If China or Iran threatened our national credit rating and tried to drive up our interest rates, or if they sought to damage our education system, we would erupt in outrage.
Well, wake up to the national security threat. Only it’s not coming from abroad, but from our own domestic extremists.
We tend to think of national security narrowly as the risk of a military or terrorist attack. But national security is about protecting our people and our national strength — and the blunt truth is that the biggest threat to America’s national security this summer doesn’t come from China, Iran or any other foreign power. It comes from budget machinations, and budget maniacs, at home.
House Republicans start from a legitimate concern about rising long-term debt. Politicians are usually focused only on short-term issues, so it would be commendable to see the Tea Party wing of the Republican Party seriously focused on containing long-term debt. But on this issue, many House Republicans aren’t serious, they’re just obsessive in a destructive way. The upshot is that in their effort to protect the American economy from debt, some of them are willing to drag it over the cliff of default.
It is not exactly true that this would be our first default. We defaulted in 1790. By some definitions, we defaulted on certain gold obligations in 1933. And in 1979, the United States had trouble managing payouts to some individual investors on time (partly because of a failure of word processing equipment) and thus was in technical default.
Yet even that brief lapse in 1979 raised interest payments in the United States. Terry L. Zivney, a finance professor at Ball State University and co-author of a scholarly paper about the episode, says the 1979 default increased American government borrowing costs by 0.6 of a percentage point indefinitely.
Any deliberate and sustained interruption this year could have a greater impact. We would see higher interest rates on mortgages, car loans, business loans and credit cards.
American government borrowing would also become more expensive. In February, the Congressional Budget Office noted that a 1 percentage point rise in interest rates could add more than $1 trillion to borrowing costs over a decade.
In other words, Republican zeal to lower debts could result in increased interest expenses and higher debts. Their mania to save taxpayers could cost taxpayers. That suggests not governance so much as fanaticism.
More broadly, a default would leave America a global laughingstock. Our “soft power,” our promotion of democracy around the world, and our influence would all take a hit. The spectacle of paralysis in the world’s largest economy is already bewildering to many countries. If there is awe for our military prowess and delight in our movies and music, there is scorn for our political/economic management.
While one danger to national security comes from the risk of default, another comes from overzealous budget cuts — especially in education, at the local, state and national levels. When we cut to the education bone, we’re not preserving our future but undermining it.
It should be a national disgrace that the United States government has eliminated spending for major literacy programs in the last few months, with scarcely a murmur of dissent.
Consider Reading Is Fundamental, a 45-year-old nonprofit program that has cost the federal government only $25 million annually. It’s a public-private partnership with 400,000 volunteers, and it puts books in the hands of low-income children. The program helped four million American children improve their reading skills last year. Now it has lost all federal support.
“They have made a real difference for millions of kids,” Kyle Zimmer, founder of First Book, another literacy program that I’ve admired, said of Reading Is Fundamental. “It is a tremendous loss that their federal support has been cut. We are going to pay for these cuts in education for generations.”
Education programs like these aren’t quick fixes, and the relation between spending and outcomes is uncertain and complex. Nurturing reading skills is a slog rather than a sprint — but without universal literacy we have no hope of spreading opportunity, fighting crime or chipping away at poverty.
“The attack on literacy programs reflects a broader assault on education programs,” said Rosa DeLauro, a Democratic member of Congress from Connecticut. She notes that Republicans want to cut everything from early childhood programs to Pell grants for college students. Republican proposals have singled out some 43 education programs for elimination, but it’s not seen as equally essential to end tax loopholes on hedge fund managers.
So let’s remember not only the national security risks posed by Iran and Al Qaeda. Let’s also focus on the risks, however unintentional, from domestic zealots.
By: Nicholas Kristoff, Op-Ed Columnist, The New York Times, July 23, 2011
July 24, 2011
Posted by raemd95 |
Congress, Conservatives, Consumer Credit, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democracy, Democrats, Economic Recovery, Economy, Education, GOP, Government, Government Shut Down, Homeland Security, Ideologues, Ideology, National Security, Politics, Public, Republicans, Right Wing, States, Teaparty, Terrorism | Al Qaeda, Children, Debt, Education, Extremists, Global Economy, House Republicans, Interest rates, Investors, Iran, Literacy Programs, Mortgages, National Credit Rating, Politicians |
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Have you developed a hedging strategy to protect against America’s rapid decline? Or repositioned your portfolio to take advantage of orphaned Treasury securities? Or stashed some cash so you can buy distressed assets from the newly bankrupt?
If you’re like most Americans, the answer is, of course not. But if you work on Wall Street, the man-made debt crisis that’s brewing in Washington might represent a surprising opportunity to make money. As the whole world knows by now, the U.S. government will no longer be able to borrow money as of early August, unless Republicans and Democrats swallow their vitriol and come up with a compromise deal that will begin dealing with America’s oversized debt and allow the government to function normally. The nation’s mushrooming debt load is a big problem, but abruptly halting all federal borrowing would transform it into a disaster, since it would require vast government spending cuts that would promptly trigger another recession.
The ongoing assumption is that legislators will puff and posture until the last second, then congratulate themselves for making a deal that should have been in place months ago. But even if politicians avert the worst-case scenario, the size of the debt and the deep dysfunction in the nation’s capital are likely to cause other trouble. It’s increasingly likely, for instance, that rating agencies like Moody’s and Standard & Poor’s will cut America’s credit rating from AAA—the top rating, which the United States has held for decades—to a notch or two lower. That would force thousands of institutional investors to determine whether they can keep holding Treasury securities or whether they need to dump them. Even small spending cuts that come as part of a deal to raise the federal borrowing limit could cut into weak economic growth, especially if they go into effect immediately.
The knock-on effects of a U.S. debt downgrade, sharp spending cuts or a “policy mistake” in Washington could rattle financial markets, depress hiring and drive confidence back down to recessionary levels. But smart investors know that one man’s crisis is another’s opportunity, and the monied class is planning how to profit if America goes bust. As the New York Times reported recently, some hedge funds are stockpiling cash, to buy U.S. government securities at fire-sale prices if there’s a credit downgrade and conservative investing vehicles like pension or money-market funds are forced to dump Treasuries. Others are trying to identify institutions that might be damaged by a U.S. debt crisis and forced to sell assets that vulture investors could buy on the cheap. Another way to gamble on America’s collapse is to invest in credit-default swaps that would pay out if the United States defaults on its debt. The price of such insurance has doubled recently, indicating a lively market for bets against America.
The modern financial markets are sophisticated casinos that allow steely investors to gamble on almost anything, including gloom-and-doom scenarios that could potentially harm millions. Though it might sound unctuous, betting on the likelihood of adverse events is a healthy part of a free market, because it creates an even stronger incentive for those who would suffer from bad outcomes to prevent them—and punishes those who destroy value, such as CEOs who mismanage their companies. But it doesn’t always work that way, and besides, this kind of gambling is generally open only to professional investors or those wealthy enough to have experts handling their money.
In his 2010 financial disclosure forms, for instance, House Majority Leader Eric Cantor listed a small investment in a fund that bets against U.S. Treasury securities and would benefit if the U.S. government defaulted or something else happened that devalued Treasuries. That became controversial, since Cantor is one of the key Republicans involved in the debt negotiations and a conservative stalwart who insists there should be no new taxes as part of a deal. Cantor’s office says the fund is in his wife’s and his mother-in-law’s name and amounts to less than $4,000, while the vast majority of Cantor’s retirement savings are invested in conventional securities that would lose value if there were a true U.S. debt crisis. But Cantor’s portfolio is probably similar to those of other affluent Americans, with traditional investments offset by a hedging strategy meant to minimize losses if something profoundly bad happens.
Ordinary Americans who lack investment funds or live paycheck-to-paycheck don’t have much of a hedging strategy, however, which makes them directly vulnerable if Washington wrecks the economy and jobs gets even scarcer. Some economists think the drawn-out debt drama—and the near-total absence of action on other big problems, like the foreclosure epidemic or sky-high unemployment—is already causing harm. Businesses, for instance, have virtually stopped hiring while they await the outcome of the Washington Follies. A sliding stock market reflects jittery investors who can’t figure out if they should invest in a global recovery or gird for Armageddon. “Washington is locked in a budget war that will determine the U.S. economy’s fate, not only for this year and next but for generations,” writes economist Mark Zandi of Moody’s Analytics. “Lawmakers may well misstep on this path to fiscal sustainability.” If they do, many of them will no doubt have their own personal parachutes. If possible, get your own.
By: Rick Newman, Columnist, U. S. News and World Report, July 22, 2011
July 24, 2011
Posted by raemd95 |
Capitalism, Class Warfare, Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Democrats, Economic Recovery, Economy, Federal Budget, GOP, Government, Government Shut Down, Ideologues, Ideology, Income Gap, Jobs, Lawmakers, Middle Class, Politics, Public, Republicans, Unemployment, Wall Street | Bankruptcy, Compromise, Credit Default Swap, Credit Ratings, Default, Hedge Funds, Investors, Money Market Accounts, Moody's, Politicians, Recession, Rep Eric Cantor, Securities, Spending Cuts, Standard and Poor's |
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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 raemd95 |
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 | Default, Elizabeth Warren, FDR, Rep Eric Cantor, Sen Scott Brown, Tax Breaks, Tax Revenue, Wall Street |
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Republicans would like you to believe that our deficit problem is primarily a spending problem and that responsibility for that problematic spending is primarily a Democratic responsibility. But the second claim is as misleading as the first. Republicans have also been known to promote wasteful government spending, particularly when it goes towards an industry with which they happen to be cozy. For a vivid illustration of this, look no further than a new Politico article about House Majority Leader Eric Cantor and his position on a key deficit reduction proposal.
The proposal in question would lower the cost of what the federal government currently pays to provide low-income seniors with prescription drugs. For years, the government purchased drugs for these seniors directly through Medicaid, taking advantage of the low prices drug companies must, by law, provide when selling drugs for the people in that program. But that changed in 2006, with the creation of Medicare drug benefit. At that point, the government delegated the purchasing of drugs for low-income seniors to private firms. And the firms haven’t been able to negotiate equally deep discounts, partly because of restrictions on their ability to limit drug availability.
According to the Congressional Budget Office, restoring the “Medicaid discount” for low-income seniors could save more than $100 billion over the course of a decade, depending on the structure of the proposal. And, at one point, many health care reformers had hoped to include that proposal as part of what became the Affordable Care Act. The administration and leaders of the Senate Finance Committee agreed not to include the proposal in the final legislation, as part of their infamous deal with the drug industry lobby. But that was a one-time deal, at least in theory, and congressional negotiators are looking seriously at enacting the proposal now.
The problem is lawmakers like Cantor, who oppose the idea. According to the Politico story, written by Matt Dobias, Cantor is making the same argument that the drug industry lobby does: That the proposal would amount to a form of government price controls, retarding economic growth and discouraging innovation.
The latter point is highly dubious: The reduction would bring reimbursement levels for these drugs very close to what they were a few years ago. Many experts, including the CBO, think the likely impact on research and development would be negligible. (Harvard economists Richard Frank and Joseph Newhouse addressed this issue at some length in Health Affairs a few years ago.)
As for the former suggestion, it’s true that any net reduction in government spending could reduce economic growth, at least at this particular moment. That’s why it’s not a good idea to be madly slashing government spending right now — and why, perhaps, congressional negotiators should delay implementation of this cut, like the others, so that it would take effect after the economy has more fully recovered.
But Cantor’s anxiety over the economic ramifications of spending cuts seems strangely selective. He hasn’t raised similar concerns about cuts to food stamps, Medicaid, and similar programs that would likely have a more devastating impact, both on the economy as a whole and the people who depend upon them for support.
Then again, food stamp recipients didn’t donate $168,000 to Cantor’s reelection campaign in the last cycle. The drug industry did.
By: Jonathan Cohn, The New Republic, July 15, 2011
July 17, 2011
Posted by raemd95 |
Big Pharma, Budget, Businesses, Class Warfare, Congress, Conservatives, Corporations, Debt Crisis, Deficits, Democrats, Economic Recovery, Economy, GOP, Government, Government Shut Down, Health Reform, Ideologues, Ideology, Lawmakers, Medicaid, Medicare, Middle Class, Pharmaceutical Companies, Politics, Republicans, Right Wing, Seniors, Wealthy | CBO, Deficits, Drug Companies, Drug Costs, Industry, Lobbyists, Low Income, Prescription Drugs, Rep Eric Cantor, Spending Cuts |
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When a CBS reporter asked President Obama why a recent poll shows that 69% of Americans don’t want the debt ceiling lifted, he responded by stating that “professional politicians understand the debt crisis better than the general public.” As I heard the words come from his lips, I knew there would be outrage on the right, and the left and certainly the right again!
The problem is, the president was right; ahem, correct.
When posed with the question, “If you have a credit limit and have maxed out your credit card, should you raise your credit limit so you can spend more?” Americans respond with a resounding “NO!” as would I if that were the question.
But here is the real question:
As an American, did you know if we do not raise the debt ceiling and go into default, that thousands of Americans will lose their jobs? And a 9% unemployment rate will be something you’ll hope for? Or that programs like Homeland Security will be cut which I’m sure will make any terrorist organization smile.
How about home owners and small business owners longing for the days of 2008? And that double dip recession the Republicans were trying to scare you about? Well, it certainly would happen. Speaking of money, our bonds will be worthless; and if you think that TARP and the bailout were bad, that’s just an appetizer for the domino effect not raising the debt ceiling would have on Wall Street, perhaps worldwide; just look at what happened with Greece.
I mentioned that the president was right when he said Americans don’t know as much about the debt ceiling crisis as a professional politician; and I do believe that. When some of the nation was outraged or offended by his remark, I could hear Jack Nicholson saying, “The truth, you can’t handle the truth!!”
We need only look at our own television viewing habits to see evidence to support the president’s rhetoric. Let’s take a little quiz shall we?
- Were the Bush tax credits meant to last forever? Answer: No, just ask the authors of the legislation.
- When is the president planning on removing those temporary credits? Answer: 2013 and beyond, not a massive tax cut taking place in August.
- How many times did President George W. Bush raise the debt ceiling? Answer: 7 times.
And where was the Republican outrage then? Answer: they didn’t have a Democrat in the White House up for re-election!
OK…now a few more…
- What former governor’s daughter was on “Dancing With The Stars?” Answer: Sarah Palin.
- What was the verdict in the Casey Anthony trial? Answer: Not guilty.
- Who was voted off (pick one) American Idol, The Biggest Loser or The Bachelorette? Answer: I don’t know, I was too busy paying attention to the debt crisis.
The point is, most Americans would’ve been able to easily answer the latter three questions. We were glued to our T.V. sets during the Casey Anthony trial; not to CSPAN and the ratings prove it. So don’t be offended, the president’s not saying you’re dumb. He is simply saying you don’t have the time to spend 40-60 hours a week to do a job you elected him and Congress to do. Oh, and by the way, the latest poll shows 47% of Americans (Rasmussen) don’t want the debt ceiling lifted; see even the CBS reporter proved the president right with his question. Love that!
By: Leslie Marshall, U. S. News and World Report, July 13, 2011
July 14, 2011
Posted by raemd95 |
Congress, Conservatives, Consumers, Debt Ceiling, Debt Crisis, Deficits, Economic Recovery, Economy, Elections, GOP, Government, Government Shut Down, Ideologues, Ideology, Jobs, Middle East, Politics, President Obama, Republicans, Right Wing, Small Businesses, Unemployment | Default, Greece, Homeowners, Reality TV, Recession, Wall Street |
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