Another
week where America focuses on DC dysfunction. Another week where we move closer
to proving to the world that we are ungovernable. And why is that? Those responsible
for adult supervision in the government won’t supervise. We continually hear
that Republican Party leaders in both Houses of Congress disagree with the
House’s current strategy, but they say little in public.

Use
the quote from William Butler Yeats on the church sign as the basis for your
homily this week:

We
did see someone who is intensely passionate this week. Malala Yousafzai, the
Pakistani young woman who was shot by the Taliban, an unlikely young person,
brave beyond limits, exceedingly humble, she now stands on the world stage as a
beacon of human rights. She is one of the world’s best, and she has passionate
intensity!

Malala was on “The Daily Show” on Wednesday.
Jon Stewart asked her what she would say to the Taliban who tried to killer
her. She said that she imagined the encounter this way:

I
would tell him how important education is and that I would even want education
for your children as well. That’s what I want to tell you. Now, do what you
want.

McClatchy reported that Mr. & Mrs. Obama met with Malala in the Oval
Office yesterday. She released a statement after the meeting:

I thanked President Obama for the
United States’ work in supporting education in Pakistan and Afghanistan and for
Syrian refugees…I also expressed my concerns that drone attacks are fueling
terrorism. Innocent victims are killed in these acts, and they lead to
resentment among the Pakistani people. If we refocus efforts on education it
will make a big impact.

She could become the
Gandhi or Martin Luther King of the 21^st century. Let’s hope so, we
need another hero.

One result of Passionate
Intensity in our political process:

Tea Party is not a good driver:

Obama stays
home because government held hostage:

But not
everything was shut down:

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.

What’s
Wrong Today:

Vo
Nguyen Giap, North Vietnamese General, died last week at 102. He was a
significant 20th Century person, having defeated France and then the
US in Vietnam. Subsequently, with Ho Chi Minh, he united his country.

He
was certainly important to American servicemen who served during the Vietnam era, like the Wrongologist. His guerrilla tactics bled the US and fractured our
country politically. We, like the French, underestimated his tactical and
logistical brilliance. Our generals had no answer for his strategy or his abilities.

Sen.
John McCain (R-AZ), who spent 5+ years in North Vietnamese prison camps, and who met Giap twice, once as a prisoner, and once long afterwards, said
in the Wall Street Journal:

The
math of war is always terrible, and the numbers back up Gen. Giap’s viewpoint. Estimates of American dead are 58,200 with
303,644 wounded vs. 800,000-1.1 million North Vietnamese military.

More
from McCain:

Mr.
Obama, praising Vietnam Veterans, said at the 93rd annual conference
of the American Legion in 2011:

True.
But sadly, that is irrelevant,
we lost that war. The lessons learned from Vietnam still need to be remembered
when we see that we may yet stay longer in Afghanistan, or that we may get
sideways with Iran or Syria.

The
North Vietnamese had the same resolve that the American Revolutionaries had, to
defend the nation against invading forces. Why were the French fighting there?
Why did we manufacture an excuse to get involved and fight a war when we
weren’t attacked? We could ask the same questions about Iraq, Libya, Yemen and
Afghanistan, or about Grenada, or Panama.

Now in North
Africa, we are gearing up for more intervention. In an expansion of US military
action in Africa, we put boots on the ground in Somalia and in
Libya last week. This extends active US military involvement in anti-terrorism
efforts across the northern part of the African continent, from Libya on the
Mediterranean Sea, to Somalia on the Indian Ocean. 

Exactly
how and when the United States decided that the Nairobi terrorist attack
was an attack on US interests, requiring a military response, is not clear. There
has been no public discussion in the US Congress on expansion of American
military involvement to now include anti-terrorism efforts in Somalia. 

Getting
the Libyan guy we picked up last week is like scraping something smelly off your shoe,
but it still is an intervention in another Middle East country. Let’s remember that when we
last discussed Libya, Mr. Obama and most Congressional leaders said: “no boots on
the ground.”

Clearly,
the President and the Congress have been completely absorbed in the debate
over Obamacare and the shutdown of the federal government. The media have
been almost exclusively absorbed in this political fight and its consequences.
So whatever is happening in Somalia or in Libya was allowed to slip under the
radar. 

We established
a separate Africa Command within the
Department of Defense in 2007 to provide the strategic and logistical
resources to make such interventions more likely to occur and much
easier to initiate in response to any perceived terrorist activity in Africa.

Africa may
well be another battleground for control of natural resources. Nigeria, Mali, Libya
and several other resource-heavy countries are facing Al-Qaeda-related
insurgencies. Some will certainly ask us for help.

But, aren’t
these kinds of interventions and international adventures a major reason why our
debt ceiling has gone from less
than $1 trillion in 1970 to $17 trillion today? Aren’t the polarized “talks” in Washington the result?

We
have got to get control of our government. Both parties are working to throw
our money at a concept of Exceptionalism writ via military intervention. Very
little of what we are doing on the ground overseas benefits the nation.

Come
home, America.

What’s
Wrong Today:

The recession is over for corporations. We have reached the highest level of GDP since WWII.
The Wall
Street Journal cites a report from Moody’s that US non-financial firms held
$1.48 trillion in cash as of June 30th. Cash stockpiles were up 81%
from $820 billion at the end of 2006.

So, you would think that
businesses must be investing like crazy to take advantage of all those great
opportunities. Sadly, they are not.

Business investment as a ratio of GDP
remains close to the lows in previous recessionary cycles, and is lower than it
was in the 1950s. What has picked up is
share buy-backs. From The
Economist:

For
instance, Apple recently announced the
largest stock buy-back program in history, about $50 billion. This from a
company that has $147 billion in cash reserves.
  
The Economist reports that in the early 1970s, American companies
invested 15 times as much cash as they distributed to shareholders; in recent
years the ratio has dropped to below two times (see chart).

What
has driven this change? In his new book, “The Road to Recovery: How and Why
Economic Policy Must Change”, (Wiley UK, 2013, due out next week) Andrew
Smithers, an economist, argues that the main cause has been management
incentives.

Most executives now receive
more in bonus compensation than in salary. These bonuses are often tied to share price, which in turn depends on the ability of the company to meet its
quarterly earnings-per-share target. Share repurchases tend to boost earnings
per share while investing in the future of the business may depress them.

Mr. Smithers writes:

He isn’t alone in
this view: A 2013 study by John Asker (NYU), Joan Farre-Mensa (Harvard),
and Alexander Ljungqvist (NYU) found that public companies where executive
compensation is linked to the stock market, invest considerably less than
private firms and are less responsive to new investment opportunities. The authors’
state:

There is more evidence:
The National Bureau of Economic Research (NBER) found in a 2004 survey that
the majority of managers questioned would not proceed with a profitable
long-term project if it meant that the company would miss the consensus
forecast of profits in the current quarter: (emphasis by the Wrongologist)

In today’ s business
landscape, many executives receive stock options for meeting targets. Since
share prices are affected by trends in profits, executives have an incentive to
pursue strategies that increase profits.

Salaries and cash
bonuses are paid regularly. But once stock options are vested, they can be
cashed in at any time thus presenting executives with an irresistible incentive
to maximize short term share price, so that their options have more value. They
can then cash out large option holdings, benefiting themselves at the expense of the company’s long
term market value. Preferential tax treatment of options further exacerbates
this problem. And if the worst happens and the company hits hard times, the
executives get fired and/or leave to do the same thing at another company. Without
repercussions or consequences, they can just take the money and run.

The
combination of the corporate bonus culture (for those who need bonuses the
least) and the short-term focus of the financial markets account for the negative
impact on corporate investment and over time, it will impact corporate competitiveness.


Short term
goals/profiteering also contributed to the financial meltdown, particularly at the top level
financial firms, executives not only were unscathed, they reaped big bonuses. The public is now wise to company leaders
who amass their own bundle, leaving other stakeholders holding the bag. Most
executives are in it for the money, very few are in it for the economic benefit
of their employees, never mind their consumers.

We
say it a lot around here; without more customers earning wages there are too few left
to spend on products/services being produced. This is economics 101
folks.

What
to do about the bonus-option incentive is more difficult.

Government
can change the tax code to eliminate the tax incentives that come with holding
options, taxing the profits from holding shares that were originally stock
options as ordinary income. This type of Pigovian tax would help,
but it is unlikely to change corporate culture.

Corporate
interests are so entrenched it’s very unlikely the current bonus-based
“incentive ” structure will change – what is fairly certain however
is that the views Smithers expresses in his book will be both condemned and
criticized by those most likely to benefit from the status quo being
maintained.

His
point is that we will not resume the kind of economic growth that creates jobs
as well as profits until we more equitably resolve the corporate focus on
short-term profits.

This
week, our fiscal crisis reemerged. No budget=Shutdown.

House
Republicans blocked the budget not because they objected to its contents, but
because they objected to Mr. Obama’s health-care reform. Then they went from defunding
Obamacare. . .to delaying Obamacare. . .to delaying parts
of Obamacare. . .to funding the government piecemeal, leaving Obamacare
in place. If Republicans have already conceded on defunding of Obamacare,
what’s the point of keeping the government closed?

Mr.
Boehner could short-circuit all of the posturing by bringing a clean bill to
the floor of the House. We all know that two things would happen: It would
pass, and he could lose his Speakership if he did. Why are Republicans letting
Mr. Boehner get away with his sniveling performance? Because their money and
power depend on his intransigence. Use the quote below from Upton Sinclair to
write your homily on the corrupting power of money in our democracy.

The guy NOBODY wants in their foxhole:

Obamacare haunts Yogi:

Low information voters abound:

Boehner looks for a life line:

Republicans should stop asking why Obama negotiates with Syria and not with them:

What’s
Wrong Today:

Sometimes
chaotic events help to illuminate the political landscape more clearly. So it
is with the Shutdown/Debt Ceiling divide. Richard Kirsch talked about this at
the Otherwords blog:

He points to House Republicans’
recent votes to deny food and health care to millions of Americans. Those are
statements of values.

First, there was the vote to take 3.8 million Americans off the
SNAP program
(food stamps). The Republican argument is that adults who don’t have children
to take care of must work and be responsible for themselves. The fact that there are three people looking for work for every job
available is beside the point
to the 217 members of Congress who voted for the cut in food assistance.

Second, there
is their current move to defund Obamacare. This denies 25 million Americans
health coverage. Unlike the SNAP cuts, blocking Obamacare keeps
health care coverage from millions of working
people whose jobs do not come with health coverage. According to a study by the Kaiser
Family Foundation, almost two-thirds of uninsured Americans have a full-time
job, while another 16% are employed part time. To Kirsch, the core Republican argument
is the same, as that expressed by Missouri State
Senator Rob Schaaf:

It’s easy to point
out that Schaaf’s statement is false — the Affordable Care Act won’t be
providing free health care to most beneficiaries ― yet rebutting his arguments
misses the basic point. He’s making a values statement, the same one underlying
the attempt by House lawmakers to cut off food assistance. More from Kirsch:
(emphasis by the Wrongologist)

Conservatives believe
that it’s an infringement on a person’s freedom to be taxed in order to take care of
someone else.

Democrats believe
that while we are each responsible for ourselves, we also have a shared
responsibility, through our government, to care for each other, that we all
need to be in it together. Accordingly, if we have not created an economy with
enough jobs for people to support themselves, we are responsible for being sure
that people have the support they need, like food.

Booman points us to the latest Democracy Corp report on the beliefs of Republicans. The
study broke Republicans into focus groups and then categorized them as Moderates,
Evangelicals, or members of the Tea Party. Here are the findings:

The report makes the Moderates sound like sane people who just don’t like paying taxes or dealing with government regulations. The report makes Evangelicals and Tea Party folks sound like they’ve been programmed. 

Read the report, it doesn’t take long, and it confirms what many have been thinking. You will find it says that the Tea Party is comprised of the same kind of nuts that have been periodically falling off the tree since the beginning of the Republic. Or, as the Wrongologist likes to think, Tea Party = Birchers.

The people in the study say that they feel like Mr. Obama came in and won a total victory over them and their way of life. They believe that now that ObamaCare is enacted, they’ll never win another presidential election. They think the country will get more tolerant of gays. So, they want their representatives to fight, and fight hard to preserve the values they believe in.

The current dispute appears to be about Obamacare, but no Republican has any delusions that a shutdown will stop Obamacare. The Democracy Corp findings support just that: It’s not a negotiation tactic, it’s an end in itself, and the Tea Party and Evangelical right have been open about this for several years now.

Fringe groups have always been with us, with pretty much the same geographic distribution. Look at the right wing during the 1920s, when the KKK was popular; during the FDR administration, when many considered the president a communist; after WWII, when the Cold War started and lots of people were itching to drop the bomb on Russia and China; during the Kennedy years, when many considered JFK a communist.

The fringe then wasn’t any different than they are now, and probably not a smaller percentage of the population either. All we can try to do is eliminate their political power so they won’t impose their values on the rest of us while doing damage to the Republic.

There’s always a boatload of political posturing in Washington. We know that the reason Republicans keep voting to defund the Affordable Care Act, knowing that they won’t prevail, is to appeal to the values of their conservative base and those of their corporate sources of funds. They do it to stay in power.

If we want to drive better attendance in the museum of clear ideas, it is of paramount importance to continue to drive voter registration.

We need to get ID’s for those who need them in order to vote.

We need to support candidates we like wherever they live.

That’s how unions organized, it’s how women won the right to vote and how we won civil rights for all in the 1960’s.

And if we want to preserve the progressive values that emerged at the founding of the Republic, we will have to do it all over again. We
have a responsibility to make the commons work; otherwise the American system won’t work, whether we are talking about health care, public schools, roads and bridges, or our democracy.

What’s
Wrong Today:

Dispatches from the front lines:

First, from
the Washington Examiner, Rep. Marlin Stutzman (R-IN)
regarding the shutdown:

When
the Teahadists do something to earn respect in the eyes of the rest of us, they
will be worthy of respect. A good conservative should know that respect isn’t a
right; it has to be earned. Mr. Stutzman, please encourage your Republican
buddies to fight the 2014 and 2016 elections under your platform of getting rid
of Obamacare while also attacking Social Security and Medicare.

Second,
HuffPo reports
that Republicans appear split on whether furloughed civil servants should get
back pay when the shutdown ends. From Sen. Richard Burr (R-NC):

His
concerns were echoed by Sen. Chuck Grassley (R-IA):

And we’re
only on Day 3. Maybe we could use the Congress’s own paychecks to fund the
back-pay for federal workers.

Third, Sen.
Rand Paul (R-Ky.) argued Wednesday that there’s no need to raise the debt ceiling because the US can pay the
interest on its debt with existing revenue. Paul argued that since the House
has passed a bill, the Full Faith
and Credit law that mandates payments on debt interest, Social Security,
Medicare and soldier’s salaries will get paid
first.

This means
that Sen. Paul favors a bill that would
cause default for a lot of government spending, since it creates a priority
for repayment. But, that is not what “Full Faith and Credit”, means. It means
that the government backs ALL debt that arises from legislative action or
common law. But Sen. Paul believes that if
the debt ceiling is breached, some government functions just wouldn’t get paid,
and no default would occur. Wrong. From The Hill: 

There is more to debt repayment than paying interest. There is that pesky principal that must be repaid as well.

Fourth, Media Matters reports that Fox News is spinning the
shutdown as the “slimdown”. The first report using the “slimdown” term by Fox
News was here:

Tell that
to the 800,000 furloughed government employees.

Even Fox
News host Howard Kurtz thinks this is stupid. His column said:

Finally, The
Daily Beast reports that the
“Hastert Rule” isn’t a rule:

(Denny Hastert was the longest serving Speaker of
the House of Representatives. He is said to have created the “Hastert Rule”
whereby no legislation can be brought to the floor unless a majority of
Republicans in the House are willing to vote for it. It is cited as the reason why House
Speaker John Boehner won’t allow a vote to fund the government with no
Obamacare strings attached.)

But Hastert told The Daily Beast on Wednesday:

Former Speaker Hastert throws current Speaker Boehner under
the bus. His big point in the interview is that a Speaker has to be able to
count votes if he wants to get things done.

So
perhaps Speaker Boehner won’t let the center-right majority of Republicans and
Democrats in the House have their way UNLESS he can get a majority from within
the House Republicans. If the count of Teahadist Representatives (~30)
mentioned in yesterday’s NYT is correct, there are 180-200
Republicans in the House that would vote to solve the debt ceiling and the
shutdown. That is a majority of House Republicans. It takes 217 votes to pass a bill in the House, so it would only take
about 40 Democrats to join in passing a clean CR and a debt ceiling bill on to
the Senate.

Back to Sen. Paul: he is wrong when he says that
we don’t have to worry about a default. Our 2013 budget is $3.8 Trillion. We
have projected $2.9 Trillion in receipts. The shortfall is $900 billion. We
can’t meet our already approved committed expenditures without an increase in
the debt ceiling. When you can’t pay, you default.

For someone with Presidential
aspirations, Sen. Paul has proven he isn’t qualified. Either he really believes his BS,
and thus is over his head, or he is encouraging more reckless behavior by Republicans.

Either way, he shouldn’t
be a Senator in our Republic, much less a Presidential candidate.

He makes John Boehner
look like a statesman.

 

What’s
Wrong Today:

No
one knows how this game of chicken will end in Washington. In some ways, that
foundation of American democracy, majority rule, is on trial, due to a rump group in the Republican
party that has forced a government shut-down and in all likelihood, will hold an
increase in the debt ceiling hostage as well.

Yesterday,
the Wrongologist proposed that Mr. Obama could dodge
the debt ceiling by issuing a debt instrument known as Consols. That will
work, but it isn’t a strategy to deal with Speaker Boehner and his Tea Party Republican
nihilists who are apparently able to bring the government to its knees at least
twice a year. From today’s New
York Times:

The NYT quotes Rep. Raúl R. Labrador, (R-ID):

The Teahadists often speak about “the will of the American people“.
Their point is that since Obamacare doesn’t poll well, it isn’t what the people
want, and the House should shut down the government until it is delayed or
defunded.

But let’s change the issue from Obamacare to
gun control; an issue with much more lopsided poll results than the ACA. A CBS poll from March indicates 90%
of America want gun control, a Washington Post/ABC
News poll from April shows an 86% approval rating, a CNN poll from April shows
an 83% favorability rating. So, a question for our Teahadist
brothers and sisters: 


If the best argument against the ACA
is that a majority of the American people don’t want it and therefore it must be
stopped in its tracks by any means necessary, why doesn’t the same thinking
apply to background checks/gun control? Remember this vote in the Senate last Spring?

The Times reported
that Mr. Obama has summoned the Republican and Democratic leaders of Congress
to the White House today to urge the passage of measures financing the
government and increasing the nation’s borrowing limit — without add-ons like a
limitation on his health-insurance law.

But
that is the wrong strategy for Obama:
That meeting is unlikely to produce anything unless Obama gives something to
get something. He needs to make the debt ceiling increase the cornerstone of the discussion. He could then give something in order to get
something big. Let’s say he offers to agree to the delay of the Individual
Mandate for one year. That was the key part of the last House CR, along with an anti-women “conscience
clause” and the repeal of the medical
device tax in Obamacare.

In
return he asks for a permanent removal
of the Congress’ control over increases in the debt limit.  Here is the relevant section of 31 USC 3101
from yesterday’s column:

That
would be a fair trade. The President can maintain that the debt ceiling is only
about financing debts that Congress has already approved, so a second Congressional approval
is irrelevant. The Teahadists get a win, delaying a key element of the hated ACA,
and the country doesn’t have to go
through the hostage-taking around the debt ceiling ever again.

Delaying
the individual mandate isn’t the same thing as delaying Obamacare; everyone who
wants a policy can still buy one. And the mandate on small companies was already
delayed a year, which is part of the Republicans’ rationale for delaying the individual mandate.

Back
to negotiation about the shutdown: If the shutdown cannot be ended immediately,
and without a cheap 45 day extension, Mr. Obama should threaten to attach one
or more bills to the Senate’s next CR, perhaps the removal of the tax exemption
for religious organizations, for example.

Then,
both houses can go to conference committee, which Boehner says he wants, even though
he has turned the Senate down multiple times earlier in the year when they proposed
a budget conference.

Mr.
Obama would insist the House delete the conscience clause, which allows
employers and insurers to opt out of preventive care and birth control for
women which they find objectionable on moral or religious grounds. Most
insurers are required to provide such care for free under current Obamacare
rules.

He
shouldn’t agree to eliminate the tax on medical devices, which the Teahadists
and Boehner have complained “costs jobs”. Despite some disinformation, the
medical device tax
does not apply to eyeglasses, contact lenses, hearing aids, wheelchairs,
and any other medical device that the public generally buys at retail for
individual use. 

It
does apply to such devices as coronary stents, artificial knees and hips,
cardiac pacemakers, irradiation equipment, and imaging technology. Off The Charts Blog reports that
Obamacare will boost sales of these taxed medical
devices, largely offsetting the effect of the tax.

The logic is that by adding 25 million Americans with health care, demand
for medical devices will increase and so will the revenues of device manufacturers. They
quote a study by Wells Fargo Security that found that
health reform would increase device sales by 1.5% in 2014 and by 3.6%
cumulatively through 2022. This increase, the study concludes, “will be
sufficient to offset” the tax. Clearly, the medical device tax will not have
the dire effects predicted by Republicans.

In
this way, Mr. Obama can negotiate with Mr. Boehner, each offering some give and
take, and the Republic can be better off for it. The debt ceiling is off the
table permanently, but we are probably stuck with the risk of a shut down forever.
 

But
look, that is probably how it should be. The budget is our national policy in
motion. It is supposed to start in the House and then go to the Senate. They
hash out the differences in conference committee and it goes to the President
for approval. Except that, since the parties can’t really decide anything, the
CR has become our tool for letting the government operate and getting money to
those it owes.

Dysfunction
has bred dysfunction. Or more precisely: it has bred hyper-partisanship So,
shitty laws give us hyper-partisanship. Hyper-partisanship gives us more shitty
laws.

Lather,
rinse, repeat.

What’s Wrong Today:

The US Treasury will hit America’s debt ceiling on October 17. Since we
already have a political impasse on the continuing resolution (the CR) to fund
government operations and are in the midst of a partial federal government
shutdown, there should be little expectation that the same parties will put
down their ideology and rhetoric long enough to make a deal on the debt ceiling:

But the economic turmoil that will be caused by defaulting on US Government
debt and compromising the Full Faith and Credit of US debt is a much more serious long term problem for the country than a partial government shutdown.
So, how can Mr. Obama dodge the debt ceiling?

Here is
a little debt ceiling history: After the foundation of the republic, the
Treasury went to Congress to approve each new bond issue. In 1917, with war
breaking out in Europe, Congress reformed the system to give the Treasury more
freedom of action, establishing an overall ceiling within which it could issue
bonds. It was similar to a line of credit at the bank.

Until 2010,
the increase of the debt ceiling when required was mostly a routine
transaction. But after the Tea Party gained control of the Republican agenda, a
number of GOP Congressmen balked at routine approval of increasing the debt
ceiling. This caused the Sequester.

Now that we have been unable to solve the budget impasse, the Treasury
should be directed to prepare an issue of Consols, to be used
in the event that Congress refuses to increase the debt ceiling.

What
is a Consol? It is a form of perpetual bond, that is,
a bond that has no maturity date. Issuers pay interest on consols in
perpetuity, and the bonds are not redeemable. They can be issued with a “call”
by the Treasury, so that the Treasury would have the option to retire the Consol at a specified year in the future.

Consols
could be issued under Treasury’s
existing bond authority. From 31 USC 3102:

In Section 3121:

The permissive “may”
in Section 3121 above, instead
of the mandatory “shall” means that the Secretary doesn’t actually have to ever
set a maturity date for paying the principal.


From
Mike
Norman Economics:

But a bond’s face value is the principal the Treasury promises to
repay. So if the bond doesn’t mature, there is no face value to repay, and it is entitled
to interest only. In accounting, it would be treated as a form of equity, not debt. 

If we look at the debt ceiling statute (31
USC 3101):

So Consols are exempt from the debt ceiling because there is no obligation to repay any principal: Therefore it isn’t debt.

Consols have been
issued by the US Treasury in the past: the 2% gold Consols of 1930. The Consols
of 1930 were issued in 1900 to consolidate (thus, “Consols”) several older high
interest bond series. The two important deal
terms for the Consols of 1930 were: “Length of loan, indefinite”…“and is
redeemable at the pleasure of the United States after the first day of April,
1930″. They were called by the
Treasury on July
30, 1935. Even if they were still outstanding, they would be exempt from
the debt limit.

Therefore, Consols are an ingenious work around for the poorly designed US Code. We shouldn’t have to work around our system of laws though. If our democracy is
to have any chance of working, the politicians need to understand how the
economy, budget and monetary system operate together.

Not
going to happen with these guys, though.

So, would issuing
these Consols survive a Constitutional challenge by Republicans? The
Wrongologist is not a lawyer, much less a constitutional lawyer, but Chief
Justice Roberts has written that if there two possible meanings of a law— one
path constitutional and the other unconstitutional, the court must pick the meaning that prevents a breach of the
Constitution:

Justice
Story said 180 years ago:

Will
those opinions carry the day? Who knows. They are better than the Trillion Dollar Coin,
an alternative solution that some believe is simpler to understand than Consols.

If
we minted a $Trillion coin, it would be perfect
if it had Nixon’s face and the motto:

“If
the President does it, it’s not illegal”.

 

What’s
Wrong Today:

Great
is the guilt of an unnecessary war- John Adams

With Iran’s
President Hassan Rouhani conducting a charm offensive in and around the UN and
Secretary of State Kerry meeting with Iranian Foreign Minister Mohammad Javad
Zarif to see if there is a way to end the protracted conflict over Iran’s
nuclear program, it is useful to remember that the real victor in the 2003 war
between the US and Saddam Hussein’s Iraq government was the Islamic Republic of
Iran.

Dexter
Filkins has an article in the New Yorker that
says just that. While it may not be news to some, the article describes how
Iran both engineered the new Iraqi government and the withdrawal of US forces from
Iraq.

The
article profiles the little-known Qassem Suleimani, the commander of the Quds Force, a division of
the Iranian Islamic Revolutionary Guard
Corps. From Filkins:

Suleimani
was a division commander in the Iran-Iraq War while still in his twenties. His
power comes mostly from his close relationship with the Supreme Leader of Iran,
Ayatollah Khamenei, who refers to Suleimani as “a living martyr of the
revolution.”

Filkins continues:

Suleimani
began an aggressive campaign of sabotage against the US forces. In 2004, the
Quds Force began flooding Iraq with lethal roadside bombs that the Americans
referred to as EFP’s, for “explosively formed projectiles”, able to penetrate
armor. The EFP’s began to wreak havoc on
American troops, accounting for nearly 20% of combat deaths.  

Iran’s
offensive in Iraq proved successful in both stressing US forces and building a
stronger domestic opposition to US occupation.

Suleimani’s
campaign against the US crossed the Sunni-Shiite divide. Early in the war,
Suleimani encouraged the head of intelligence for the Assad regime to
facilitate the movement of Sunni extremists through Syria to fight the
Americans.

As it
turned out, the Iranian strategy of abetting Sunni extremists backfired
horrendously: shortly after the occupation began, the same extremists began
attacking Shiite civilians and the Shiite-dominated Iraqi government. It was a
preview of the civil war to come.

A diplomat
told Filkins:

In
December, 2010,  the  formation of a new government, led by Prime
Minister Nuri al-Maliki was announced. The country had been without a
government for nine months, after parliamentary elections ended in an impasse.
At the time of the election, there were still nearly 100,000 American troops in
the country, and the US was still hoping to leave a residual force behind.

Filkins
reports:

According to Filkins, there were the two conditions that Suleimani imposed
on the Iraqis. The first was that Jalal Talabani, a longtime friend of the
Iranian regime, become President. The second was that Maliki and his coalition
partners insist that all American troops leave the country. Filkins reports an
Iraqi leader as saying:

That
spelled the end of US influence and the emergence of Iranian dominance in Iraq.
So the end result of George W. Bush’s ill-advised and poorly managed war in Iraq was to empower Iran to become an even greater regional power.

And
Suleimani? What is he up to now? Filkins reports that Suleimani’s greatest
achievement may be that he persuaded the Iraqi government to allow Iran to use Iraqi airspace to fly men and munitions to Syria:

And
Suleimani controls Iraqi politics by paying officials and by subsidizing
newspapers and television stations. Filkins quotes a former senior Iraqi
official:

So,
the Charge of the Lightweight Brigade
by Mr. Bush ended with his identified enemy in the “Axis of Evil” being in defacto
control of Iraq. Yet, as recently as April of this year, Bush is reported
as saying about Iraq: “I’m comfortable with what I did.” 

“Shock
and Awe!” “Let’s Roll!” Let’s hear a golf clap for George W. Bush’s foreign
policy.

And since
then, we have pivoted to Asia, well, except for that Syria thing.

Another
winner in the Iraq war has been China. The New
York Times has reported that China is now Iraq’s biggest oil customer.  From the NYT:

China buys
nearly half the oil that Iraq produces, nearly 1.5 million barrels a day, and
is angling for an even bigger share, bidding
for a stake now owned by Exxon Mobil in one of Iraq’s largest oil fields.
Chinese state-owned companies are pouring more than $2 billion a year and
hundreds of workers into Iraq, and are showing a willingness to play by the new
Iraqi government’s rules and to accept lower profits to win contracts.

Didn’t
we go to war to preserve access to oil?

So, the
end state is that China is ensconced in Iraq and engaging in shuttle diplomacy
and business deals with Iran. Russia now takes a much more active role inside
Syria. At this rate, stability in the Middle East may be possible after all,
with the US relegated to the sidelines along with its problematic bedfellows,
Israel and Saudi Arabia.

Attack of
the killer “B’s”: Bush, Bibi, Bandar ― They deserve each other, but in reality,
America deserved much better.