were of no interest. All that mattered: the emotional feel in their gut toward this foreign intrusion.

None of this discussion of GOP woes is to suggest that the Democratic Party is offering some brilliant future vision. Democrats in large part seem driven by an almost pathological hatred of the President, hardly a healthy approach to long-term political success or governing. Plus, there is some worry whether the party politically may be peaking too soon. On the other side of the aisle, the Congressional Republican leadership is in sheer panic. Discussions are underway over how to gin up the loyal GOP voter base, based on the strange notion that the party can somehow separate itself from an unpopular President. That's not going to happen. If the GOP loses big in November...