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Debt Ceiling: What Killed The Deal And What Might Make One Happen This Week

There are a lot of good articles running through what happened between Thursday night, when a deal seemed likely, and Friday evening, when the talks fell apart. New reports suggest that Boehner is trying to prepare a deal by tomorrow evening, to prevent the markets from dropping Monday. So here’s the short version of what just happened, and where we’re likely to be going:

On Tuesday, the Gang of Six proposed a deal that would raise tax revenues by $2 trillion — which showed there was support among Senate Republicans for a deal that raised taxes by about $2 trillion. On Thursday, congressional Democrats rebelled over reports that the deal Boehner and Obama were negotiating had only $800 billion in new revenue, and it wasn’t even clear how those would be achieved. That night, Obama called Boehner looking for about $400 billion more in revenue to have something he could sell to Democrats. That would have brought the deal from $800 billion in revenue to $1.2 trillion in revenue. He didn’t get a call back until the next day at 5:30 p.m. — by which point the call was unnecessary. Boehner had already told the media that he was leaving the talks.

Republicans are emphasizing that the White House went from asking for $800 billion in revenue to $1.2 trillion. The word you’re hearing from them is “reneged,” but the White House emphasizes that negotiations were ongoing, and both sides were asking for more as they tried to figure out what they could both agree on and pass through Congress. Boehner, for instance, wanted further cuts to Medicaid, a trigger that would repeal the individual mandate and the Independent Payment Advisory Board if the entitlement cuts didn’t come through, and a tighter cap on discretionary spending. “They make it seem like the president made some ultimatum on $1.2 trillion in revenue,” says a senior administration official. “He didn’t. He said, ‘If you can’t do this, let’s figure out what we can do.’ ”

The “what we can do” would probably have been to ratchet back the entitlement cuts. Or maybe another solution would have been found. It’s hard to say because Boehner didn’t come back with a counteroffer. He simply left the negotiations.

But let’s zoom out on where the negotiations left off. Spending cuts would have totaled about $3 trillion, with a bit less than a trillion dollars of that coming from entitlements and other forms of mandatory spending. Revenue increases — none of which would have come from raising marginal tax rates — would have been between $800 billion and $1.2 trillion. The package would have extended the unemployment insurance and payroll tax cut provisions passed in the 2010 tax deal. All in all, that’s about a trillion dollars less in revenues than the Simpson-Bowles/Gang of Six deals advocated, and about $2.6 trillion less in revenue than simply letting the Bush tax cuts expire in 2012.

There’s a question as to whether this was the very best deal Republicans could get or simply close to it. But it’s hard to believe that it was so bad that it ended the talks. What seems likelier is that Boehner spent some time between Thursday and Friday talking to his members and found that his party simply didn’t support a deal with the White House. For one thing, a deal would include some amount of revenue, and that was a hard sell under any circumstances. For another, letting the president look like a dealmaker would potentially dim the GOP’s chances of retaking the White House in 2012. As my colleague George Will put it Thursday, a deal “would enable President Obama to run away from his record and run as a debt-reducing centrist.”

And so Boehner walked. Fundamentally, this looks like the same calculation that ended the last round of talks over a 4 trillion deal. What’s different this time is Boehner’s plan B: The Speaker of the House appears to believe that a deal struck between congressional leadership would perhaps be easier to sell to his members. Since it’s hard to see Nancy Pelosi and Harry Reid making deeper concessions than Obama did, it’s hard to see why that would be true, save that the deal might not look like such a victory for the White House.

Perhaps taking the benefit for Obama off the table will be enough. I’m doubtful. It’s more likely that what we’re really doing now is wasting time until the markets plummet and Boehner’s members decide that a deal is better than no deal. And there’s a very good chance that the first major show of market concern could come tomorrow night, when the Asian markets open. Boehner is hoping to present a plan by then, but a plan is very different from a deal. A plan is something politicians can come up with. A deal, we’re increasingly finding, is something that we need the markets to force.

By: Ezra Klein, Columnist, The Washington Post, July 23, 2011

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July 24, 2011 Posted by | Congress, Conservatives, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Elections, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Individual Mandate, Lawmakers, Media, Medicaid, Politics, President Obama, Press, Public, Pundits, Republicans, Right Wing, Tax Increases, Taxes, Voters | , , , , , , , , , , , , , , , , , | Leave a comment

Grover Norquist’s Pledge Is A Colossal Failure

In 1986, Grover Norquist and his organization, Americans for Tax Reform, created the “Taxpayer Protection Pledge,” which he describes as “a simple, written commitment by a candidate or elected official that he or she will oppose, and vote against, tax increases.” It has recently come under repeated fire: it became a tool for ethanol subsidy apologists, for example, and most recently, it emerged as a needless obstacle in negotiations over raising the debt ceiling.

Responding to his critics, Norquist has taken to the op-ed page of the New York Timesthis morning to defend his legacy:

Contrary to the hopes of some that I am somehow softening the pledge, it is stronger and more important than ever: it has made it easier for  members of Congress to credibly commit to voters that they will refuse  to increase taxes and instead focus on reducing the cost of government.

In fact, it is more important than ever to be rid of The Pledge, because it has been a colossal failure.  Does anyone think that fiscal conservatives should be happier with the state of our nation’s finances now than they were when the pledge began 25 years ago? Does anyone still harbor the illusion that “starve the beast” is an effective method of shrinking the federal government?

Here is why The Pledge has failed. Time and again, it has contributed to the GOP tendency to make taxes their top priority, deficits be damned. As Kevin Williamson puts it at National Review, “Republicans led by naïve supply-siders are preparing, for the third time in my life, to sell their souls on spending cuts in exchange for  tax-rate reductions that are small, ineffective, and sure to be  temporary. Ronald Reagan got his tax cuts, but he went to his grave  waiting for those spending cuts. George W. Bush got his tax cuts, and  ended his presidency with spending soaring and his entitlement-reform  program in the garbage. And now certain Republicans are starting to  slobber over the Gang of Six plan.”

What Norquist doesn’t understand or won’t admit is that deficit spending is worse than a tax increase, because you’ve got to pay for it eventually anyway, with interest. Meanwhile, you’ve created in the public mind the illusion that the level of government services they’re consuming is cheaper and less burdensome than is in fact the case. If you hold the line on taxes but not the deficit, you’re making big government more palatable.

Back in 1986, if taxes had been raised every time federal spending had increased, and voters knew that taxes would go up again every time new federal programs or spending was passed, the backlash against big government that we’re seeing now would’ve started a lot sooner, and been much more broad-based. Had that been the policy, it’s doubtful that George W. Bush would’ve passed Medicare Part D. Instead, the Baby Boomers have borrowed a bunch of money that my generation and my children’s generation is going to have to pay back. But their taxes didn’t go up. Thanks for that, Mr. Norquist. I’m not sure what to call it, but fiscal conservatism isn’t it.

As the conservative movement laments our fiscal straits, and the dire situation the nation finds itself in, perhaps it is too much to ask that they assign Norquist a little bit of the blame. But surely they can at least recognize that the solution he’s been pushing since the Reagan Administration hasn’t worked.

 

By: Conor Friedersdorf, Associate Editor, The Atlantic, July 22, 2011

July 23, 2011 Posted by | Budget, Congress, Conservatives, Consumers, Debt Ceiling, Deficits, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Medicare, Middle Class, Politics, Public, Public Opinion, Right Wing, Tax Increases, Tax Loopholes, Taxes, Teaparty, Voters, Wealthy | , , , , , , , , , , | Leave a comment

GOP Wheeling And Dealing May Come Back To Bite Them

Wednesday was the anniversary of the day in 1944 when Democrats nominated Franklin Roosevelt for a fourth term. If he could see the wheeling and dealing in D.C. during the current budget deficit debate, FDR wouldn’t be surprised. Republicans are still trying to kill Social Security, and the GOP is still cozy  with bankers, billionaires, and big business.

Tea Party House Republicans, under the leadership of Eric Cantor, are doing  everything they can to protect their BFFs on Wall Street from paying their fair  share of taxes. If majority Leader (and presumptive peaker) Cantor and the rest of the Tea Party  types were really concerned about the budget deficit, they would support  President Obama’s effort to save money by ending billions of dollars in  wasteful subsidies to big oil and for corporate jets. Tax breaks for corporate  jets with full bars don’t stimulate the economy, but they do stimulate corporate  jet setters.

Republicans did  score one victory this week which may come back and bite them on the butt.  President Obama passed over consumer advocate Elizabeth Warren for the job of director of the new federal Consumer Financial Protection Bureau after  Senate Republicans said they would filibuster her appointment. Warren’s  crime was her fight to protect consumers from the big financial firms  that rip off working families. Today is the first  anniversary of the Wall Street Reform and Consumer Protection Act which Congress passed to curb predatory behavior by Wall Street.

Warren will return to her home in Massachusetts,  and she may run against Republican U.S. Senator and Cosmo centerfold, Scott Brown. If the GOP has any hope of taking control of the Senate next year, Brown  must win.  But polls show that Brown is vulnerable, and Brown has the chops  to show blue collar Democrats that Wall Street is the enemy of the working  families who have lost their jobs and then their homes in the wake of the great  recession, a downturn caused by big business and the bad boy bankers and  billionaires that Warren has fought to regulate.

And one last date for all you  American history buffs, Tuesday was the anniversary of the day in 1848 when a  pioneering women’s rights convention met in Seneca Falls New York.  The convention paved the way for way for women like Elizabeth Warren and  Michele Bachmann to run for office. By the way, Representative Bachman, the convention  was in Seneca Falls, N.Y., not Seneca Falls, N.H., if anyone asks.

 

By: Brad Bannon, U. S. News and World Report, July 22, 2011

July 22, 2011 Posted by | Banks, Big Business, Budget, Class Warfare, Congress, Conservatives, Consumer Credit, Consumer Financial Protection Bureau, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Elections, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Middle Class, Politics, President Obama, Republicans, Right Wing, Senate, Social Security, Tax Loopholes, Taxes, Teaparty, Wealthy, Wisconsin Republicans, Women | , , , , , , , | Leave a comment

Danger Of Default: Three Bad Right-Wing Arguments

President Obama went to St. John’s Church on Lafayette Square on Sunday for the first time since Easter. No doubt to seek divine intervention. The way things are going, that’s what it might take to conclude a deal by the end of this week that will not only raise the debt ceiling but also will not freak out the markets. The problem is that there is a sizable faction within the Republican Party that doesn’t think all the hair-on-fire warnings from the Obama administration are real.

Some argue that the nation’s credit card needs to be ripped up or that Washington cannot be given another blank check to spend, spend, spend. So a national default is what’s needed to snap some fiscal discipline into the federal government. Some argue that a short-term default wouldn’t be so bad, that there’s plenty of money for the nation to meet its obligations to bondholders and as long as they are taken care of everything would be okay. Some argue that there’s no way they go along with an increase in the debt limit without a balanced-budget amendment. And some are making all three arguments in one form or another.

Folks, all three arguments are a recipe for disaster. You better pray something gets worked out.

The debt ceiling. Raising the debt ceiling is not — I repeat, IS NOT — like giving Washington a blank check or adding more to the national credit card. Increasing the legal limit the federal government can borrow allows it to pay for things it has already bought. In short, the money’s been spent. For the United States to not meet its obligations for the first time in its history would destroy the full faith and credit of this nation and could irreparably damage our economy and financial standing in the world.

Prioritization. A default by the United States would force the Treasury to rob Peter to pay Paul. And it’ll be ugly. Meeting obligations to holders of U.S. treasuries is one thing. It’s paying all the other bills that will come due in August that will send the American people into apoplexy.

The federal government will have $306 billion in bills (including $29 billion in interest on Treasury securities) in August and only $172 billion in its wallet to pay them. The remaining $134 billion will have to come by denying checks to seniors, active-duty military, federal workers, etc. Such prioritization has been called unworkable by the Obama administration. And the Wall Street Journal reported Thursday that a Standard & Poor’s official told Senate Democrats that failure of the United States to pay any of its bills on time could lead to a loss of the nation’s precious AAA bond rating. This comes despite an intense lobbying by the Obama administration to persuade the bond rating agencies not to issue threats against the nation’s creditworthiness.

Balanced-budget amendment. This week the House will vote on the Cut, Cap, Balance Act.Cutting and capping budgets is a matter of political debate. But given that there are two weeks before the nation runs out of cash to pay all of its bills, requiring passage of a contentious balanced-budget amendment before raising the national debt limit is lunacy. A Post editorial on Thursday made the rational argument for why this perennial “solution” for fiscal promiscuity is a bad idea.

The constitutional cure, while superficially tempting, would be worse than the underlying disease. A balanced-budget amendment would deprive policymakers of the flexibility they need to address national security and economic emergencies. It would revise the Constitution in a way that would give dangerous power to a congressional minority.

This bad policy prescription won’t pass the Senate. But many Tea Partiers in the House won’t vote for a debt-ceiling increase without it. Combine them with the Tea Partiers who signed pledges not to raise the debt ceiling under any circumstances, and you have the makings of a willful fiscal train wreck.

The full faith and credit of the United States, a precious asset that took more than two centuries to build, is seriously at risk. To whatever prayer Obama might have said at St. John’s related to the wrangling over a debt-ceiling deal, may I add, “Lord, hear his prayer.”

By: Jonathan Capehart, The Washington Post, July 17, 2011

July 19, 2011 Posted by | Budget, Congress, Conservatives, Constitution, Consumers, Debt Ceiling, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Middle East, Politics, President Obama, Public, Republicans, Right Wing, Senate, Seniors, Tea Party | , , , , , , , , , , | Leave a comment

How Default Would Harm Homeowners, Cities, Businesses And Everyone Else

It’s easy to understand why the government will have more trouble borrowing if it fails to pay its debts, or even has a difficult time paying its debts. It’s a bit harder to see why ordinary Americans, the city of Pittsburgh, hospitals in Iowa, and medium-sized corporations will have more trouble borrowing. But they will. And their trouble borrowing is the main channels through which a default, or even something too close to it for the market’s comfort, could deal a body blow to the economy.

On Wednesday, Moody’s warned that it was putting the U.S. government credit rating on review for a downgrade. But they didn’t stop there. Another 7,000 debt products that are “directly linked to the U.S. government or are otherwise vulnerable to sovereign risk” were also put on review for a possible downgrade. That’s about $130 billion worth of debt. If America tumbles, so do they. But Moody’s still wasn’t done. An unknown amount of “indirectly linked” debt is also getting reviewed.

If America’s credit rating falls, it’s taking a lot more than just Treasury securities with it. It’s going to take the whole credit market with it. Which, as you’ll remember, is exactly how the subprime housing sector took the economy down in 2008.

The first to fall will be “directly linked” debt. These are bonds that rely on payments from the federal government. Naomi Richman, a managing director in Moody’s Public Finance division, puts it bluntly: “There are certain kinds of municipal bonds that are directly reliant on Treasury paying or some other direct payment,” she says. “If those bonds don’t receive their payment, they have no other source of revenue.” So down they go.

Then there’s the “indirectly linked” debt. That’s debt from state government, local governments, hospitals, universities and other institutions that rely, in some way or another, on payments from the federal government. If Medicaid stops paying its bills, all the hospitals that rely on Medicaid’s payments become less creditworthy. If we stop funding Pell grants, then all the universities that enroll students who pay using financial aid become less creditworthy. And since the federal government passes one-fifth of its revenues through to the states, and the states pass those revenues through to cities, if the federal government stops paying its bills, all states and all cities are suddenly in worse financial shape, which will make it harder for them to get loans.

And then there’s everything else. Mortgages. Credit cards. Loans that businesses take out to expand. Much of the debt in the American economy, and in fact globally, is “benchmarked” to Treasury debt. When your bank quotes you a mortgage rate, the calculation begins with the rate on 10-year treasuries and then adds premiums for various types of risk specific to you and your area on top of that. “There’s a whole credit structure,” says Pete Davis, president of Davis Capital Investment Ideas. “Think of it as roads and bridges, but it’s finance, it’s all connected, and it’s all on top of treasuries. Your CD at a bank, your credit card interest rates, your car loans, your mortgages — that’s all built on Treasury rates. So when you shake the basis of it, everything on top of it shakes, too.”

The 2008 economic crisis wasn’t started by a nuclear bomb detonating in New York, or a campaign to sabotage the country’s factories, or a plague that struck our able-bodied young males. Rather, investors bought a lot of debt based on subprime mortgages. They performed some tricky financial wizardry that they thought made the debt low-risk. They found out they were wrong. And then, because the players in the financial system no longer knew how much money anyone had, the credit markets froze and the economy crashed.

Now imagine that happening, not with the housing market, but with the government of the United States of America. The cornerstone of the global financial economy is the idea that Treasuries are risk-free. If they’re not, then like in the financial crisis, no one knows how much money anyone who holds treasuries has. But they also don’t know how much money anyone who depends on the federal government — be they businesses or individuals — holds.

This is how a default gets into the rest of the economy: It takes everything the financial markets thought they could know and rely on and upends it. It then shuts off credit, or makes it prohibitively expensive, for nearly every participant in the economy, from states and cities to hospitals and universities to homebuyers and credit-card applicants. That, in turn, freezes all of their activity, which destabilizes everyone who relies on them, which then destabilizes financial markets further, and so on.

It was one thing to have forgotten that this sort of thing could happen in 2006, when America hadn’t seen it for 70 years. But we just went through it. And if we go through it again, the Federal Reserve, which has pushed interest rates as low as they can go, and Congress, which has vastly expanded the deficit, have a lot less ammunition left for a response.

Are we likely to get to that point? No, of course not. But between here and there are worlds where the economy doesn’t crash, but because the federal government panics the market, interest rates rise and the economy slows. In a recovery this weak, that would be a disaster. And it would be entirely of our own making.

By: Ezra Klein, The Washington Post, July 15, 2011

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July 17, 2011 Posted by | Banks, Budget, Businesses, Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Financial Institutions, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicaid, Middle Class, Politics, Public, Republicans, Right Wing, States | , , , , , , , , , , , , , , , , | Leave a comment

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