The Year of Dangerous Rhetoric
Posted: March 7, 2011 Filed under: Federal Budget, U.S. Economy | Tags: John Boehner, Treasuries, US government debt 25 Comments
Pols always seem to use over-the-top rhetoric when trying to get elected. We’ve had smear campaigns and unfulfilled campaign promises for as long as there has been some one running for an elected office. Journalists enjoy making headlines out of this rhetoric and we’ve entered an age where they don’t even hesitate to join in on the pitch. The Supremes have upheld free speech rights for NAZIs parading in Jewish neighborhoods, opportunistic gay hating religionists spewing bile at the funerals of US soldiers, and megacorporations. No one wants to draw any lines on freedom of expression these days.
The first amendment is a beautiful thing. So is, however, self-restraint. Just because you have a broad right, a big mouth, and some urge to purge doesn’t necessarily mean you should avail yourself of the opportunity. This was always made clear to me as a kid with the example of ‘Don’t yell fire in a crowded theater if there’s no fire’. Evidently Weeper of the House John Boehner slept through that part of the social studies curriculum.
Markets–especially financial markets–thrive on information. Financial markets even trade on them. I remember working in the Treasury area of a large savings and loan in the 1980s while we were trying to package and sell mortgages, hedge using GNMA futures, and then price jumbo CDs to customers. All of this was in the era of Paul Volcker and yo yo interest rates. The Fed used to make announcements on Friday afternoons. The entire market would shut down in anticipation of the Fed’s announcements. The last few hours of business would screech to a halt until the information came out. We had one bond salesman that used to call us and read us jokes from a file box during the waiting hour. It was a weird time for all.
The Fed noticed how disruptive that was and ended the practice. Current Fed Chair Bernanke is so aware of how his words impact the market he even has a policy of ‘managing expectations’ in that he always makes some kind of statement on monetary policy when releasing any information. He also does speeches to businesses where he clarifies how the Fed will be dealing with the markets for Treasuries. This is supposed to end a lot of instability and speculation that can damage investment positions unnecessarily. You really don’t want to mess with Treasury markets because they represent the base, risk-free rate upon which everything else gets priced.
That brings me to to a few people in politics that don’t seem to connect market instability to policy maker rhetoric. It seems every one has learned that lesson except the outrageous Speaker of the House John Boehner who appears to want to make the markets as shaky as his hands.
House Speaker John Boehner routinely offers this diagnosis of the U.S.’s fiscal condition: “We’re broke; Broke going on bankrupt,” he said in a Feb. 28 speech in Nashville.
Boehner’s assessment dominates a debate over the federal budget that could lead to a government shutdown. It is a widely shared view with just one flaw: It’s wrong.
“The U.S. government is not broke,” said Marc Chandler, global head of currency strategy for Brown Brothers Harriman & Co. in New York. “There’s no evidence that the market is treating the U.S. government like it’s broke.”
The U.S. today is able to borrow at historically low interest rates, paying 0.68 percent on a two-year note that it had to offer at 5.1 percent before the financial crisis began in 2007. Financial products that pay off if Uncle Sam defaults aren’t attracting unusual investor demand. And tax revenue as a percentage of the economy is at a 60-year low, meaning if the government needs to raise cash and can summon the political will, it could do so.
Speaker Boehner’s staff answers any criticism of his rhetoric with the usual false equivalency. Interestingly enough, the Bloomberg article I’m quoting is finally taking on the ridiculousness of equating our government with family finances. Every financial economist loses a bowtie whenever that happens.
“If an American family is spending more money than they’re making year after year after year, they’re broke,” said Michael Steel, a spokesman for Boehner.
A person, company or nation would be defined as “broke” if it couldn’t pay its bills, and that is not the case with the U.S. Despite an annual budget deficit expected to reach $1.6 trillion this year, the government continues to meet its financial obligations, and investors say there is little concern that will change.
Still, a rhetorical drumbeat has spread that the U.S. is tapped out. Republicans, including Representative Ron Paul of Texas, chairman of the House domestic monetary policy subcommittee, and Fox News commentator Bill O’Reilly, have labeled the U.S. “broke” in recent days.
Chris Christie, the Republican governor of New Jersey, said in a speech last month that the Medicare program is “going to bankrupt us.” Julian Robertson, chairman of Tiger Management LLC in New York, told The Australian newspaper March 2: “we’re broke, broker than all get out.”
The U.S. government is not one big dysfunctional family unit. People die. Their estates have to be settled. They can’t print money. They can’t tax any one else’s assets. Their incomes don’t grow in perpetuity into the trillions of dollars. Politicians who continually make this false equivalency are not only wrong, they are dangerously wrong.
When Governor Christie makes these ridiculous statements the biggest damage he can do is limited. At the very worst, the market may price New Jersey’s bond issues as riskier. The resale market for NJ bonds may get thinner. This is especially true if Christie shows any willingness to entertain the idea of state bankruptcy which at this point can’t even happen. If he shows unwillingness to use the state’s taxing powers to clear up the mess, he can also create some havoc in the market. Every one knows a government can get the funds to pay its debt one way or another. Showing the world you won’t do it in a timely way just makes your bondholders extra nervous.
Speaker of the House Boehner has a bigger job that includes the budget of the U.S. He can unnecessarily influence financial markets while repeating such craziness. The U.S. cannot technically go bankrupt but speculation and uncertainty can impact the rate of interest we will pay on our debt. It can also cause the FED to enact money supply increases to maintain low levels of interest which can create inflationary pressures. Boehner is at a level of power that careless political rhetoric can influence markets. He needs to be more mature and less cavalier with his ignorant pronouncements on US debt and the US economy.
I swear that these guys are purposefully trying to tank the economy.
peej
Carissa
ecocatwoman
mablue2
Mama Lopez
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quixote
skydancingguestblogger
Mona (aka Wonk the Vote)
Sky Dancing 
The government is only broke when the Republicans are trying to get their hands on our social security and medicare funds. The government isn’t broke when the Republicans and Obama give out Billions to the Wall Street Greedos.
and when they’re trying to give away tax dollars to businesses … Florida’s new governor is trying that now:
Rick Scott Proposes Cutting Annual Teacher Pay By $2,335 To Fund Corporate And Property Tax Breaks
Do they know what these decisions mean to everyday Americans? How in the name of Jesus and Abraham does an executive think it makes sense in a time of recession to voluntarily choke off a source of revenue? AND set policy that will cause more people to be out of work? AND cut services to the most needy among us? We must be in bizzarro world.
We are so f_&%d.
Asshats.
Hillary 2012
Dak, I believe that Rick Scott took his budget public at a Tea Party Rally shindig…completely bypassing protocol of releasing it before lawmakers.
They’re all doing that. What is it with the electorate that they don’t see that they won’t get that much back in taxes but they’ll lose all kinds of things like good roads, etc. I just hope that the retired communities in Florida are more responsible than the ones in Arizona like Sun City where they build tax enclaves just to avoid paying any tax money to schools.
DAK,
This just got posted via Twitter:
Tea Party, more like Koch Billionaire Tea to me.
“Sen. Scott Brown Asks David Koch For Money (Or Dog Bites Man)”
Bwahahahaha! Ted Kennedy’s old seat has come to this. It’s sad more than it is funny, but I’m all saddened out by the news already.
Glad you pulled this together! I was about to add an update to the morning post with the same links and add a note that I’d love to hear what Kat has to say about all this 🙂 But, then I saw your post.
I’m so out of things this week. Between the kids and five days worth of blasting stereos and power washing from next door, I can’t hear myself think at all. Plus, I’ve had a really bad attack of hives and I’m spacey from taking benadryl.
I had a bought with allergies this weekend. Like you, I was stuck with an antihistamine and I was loopy at work Fri. and Sat. This too shall pass. Get better soon.. 🙂
Hillary 2012
Thx. I’m trying. If I could only figure out what’s doing it to me. Plus, I make it worse because it makes me a nervous wreck.
I hope you start to feel better Dak. Have you seen this:
Full List – The 25 Best Financial Blogs – TIME
oh, kewl, thx!!! I’m trying to feel better. I picked up 3 more sleeping twentysomethings over night … there are now 8 of them in the house. I’ve given up on trying to keep up with the mess and I’m basically holding up in my room with the dog. Only the cat will brave the front room and I think that’s because he wants to head out the front door.
Oh here was the other link I was going to pair the Bloomberg piece with.
http://thehill.com/homenews/house/147725-50-billion-question-where-will-house-gop-draw-the-line
Particularly this bit:
Touchy?
The Day Glo Orange Tan Man lies to the American people and tells the world we’re broke, and he’s the one who is getting sensitive?!
Take a box of tissues and go back to Ohio, Boehner.
A bit OT but thought it was important: Don’t forget Bradley Manning | Duncan Campbell | Comment is free | guardian.co.uk
I meant to put this up on the Monday Reads post…I can move it…
Fantastic post, Dak. I am so glad to read an economist rebuking that idiotic talking point of how the U.S. Government is “just like” a family. Even Obama, who never met a right-wing talking point he didn’t like, is on that bandwagon.
I particularly liked this part from the Bloomberg article:
That sentence must have slipped by the editors, because it connects the dots between ridiculously low taxes on the wealthy, and the deficit! The horror!
In Obama/RW world, it’s like a family, but it doesn’t take a village.
😆
Whatever budget crisis there could be, they’ve definitely created it by draining away revenues. They always talk shear dollar amounts but they never look at that in terms of the overall size of the economy. They also conveniently forget they’re running TWO wars for a decade now.
Dak concluded with:
‘I swear that these guys are purposefully trying to tank the economy.’
Makes you wonder, doesn’t it? None of this makes any sense. We can blame it on blind ideology but really . . .
planned economic destruction doesn’t seem that far-fetched anymore.
Well, that depends on what the meaning of “destruction” is. If you look at it from their point of view, they are simply creating a “free market” (read: robber baron) economic system in the place of a regulated one. That creates more “opportunity” (read: Less oversight) for “innovation” (read: more fraud) so that “savvy businessmen” (read: greedy crooks) can earn loads of money with their “financial expertise” (read: Ponzi schemes).
yup, yup, yup
Sadly true, madamab. For these folks, the era of the Robber Barons never existed; it’s all a liberal fiction to make the mega-rich look bad. And I understand the bankers are getting their feelings seriously hurt because of all the criticism and bad PR. After working so-o-o hard for America.
Hahahaha! Just like their buddies at ENRON.
We’re being taken for a dive down the rabbit hole.
Isn’t it more than a little curious that all of these republicans are spewing the same speech despite evidence to the contrary? So who is really behind all of the manipulation?. Kasich keeps telling us that we are broke but gave tax credits to business because their employees pay taxes. When do I get in on this gig. I would love to take an extra tax deduction because my neighbor paid his taxes.