What’s
Wrong Today:
From USA
Today at 1:30pm today:
leaders are proposing a six-week increase in the nation’s $16.7 trillion debt
ceiling as a way of avoiding a first-ever US default on debts
It is unclear whether Mr. Boehner really has the votes in his caucus to make this happen. Here is a tweet that sums up Boehner’s argument to the Tea Party:
From
Jake
Sherman:
the House GOP plan, and the thinking behind it: Republicans would vote to lift
the debt ceiling until Nov. 22 — just before the Thanksgiving recess — while
prohibiting the Treasury Department from using extraordinary measures to lift
the borrowing limit. The legislation will also set up a negotiation over the
borrowing cap and government funding.
The Senate announced a plan to do a clean,
one-year extension of the Debt Ceiling. So, polarized and incapacitated
government continues in DC, to no one’s surprise.
Our
Founding Fathers abhorred factions. The 10th Federalist Paper,
written by James Madison in 1787, was a study of how to defend our fledgling
republic against the dangers of organized zealots. Here is the introduction by
Madison:
advantages promised by a well constructed Union, none deserves to be more
accurately developed than its tendency to break and control the violence of
faction
Madison
says later:
consists of less than a majority, relief is supplied by the republican
principle, which enables the majority to defeat its sinister views by regular
vote. It may clog the administration, it may convulse the society; but it will
be unable to execute and mask its violence under the forms of the Constitution
Not
anymore. The bone of contention then was disputes over the “unequal
distribution of property”, and that remains true even today, in the bitter
political fight between the parties, between those who would like to see a soft
landing to our deficit spending and those who insist we must live within our means
starting tomorrow.
Madison believed
a powerful Federal Congress rather than powerful state legislatures would work
against factions. Regional diversity would help buffer the ideological tides. And
that is what in fact, happened.
Gridlock
was largely avoided even though the US Constitution creates a significant separation of powers.
But now, according
to Ambrose
Pritchard, the number of voters
who split their tickets fell to 11% in the 2012 elections, an all-time
low. He reports that a Princeton study shows that the political rift is even
more extreme today than under Reconstruction after the Civil War. This is why
the clash over the debt ceiling has become so volatile, and so dangerous.
Neither side has much incentive to reach across the divide. Each is looking to
its own militant base.
When we
hear the mainstream media ask Mr. Obama about “prioritization” of the Treasury’s
obligations in a Debt Ceiling default, we are hearing a Tea Party talking
point. Tax revenues will cover about two thirds of federal spending and debt
service costs between October 17 and the end of the year. Prioritization is music to the ears of Tea
Party.
In one stroke, America’s social programs would be “defunded”, the Teahadists
great wet dream come true. This is one reason why Mr. Obama has said no
negotiations before an extension of the Debt Ceiling.
None of this is necessary.
The US does not have a deficit crisis. The Congressional Budget Office says the
US deficit will be 4% of GDP this year, 3.4% in 2014, and 2.1% in 2015, plenty of time for the parties to negotiate.
From Menzie
Chin: (emphasis by the Wrongologist)
there is not much issue with breaching the debt ceiling seems to stem from the
belief that interest payments can be prioritized…As many have noted…it’s
not clear that either legally or technically such prioritization could be
implemented (think about all those government computers still running COBOL…and
Treasury makes about 4 million payments per day, many more than undertaken in
1957 when prioritization last occurred)
BTW, there
is no such thing as “technical default” except in the political-speak
of the GOP. We don’t commonly see expressions like “technically dead”, much less “technically
too dumb to be involved in the legislative process“.
To use the
term “technical default” is to adopt another Tea Party talking point. The point to watering down the reality of default with
“technical” is to make default seem permissible and not really a big
deal.
So, Mr.
Obama has every reason to hold his ground, and will almost certainly do so. The
“smart” money is no longer with him, however. The money markets are beginning
to hedge their bets on US Treasury debt. From the WSJ
on Tuesday:
prices tumbled again Tuesday amid rising investor concern about the prospect of
a government-debt default, sending the yield on one-month US Treasury bills to
its highest level since the financial crisis
The WSJ
article continues: (emphasis by the Wrongologist)
derivatives known as credit-default swaps, which some traders use to bet that a
debt issuer will default, investors now are pricing in a 3% probability the US
won’t pay its obligations in timely fashion. Traders were asking Tuesday for €58,800
($79,856) to
insure €10 million of US debt for a year, up 9.7% from Monday and up tenfold from Sept. 20 levels. [US
credit-default swaps trade in euros to help users hedge the risk of a
depreciating dollar in the event of a default]
Finally,
from Paul
Craig Roberts:
not the “debt ceiling crisis”…The real crisis is that jobs offshoring by US
corporations has permanently lowered US tax revenues by shifting what would
have been US consumer income, US GDP and tax base to China, India, and other
countries where wages and the cost of living are relatively low. On the
spending side, twelve years of wars have inflated annual expenditures. The
consequence is a wide deficit gap between revenues and expenditures.
Roberts
goes on to say:
the absence of intelligence among…policymakers who told us for 20 years not
to worry about the offshoring of US jobs, because we were going to have a “New
Economy” with better jobs.
Too few of these
“New Economy” jobs have appeared in US payroll statistics, or in the Labor
Department’s projections of future jobs. Corporations, economists and
policymakers simply agreed with the give away of a good chunk of the US economy
to enhance corporate profits.
One result
has been to create in the US the worst distribution of income of all developed
countries. US median family income has
not increased for a quarter of a century. The lack of consumer income
growth is why 5 years of massive monetary stimulus by the Fed and fiscal
stimulus by the government have not brought full economic recovery.
Our real
crisis will not be addressed unless the factionalism dies. Jobs must be created
and the wars must be stopped. Tax receipts have to increase. But powerful
organized political interests oppose doing anything about these measures.
So,
Congress will pass a new debt ceiling and the real crisis will continue.
