And the worst Tea Party Terrorists are in the White House “negotiating” with themselves. The only explanation for the way Obama is acting is that he doesn’t want a second term. I just don’t see how he can think he’s going to be reelected either way–whether the U.S. defaults on its debts or Congresses passes one of the austerity plans, Obama is toast.
I guess he can’t wait to start raking in the millions he’ll get from the sitting on bank boards after this is all over. I used to think he was looking forward to making big bucks on the lecture circuit, but who will want to hear him speak about how he destroyed the social safety net and brought down the U.S. economy?
I thought I’d put up a post for those of us who want to keep tabs on what the Senate is doing this afternoon. I’ll have more info shortly, but feel free to document the ongoing slow-motion nightmare in the comments while I set up my laptop in front of the TV and turn on C-span.
The Reid plan failed to achieve cloture in the Senate, so it’s looking like whatever McConnell, Boehner, and Obama are cooking up is what we’ll get stuck with. Here is what is known about the plan that is on the table right now.
If Democratic and GOP leaders finalize a deal, they would still face the tough task of convincing their rank and file to swallow a compromise. Fervent liberals and conservatives could scuttle any deal between the White House and congressional leaders. Here are the details of the tentative pact, according to several sources who spoke to NJ on condition that they not be identified:
•$2.8 trillion in deficit reduction with $1 trillion locked in through discretionary spending caps over 10 years and the remainder determined by a so-called “Super Committee.”
•The Super Committee must report precise deficit-reduction proposals by Thanksgiving.
•The Super Committee would have to propose $1.8 trillion in spending cuts to achieve that amount of deficit reduction over 10 years.
•If the Super Committee fails, Congress must send a balanced-budget amendment to the states for ratification. If that doesn’t happen, across-the-board spending cuts would go into effect and could touch Medicare and defense spending.
•No net new tax revenue would be part of the special committee’s deliberation.
That last item remained a potential sticking point. Obama’s advisers insisted on the Sunday talk shows that the president expected tax increases to be part of the Super Committee’s plan. “I think any long-term deficit-reduction is going to include revenues,” Obama adviser David Plouffe told ABC’s This Week.
Yet Plouffe was unwilling to commit that revenue increases would automatically kick in — along with spending cuts — if the Super Committee doesn’t hit the $1.8 trillion target. McConnell bluntly said that “job-killing tax increases” are off the table.
The ever-hopeful Ezra Klein says Dems will lose now but could win later.
Democrats are going to lose this one. The first stage of the emerging deal doesn’t include revenue, doesn’t include stimulus, and lets Republicans pocket a trillion dollars or more in cuts without offering anything to Democrats in return.
The second stage convenes a congressional “Supercommittee” to recommend up to $2 trillion in further cuts, and if their plan doesn’t pass Congress, there’s an enforcement mechanism that begins making automatic, across-the-board cuts to almost all categories of spending. So heads Democrats lose, tails Republicans win.
It’s difficult to see how it could have ended otherwise. Virtually no Democrats are willing to go past Aug. 2 without raising the debt ceiling. Plenty of Republicans are prepared to blow through the deadline. That’s not a dynamic that lends itself to a deal. That’s a dynamic that lends itself to a ransom.
But Democrats will have their turn. On Dec. 31, 2012, three weeks before the end of President Barack Obama’s current term in office, the Bush tax cuts expire. Income tax rates will return to their Clinton-era levels. That amounts to a $3.6 trillion tax increase over 10 years, three or four times the $800 billion to $1.2 trillion in revenue increases that Obama and Speaker John Boehner were kicking around. And all Democrats need to do to secure that deal is…nothing.
The only thing that can prevent increased revenue, says Klein, is the Obama administration. That’s pretty pathetic. Even Klein isn’t sure Obama will let the Bush tax cuts expire.
I’ll put further updates in the comments.
Our economy continues to scuttle across a bottom set by the huge drop in performance during the Great Recession. This economist was not surprised by the lackluster GDP report released today. No one has used the correct fiscal policy prescription in this country since 1999. The current batch of Washington nimrods are going to set us at a new low shortly. We’ll be lucky to see nasty numbers like these a year from now. It’s as if tanking the economy is job 1 now.
Gross domestic product climbed at a 1.3 percent annual rate following a 0.4 percent gain in the prior quarter that was less than earlier estimated, Commerce Department figures showed today in Washington. The median forecast of economists surveyed by Bloomberg News called for a 1.8 percent increase. Household purchases, about 70 percent of the economy, rose 0.1 percent.
Treasuries rose as the report dimmed prospects for faster growth in the rest of 2011. The faltering economy may get another blow from spending cuts being negotiated in Congress, keeping pressure on Federal Reserve Chairman Ben S. Bernanke to hold interest rates near zero.
“The second-half rebound is melting away,” said Nigel Gault, chief U.S. economist at IHS Global Insight in Lexington, Massachusetts, the only forecaster polled to correctly estimate the gain in GDP. “It’s a very, very difficult situation for policy makers. The Fed could give a pretty strong signal that they are not likely to move on interest rates for a very long time.”
The yield on the benchmark 10-year note decreased to 2.85 percent at 1:22 p.m. in New York from 2.95 percent late yesterday. Stocks pared earlier losses on signs that House Speaker John Boehner’s plan to raise the debt ceiling was gaining support. The Standard & Poor’s 500 Index fell 0.3 percent to 1,296.42 after falling as much as 1.4 percent.
Former Labor Secretary Robert Reich tells it like it is in a post that might as well be entitled “It’s the jobs, stupid”. Too bad he’s not up for the Treasury position now occupied by Secretary Slave to Investment Banks. There’s a false equivalency being spread about raising the debt ceiling and increasing the deficit that’s really hampering policy discourse right now. The two things aren’t the same. The debt is the amount we owe and it builds each year when there is a deficit or when interest accumulates. The deficit is a shortage in one year’s budget. The only real crisis we have right now is a jobs crisis and a complete lack of demand. Again, no business person in their right mind is going to create anything if there’s no customers. Oh, there’s also a confederacy of dunces in the US House of Representatives. But, I won’t go there right now.
Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
And the best way to get jobs and growth back is for the federal government to spend more right now, not less – for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on.
But what happens next week if Congress can’t or won’t deliver the President a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it.
One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: Honor them.
How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States.
One of the biggest right wing memes that drives me crazy is that the economy is bad because we have too much taxes still and that the President’s stimulus didn’t work because it was worthless spending. I knew it wouldn’t do much to stimulate the economy simply because it didn’t take advantage of the government spending multiplier in key areas and wasn’t big enough. Also, it was the Biggest Tax Cut Ever which rarely works as efficiently as direct government spending to get consumption going again. So why are so many idiots arguing that more of the same tax cuts are going to improve the economy and cutting all levels of government spending is considered confidence building when the government spending multiplier will just push recessionary momentum? You got me. It’s insanity.
So, what happens if these debt ceilings talk fail? Well, first, every single financial asset, liability, and contract will reprice all over the world. Most of them will reprice in a bad way that will hamper economies every where. Every business project will be evaluated using a risk free rate that will now be higher and will not be considered risk free any more. That means many projects will now be rejected so expansions, new jobs, or anything like that will be rejected. Remember, this is not because we can’t pay those bills, it’s because a few idiots refuse to pay them. Second, the world will continue to step away from the dollar. Third, there will be strong recessionary pressures. It’s not good, folks. As these recent GDP figures show, we’re far from out of the impact of the last financial shock.
But what if all those options failed? What would be the consequence of even a notional default? The IMF has talked of a global recession if there was a loss of confidence in US solvency although it’s not clear that a failure to roll over debt for a few days would qualify for that description.
Having seen what happened with Lehman’s default, the main worry would be a freeze in the markets. Take the finances of banks, for example. Many use Treasury bonds as the risk-free asset for capital purposes. As Capital Economics points out
“Government debt is only automatically 0% risk-weighted for banks under Basel II if it is rated AA- or higher (although regulators can make exceptions for domestic government debt issued in local currency). In principle, therefore, financial institutions would face significantly higher capital charges in the event of a US government default.In practice, it seems likely that the regulators would move quickly to waive the rules. But there might be a few hairy moments while they did. And what about money-market funds? Having been burned by the credit crunch, many have opted for the safe haven of US Treasury bills. Perhaps they could roll over those bills into some form of IOU from the government. But if investors demanded their money back at a time when Treasury bills were illiquid, money-market funds might be forced to suspend resumptions or “break the buck”. Then there is the repo market, widely used by financial institutions to raise money; Treasury securities are used as collateral for such borrowing.”
Standard & Poor’s has considered this scenario and suggests that
“Failure to pay off maturing debt or missing interest payments (approximately $62 billion of interest is payable on Aug. 15) would constitute a selective default pursuant to our criteria, and Standard & Poor’s expects it would lower the sovereign rating to ‘SD’. Even if the Fed and other central banks managed to keep the financial system functioning, we expect that markets around the world would be severely damaged. In such a hypothetical scenario, we expect that equity markets would generally plunge, borrowing costs and interbank lending rates would soar, and corporate credit markets would be closed to all but the highest quality issuers. We envisage that consumers and businesses would likely stop spending on all but essential items, and the value of the dollar would drop by 10% or more against other major currencies. With the dollar heading lower, investors would likely look for hard assets like oil and other commodities, driving prices higher.Given the fragility of the economic recovery, this is an incredible risk to contemplate. It is also worth noting that, even a freeze on government spending that stopped short of a default, would have a significant impact on demand.”
I still can’t believe that a few people are willing to tank the economy for failed economic hypotheses. It’s as if everything we’ve learned over the past 70 years has been completely thrown to the wind and we’re being run by the myth of Reagan’s ghost. I say myth because what they’re going on didn’t even happen on his watch. He was responsible for the biggest single tax increase in history and was responsible for a lot of the debt they’re whining about today. Speaking of Reagan, one of his economists–Bruce Bartlett–has an excellent analytical piece up on how the Debt Crisis is being Fueled by Obama’s weak negotiations. It’s worth a read.
Unfortunately, Obama is really too young to have the kind of experience that previous presidents like Reagan brought to the White House in terms of understanding intransigent enemies and how to deal with them. Consequently, Obama has really been caught flat-footed by the Tea Party era Republican Party. He believed it would respond positively if he offered it half a loaf on just about every issue.
For example, some 40 percent of the 2009 stimulus legislation consisted of tax cuts even though his economic advisers knew that they would have almost no stimulative effect. But Obama viewed them as an important concession to Republicans. Yet despite total rejection of his stimulus package by the GOP, Obama kept the tax cuts rather than reprogramming the money into more effective programs such as state aid or public works.
Nevertheless, Obama offered Republicans another half-loaf by putting forward a health reform plan almost identical to those that they and conservative groups such as the Heritage Foundation had proposedin the 1990s. Obama’s offer was summarily rejected and Republicans suddenly decided that the individual mandate, which previously had been at the core of their own health reform plans, was unconstitutional.
Now we are in the midst of a debt crisis that stems largely from Obama’s inability to accept the intransigence of his political opponents. Last December, he caved in to Republicans by supporting extension of the Bush tax cuts even though there is no evidence that they have done anything other than increase the deficit. There were those who told Obama that he ought to include an increase in the debt limit, but he rejected that idea, believing that Republicans would behave like responsible adults and raise the debt limit just as they did routinely when their party held the White House.
I join Bartlett, former President Clinton, and others in begging the President to invoke the 14th amendment. Then, he should find some economics advisers who know what they are doing and listen to them for a change.
Section 4. The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned. But neither the United States nor any State shall assume or pay any debt or obligation incurred in aid of insurrection or rebellion against the United States, or any claim for the loss or emancipation of any slave; but all such debts, obligations and claims shall be held illegal and void.
The first intelligent article suggesting we do that came from The Nation‘s Katrina vanden Heuvel after Timothy Geithner suggested he had folks exploring the option. I’ve ended several blog posts this month with the call to invoke the 14th and send the insane teabot posse back home with the message that they may want to read up on U.S. The Constitution before they start waving that Gadsden flag in our faces.
Brad Delong fleshes the argument out within this context. We have a president that’s found lawyers who have said that actions in Libya are not “hostilities”. I will add that we’ve had several presidents who have found lawyers that have written that “enhanced interrogation techniques” aren’t torture and that it’s okay to assassinate citizens without due process. Certainly, with a Washington DC that has more word-parsing, pretzel-logic-precedent-finding, triangulating lawyers per square foot than any place on the planet, the White House can find one that finds Delong’s suggestions below justifiable via Section 4 stated above.
The structure of Tim Geithner’s testimony to Congress defending his additional borrowing is:
- The Constitution forbids me from even thinking about default.
- You ordered me to spend.
- A previous Congress told me not to borrow, but no Congress can bind its successors, and those of you who are in this Congress here now ordered me to spend.
- I’m just doing what you told me to do–and what the Constitution directly and explicitly tells me to do.
And then we should move on to the people’s business. This episode of kabuki theatre has done nobody any credit. If I had previously had any respect for or confidence in Republicans, this would have shredded it. And each day it continues it further shreds my respect for and confidence in the executive branch.
DeLong argues–and I agree–that this is far better than options outlined by Ezra Klein and ranked by Calculated Risk here. In the long run, we should probably be looking at eliminating the debt ceiling. If Congress authorizes the spending and the President signs off on it, there should be absolutely no way that they can renege on bond holders later. Moody’s suggested the same thing last week. The rest of the crap on the table just undoes one promise made to people after another.
It should be obvious by now that Boehner is not in control of his caucus in congress. The tea party has him over a tea barrel. These are folks that appear to have no clue about anything as illustrated by their ignorant statements last spring that all they had to do was pass a budget and it was law. They completely forget the role of the President and the Senate. They seem to have no idea or they stubbornly refuse to believe the experts that tell them that what they are doing is basically bringing the country’s economy down.
Meanwhile, there were lingering doubts about Boehner’s ability to rally support for a debt-limit increase of any size or duration. Many House Republicans continue to push their plan to sharply cut spending over the next decade and adopt a constitutional amendment requiring Congress to balance the budget. Such a plan passed the House, but failed Friday in the Senate on a party-line vote.
Freshman Rep. Blake Farenthold (R-Tex.) said Republican leaders remain concerned that even a small increase in the debt limit would fail on the House floor.
“I think their concern about bringing it to the floor is whether they can get 218 [votes] or not,” Farenthold said in an interview. “Everybody wants to only go through this pain once.”
We can’t afford to pass a debt ceiling increase attached to no firm commitments for revenue adjustments. It’s ridiculous. There is no way the long term budget problems will ever be solved under these conditions. Further more, the fall out from the increased interest rates and the impact on the already nasty economy will just drive economy-related revenues down and expenditures up. We’ll exacerbate the very thing we’re trying to alleviate. This is insanity.
If the meetings today look to be more of the same, the President should just get on TV Monday morning and tell Geithner to pay the bills for the spending that the congress authorized and cite the 14th amendment. Again, if you can find a lawyer that says that enhanced interrogation techniques aren’t torture and justify claiming a citizen is an enemy combatant and can be detained indefinitely–or assassinated–without due process, rationalizing this should be easy. Our country’s economy shouldn’t be subjected to deliberate economic sabotage because a few new congress critterz flunked their middle school American Government and History classes.
If you don’t want to take my word for it, then take former President Clinton’s suggestion. There’s also a list of lawyers there that would tell our constitutional law lecturer President that it’s constitutional.
A few days ago, former President Bill Clinton identified a constitutional escape hatch should President Obama and Congress fail to come to terms on a deficit reduction plan before the government hits its borrowing ceiling.