It seems as though our nation’s “leaders” are looking to bring down our country. It’s the only explanation that I have. Also, I’m at the point where I think Joe Biden is the only sane one in the room. Pinch me! Please!
Headlines of note to prove my case:
Speaker of the House John Boehner introduced a new argument to the debt ceiling and deficit reduction talks Tuesday, saying raising the borrowing limit is Republicans’ concession in the negotiations.”This debt limit increase is [Obama's] problem,” he said.
Boehner is trying to force a deficit reduction package entirely based on spending cuts, saying Obama’s demands for new revenues would only be considered if Obama accepted deep cuts to entitlements.
My guess is that Boehner has absolutely no control over the Republicans in the House. Some one from Wall Street needs to take a few of them to the wood shed. Meanwhile, Mitch McConnell appears to be interested in nothing but political play. Some senate Republicans would obviously join the president but it appears that will happen over McConnell’s dead mind and conscious. McConnell still refuses to admit the Republicans lost the White House 3 years ago. He’s become some kind of Captain Queeg who gets in front of the press then rattles ball bearings in his fist while muttering “one term president, strawberries, one term president, it’s the strawberries, I tell you …” repeatedly.
Senate Republican Leader Mitch McConnell (Ky.) on Tuesday said a comprehensive deficit-reduction deal is not attainable as long as Barack Obama is president.
McConnell declared that deficit-reduction talks have come to an unsolvable deadlock.
“After years of discussions and months of negotiations, I have little question that as long as this president is in the Oval Office, a real solution is unattainable,” he said.McConnell has called for reforms to curb the future growth of Social Security and Medicare since taking over as Republican leader at the end of 2006.
So, what’s the response of the leader of the free world? Would you call this riling up or scaring seniors?
President Obama on Tuesday said he cannot guarantee that retirees will receive their Social Security checks August 3 if Democrats and Republicans in Washington do not reach an agreement on reducing the deficit in the coming weeks.
“I cannot guarantee that those checks go out on August 3rd if we haven’t resolved this issue. Because there may simply not be the money in the coffers to do it,” Mr. Obama said in an interview with CBS Evening News anchor Scott Pelley, according to excerpts released by CBS News.
The Obama administration and many economists have warned of economic catastrophe if the United States does not raise the amount it is legally allowed to borrow by August 2.
This is insane. No one’s made any sense in this discussion since Joe Biden told his gang of six to get real. Meanwhile, we’re beginning to see financial economists question this game of chicken.This extremely good analysis is written by Jeffrey Frankel the James W. Harpel Professor of Capital Formation and Growth at Harvard’s Kennedy School.
In the 1955 movie Rebel Without a Cause, James Dean and a teenage rival race two cars to the edge of a cliff in a game of chicken. Both intend to jump out at the last moment. But the other guy miscalculates, and goes over the cliff with the car.
This is the game that is being played out in Washington this month over the debt ceiling. The chance is at least 1/4 that the result will be similarly disastrous.
It is amazing that the financial markets continue to view the standoff with equanimity. Interest rates on US treasury bonds remain very low, barely above 3% at the ten-year maturity. Evidently it is still considered a sign of sophistication to say “This is just politics as usual. They will come to an agreement in the end.” Probably they will. But maybe not. (I’d put a ½ probability on an agreement that raises the debt limit, but just muddles through in terms of the genuine long term fiscal problem. That leaves at most a ¼ probability of a genuine long-term solution of the sort that President Obama apparently proposed last week – described as worth $4 trillion over ten years.)
My advice to investors is to shift immediately out of US treasuries and into high-rated corporate bonds. If the worst happens, you will probably save yourself from a big capital loss within the next month. If not, there is no harm done.
The game is not symmetric. The Republicans are the ones who are miscalculating. Evidently they are confident of prevailing: they rejected the President’s offer, even though he was willing to cut entitlement programs.
The situation is complicated because there are a number of different people crammed into the Republican car. There is one guy who is obsessed with the theory that, come August 3, the federal government could retain its top credit rating if it continued to service its debt by ceasing payment on its other bills. But this would mean failing to honor legal obligations that have already been incurred (paying suppliers for paper clips that have already been bought, paying soldiers their wages for last month’s service, sending social security recipients their checks, etc.). This is like observing that the cliff is not a 90 degree drop-off, but only 110 degrees. It doesn’t matter: the car would still go crashing into the ocean far below. The government’s credit would still be downgraded and global investors would still demand higher interest rates to hold US treasuries, probably on a long-term basis.
There are other guys (and gals) in the car who are even more delusional. They are dead set on a policy of immediately eliminating the budget deficit (e.g., those opposed to raising the debt ceiling no matter what, or those campaigning for a balanced budget amendment), and doing it primarily by cutting nondefense discretionary spending. This is literally impossible, arithmetically. But they honestly don’t know this. It is as if they were insisting that the car can fly. Sometimes it can be a good bargaining position to adopt a very extreme position. But if you are demanding that the car flies, you are not going to get your way no matter how determined you are.
What we have here are a group of rebels with self-serving causes. Again, the President should just invoke the 14th amendment,pay the bills, and send the DOJ after the many folks here that appear to be willing to tank our country for their personal political gain. Threatening seniors’ social security is not leadership. It’s just a matter of time before the financial markets start noticing these folks are not acting in the best interest of our country, our economy, or our ability to deal with our economic challenges. We’re lucky that they still think this is the chicken dance right now instead of a chicken race. It’s going to be a lot harder to pay off the debt with the interest rates that go along with junk bonds. This is not the place for political grandstanding.
update: Okay, this is weird … what’s McConnell up to now?
Senate Minority Leader Mitch McConnell (R-KY) has proposed a sort of escape hatch for Congressional Republicans, who have threatened not to raise the national debt limit — and trigger a default — if Democrats don’t agree to trillions of dollars in cuts to popular social programs.
The plan is designed to give President Obama the power to raise the debt limit through the end of his first term on his own, but to force Democrats to take a series of votes on the debt limit vote in the months leading up to the election.
This still leaves me wondering if Boehner can deliver enough Republican votes to actually head off a purposeful debt default.