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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

A Conspicuous Pattern: The GOP Is Really Not Interested In Governing

At his press conference the other day, President Obama noted the recommendations of the bipartisan deficit-reduction commission (which, by the way, failed to reach an agreement). He mentioned in passing that his White House set up the structure for the commission: “As you will recall, this was originally bipartisan legislation that some of the Republican supporters of decided to vote against when I said I supported it — that seems to be a pattern that I’m still puzzled by.”

It is, to be sure, quite a pattern. For two-and-a-half years, Obama has run into congressional Republicans who not only refuse to take “yes” for an answer, but routinely oppose their own ideas when the president is willing to accept them.

This seems especially relevant in the context of the current debt-reduction talks. At a certain level, it’s almost comical — here we have a Democratic president agreeing with a conservative Republican House Speaker on a massive deal that would lower the debt by over $4 trillion over the next decade. It would tilt heavily in the GOP’s direction, and address the problem Republicans pretend to care about most. Obama is even willing to consider significant entitlement “reforms,” which should be music to the ears of the right.

And yet, in the latest example that “puzzles” the president, Republicans aren’t interested.

Now, part of this is obviously the result of Republicans adopting a faith-based approach to revenue, which happens to be wildly disconnected to reality. But that’s not the only angle that matters. Matt Yglesias had a good item the other day that raised a point that’s often lost in the shuffle.

[H]ere we get to the problem that’s recurred throughout Obama’s time in office. If members of Congress think like partisans who want to capture the White House, then the smart strategy for them is to refuse to do whatever it is the president wants. The content of the president’s desire is irrelevant. But the more ambitious his desire is, the more important it is to turn him down.

After all, if the President wants a big bipartisan deal on the deficit, then a big bipartisan deal on the deficit is “a win for President Obama,” which means a loss for the anti-Obama side. When Obama didn’t want to embrace Bowles-Simpson, then failure to embrace Bowles-Simpson was a valid critique of him. But had Obama embraced Bowles-Simpson, then it would have been necessary for his opponents to reject it.

For weeks, many have marveled at the priorities of the Republican policy wish-list — given a choice between the larger debt-reduction plan in American history and preserving some tax breaks for the wealthy, GOP officials at nearly every level strongly prefer the latter. Indeed, for nearly all Republicans, it’s such a no-brainer, this question is almost silly.

But there’s a separate challenge — Republicans have a choice between advancing policies they ostensibly agree with and Obama scoring a legislative victory. And as it turns out, that’s a no-brainer, too, since GOP lawmakers don’t really care about governing so much as they care about denying the president political victories. It might make them appear ridiculous — why would anyone reject their own ideas? — but looking foolish isn’t a major concern for congressional Republicans.

Obviously, this makes compromise literally impossible, and all but guarantees the least productive legislative session in many years. But it also suggests the president needs to adapt to an awkward set of circumstances: given Republican beliefs, Obama must realize his support for a legislative idea necessarily means it’s less likely to happen.

By: Steve Benen, Contributing Writer, Political Animal, Washington Monthly, July 17, 2011

July 18, 2011 Posted by | Budget, Congress, Conservatives, Debt Ceiling, Deficits, Democracy, Democrats, Economic Recovery, Economy, GOP, Government, Government Shut Down, Ideologues, Ideology, Lawmakers, Medicare, Politics, President Obama, Republicans, Right Wing, Tax Loopholes, Taxes, Wealthy | , , , , , , , , , , | Leave a comment

On Debt Impasse, GOP Full Of Contradictions

Sen. Mitch McConnell has a clever plan to resolve the federal debt impasse. Congressional Republicans would invite President Barack Obama to raise the debt ceiling on his own, and then they would excoriate him for doing so.

Hmm. Just a bit contradictory?

Meanwhile, the impasse arose because congressional Republicans thunder against government red ink, yet refuse to raise revenue by ending tax breaks that help Warren Buffett pay a lower tax rate than his receptionist (which he agrees is preposterous). Another contradiction? Of course.

McConnell’s plan – a pragmatic way to avert a catastrophic default – may be torpedoed by more extremist House Republicans, such as Michele Bachmann. They seem to fear that ending tax loopholes for billionaire fund managers would damage a fragile economy. Yet they seem to think that this invalid of an economy would be unperturbed by the risk of a default on our debts.

A contra- . . . yes, you got it!

What about this one? Republicans have historically been more focused on national security threats than Democrats. Yet what would do more damage to America’s national security than a default that might halt paychecks for American military families?

This game of “spot the contradiction” is just too easy with extremist Republicans; it’s like spotting snowflakes in a blizzard. Congressional Republicans have taken a sensible and important concern – alarm about long-term debt levels, a genuine problem – and turned it into a brittle and urgent ideology.

Politicians in both parties have historically been irresponsible with money, but President Bill Clinton changed that. He imposed a stunning fiscal discipline and set the United States on a course of budget surpluses, job growth and diminishing federal debt – until the Republicans took over in 2001.

In the Bush years, Republicans proved themselves reckless both on the spending side (unfunded wars and a prescription drug benefit) and on the revenue side (the Bush tax cuts). Their view then was, as former Treasury Secretary Paul O’Neill quoted Vice President Dick Cheney as saying, “Reagan proved deficits don’t matter.”

It may seem odd that Republicans were so blithe about debt in the Bush years, yet now insist on addressing the problem in the middle of a downturn – even though basic economics dictates that a downturn is the one time when red ink is advisable. Well, just another of those contradictions.

Then there’s the rise of health care costs, a huge burden on our economy. It’s pretty clear what doesn’t work: the existing, dysfunctional system. A forthcoming book on health care by Paul Starr, “Remedy and Reaction,” notes that in 1970 the United States spent a smaller fraction of income on health care than Denmark and the same share as Canada.

Today, in dollar terms, we spend 21/2 times the average per capita of other rich countries.

When congressional Republicans do talk about health care, they have one useful suggestion – tort reform – and it was foolish for Democrats (in bed with trial lawyers) to stiff them on it. But research suggests that curbing malpractice suits, while helpful, would reduce health costs only modestly.

Beyond that, the serious Republican idea is to dismantle Medicare in its present form. That would indeed reduce government spending but would increase private spending by even more, according to the CBO.

The Obama health care plan could have done better on cost control, but it does promote evidence-based medicine, so that less money is squandered on expensive procedures that don’t work. And the Independent Payment Advisory Board will recommend steps to curb excess spending in Medicare.

Yet congressional Republicans are trying to kill the Obama health plan. Yes, of course: another contradiction.

A final puzzle concerns not just the Republican Party but us as a nation. For all their flaws, congressional Republicans have been stunningly successful in framing the national debate. Instead of discussing a jobs program to deal with the worst downturn in 70 years, we’re debating spending cuts – and most voters say in polls that they’re against raising the debt ceiling. I fear that instead of banishing contradictions, we as a nation may be embracing them.

By: Nicholas Kristof, Columnist, The New York Times, Published in the Milwaukee Journal Sentinel, July 14, 2011

July 18, 2011 Posted by | Affordable Care Act, Budget, Congress, Conservatives, Debt Ceiling, Deficits, Economic Recovery, Economy, GOP, Government, Government Shut Down, Health Care Costs, Ideologues, Ideology, Jobs, Medicare, Middle Class, National Security, Politics, President Obama, Republicans, Right Wing, Tax Loopholes, Taxes | , , , , , , , , , , , , , , | 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

Getting to Crazy: The Culmination Of A GOP Process

There aren’t many positive aspects to the looming possibility of a U.S. debt default. But there has been, I have to admit, an element of comic relief — of the black-humor variety — in the spectacle of so many people who have been in denial suddenly waking up and smelling the crazy.

A number of commentators seem shocked at how unreasonable Republicans are being. “Has the G.O.P. gone insane?” they ask.

Why, yes, it has. But this isn’t something that just happened, it’s the culmination of a process that has been going on for decades. Anyone surprised by the extremism and irresponsibility now on display either hasn’t been paying attention, or has been deliberately turning a blind eye.

And may I say to those suddenly agonizing over the mental health of one of our two major parties: People like you bear some responsibility for that party’s current state.

Let’s talk for a minute about what Republican leaders are rejecting.

President Obama has made it clear that he’s willing to sign on to a deficit-reduction deal that consists overwhelmingly of spending cuts, and includes draconian cuts in key social programs, up to and including a rise in the age of Medicare eligibility. These are extraordinary concessions. As The Times’s Nate Silver points out, the president has offered deals that are far to the right of what the average American voter prefers — in fact, if anything, they’re a bit to the right of what the average Republican voter prefers!

Yet Republicans are saying no. Indeed, they’re threatening to force a U.S. default, and create an economic crisis, unless they get a completely one-sided deal. And this was entirely predictable.

First of all, the modern G.O.P. fundamentally does not accept the legitimacy of a Democratic presidency — any Democratic presidency. We saw that under Bill Clinton, and we saw it again as soon as Mr. Obama took office.

As a result, Republicans are automatically against anything the president wants, even if they have supported similar proposals in the past. Mitt Romney’s health care plan became a tyrannical assault on American freedom when put in place by that man in the White House. And the same logic applies to the proposed debt deals.

Put it this way: If a Republican president had managed to extract the kind of concessions on Medicare and Social Security that Mr. Obama is offering, it would have been considered a conservative triumph. But when those concessions come attached to minor increases in revenue, and more important, when they come from a Democratic president, the proposals become unacceptable plans to tax the life out of the U.S. economy.

Beyond that, voodoo economics has taken over the G.O.P.

Supply-side voodoo — which claims that tax cuts pay for themselves and/or that any rise in taxes would lead to economic collapse — has been a powerful force within the G.O.P. ever since Ronald Reagan embraced the concept of the Laffer curve. But the voodoo used to be contained. Reagan himself enacted significant tax increases, offsetting to a considerable extent his initial cuts.

And even the administration of former President George W. Bush refrained from making extravagant claims about tax-cut magic, at least in part for fear that making such claims would raise questions about the administration’s seriousness.

Recently, however, all restraint has vanished — indeed, it has been driven out of the party. Last year Mitch McConnell, the Senate minority leader, asserted that the Bush tax cuts actually increased revenue — a claim completely at odds with the evidence — and also declared that this was “the view of virtually every Republican on that subject.” And it’s true: even Mr. Romney, widely regarded as the most sensible of the contenders for the 2012 presidential nomination, has endorsed the view that tax cuts can actually reduce the deficit.

Which brings me to the culpability of those who are only now facing up to the G.O.P.’s craziness.

Here’s the point: those within the G.O.P. who had misgivings about the embrace of tax-cut fanaticism might have made a stronger stand if there had been any indication that such fanaticism came with a price, if outsiders had been willing to condemn those who took irresponsible positions.

But there has been no such price. Mr. Bush squandered the surplus of the late Clinton years, yet prominent pundits pretend that the two parties share equal blame for our debt problems. Paul Ryan, the chairman of the House Budget Committee, proposed a supposed deficit-reduction plan that included huge tax cuts for corporations and the wealthy, then received an award for fiscal responsibility.

So there has been no pressure on the G.O.P. to show any kind of responsibility, or even rationality — and sure enough, it has gone off the deep end. If you’re surprised, that means that you were part of the problem.

By: Paul Krugman, Op-Ed Writer, The New York Times, July 14, 2011

July 16, 2011 Posted by | Budget, Class Warfare, Congress, Conservatives, Corporations, Debt Ceiling, Deficits, Democrats, Economic Recovery, Economy, Elections, Freedom, GOP, Government, Government Shut Down, Health Care, Ideologues, Ideology, Journalists, Media, Middle Class, Politics, President Obama, Press, Pundits, Republicans, Right Wing, Taxes, Voters | , , , , , , , , , , , , , | Leave a comment