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Why The Debt Ceiling Debate Matters Now

If Congress doesn’t act soon, interest rates could spike–maybe for a long time. Then you’ll care.

The White House and Republican congressional leaders insist the debt ceiling will be raised well before the United States has to default, which would cause massive economic disruption. But a resolution seems less than assured. In the last few days, Republican presidential candidates Michele Bachmann and Tim Pawlentyhave joined a growing conservative chorus loudly denouncing a deal, and antagonism among the various parties appears to be growing, not diminishing.

Still, nobody in Washington or on Wall Street seems very alarmed. The Treasury says it can hold out until Aug. 2. But a look at the current politics and the recent history of debt-ceiling showdowns suggests that alarm might soon become warranted.

There are two reasons why. The first has to do with how difficult it will be to settle on something that can get through Congress in time to stave off any damage. This struggle has been largely misportrayed and crudely simplified as a tug-of-war between Republicans set on spending cuts and Democrats who want tax increases to accompany them. It’s actually a three-way struggle, because Republicans themselves don’t agree on their ransom demands to permit a larger debt.

House Republicans want to cut $2 trillion without raising any taxes or closing any loopholes. They’re focused strictly on spending. But Mitch McConnell, the Republican Senate leader, wants any deal to include Medicare reform. He’s focused on politics. McConnell worries that the House Republican budget passed in April, which takes the deeply unpopular step of privatizing Medicare, presents a mortal threat to Republican candidates in next fall’s elections. A debt-limit deal on Medicare that drew the support of President Obama and Democrats would inoculate the GOP against this danger.

The trouble is, House Republicans don’t share McConnell’s concern, so an agreement among Republicans seems nearly as remote as one between Republicans and Democrats.

That gets to the second reason for alarm: the United States need not default on its debt in order to incur costly and potentially lasting damage. A February report by the Government Accountability Officeexamining the recent history of “debt-ceiling events” — none nearly so serious as the current one — showed that government borrowing costs began to rise well in advance of default. Call it a taxpayer premium for congressional squabbling: the disruption of Treasury auctions and the threatened loss of liquidity among Treasury notes and bills caused billions in additional borrowing costs in the form of higher interest rates.

One reason why the debt showdown isn’t causing more alarm is that interest rates have been falling. But that’s due mostly to declining economic forecasts in the United States and fear of a Greek default — currently more powerful influences, but also ones that would mask worries about a US default.

At some point, perhaps as soon as in a few weeks, the fight in Congress could eclipse those factors and drive interest rates higher. That’s been the historical pattern, and it is already causing worry about what might trigger such a rise. “The nervousness on our end is that the markets will misperceive what’s going on,” an aide to a conservative House Republican told me. “If something fails on the House floor, people might react as if all life is about to end — just like they did when the TARP vote failed.”

That could cost taxpayers dearly, even if a default is ultimately avoided. One reason why US borrowing costs are so low is the universal belief that the government will always make good on its debts in a timely manner. But if that faith is shaken — and a good scare could do the trick — investors might decide that government debt is a riskier investment than they had imagined and demand a better return.

That will hurt. The Office of Management and Budget determined that a mere 1 percent rise in interest rates would cost taxpayers $973 billion over the next decade [pdf, pg. 23]. So a fight purportedly about cutting the deficit could actually cause it to grow much larger. That’s worth worrying about now — especially as Republicans threaten a default and claim there’s no cause for alarm.

 

By: Joshua Green, Senior Editor, The Atlantic, June 30, 2011

June 30, 2011 Posted by | Class Warfare, Congress, Conservatives, Debt Ceiling, Debt Crisis, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicare, Middle Class, Politics, Republicans, Right Wing, Taxes, Wall Street | , , , , , , , , , , , | Leave a comment

Ohio, Wisconsin Reach For Progressive Era Tools To Fight Modern Robber Barons

On the same day that Gov. Scott Walker’s anti-public employee law takes effect in Wisconsin, public workers in Ohio can celebrate a victory in the battle for democracy.

We Are Ohio, the group leading the effort to repeal Ohio Senate Bill 5, the anti-collective bargaining bill, delivered a record number of nearly 1.3 million signatures to the Ohio Secretary of State today, backed by a “Million Signature March” parade of more than 6,000 people, retired fire trucks, motorcycles, a drum line and bagpipes.

“This is the people’s parade,” said We Are Ohio spokesperson Melissa Fazekas in a news conference after the parade. “You are truly one in a million.”

Ohio’s Veto Referendum

Both Ohio and Wisconsin have had union-busting legislation forced on them by Governors John Kasich and Scott Walker in the name of fiscal austerity, and both states saw massive protests in response to the attacks on workers’ rights and public services. The electoral methods of recourse, however, differ between the states.

Ohio is one of 21 states that allow for veto referendums. A veto referendum is a unique mechanism that allows a new law to be placed on a ballot for voters to either ratify or reject if enough signatures are collected within the statutory timeframe.

About 231,000 valid signatures are required to put the collective bargaining law on the November ballot as a referendum. The 1,298,301 signatures were delivered in 1,502 boxes carried by a 48-foot semi-truck. The Ohio Secretary of State’s office must now sort the signatures by county, count them and distribute them to county boards of elections for validation.

According to the Toledo Blade, “Just the filing of the petitions Wednesday will keep Senate Bill 5 from taking effect on Friday as scheduled. If at least 231,149 of the signatures are determined to be valid, the law will remain on hold until the results of the election are known. If voters reject the law, it will never take effect.”

Wisconsin’s Recall Elections

In Wisconsin, six Republican state senators face recall elections over their vote to abolish public employees’ collective bargaining rights. Three Democratic state senators have also been targeted for recall, in response to their decision to leave the state during the battle that ensued over the controversial legislation. Primary elections for the recalls will take place July 12 for the Republicans and July 19 for the Democrats, with general elections following in August. If the Democrats hold onto their seats and three of the six Republicans are recalled, the state Senate will flip to a Democratic majority, loosening the Republican stronghold on the state.

While papers cannot be filed to recall Walker until January 2012, United Wisconsin, the grassroots organization behind the gubernatorial recall movement in Wisconsin currently lists 189,321 pledges for recall. To prompt a recall election, 540,206 signatures would be required.

“What we saw today in Ohio was a response of millions of people saying ‘no’ to Gov. Kasich’s agenda and standing up for bargaining rights and workers’ rights, because we don’t have the ability to remove him,” said Kris Harsh, spokesperson for Stand Up for Ohio.

Both Mechanisms from the Progressive Era

Ohio does not have a recall provision, thus the referendum drive. But both referendums and recalls are progressive tools that date back to the early 1900s. According to the Ohio Historical Society, “Progressives argued that the referendum made the American political system more democratic.” Referendums were approved as an amendment to the Ohio Constitution in 1912, and the Wisconsin Constitution was amended to allow for the recall of elected officials just one year after Robert “Fighting Bob” La Follette’s death, in 1926.

La Follette fought for progressive ideals — such as recalls and open primaries — to empower average people at a time when corporate bosses ruled the political scene. La Follette’s fight was against railroad barons and agricultural monopolies, while Ohio battled the Standard Oil Trust.

The overwhelming outpouring of people standing up for their rights and for their communities in Wisconsin and Ohio today indicate that the progressive tools given to Americans by fighters like La Follette are just as relevant and necessary now as they were more than 100 years ago.

By: Jessica Opoien, Center for Media and Democracy, June 29, 2011

June 30, 2011 Posted by | Class Warfare, Collective Bargaining, Conservatives, Constitution, Democracy, GOP, Gov John Kasich, Gov Scott Walker, Governors, Ideologues, Middle Class, Politics, Republicans, Right Wing, State Legislatures, States, Union Busting, Unions | , , , , , , , , , , , , , | Leave a comment

“That’s Why They’re Called Leaders”: Congressional Republicans Need To Do Their Job

One of the more common Republican criticisms of President Obama, at least in the context of the debt-reduction talks, is that he hasn’t shown enough “leadership.” Senate Minority Leader Mitch McConnell (R-Ky.) took to the floor late last week to cry, “Where in the world has the president been for the last month? … He’s the one in charge.”

One of the parts of Obama’s press conference this morning that I especially liked was the president’s pushback against the notion that he’s been a passive observer in this process.

“I’ve got to say, I’m very amused when I start hearing comments about, ‘Well, the president needs to show more leadership on this.’ Let me tell you something. Right after we finished dealing with the government shutdown, averting a government shutdown, I called the leaders here together. I said we’ve got to get this done. I put Vice President Biden in charge of a process — that, by the way, has made real progress — but these guys have met, worked through all of these issues. I met with every single caucus for an hour to an hour and a half each — Republican senators, Democratic senators; Republican House, Democratic House. I’ve met with the leaders multiple times. At a certain point, they need to do their job.

“And so, this thing, which is just not on the level, where we have meetings and discussions, and we’re working through process, and when they decide they’re not happy with the fact that at some point you’ve got to make a choice, they just all step back and say, ‘Well, you know, the president needs to get this done.’ They need to do their job.

“Now is the time to go ahead and make the tough choices. That’s why they’re called leaders…. They’re in one week, they’re out one week. And then they’re saying, ‘Obama has got to step in.’ You need to be here. I’ve been here. I’ve been doing Afghanistan and bin Laden and the Greek crisis. You stay here. Let’s get it done.”

I’m glad the president pressed this, not just because he sounded a bit like Truman slamming the do-nothing Congress, but because many in the media have bought into the notion that lawmakers have dug in on this, and the president hasn’t. That’s nonsense.

Congressional Republicans haven’t been slaving away, trying to strike a credible deal. They’ve been making threats, drawing lines in the sand, and barking orders about what is and is not allowed to be on the negotiating table.

“They need to do their job.” Part of those responsibilities includes working in good faith to find an equitable compromise with a Democratic Senate and a Democratic White House, and then doing what they must do, but what the president cannot do: passing the damn debt-ceiling increase.

Tick tock.

 

By: Steve Benen, Contributing Writer, Political Animal, The Washington Monthly, June 29, 2011

June 29, 2011 Posted by | Congress, Conservatives, Constitution, Debt Ceiling, Democracy, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Journalists, Lawmakers, Media, Politics, President Obama, Press, Pundits, Republicans, Right Wing, Senate | , , , , , , , , , , , | Leave a comment

Eric Cantor’s Glaring Conflict Of Interest

When Eric Cantor shut down debt ceiling negotiations last week, it did more than just rekindle fears that the U.S. government might soon default on its debt obligations — it also brought him closer to reaping a small financial windfall from his investment in a mutual fund whose performance is directly affected by debt ceiling brinkmanship.

Last year the Wall Street Journal reported that Cantor, the No. 2 Republican in the House, had between $1,000 and $15,000 invested in ProShares Trust Ultrashort 20+ Year Treasury EFT. The fund aggressively “shorts” long-term U.S. Treasury bonds, meaning that it performs well when U.S. debt is undesirable. (A short is when the trader hopes to profit from the decline in the value of an asset.)

According to his latest financial disclosure statement, which covers the year 2010 and has been publicly available since this spring, Cantor still has up to $15,000 in the same fund. Contacted by Salon this week, Cantor’s office gave no indication that the Virginia Republican, who has played a leading role in the debt ceiling negotiations, has divested himself of these holdings since his last filing. Unless an agreement can be reached, the U.S. could begin defaulting on its debt payments on Aug. 2. If that happens and Cantor is still invested in the fund, the value of his holdings would skyrocket.

“If the debt ceiling isn’t raised, investors would start fleeing U.S. Treasuries,” said Matt Koppenheffer, who writes for the investment website the Motley Fool. “Yields would rise, prices would fall, and the Proshares ETF should do very well. It would spike.”

The fund hasn’t significantly spiked yet because many investors believe Congress will eventually raise the debt ceiling. However, since Cantor abruptly called off debt ceiling negotiations last Thursday, the fund is up 3.3 percent. Even if an agreement is ultimately reached before Aug. 2, the fund could continue to benefit between now and then from the uncertainty. (One tactic some speculators are using is to “trade the debt ceiling debate” — that is, to place short-term bets on prices as they fluctuate with the news out of Washington.)

Salon’s Andrew Leonard calls the debt ceiling negotiations “Washington’s titanic game of chicken,” and the longer the game goes on, the more skittish the bond markets will become.

“Cantor’s involvement in the fund and negotiations is not ideal,” Koppenheffer said. “I don’t think someone negotiating the debt ceiling should be invested in this kind of an ultra-short. We can only guess how much he understands what’s in his portfolio, but you’d think a politician would know better. It looks pretty bad.”

Cantor spokesman Brad Dayspring noted that U.S. Treasury bonds make up a large portion of the congressman’s pension, and said investment in ProShares ETF serves to balance that investment and to diversify his portfolio. Disclosure forms indicate that Cantor has considerable personal assets, including real estate in Virginia worth up to $1 million, and a number of six- and seven-figure loans to private entities and limited liability companies. So his investment in ProShares ETF represents only a small portion of his overall portfolio — but that share could grow a little larger just over a month from now.

 

By: Jonathan Easley, Editorial Fellow, Salo, June 27, 2011

June 28, 2011 Posted by | Budget, Congress, Conservatives, Debt Ceiling, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Politics, Republicans, Right Wing | , , , , , , , , , , , | Leave a comment

David Prosser Probably Had A Very Good Reason For Putting His Hands On Colleague’s Neck

Wisconsin Supreme Court Justice David Prosser seems to have a bit of a temper! And he also seems to maybe have a bit of a history of verbally and perhaps physically attacking women. The latest, in case you haven’t heard, has the conservative justice accused of putting a liberal colleague in a “chokehold.” Here’s the thing: Even the anonymous sources defending Prosser say he put his hands around Justice Ann Walsh Bradley’s neck. They just say it was in self-defense.

Last year, Prosser screamed at a different (female) colleague, reportedly calling her a “bitch” and threatening to “destroy” her. When asked about all that, he blamed her for “goading” him into attacking her. That is classic psycho behavior, but I have to say that I did not expect Prosser to be accused of physical violence. And, you know, I wouldn’t expect “these women keep forcing me to attack them” to continue working as an excuse for attacking colleagues, but I guess I’m underestimating the conservative movement! Because everyone is running with the “Prosser was forced to put his hands on her neck because she ran towards him” story. Fox Nation headline: “WI Judge Prosser Smeared?” Human Events blames “Big Labor” for forcing Prosser to attack his colleagues.

Here’s Ann Althouse’s (a law professor!) defense:

ALSO: People may assume that the man is larger than the woman, but — from what I have heard — Bradley is significantly larger than Prosser. Bradley is also 7 years younger than Prosser, who is 68.

Compelling!

Bradley isn’t accused by anyone of laying a hand on Prosser. The case for Prosser is that Bradley came at him and he pushed her back in “defense,” but everyone seems to agree that his hands did end up on her neck. I don’t really think there’s any justification for that! And attacking women and then blaming them for making you do it is how abusive assholes justify their behavior. Not that I know the facts of this horrible case. But I tend to side with the people who don’t have a history of threatening to “destroy” people, because that is how comic book characters talk.

Anyway, now the right wants to recall Bradley, for attacking Prosser with her huge, terrifying neck.

 

By: Alex Pareene, Salon War Room, June 27, 2011

June 28, 2011 Posted by | Conservatives, Elections, GOP, Politics, Republicans, Right Wing, Wisconsin, Wisconsin Republicans, Women | , , , , , , | Leave a comment

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