And the alternative—failing to increase the debt ceiling? What precise effects would that have? This isn't my area of expertise, but my colleague Alex Hart knows a thing or two about it. Here's what he wrote last week:

Recent history provides a sense of just how scary this would be. “The reason the markets calmed down [during the financial crisis] is that we took [the banks’] toxic assets and handed the financial institutions Treasurys,” says Kevin Hassett, a scholar at the American Enterprise Institute. “If we’re in a default situation, the Treasurys themselves are the toxic assets, and it’s not clear what we can hand anybody to calm them down.”

The sad thing is, Graham seems to grasp this: In the same interview, he notes that default could be catastrophic. But that's not stopping him from making his demands. And that's particularly disheartening, since he is supposed to be one of the more reasonable members of the Republican Senate caucus.

And this is precisely why the Democrats should (but certainly won't) call the GOP's bluff on the debt ceiling. Look, the Masters of the Universe have parked a lot of cash in treasuries over the past few years since t-bills are traditionally one of the safest investments around during times of extreme uncertainty. If the GOP puts the United States into serious risk of defaulting, the Masters of the Universe stand to lose a lot of money as the treasuries they've purchased become as toxic as Greek or Irish debt. This is why the GOP's Wall Street overlords will never, repeat never, tolerate them playing around seriously with raising the debt ceiling and it's why the GOP will cave if Obama and the Democrats stick to their guns (which they won't, incidentally, as many of them actually will welcome the GOP giving them political cover to slash Social Security and other key programs).

But would the GOPers really risk losing countless sums of money for their masters if they created a sovereign debt crisis? Sorta doubt it. And it's worth letting them try simply to watch them slink away in defeat.

Onto more economic news!

• Felix Salmon depressingly notes how Larry Summers will likely be replaced by yet another rich person with strong ties to Wall Street:

  From today’s WaPo report it seems that the shortlist to replace Larry Summers at the NEC has been whittled down to three men — Gene Sperling, Roger Altman, and Richard Levin. [...]

  [T]hey’re all multi-millionaires with close ties to Wall Street. None more than Altman, of course, who has his own bank. But Levin is on the board of American Express, which paid him $181,362 in 2009, and where he has shares and “share equivalent units” worth $539,000. Which might not be a huge sum compared to the $1.5 million or so that he’s earning at Yale, but is still more than enough to make him a denizen of Wall Street rather than Main Street.

  Finally there’s Sperling, who in some ways is the worst of the three when it comes to grubbing money from Wall Street. The other two have well-defined and easily-understood jobs; Sperling, by contrast, signed up with the Harry Walker Agency and started giving speeches to anybody with cash, including not only Citigroup but even Allen Stanford. He also wrote a monthly 900-word column for Bloomberg for $137,500 a year, which works out at about $13 per word. Then he started “advising” Goldman Sachs on its charitable giving, which advice came very expensively indeed:

  Goldman Sachs paid Sperling $887,727 for advice on its charitable giving. That made the bank his highest-paying employer. Even Geithner’s chief of staff Patterson, who was a full-time lobbyist at the firm, did not make as much as Sperling did on a part-time basis. Patterson reported earning $637,492 from Goldman Sachs [in 2008].

  Well, peachy. If there's one thing America needs, it's a another person who used to be on Goldman's payroll making key economic policy recommendations.

  Brad DeLong gives it the old college try and insists that Sperling is actually a liberal, but to me this isn't even about standard left-right ideology anymore but about whether people have bought into the idea that the Great Wall Street Casino is a sustainable economic model. Sperling could be a perfectly nice guy who really wants to help people get affordable health care and good education, but as long as he thinks Wall Street's Ponziconomy is the best way to generate wealth in this country, he should have no business influencing national economic policy.

• On a more positive note, there has been some legit good economic news over the last couple of weeks. Initial jobless claims dipped below 400,000 for the first time since 2008 last week and we got word yesterday that manufacturing is picking up steam:

  Manufacturing activity expanded for a 17th month in a row in December, rising to the highest level in seven months, a purchasing managers' group said Monday.

  The Institute for Supply Management's index for manufacturing activity ticked up to 57 in December. That's the highest reading since May and up from 56.6 in November.

  The reading came in slightly lower than the 57.3 level expected by a Briefing.com consensus of economists. Any reading of more than 50 indicates expansion in the sector, and the index has remained above this mark for 17 consecutive months.

  For the first time in forever, you can see real-life green shoots for the economy. Of course, several things could quickly derail any recovery this year (see: refusing to raise the debt ceiling) so let's keep our fingers crossed.

• And for what it's worth, the fake economy is also doing well right now, with the Dow closing in on 11,700. This doesn't mean anything to the millions of people who can't find a job, but the media seem to think it's the most important economic metric EV-ARRRR so there you go.

What else is happening, peeps?