The Wrongologist

What’s
Wrong Today:

Our
Treasury Department as a routine matter, issues various types of debt obligations of the United
States to fund the operations of the government.

The total US Treasury
market trading volume is about $10
Trillion per month. That’s $120 trillion per year, or more than 10 times our
annual Gross Domestic Product. This means it is a huge, safe, and very liquid
market. Every new Treasury obligation we sell is oversubscribed at minimum of 2:1.
The fact is, we could issue twice as much ‘debt’ as we do each month, the demand
is that strong. The strength of this market is due to the US being the world’s largest economy, with our Federal Reserve Bank acting in some ways, as the world’s central bank.

Today, the
country’s total debt is about $17 Trillion. This Fiscal Year’s budget deficit that requires financing is about $1 Trillion, while the Fed’s purchases for
stimulating the economy (Quantitative Easing) amounts to $85 Billion per month, another $1 Trillion
this year. All of this says that many
investors private and public, foreign and domestic, invest in and trade huge
amounts of US Treasury obligations.


Our obligation is to use whatever funds the government raises via US Treasuries
as wisely as we can. If we use the funds to make America and our citizens more competitive
and productive, then we are helping everyone. If we use the money to fund wars
and tax cuts for the wealthy, then we are being much less productive with our
money.


Anyone in Congress who supports actually defaulting on our public debt is
really saying it is acceptable to reduce the size and liquidity of the global market
for US Treasury obligations. Fewer buyers purchasing smaller amounts of
Treasuries will be the first outcome of a default. The second outcome, assuming
we still need to sell the same amount of debt as the day before the default,
will be a higher interest rate on our debt, which thereby increases our
deficit.

Some
members of Congress say the Federal Government can pick and choose which of its
legal obligations it will honor post-apocalypse. For a moment, let’s accept the
Republican contention that the government can do just that. If Treasury could pick and choose which bills to pay, how about this
as our decision rule?

Checks cut
by the Treasury (including Social Security) will be sorted by zip code. Those
zip codes represented by Republican Congressmen who think default is the way to
cut the deficit go to the back of the line. Treasury then sends each household in those districts a
note saying; “You wanted this. Quit bellyaching”.

Should
Obama be negotiating with the House?

The country’s Debt Ceiling is being held hostage by Republican Congressmen
for the 2nd time this year. It wasn’t always that way. From the Christian
Science Monitor:

So in
1978, Dick Gephardt was able to tie the debt ceiling to the approved budget:
Once Congress decided how much we were going to tax, spend and borrow for the
Fiscal Year, the Treasury Department was authorized to carry out those
instructions. We operated under that “rule” for 17 years, but, in 1995, the 58th
Speaker of the House, Newt Gingrich, wanted leverage over President Clinton, so
they walked away from the rule, and brought back the debt ceiling approval.

Mr. Boehner
is now using it to try to leverage Mr. Obama.

It seems
like this manufactured crisis is actually a calculated effort by the Teahadists to force
a reduced level of funding for Social Security and Medicare. They sure seemed
to move quickly enough from the “must defund Obamacare” to the budget fantasy land
proposals of Paul Ryan.

Mr. Obama
should not accept the terms offered by Republicans. The GOP may have put away
their weapons, but they plan to take them out of the holster again in six weeks
unless they are satisfied. And the definition of what might satisfy them is
nebulous, at best. Moreover, Mr. Boehner has shown more than once that he
cannot deliver his caucus, and then the goalposts get moved.


Negotiation under a delayed threat is
still a negotiation under threat. Use of the debt ceiling limit to force a
political outcome is not new, but if Mr. Obama dances
with Boehner, it will become a firmly established precedent.

Governing,
as difficult as it is today, will be much closer to impossible if Mr. Obama
gives in to the Congress’ continuing demand to hold a debt ceiling increase
hostage to negotiation of the latest demand made by the Tea Party.