Friday, July 15, 2011 4:04:40 AM
GOP’s Debt Kamikazes
Pictured (clockwise from top left) Steve King, Michele Bachmann, Louie Gohmert, Tim Pawlenty, From top left: Alex Brandon; Andy Dunaway; William B. Plowman; Dr. Scott M. Lieberman
(4) AP Photos
In preferring default to a deal, the populist wing of the Republican party has demonstrated its new nihilistic streak. John Avlon on the politicians only too happy to take us off a cliff.
John Avlon
Jul 15, 2011 1:24 AM EDT
Call them Debt Ceiling Deniers. Believers in faith-based fiscal policy. Math-challenged cause-and-effect-skeptics. And an uncomfortable chunk of the GOP’s 2012 contenders.
The costs of courting conservative populists should be clearer than ever to reality-based fiscal conservatives inside the Republican Party. Their “all-or-nothing” meets “what, me worry?” negotiating stance is not only the newest symbol of D.C.’s dysfunction—it is beginning to have an impact on the entire U.S. economy.
After all, S&P is now warning of a possible downgrade to America’s credit rating [ http://online.wsj.com/article/SB10001424052702304203304576446750260199940.html ] because of concerns about our political ability to raise the debt ceiling by August 2. Moody’s similarly announced it is considering a downgrade of the U.S. bond rating. Bush-appointed Fed Chairman Ben Bernanke calls the looming prospect of a default on our debt “catastrophic.”
But Michele Bachmann believes it’s all a hoax. Tim Pawlenty told an Iowa crowd, “I hope and pray and believe they should not raise the debt ceiling.” Ron Paul based his first presidential ad on a call to not raise the debt ceiling, proclaiming “No Deals.” And Rick Santorum has said that raising the debt ceiling should be avoided until a Balanced Budget Amendment to the Constitution is passed.
This position is a long way from saying the vote to raise the debt ceiling should be contingent on a deal to reduce the deficit and the debt. It is not looking for leverage or savvy negotiation on the way to a settlement. Instead, it is prideful ignorance—an eagerness to go off the fiscal cliff to show the world that gravity does not exist.
The fact that defaulting on our debt would raise interest rates—deepening the fiscal hole we’re in by compounding the size of our deficit and debt overnight—is not addressed. Instead we are greeted with nihilistic bubble talk—at its best, economic incompetence and at its worst evidence of tactical Leninism—the belief that “the worse things get, the better they are for me politically.”
This attitude is gaining adherents among conservative populists in Congress. Here’s Texas Congressman Louie Gohmert—a co-sponsor of the Birther Bill, who infamously argued against the Hate Crimes Bill by equating homosexuality with bestiality, necrophilia, and pedophilia—condemning Speaker Boehner for buying into the alleged myth of the August 2 deadline: “The speaker is getting bad advice…I guess the problem with the speaker and him saying that [the debt limit needs to be raised by August 2] is that he listened to the president. I'll urge the speaker not to believe the president anymore." This is what passes for reasoning together right now.
In an epic bit of projection, Gohmert also accused the president of fear-mongering by saying factually that failure to raise the debt ceiling could cause Social Security checks to not be mailed out on time. Gohmert specifically pined for some FDR-style optimism to override any sense of real-life consequence for failure to pay our debts. “Instead of being a statesman leader and saying something like, 'The only thing we have to fear is fear itself,'” Gohmert said, “this president tries to create fear and panic in the American public at every turn.” Pot, meet kettle.
If you argue with a fool, you’ve got two fools. Nonetheless, I thought a reality check might help some of the Republicans in Congress currently deciding how they’ll vote as we pedal ever closer to the cliff that is the August 2 deadline.
So I reached out to two former Republican chairmen of the Council of Economic Advisors, with presumably impeccable fiscal conservative credentials: Michael Boskin, who served under Bush 41, and Glenn Hubbard, who served under Bush 43.
"A real default would have severe ramifications in financial markets and the economy. We need to maintain the full faith and credit of U.S. government securities," says Boskin, now a senior fellow at the Hoover Institution. "The deficit and debt are primarily a spending problem that could condemn us to stagnation or stagflation if not seriously addressed soon. So trying to leverage the debt ceiling increase into spending control makes economic sense...The worst outcome is a default with no real spending control."
While you’re digesting that considered opinion, here’s Glenn Hubbard, advocate/architect of the Bush tax cuts and dean of the Columbia Business School. “The debt ceiling must be raised—not doing so is irresponsible,” Hubbard emailed. “The real discussion needs to be about to stabilize, then reduce America's burgeoning debt-to-GDP ratio…From here, the most sensible path would be an agreement on spending reductions. Then should come a debate (post-raising the ceiling) over reducing entitlement spending versus raising taxes. That debate can also address raising marginal tax rates (as the president proposes) versus limiting tax expenditures (as the [Bowles-Simpson] commission proposes). These debates will be the domestic policy stage for voters to judge in 2012.”
Got that? The deficit and debt are serious problems. Let’s have a vigorous debate on how to best address them. Let’s negotiate the best deal possible with spending cuts, tax reform, and entitlement reform. And then let’s put alternatives to the American people in 2012. But don’t take the U.S. economy off a cliff just to prove your point.
Senate Minority Leader Mitch McConnell’s proposal—a procedural plan that would allow the president to unilaterally raise the debt ceiling as long as he promised a commensurate amount of spending cuts—seems to me an acknowledgment that the conservative populists could stop a debt-ceiling vote, something that strikes McConnell as fiscally irresponsible and politically unwise for the Republican Party. It is a tacit admission that the inmates are damn-near running the asylum.
The deal-makers in the Republican Party—like Speaker John Boehner—are finding themselves fighting with debt-ceiling deniers, with the full faith and credit of the United States hanging in the balance.
Even supposedly responsible Republican presidential candidates like Mitt Romney—whose campaign slogan might as well be ‘He’s the Sane One’—are finding it politically beneficial to flirt with debt-ceiling denial, announcing a ‘cut, cap and balance’ proposal without revenue increases as his ‘line in the sand’ for supporting raising the debt limit.
But this beast cannot be appeased. As with all absolutists, the goal-posts keep moving. Two months ago, Rick Santorum wrote [ http://www.facebook.com/note.php?note_id=10150195206879440 ]: “Before we again raise our nation's debt ceiling, we must insure that the major components of our exploding debt are under control, namely our entitlement programs.” Now President Obama has put entitlement reform on the table. But a different standard is applied, because making a deal is not as important as making a point.
The debt-ceiling deniers could be dismissed as just another branch of the conservative populist tribe at war with modernity. Except this time the enemy isn’t science—it’s math. And international markets don’t respond well to denial.
The growing popularity of this position among the 2012 contenders should cause real fiscal conservatives in the GOP to take a hard look in the mirror—because the conservative populists they have helped empower for short-term political gain are making long-term fiscally responsible governance almost impossible.
By encouraging default, the debt-ceiling deniers are playing politics with people’s daily lives. They are making the prospect for economic recovery even more distant while unintentionally adding credence to our competitors’ mistaken belief that America is a great power in decline.
John Avlon is senior columnist for Newsweek and The Daily Beast. His most recent book Wingnuts: How the Lunatic Fringe Is Hijacking America [ http://www.amazon.com/exec/obidos/ASIN/0984295119 ] is available now from Beast Books both on the Web and in paperback. He is also the author of Independent Nation: How Centrists Can Change American Politics [ http://www.amazon.com/exec/obidos/ASIN/1400050243 ] and a CNN contributor. Previously, he served as chief speechwriter for New York City Mayor Rudy Giuliani and was a columnist and associate editor for The New York Sun.
© 2011 The Newsweek/Daily Beast Company LLC
http://www.thedailybeast.com/articles/2011/07/15/the-debt-ceiling-and-why-some-republicans-would-drive-us-off-a-cliff.html [with comments]
===
Debt Ceiling: What's the End Game For Republicans?
Jul 14 2011, 11:57 AM ET
Jonathan Podhoretz reads a Quinnipiac poll showing that by a margin of 48-34, the public is going to blame Republicans and not Obama if we don't raise the debt ceiling, and joins the ranks [ http://www.commentarymagazine.com/2011/07/14/the-strategic-storm-out-obamas-hand-improves/ ] of the Washington sellouts:
At some point, those who believe it will be acceptable to go to August 3 without an increase in the debt limit, as well as those who believe the politics favor the Republicans, are going to have to reckon with the fact that there are no data points supporting their beliefs. The way things are going, if August 2 comes and goes without an agreement, there will be a worldwide panic that would have catastrophic immediate consequences in the equity markets. And when Obama says, "I warned and warned and warned and they didn't listen," any attempt to offer a counterargument is going to sound very hollow.
I know I'm beating a dead horse at this point, but I continue to be mystified by what the base, the activists, and the politicians who are pushing the "no new revenue" stance hope to accomplish.
Let's start by pointing out the obvious: the Democrats do not show any signs of caving. They have offered what seem to be very attractive deals, and been turned down. Think you're going to get a more attractive deal? Every time another poll like this comes out, your bargaining position gets worse. Moreover, in Washington, deals take time. Even if Obama and the Democrats caved right now and gave the GOP massive entitlement cuts in exchange for raising the debt ceiling, the government would be hard-pressed to hammer out the details, draft them into legislative language, get the CBO to score the cuts so you know that they're real, and then whip the votes to get the damn thing passed. Every day you wait makes it less, not more, likely that you can get any deal at all.
Maybe you think the deadline is artificial and Treasury is just exaggerating. I have been very much less than impressed by the arguments I have seen to this effect, because most of the people making them seem to be under the impression that on August 2nd Treasury can just start playing accounting games, when August 2nd is in fact the date when Treasury says it will have exhausted all the accounting games that we've previously used to finesse the debt ceiling. But even if it were true, so what? How does extending the crisis another month get us any closer to a deal? What's going to change?
Maybe you don't want a deal. Maybe you think it will be better for America if we either default, or force Obama to slash spending drastically. I imagine that this graph is something along the lines of what most of the advocates of this approach are imagining.
[much larger version at http://cdn.theatlantic.com/static/mt/assets/meganmcardle/assets_c/2011/07/US%20Spending%20Breakdown-57410.php ]
I've tried to roughly prioritize spending as I think is politically palatable to both tea partiers and others: the debt payments first, followed by military payrolls and family housing, VA benefits, Social Security, Medicare and Medicaid. After that, we hit the red bloc: funding for military operations. Somewhere in there, the money runs out. Anyone in line after that doesn't get paid.
The problem is, prioritizing strictly the way this chart does won't work. Are you really going to just stop funding current military operations on August 3rd? You're going to leave a bunch of guys sitting in Iraq and Afghanistan and Libya with tanks and automatic weapons and no way to get them home?
Going to empty the prisons? How many guards do you think turn up for work when you stop paying them?
How about border control? I don't think it's going to be popular with the GOP base when you cease border enforcement and invite anyone who wants to to stroll across our unmanned border checkpoints. However much you hate the ATF and the DEA, they are a small fraction of this sort of spending at the federal level.
If we cut all funding for "general government", who is going to collect the revenues that you need to pay for all the social security checks and Medicare payments you plan to move out?
How long are landlords going to let tenants ride when Section 8 checks don't arrive? Going to let kids sleep on the streets?
Is your kid planning to take out a student loan for college this fall? Not any more, they're not.
With joblessness going up, you're going to get an earful when unemployment checks don't arrive.
. . . and when the mortgage market shuts down because Fannie and Freddie and the FHA stop writing checks.
Also, all those laid off state and federal workers are going to make the jobless numbers jump.
To the extent that you fix any of these problems, it means cutting into the sacred four: military payrolls, VA benefits, Medicaid/Medicare, and Social Security. Or defaulting on our debt. Also, when you cut spending, GDP is going to fall, which means that tax revenue will also fall, which means that we probably have to cut even deeper into those politically untouchable programs.
Okay, maybe this will really suck in the short term, but it's necessary to get us on a long term sustainable fiscal path.
. . . er, what long term? Voters are telling pollsters they're going to blame the Republicans for the shutdown. And the spending cuts you're going to do won't even be that popular with the tea party, who aren't much more enthusiastic [ http://www.slate.com/blogs/weigel/2011/04/19/poll_70_percent_of_tea_party_supporters_oppose_medicare_cuts.html ] about Medicare/Medicaid cuts than the rest of the country.
To me that sounds like "huge Democratic victory in 2012". I know, I know--if it's so "great for Democrats", why aren't they urging this course? Well, one school of thought says that they are--and neatly maneuvering the blame onto the GOP, thanks to the tea party's very vocal intransigence. But if that's a little too Machiavellian for your taste, the simpler answer is that this can be lose-lose. If we shut down the government, key social programs get hurt, the economy contracts, and the Democrats have to cut spending in a recession in order to make the budget balance after this little contretemps raises our interest rates. But the fact that the Democrats are worse off doesn't mean that the Republicans are better off. The Democrats can lose while the Republicans lose even bigger.
That has implications, not just for the debt ceiling, but for a whole range of problems. Republicans have a decent shot of taking the White House and the Senate in 2012; by throwing that away with both hands they also throw away their best chance at repealing ObamaCare before it starts irrevocably altering health care markets. They also ensure that any deficit-reduction deal we do post election will be heavily weighted towards tax hikes; give Democrats a fresh crack at all the bits of the Obama agenda that they ignored in favor of passing health care; and probably let them preside over a mid-decade recovery that will leave the GOP in a very difficult electoral position in 2016.
The GOP will have taken a chance at meaningful entitlement reform and a mostly-spending budget deal, and thrown it away for literally no gain. Anything you can achieve by simply saying no, they can undo by simply persuading voters not to re-elect you. And the 1996 experience suggests that this will not be hard for them.
Does that mean that I'm shilling for the Democrats and saying you can never cut spending? Hardly. But you cannot cut spending by 40% in the middle of a recession. Throw out any metaphors you have in your head about families or CEOs. The political system doesn't work like that. Neither voters, nor other congressmen, are children or employees who can be dictated to.
If we had to cut spending--if no one would lend us any more money--could we do it? Definitionally, yes. But it would mean an enormous amount of real suffering: homeless families, hungry old people, nursing homes closing their doors to indigent patients. And the fact that we could do it if we had to doesn't mean that we can therefore do it when we don't have to. If you try to artificially create a situation that requires drastic cuts, voters are going to get rid of you, not the spending.
In fact, we wouldn't even have to wait that long. The tea-partiers who are proud to stick to their guns are not actually tough enough to weather the television coverage of homeless families, the doctors regretfully turning away their Medicare patients, the angry constituents beating down their office doors. They'll fold--but not until they've lost virtually all their capital, and have no way to get back in the game.
I know I've said it before, and I'll say it again: there is no game-theoretic substitute for political legitimacy. There is no neat strategic maneuver which will allow you to bypass the American public and cut their government benefits by 40% overnight if they don't want you to. And if you think that the American public actually wants you to do it . . . well, then it's not Washington, DC that's out of touch with the rest of America.
Copyright © 2011 by The Atlantic Monthly Group
http://www.theatlantic.com/business/archive/2011/07/debt-ceiling-whats-the-end-game-for-republicans/241959/ [with comments]
===
Scrap the stupid debt ceiling law
Barack Obama talks with the Republican whip Eric Cantor after a meeting with bipartisan congressional leadership at the White House.
Photograph: The White House/Getty Images
A bogus debate on the borrowing limit is distorting the economic conversation in the United States
Jim Newell
guardian.co.uk, Thursday 14 July 2011 18.33 BST
The world should have taken much better precautions to child-proof the global financial system when the new House Republican majority swept into power this year. It didn't take long for this chest-thumping wave of brats to sniff out the dangerous products kept unguarded under the sink. Now they've doused the economy in flammables, are standing above it with a match, demanding quick multi-trillion dollar cuts to everything.
The debt ceiling is a statutory law that, in modern times, needs to be passed to meet the outlays to which the federal government has already committed. Not doing so, in the midst of the worst economy since the Great Depression, would only allow the government to meet about 60% of its obligations until a partial default, lowering the credit rating of the safest investment in the world – US Treasury bonds, to which the reserves of a great many financial contracts are linked. So a hike in the ceiling really should be passed. But it might not be! Yet it needs to be? It still may not!
This is when you know that an old law that doesn't jibe well with the modern workings of society needs to be destroyed.
Congresses past have understood the significance of playing chicken with the nation's credit rating. They've maintained an informal pact to raise it when approached. The minority party could vote against it to embarrass or show disapproval to the majority, sure, but believe me: the votes needed to pass this one-line bill changing a number to an arbitrary figure some billions or trillions in the distance would always be there.
Now that precedent has been crushed. Let's consider the effect that this political extortion of a silly law designed to "remind us" of our debts is having on national policies.
The focus on this artificial borrowing limit has distorted the economic conversation in the United States from where it should be – on the stalled, if not receding, economy. The fact that we need to pass what is essentially a legislative form letter that's reset at a random number every couple of years, but now can't until House majority leader Eric Cantor has gotten all of his whining out, has focused all policymaking concerns around massive, hastily considered deficit reduction.
This is happening while ten-year Treasury yields are hovering near historic lows of 3%, monetary policy is trapped at the zero bound, the housing market is still in the critical care unit, long-term unemployment is worse than it was during the Depression, the official unemployment rate is 9.2%, Europe is imploding, household debt levels are still years away from anything approaching comfortable, trillions of dollars in backlogged infrastructure projects are waiting for cash, and... well, you look at the news! Pick your horrific economic indicator of choice, and cringe.
This is what recently departed White House economist Jared Bernstein referred to this week as the opportunity costs of the debt ceiling debate: "Every legislative moment spent figuring out how to game the debt ceiling is not being spent preventing" the economy from re-collapsing.
"Eliminating the debt ceiling" is not a popular phrase for politicians to use on the campaign trail. Oh well! Better get to work on changing that perception then, hmm? Because politicians created this problem themselves with years of cynical lies – that the "debt ceiling" is under any circumstances a thing that should not be raised when approached – to pander to angry voters. But now the good faith in Congress has been lost, and we're forced to treat this dumb, fake law, one that's comprehensively warped our national economic priorities beyond the surreal, with all the seriousness usually reserved for things that actually matter.
Let's tether our debt-reduction debates to something more natural – like an improving economy with rising interest rates. Members of Congress won't need a random number to "remind" them of anything.
guardian.co.uk © Guardian News and Media Limited 2011
http://www.guardian.co.uk/commentisfree/cifamerica/2011/jul/14/us-economy-debt-ceiling-law [with comments]
===
Bernanke: Debt ceiling breach 'calamitous'
July 14, 2011
NEW YORK (CNNMoney) -- Federal Reserve Chairman Ben Bernanke was back on Capitol Hill Thursday, warning that failure by Congress to raise the debt ceiling would be "a calamitous outcome."
Bernanke, testifying before the Senate Banking Committee, warned that even if the federal government continues to pay interest to Treasury holders, the inability to make other payments would be a shock to the entire financial system.
"Whether default is on securities, or on obligations to Medicare recipients, it's a default of some kind," he said in response to a question.
And he said while the Fed would do what it could to respond to such a default, that the central bank would not be able offset the impact of the damage.
His remarks echoed recent warnings from credit rating agencies that there could be a downgrade in the nation's credit rating if the debt ceiling isn't raised.
Bernanke's comments were part of his semi-annual update to Congress on monetary policy. While there were some questions about whether the Fed would take additional steps to spur the economy, the threat of inflation and what could be done to lower unemployment, most of the discussion focused on the debt ceiling debate.
Many of the senators used the opportunity to make statements about the debt ceiling issue, and then asked Bernanke to comment.
At one point, Sen. Bob Corker, the Tennessee Republican, joked about the political debate by referring to Bernanke as a 'prop.'
[...]
http://money.cnn.com/2011/07/14/news/economy/bernanke_testimony/ [with comments]
===
Obama to Lawmakers: Decide Friday on Long-Term Deal
July 14, 2011
http://www.bloomberg.com/news/2011-07-14/obama-tells-lawmakers-to-decide-by-friday-whether-long-term-deal-possible.html
Pictured (clockwise from top left) Steve King, Michele Bachmann, Louie Gohmert, Tim Pawlenty, From top left: Alex Brandon; Andy Dunaway; William B. Plowman; Dr. Scott M. Lieberman
(4) AP Photos
In preferring default to a deal, the populist wing of the Republican party has demonstrated its new nihilistic streak. John Avlon on the politicians only too happy to take us off a cliff.
John Avlon
Jul 15, 2011 1:24 AM EDT
Call them Debt Ceiling Deniers. Believers in faith-based fiscal policy. Math-challenged cause-and-effect-skeptics. And an uncomfortable chunk of the GOP’s 2012 contenders.
The costs of courting conservative populists should be clearer than ever to reality-based fiscal conservatives inside the Republican Party. Their “all-or-nothing” meets “what, me worry?” negotiating stance is not only the newest symbol of D.C.’s dysfunction—it is beginning to have an impact on the entire U.S. economy.
After all, S&P is now warning of a possible downgrade to America’s credit rating [ http://online.wsj.com/article/SB10001424052702304203304576446750260199940.html ] because of concerns about our political ability to raise the debt ceiling by August 2. Moody’s similarly announced it is considering a downgrade of the U.S. bond rating. Bush-appointed Fed Chairman Ben Bernanke calls the looming prospect of a default on our debt “catastrophic.”
But Michele Bachmann believes it’s all a hoax. Tim Pawlenty told an Iowa crowd, “I hope and pray and believe they should not raise the debt ceiling.” Ron Paul based his first presidential ad on a call to not raise the debt ceiling, proclaiming “No Deals.” And Rick Santorum has said that raising the debt ceiling should be avoided until a Balanced Budget Amendment to the Constitution is passed.
This position is a long way from saying the vote to raise the debt ceiling should be contingent on a deal to reduce the deficit and the debt. It is not looking for leverage or savvy negotiation on the way to a settlement. Instead, it is prideful ignorance—an eagerness to go off the fiscal cliff to show the world that gravity does not exist.
The fact that defaulting on our debt would raise interest rates—deepening the fiscal hole we’re in by compounding the size of our deficit and debt overnight—is not addressed. Instead we are greeted with nihilistic bubble talk—at its best, economic incompetence and at its worst evidence of tactical Leninism—the belief that “the worse things get, the better they are for me politically.”
This attitude is gaining adherents among conservative populists in Congress. Here’s Texas Congressman Louie Gohmert—a co-sponsor of the Birther Bill, who infamously argued against the Hate Crimes Bill by equating homosexuality with bestiality, necrophilia, and pedophilia—condemning Speaker Boehner for buying into the alleged myth of the August 2 deadline: “The speaker is getting bad advice…I guess the problem with the speaker and him saying that [the debt limit needs to be raised by August 2] is that he listened to the president. I'll urge the speaker not to believe the president anymore." This is what passes for reasoning together right now.
In an epic bit of projection, Gohmert also accused the president of fear-mongering by saying factually that failure to raise the debt ceiling could cause Social Security checks to not be mailed out on time. Gohmert specifically pined for some FDR-style optimism to override any sense of real-life consequence for failure to pay our debts. “Instead of being a statesman leader and saying something like, 'The only thing we have to fear is fear itself,'” Gohmert said, “this president tries to create fear and panic in the American public at every turn.” Pot, meet kettle.
If you argue with a fool, you’ve got two fools. Nonetheless, I thought a reality check might help some of the Republicans in Congress currently deciding how they’ll vote as we pedal ever closer to the cliff that is the August 2 deadline.
So I reached out to two former Republican chairmen of the Council of Economic Advisors, with presumably impeccable fiscal conservative credentials: Michael Boskin, who served under Bush 41, and Glenn Hubbard, who served under Bush 43.
"A real default would have severe ramifications in financial markets and the economy. We need to maintain the full faith and credit of U.S. government securities," says Boskin, now a senior fellow at the Hoover Institution. "The deficit and debt are primarily a spending problem that could condemn us to stagnation or stagflation if not seriously addressed soon. So trying to leverage the debt ceiling increase into spending control makes economic sense...The worst outcome is a default with no real spending control."
While you’re digesting that considered opinion, here’s Glenn Hubbard, advocate/architect of the Bush tax cuts and dean of the Columbia Business School. “The debt ceiling must be raised—not doing so is irresponsible,” Hubbard emailed. “The real discussion needs to be about to stabilize, then reduce America's burgeoning debt-to-GDP ratio…From here, the most sensible path would be an agreement on spending reductions. Then should come a debate (post-raising the ceiling) over reducing entitlement spending versus raising taxes. That debate can also address raising marginal tax rates (as the president proposes) versus limiting tax expenditures (as the [Bowles-Simpson] commission proposes). These debates will be the domestic policy stage for voters to judge in 2012.”
Got that? The deficit and debt are serious problems. Let’s have a vigorous debate on how to best address them. Let’s negotiate the best deal possible with spending cuts, tax reform, and entitlement reform. And then let’s put alternatives to the American people in 2012. But don’t take the U.S. economy off a cliff just to prove your point.
Senate Minority Leader Mitch McConnell’s proposal—a procedural plan that would allow the president to unilaterally raise the debt ceiling as long as he promised a commensurate amount of spending cuts—seems to me an acknowledgment that the conservative populists could stop a debt-ceiling vote, something that strikes McConnell as fiscally irresponsible and politically unwise for the Republican Party. It is a tacit admission that the inmates are damn-near running the asylum.
The deal-makers in the Republican Party—like Speaker John Boehner—are finding themselves fighting with debt-ceiling deniers, with the full faith and credit of the United States hanging in the balance.
Even supposedly responsible Republican presidential candidates like Mitt Romney—whose campaign slogan might as well be ‘He’s the Sane One’—are finding it politically beneficial to flirt with debt-ceiling denial, announcing a ‘cut, cap and balance’ proposal without revenue increases as his ‘line in the sand’ for supporting raising the debt limit.
But this beast cannot be appeased. As with all absolutists, the goal-posts keep moving. Two months ago, Rick Santorum wrote [ http://www.facebook.com/note.php?note_id=10150195206879440 ]: “Before we again raise our nation's debt ceiling, we must insure that the major components of our exploding debt are under control, namely our entitlement programs.” Now President Obama has put entitlement reform on the table. But a different standard is applied, because making a deal is not as important as making a point.
The debt-ceiling deniers could be dismissed as just another branch of the conservative populist tribe at war with modernity. Except this time the enemy isn’t science—it’s math. And international markets don’t respond well to denial.
The growing popularity of this position among the 2012 contenders should cause real fiscal conservatives in the GOP to take a hard look in the mirror—because the conservative populists they have helped empower for short-term political gain are making long-term fiscally responsible governance almost impossible.
By encouraging default, the debt-ceiling deniers are playing politics with people’s daily lives. They are making the prospect for economic recovery even more distant while unintentionally adding credence to our competitors’ mistaken belief that America is a great power in decline.
John Avlon is senior columnist for Newsweek and The Daily Beast. His most recent book Wingnuts: How the Lunatic Fringe Is Hijacking America [ http://www.amazon.com/exec/obidos/ASIN/0984295119 ] is available now from Beast Books both on the Web and in paperback. He is also the author of Independent Nation: How Centrists Can Change American Politics [ http://www.amazon.com/exec/obidos/ASIN/1400050243 ] and a CNN contributor. Previously, he served as chief speechwriter for New York City Mayor Rudy Giuliani and was a columnist and associate editor for The New York Sun.
© 2011 The Newsweek/Daily Beast Company LLC
http://www.thedailybeast.com/articles/2011/07/15/the-debt-ceiling-and-why-some-republicans-would-drive-us-off-a-cliff.html [with comments]
===
Debt Ceiling: What's the End Game For Republicans?
Jul 14 2011, 11:57 AM ET
Jonathan Podhoretz reads a Quinnipiac poll showing that by a margin of 48-34, the public is going to blame Republicans and not Obama if we don't raise the debt ceiling, and joins the ranks [ http://www.commentarymagazine.com/2011/07/14/the-strategic-storm-out-obamas-hand-improves/ ] of the Washington sellouts:
At some point, those who believe it will be acceptable to go to August 3 without an increase in the debt limit, as well as those who believe the politics favor the Republicans, are going to have to reckon with the fact that there are no data points supporting their beliefs. The way things are going, if August 2 comes and goes without an agreement, there will be a worldwide panic that would have catastrophic immediate consequences in the equity markets. And when Obama says, "I warned and warned and warned and they didn't listen," any attempt to offer a counterargument is going to sound very hollow.
I know I'm beating a dead horse at this point, but I continue to be mystified by what the base, the activists, and the politicians who are pushing the "no new revenue" stance hope to accomplish.
Let's start by pointing out the obvious: the Democrats do not show any signs of caving. They have offered what seem to be very attractive deals, and been turned down. Think you're going to get a more attractive deal? Every time another poll like this comes out, your bargaining position gets worse. Moreover, in Washington, deals take time. Even if Obama and the Democrats caved right now and gave the GOP massive entitlement cuts in exchange for raising the debt ceiling, the government would be hard-pressed to hammer out the details, draft them into legislative language, get the CBO to score the cuts so you know that they're real, and then whip the votes to get the damn thing passed. Every day you wait makes it less, not more, likely that you can get any deal at all.
Maybe you think the deadline is artificial and Treasury is just exaggerating. I have been very much less than impressed by the arguments I have seen to this effect, because most of the people making them seem to be under the impression that on August 2nd Treasury can just start playing accounting games, when August 2nd is in fact the date when Treasury says it will have exhausted all the accounting games that we've previously used to finesse the debt ceiling. But even if it were true, so what? How does extending the crisis another month get us any closer to a deal? What's going to change?
Maybe you don't want a deal. Maybe you think it will be better for America if we either default, or force Obama to slash spending drastically. I imagine that this graph is something along the lines of what most of the advocates of this approach are imagining.
[much larger version at http://cdn.theatlantic.com/static/mt/assets/meganmcardle/assets_c/2011/07/US%20Spending%20Breakdown-57410.php ]
I've tried to roughly prioritize spending as I think is politically palatable to both tea partiers and others: the debt payments first, followed by military payrolls and family housing, VA benefits, Social Security, Medicare and Medicaid. After that, we hit the red bloc: funding for military operations. Somewhere in there, the money runs out. Anyone in line after that doesn't get paid.
The problem is, prioritizing strictly the way this chart does won't work. Are you really going to just stop funding current military operations on August 3rd? You're going to leave a bunch of guys sitting in Iraq and Afghanistan and Libya with tanks and automatic weapons and no way to get them home?
Going to empty the prisons? How many guards do you think turn up for work when you stop paying them?
How about border control? I don't think it's going to be popular with the GOP base when you cease border enforcement and invite anyone who wants to to stroll across our unmanned border checkpoints. However much you hate the ATF and the DEA, they are a small fraction of this sort of spending at the federal level.
If we cut all funding for "general government", who is going to collect the revenues that you need to pay for all the social security checks and Medicare payments you plan to move out?
How long are landlords going to let tenants ride when Section 8 checks don't arrive? Going to let kids sleep on the streets?
Is your kid planning to take out a student loan for college this fall? Not any more, they're not.
With joblessness going up, you're going to get an earful when unemployment checks don't arrive.
. . . and when the mortgage market shuts down because Fannie and Freddie and the FHA stop writing checks.
Also, all those laid off state and federal workers are going to make the jobless numbers jump.
To the extent that you fix any of these problems, it means cutting into the sacred four: military payrolls, VA benefits, Medicaid/Medicare, and Social Security. Or defaulting on our debt. Also, when you cut spending, GDP is going to fall, which means that tax revenue will also fall, which means that we probably have to cut even deeper into those politically untouchable programs.
Okay, maybe this will really suck in the short term, but it's necessary to get us on a long term sustainable fiscal path.
. . . er, what long term? Voters are telling pollsters they're going to blame the Republicans for the shutdown. And the spending cuts you're going to do won't even be that popular with the tea party, who aren't much more enthusiastic [ http://www.slate.com/blogs/weigel/2011/04/19/poll_70_percent_of_tea_party_supporters_oppose_medicare_cuts.html ] about Medicare/Medicaid cuts than the rest of the country.
To me that sounds like "huge Democratic victory in 2012". I know, I know--if it's so "great for Democrats", why aren't they urging this course? Well, one school of thought says that they are--and neatly maneuvering the blame onto the GOP, thanks to the tea party's very vocal intransigence. But if that's a little too Machiavellian for your taste, the simpler answer is that this can be lose-lose. If we shut down the government, key social programs get hurt, the economy contracts, and the Democrats have to cut spending in a recession in order to make the budget balance after this little contretemps raises our interest rates. But the fact that the Democrats are worse off doesn't mean that the Republicans are better off. The Democrats can lose while the Republicans lose even bigger.
That has implications, not just for the debt ceiling, but for a whole range of problems. Republicans have a decent shot of taking the White House and the Senate in 2012; by throwing that away with both hands they also throw away their best chance at repealing ObamaCare before it starts irrevocably altering health care markets. They also ensure that any deficit-reduction deal we do post election will be heavily weighted towards tax hikes; give Democrats a fresh crack at all the bits of the Obama agenda that they ignored in favor of passing health care; and probably let them preside over a mid-decade recovery that will leave the GOP in a very difficult electoral position in 2016.
The GOP will have taken a chance at meaningful entitlement reform and a mostly-spending budget deal, and thrown it away for literally no gain. Anything you can achieve by simply saying no, they can undo by simply persuading voters not to re-elect you. And the 1996 experience suggests that this will not be hard for them.
Does that mean that I'm shilling for the Democrats and saying you can never cut spending? Hardly. But you cannot cut spending by 40% in the middle of a recession. Throw out any metaphors you have in your head about families or CEOs. The political system doesn't work like that. Neither voters, nor other congressmen, are children or employees who can be dictated to.
If we had to cut spending--if no one would lend us any more money--could we do it? Definitionally, yes. But it would mean an enormous amount of real suffering: homeless families, hungry old people, nursing homes closing their doors to indigent patients. And the fact that we could do it if we had to doesn't mean that we can therefore do it when we don't have to. If you try to artificially create a situation that requires drastic cuts, voters are going to get rid of you, not the spending.
In fact, we wouldn't even have to wait that long. The tea-partiers who are proud to stick to their guns are not actually tough enough to weather the television coverage of homeless families, the doctors regretfully turning away their Medicare patients, the angry constituents beating down their office doors. They'll fold--but not until they've lost virtually all their capital, and have no way to get back in the game.
I know I've said it before, and I'll say it again: there is no game-theoretic substitute for political legitimacy. There is no neat strategic maneuver which will allow you to bypass the American public and cut their government benefits by 40% overnight if they don't want you to. And if you think that the American public actually wants you to do it . . . well, then it's not Washington, DC that's out of touch with the rest of America.
Copyright © 2011 by The Atlantic Monthly Group
http://www.theatlantic.com/business/archive/2011/07/debt-ceiling-whats-the-end-game-for-republicans/241959/ [with comments]
===
Scrap the stupid debt ceiling law
Barack Obama talks with the Republican whip Eric Cantor after a meeting with bipartisan congressional leadership at the White House.
Photograph: The White House/Getty Images
A bogus debate on the borrowing limit is distorting the economic conversation in the United States
Jim Newell
guardian.co.uk, Thursday 14 July 2011 18.33 BST
The world should have taken much better precautions to child-proof the global financial system when the new House Republican majority swept into power this year. It didn't take long for this chest-thumping wave of brats to sniff out the dangerous products kept unguarded under the sink. Now they've doused the economy in flammables, are standing above it with a match, demanding quick multi-trillion dollar cuts to everything.
The debt ceiling is a statutory law that, in modern times, needs to be passed to meet the outlays to which the federal government has already committed. Not doing so, in the midst of the worst economy since the Great Depression, would only allow the government to meet about 60% of its obligations until a partial default, lowering the credit rating of the safest investment in the world – US Treasury bonds, to which the reserves of a great many financial contracts are linked. So a hike in the ceiling really should be passed. But it might not be! Yet it needs to be? It still may not!
This is when you know that an old law that doesn't jibe well with the modern workings of society needs to be destroyed.
Congresses past have understood the significance of playing chicken with the nation's credit rating. They've maintained an informal pact to raise it when approached. The minority party could vote against it to embarrass or show disapproval to the majority, sure, but believe me: the votes needed to pass this one-line bill changing a number to an arbitrary figure some billions or trillions in the distance would always be there.
Now that precedent has been crushed. Let's consider the effect that this political extortion of a silly law designed to "remind us" of our debts is having on national policies.
The focus on this artificial borrowing limit has distorted the economic conversation in the United States from where it should be – on the stalled, if not receding, economy. The fact that we need to pass what is essentially a legislative form letter that's reset at a random number every couple of years, but now can't until House majority leader Eric Cantor has gotten all of his whining out, has focused all policymaking concerns around massive, hastily considered deficit reduction.
This is happening while ten-year Treasury yields are hovering near historic lows of 3%, monetary policy is trapped at the zero bound, the housing market is still in the critical care unit, long-term unemployment is worse than it was during the Depression, the official unemployment rate is 9.2%, Europe is imploding, household debt levels are still years away from anything approaching comfortable, trillions of dollars in backlogged infrastructure projects are waiting for cash, and... well, you look at the news! Pick your horrific economic indicator of choice, and cringe.
This is what recently departed White House economist Jared Bernstein referred to this week as the opportunity costs of the debt ceiling debate: "Every legislative moment spent figuring out how to game the debt ceiling is not being spent preventing" the economy from re-collapsing.
"Eliminating the debt ceiling" is not a popular phrase for politicians to use on the campaign trail. Oh well! Better get to work on changing that perception then, hmm? Because politicians created this problem themselves with years of cynical lies – that the "debt ceiling" is under any circumstances a thing that should not be raised when approached – to pander to angry voters. But now the good faith in Congress has been lost, and we're forced to treat this dumb, fake law, one that's comprehensively warped our national economic priorities beyond the surreal, with all the seriousness usually reserved for things that actually matter.
Let's tether our debt-reduction debates to something more natural – like an improving economy with rising interest rates. Members of Congress won't need a random number to "remind" them of anything.
guardian.co.uk © Guardian News and Media Limited 2011
http://www.guardian.co.uk/commentisfree/cifamerica/2011/jul/14/us-economy-debt-ceiling-law [with comments]
===
Bernanke: Debt ceiling breach 'calamitous'
July 14, 2011
NEW YORK (CNNMoney) -- Federal Reserve Chairman Ben Bernanke was back on Capitol Hill Thursday, warning that failure by Congress to raise the debt ceiling would be "a calamitous outcome."
Bernanke, testifying before the Senate Banking Committee, warned that even if the federal government continues to pay interest to Treasury holders, the inability to make other payments would be a shock to the entire financial system.
"Whether default is on securities, or on obligations to Medicare recipients, it's a default of some kind," he said in response to a question.
And he said while the Fed would do what it could to respond to such a default, that the central bank would not be able offset the impact of the damage.
His remarks echoed recent warnings from credit rating agencies that there could be a downgrade in the nation's credit rating if the debt ceiling isn't raised.
Bernanke's comments were part of his semi-annual update to Congress on monetary policy. While there were some questions about whether the Fed would take additional steps to spur the economy, the threat of inflation and what could be done to lower unemployment, most of the discussion focused on the debt ceiling debate.
Many of the senators used the opportunity to make statements about the debt ceiling issue, and then asked Bernanke to comment.
At one point, Sen. Bob Corker, the Tennessee Republican, joked about the political debate by referring to Bernanke as a 'prop.'
[...]
http://money.cnn.com/2011/07/14/news/economy/bernanke_testimony/ [with comments]
===
Obama to Lawmakers: Decide Friday on Long-Term Deal
July 14, 2011
http://www.bloomberg.com/news/2011-07-14/obama-tells-lawmakers-to-decide-by-friday-whether-long-term-deal-possible.html
Greensburg, KS - 5/4/07
"Eternal vigilance is the price of Liberty."
from John Philpot Curran, Speech
upon the Right of Election, 1790
F6
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
