GOP Jobs Plan: Old Ideas, Fancy New Clip Art
Academic books pack about 600 words to a page. Normal books clock in around
400. Large-print books, you know, the ones for kids or the visually impaired — fit about 250. The House GOP’s jobs plan, however, gets about 200 words to a page. The typeface is fit for giants, and the document’s 10 pages are mostly taken up by pictures. It looks like the staffer in charge forgot the assignment was due on Thursday rather than Friday and cranked up the font to 24 points and began dumping clip art to pad out the plan.
Which is odd, because there’s nothing in this plan that hasn’t been in a thousand other plans. When I asked David Autor, an economist at the Massachusetts Institute of Technology and a specialist on labor markets, to take a look at the substance, he pronounced it a classic case of “what Larry Summers would call ‘now-more-than-everisms.”
“Here’s how it works,” Autor wrote in an e-mail. “1. You have a set of policies that you favor at all times and under all circumstances, e.g., cut taxes, remove regulations, drill-baby-drill, etc. 2. You see a problem that needs fixing (e.g., the economy stinks). 3. You say, ‘We need to enact my favored policies now more than ever.’ I believe that every item in the GOP list that you sent derives from this three-step procedure.
“That’s not to say that there are no reasonable ideas on this list. But there is certainly no original thinking here directed at addressing the employment problem. Or, to put it differently, is there any set of economic circumstances under which the GOP would not actually want to enact every item on this agenda? If the answer is no, then this is clearly now-more-than-everism.”
If you read Autor’s answer and then guessed at what’s included in the plan, you’d probably get it about right. The GOP wants a separate congressional vote on every significant regulation. It wants to cut taxes for corporations and small businesses led by individuals. It wants a tax break on profit that corporations earn overseas. It wants to pass pending trade agreements, increase domestic production of oil and enact spending cuts. The only two proposals you couldn’t have guessed sight unseen are patent reform and visas for the highly skilled.
But even if you think every item on that agenda is a grand idea, this isn’t exactly fast-acting medicine. “At best, an agenda like this is meant to improve long-term growth by a couple of tenths of a percentage point,” says Larry Mishel, president of the Economic Policy Institute. “It takes a really long time to move the dial. It’s not a response to a cyclical downturn.”
That’s okay, because the document doesn’t believe in cyclical downturns. It only believes in deviations from the Republican agenda. The first page sets out the GOP’s narrative of the unemployment crisis. See if you recognize what’s missing here: “For the past four years, Democrats in Washington have enacted policies that undermine these basic concepts which have historically placed America at the forefront of the global marketplace. As a result, most Americans know someone who has recently lost a job, and small businesses and entrepreneurs lack the confidence needed to invest in our economy. Not since the Great Depression has our nation’s unemployment rate been this high this long.”
Four years ago, of course, George W. Bush was president. And he was, as you might remember, a Republican, not a Democrat. As for Wall Street, well, Wall Street who?
But it’s not just that you could read this jobs plan without knowing the financial crisis ever happened. You could read it without knowing the past decade ever happened. As Mishel says, “If lower taxes and less regulation was such good policy, then George W. Bush’s economy would have been a lot better. But under Bush, Republicans cut taxes on business and on investors and high-income people, and they didn’t add many regulations, and that business cycle was the first one in the postwar period where the income for a typical working-class family was lower at the end than at the beginning.”
That, however, is the agenda the House GOP thinks we need. And now more than
ever.
By: Ezra Klein, Columnist, The Washington Post, May 26, 2011
The Fake James Madison: Conservatives Selective Reading Of The Founding Fathers Threatens Social Security And Medicare
The House Republican plan to phase out Medicare is crashing and burning. Rep.-elect Kathy Hochul (D-NY) just won an impossible election victory by campaigning to keep Medicare alive. The Senate just soundly rejected the House GOP’s plan. Even former Speaker of the House Newt Gingrich, who once shut down the government in a failed attempt to force President Bill Clinton to support draconian Medicare cuts, blasted this Medicare-killing plan as “radical right-wing social engineering.”
Yet even as this concerted assault on Medicare hemorrhages support from elected officials, conservatives have a backdoor plan to get the courts to kill Medicare for them. Numerous lawmakers embrace a discredited theory of the Constitution that would not only end Medicare outright but also cause countless other cherished programs to be declared unconstitutional. Under this theory, Pell Grants, federal student loans, food stamps, federal disaster relief, Medicaid, income assistance for the poor, and even Social Security must all be eliminated as offensive to the Constitution.
In essence, supporters of this constitutional theory would so completely rewrite America’s social contract that they make Rep. Paul Ryan (R-WI), the author of the House GOP plan, look like Martin Luther King Jr. This issue brief explores the legal and historical gymnastics required to accept the conservative position that programs like Medicare and Social Security violate the Constitution.
The general welfare
Although Congress’s authority is limited to an itemized list of powers contained in the text of the Constitution itself, these powers are quite sweeping. They include the authority to regulate the national economy, build a national postal system, create comprehensive immigration and intellectual property regulation, maintain a military, and raise and spend money.
This last power, the authority to raise and spend money, is among Congress’s broadest powers. Under the Constitution, national leaders are free to spend money in any way they choose so long as they do so to “provide for the common defense and general welfare of the United States.” For this reason, laws such as Medicare and Social Security are obviously constitutional because they both raise and spend money to the benefit of all Americans upon their retirement.
Many members of Congress, however, do not believe the Constitution’s words mean what they say they mean. Consider the words of Sen. Rand Paul (R-KY), who recently explained the origin of the increasingly common belief that Congress’s constitutional spending power is so small that it can be drowned in a bathtub:
If you read [James] Madison, Madison will tell you what he thought of the Welfare Clause. He said, “Yeah, there is a General Welfare Clause, but if we meant that you can do anything, why would we have listed the enumerated powers?” Really, the Welfare Clause is bound by the enumerated powers that we gave the federal government.
In essence, Paul and many of his fellow conservatives believe Congress’s power to collect taxes and “provide for the common defense and general welfare of the United States” really only enables Congress to build post offices or fund wars or take other actions expressly authorized by some other part of the Constitution. According to this view, the spending power is not—as it is almost universally understood —itself an independent enumerated power authorizing Congress to spend money.
Paul’s understanding of the Spending Clause is not simply the idiosyncratic view of an outlier senator. Indeed, there is strong reason to believe his view is shared by the majority of his caucus. In the lead-up to the 2010 midterm elections, congressional Republicans released a “Pledge to America,” which broadly outlined their plans for governing if they were to prevail that November. In it, the lawmakers claimed that “lack of respect for the clear constitutional limits and authorities has allowed Congress to create ineffective and costly programs that add to the massive deficit year after year.”
This language suggests that many conservatives agree with Sen. Paul that Congress is somehow exceeding its constitutional authority to spend money. But there is no support for this view in constitutional text or in Supreme Court precedent.
In its very first decision to consider the issue—its 1936 decision in United States v. Butler—the Supreme Court unanimously affirmed that “the power of Congress to authorize expenditure of public moneys for public purposes is not limited by the direct grants of legislative power found in the Constitution,” as Sen. Paul would claim. Similarly, while the text of the Constitution establishes that “the exercise of the spending power must be in pursuit of ‘the general welfare,’” neither Sen. Paul nor the Pledge cites examples of laws that fail to meet this criterion.
Selectively reading Madison
While conservatives’ narrow understanding of the spending power finds no support in the text of the Constitution or in the Supreme Court’s decisions, Sen. Paul is correct that it does have one very famous supporter. In an 1831 missive, former President James Madison claimed that the best way to read the Spending Clause is to ignore its literal meaning and impose an extra-textual limit on Congressional power:
With respect to the words “general welfare,” I have always regarded them as qualified by the detail of powers connected with them. To take them in a literal and unlimited sense would be a metamorphosis of the Constitution into a character which there is a host of proofs was not contemplated by its creators.
Sen. Paul suggests that Madison’s extra-textual limit is both authoritative and binding—even if it means that programs ranging from Social Security to Medicare to Pell Grants must all cease to exist. But it is a mistake to assume that Madison’s preferred construction of the Spending Clause must restrict modern-day congressional action.
First of all, even the most prominent supporters of “originalism”—the belief that the Constitution must be read exactly as it was understood at the time it was written—reject the view that an individual framer’s intentions can change constitutional meaning. As the nation’s leading originalist, Supreme Court Justice Antonin Scalia, explains, “I don’t care if the framers of the Constitution had some secret meaning in mind when they adopted its words. I take the words as they were promulgated to the people of the United States, and what is the fairly understood meaning of those words.”
Indeed, Madison himself would have been dismayed by the claim that an established understanding of the Constitution must bend to his own singular views. Like Scalia, Madison rejected the notion that the framers’ personal desires can defeat the words they actually committed to text. As he explained to future President Martin Van Buren, “I am aware that the document must speak for itself, and that that intention cannot be substituted for [the intention derived through] the established rules of interpretation.”
Secondly, Madison embraced a way of interpreting the Constitution reminiscent of the evolving theories of constitutional interpretation that are so widely decried by modern conservatives. Although Rep. Madison opposed on constitutional grounds the creation of the First Bank of the United States in 1791, President Madison signed into law an act creating the Second Bank in 1816. He “recognized that Congress, the President, the Supreme Court, and (most important, by failing to use their amending power) the American people had for two decades accepted” the First Bank, and he viewed this acceptance as “a construction put on the Constitution by the nation, which, having made it, had the supreme right to declare its meaning.”
The Constitution is not a scavenger hunt
Even if we must, as Sen. Paul suggests, be bound by the Founding Fathers’ subjective intentions, Madison’s understanding of the Constitution hardly reflects the consensus view among those who created it. The truth is that Madison’s voice was merely one of many competing voices among the founding generation—and his vision of the Constitution was eventually rejected by no less a figure than George Washington himself.
Madison’s chief antagonist in early debates about constitutional meaning was Alexander Hamilton. As the nation’s first secretary of the treasury, Hamilton offered an interpretation of the Spending Clause that closely resembles the modern understanding:
These three qualifications excepted, the power to raise money is plenary, and indefinite; and the objects to which it may be appropriated are no less comprehensive, than the payment of the public debts and the providing for the common defence and “general Welfare.” The terms “general Welfare” were doubtless intended to signify more than was expressed or imported in those which Preceded; otherwise numerous exigencies incident to the affairs of a Nation would have been left without a provision. The phrase is as comprehensive as any that could have been used; because it was not fit that the constitutional authority of the Union, to appropriate its revenues shou’d have been restricted within narrower limits than the “General Welfare” and because this necessarily embraces a vast variety of particulars, which are susceptible neither of specification nor of definition.
Hamilton’s understanding of the spending power was one part of a broader, more expansive vision of congressional power that also included a robust interpretation of Congress’s power under the Constitution’s Necessary and Proper Clause. This broader understanding of Congress’s role prevailed over Madison’s very limited one during the earliest days of the Republic. Hamilton was the chief advocate who convinced President George Washington to sign the First Bank bill over Madison’s objections.
The point here is not that constitutional interpretations should be played like the card game “War,” where conservatives play the Madison card and everyone else plays the Washington card, and whoever plays the higher card wins. Rather, the point is simply that conservatives are wrong to treat the Founding Fathers’ statements as if they were a menu that lawmakers can search through and order the kind of Constitution they want. The Constitution is not a scavenger hunt.
Moreover, it is hardly necessary to dismiss Madison’s tremendous contributions to the Constitution itself in order to recognize why America should not relitigate a 230-year-old argument about America’s power to spend money on programs like Medicare. Hamilton was undoubtedly correct that his own reading of the Spending Clause is more consistent with the Constitution’s text than the reading offered by Madison—Madison himself concedes as much—but Madison was also correct to warn that the nation rejects a longstanding and widely accepted constitutional interpretation at its peril.
Millions of Americans depend upon programs such as Social Security, Medicare, and federal student loans, and America has grown into the wealthiest and most prosperous nation ever to exist in the years since these programs were enacted. Throughout this golden age, not one Supreme Court justice has questioned what Justice Scalia recently told a gathering of members of Congress: “It’s up to Congress how you want to appropriate, basically.”
Conclusion
Few things are certain in American politics, but after this week one thing is crystal clear—the American people cherish Medicare and they want no truck with an agenda that would destroy it. Sadly, far too many conservative lawmakers refuse to listen to their constituents on this basic and obvious point—to the extent of inventing a theory of constitutional interpretation that would achieve their goal of ending Medicare far sooner than the House Republicans’ ill-considered budget.
Conservatives will tell you that killing Medicare is the only way to read the Constitution consistently with the framers’ intent. Don’t believe them. The truth is that the only way to reach this conclusion is to hunt through the framers’ statements, cherry pick statements that conservatives like, and ignore the very text of the Constitution itself in the process.
By: Ian Millhiser, Center for American Progress, May 27, 2011
Republicans Ignored Warnings On Paul Ryan Plan
It might be a political time bomb — that’s what GOP pollsters warned as House Republicans prepared for the April 15 vote on Rep. Paul Ryan’s proposed budget, with its plan to dramatically remake Medicare.
No matter how favorably pollsters with the Tarrance Group or other firms spun the bill in their pitch — casting it as the only path to saving the beloved health entitlement for seniors — the Ryan budget’s approval rating barely budged above the high 30s or its disapproval below 50 percent, according to a Republican operative familiar with the presentation.
The poll numbers on the plan were so toxic — nearly as bad as those of President Barack Obama’s health reform bill at the nadir of its unpopularity — that staffers with the National Republican Congressional Committee warned leadership, “You might not want to go there” in a series of tense pre-vote meetings.
But go there Republicans did, en masse and with rhetorical gusto — transforming the political landscape for 2012, giving Democrats a new shot at life and forcing the GOP to suddenly shift from offense to defense.
It’s been more than a month since Speaker John Boehner (R-Ohio) and his lieutenant, Majority Leader Eric Cantor (R-Va) boldly positioned their party as a beacon of fiscal responsibility — a move many have praised as principled, if risky. In the process, however, they raced through political red lights to pass Ryan’s controversial measure in a deceptively unified 235-193 vote, with only four GOP dissenters.
The story of how it passed so quickly — with a minimum of public hand-wringing and a frenzy of backroom machinations — is a tale of colliding principles and power politics set against the backdrop of a fickle and anxious electorate.
The outward unity projected by House Republicans masked weeks of fierce debate, even infighting, and doubt over a measure that stands virtually no chance of becoming law. In a series of heated closed-door exchanges, dissenters, led by Ryan’s main internal rival — House Ways and Means Committee Chairman Dave Camp (R-Mich.) — argued for a less radical, more bipartisan approach, GOP staffers say.
At a fundraiser shortly after the vote, a frustrated Camp groused, “We shouldn’t have done it” and that he was “overridden,” according to a person in attendance.
A few days earlier, as most Republicans remained mute during a GOP conference meeting on the Ryan plan, Camp rose and drily asserted, “People in my district like Medicare,” one lawmaker, who is now having his own doubts about voting yes, told POLITICO.
At the same time, GOP pollsters, political consultants and House and NRCC staffers vividly reminded leadership that their members were being forced to walk the plank for a piece of quixotic legislation. They described for leadership the horrors that might be visited on the party during the next campaign, comparing it time and again with former Speaker Nancy Pelosi’s decision to ram through a cap-and-trade bill despite the risks it posed to Democratic incumbents.
“The tea party itch has definitely not been scratched, so the voices who were saying, ‘Let’s do this in a way that’s politically survivable,’ got drowned out by a kind of panic,” a top GOP consultant involved in the debate said, on condition of anonymity.
“The feeling among leadership was, we have to be true to the people who put us here. We don’t know what to do, but it has to be bold.”
Another GOP insider involved to the process was more morbid: “Jumping off a bridge is bold, too.”
Time will tell whether the Medicare vote, the most politically significant legislative act of the 112th Congress thus far, will be viewed by 2012 voters as a courageous act of fiscal responsibility — or as an unforced error that puts dozens of marginal GOP seats and the party’s presidential candidates at serious risk. That question might be answered, in part, this week during a special election in New York’s 26th Congressional District, in which Republican Jane Corwin appears to be losing ground to Democrat Kathy Hochul.
The GOP message team is already scrambling to redefine the issue as a Republican attempt to “save” Medicare, not kill it.
But the party’s stars remain stubbornly misaligned. Presidential hopeful Newt Gingrich candidly described the Medicare plan as “right-wing social engineering” — only to pull it back when Ryan and others griped. And Priorities USA Action, an independent group started by two West Wing veterans of the Obama administration, was out Friday with its first ad, a TV spot in South Carolina using Gingrich’s words to savage Mitt Romney for saying he was on the “same page” as Ryan.
“The impact of what the House Republicans have done is just enormous. It will be a litmus test in the GOP [presidential] primary,” said former White House deputy press secretary Bill Burton, one of the group’s founders.
“I couldn’t believe these idiots — I don’t know what else to call them — they’re idiots. … They actually made their members vote on it. It was completely stunning to me,” said former Pennsylvania Gov. Ed Rendell, a Democrat who worked hard to win over the western part of his state, which has among the highest concentration of elderly voters in the country.
It was also the site of some of the Democrats’ worst losses in 2010 — three swing House seats Democrats hope to recapture next year, largely on the strength of the Medicare argument.
“Look at [freshman House members in the Pittsburgh-Scranton area], they make them vote on this when they’re representing one of the oldest districts in the country?” Rendell asked.
“We have a message challenge, a big one, and that’s what the polling is showing,” conceded Rep. Patrick McHenry (R-N.C.), a former Karl Rove protégé who enthusiastically backed the Ryan plan. “There’s no way you attack the deficit in my lifetime without dealing with the growth of Medicare. Do we get a political benefit from proposing a legitimate solution to a major policy problem? That’s an open question.”
The House Republican leadership had hinted at an emerging plan to tackle entitlement reform on Feb. 14 — the day Obama released his budget without reforms to Medicare, Medicaid and Social Security.
Cantor caught Hill reporters by surprise when he said, nonchalantly, that the Republican budget would be a “serious document that will reflect the type of path we feel we should be taking to address the fiscal situation, including addressing entitlement reforms.”
But there were also internal motivations in the decision to go big on Medicare, rooted in Boehner’s still tenuous grasp of the leadership reins, according to a dozen party operatives and Hill staffers interviewed by POLITICO.
Republican sources said Boehner, who has struggled to control his rambunctious new majority, needed to send a message to conservative upstarts that he was serious about bold fiscal reform — especially after some of the 63 freshmen rebelled against his 2011 budget deal that averted a government shutdown.
Then there’s the ever-present friction between Boehner and Cantor, who, along with Minority Whip Kevin McCarthy (R-Calif.), has positioned himself as the next generation of GOP leadership and champion of the conservative freshman class.
Boehner’s camp said the speaker has always supported the Ryan approach — which would offer vouchers to future Medicare recipients currently younger than 55 in lieu of direct federal subsidies — and proved his support by voting for a similar measure in 2009.
“Boehner has said for years, including leading up to the 2010 election, that we would honestly deal with the big challenges facing our country,” said his spokesman, Michael Steel. “With 10,000 Baby Boomers retiring every day, it is clear to everyone that Medicare will not be there for future generations unless it is reformed. The status quo means bankruptcy and deep benefit cuts for seniors. It’s clear who the real grown-ups in the room are. We’ve told the truth and led, while the Democrats who run Washington have cravenly scrambled and lied for partisan gain.”
But that message hasn’t always been quite that clear. On several occasions, Boehner has seemed squishy on the Ryan budget. In talking to ABC News, Boehner said he was “not wedded” to the plan and that it was “worthy of consideration.”
Still, even if Boehner had opposed the plan — and his top aide, Barry Jackson, expressed concerns about the political fallout to other staffers — he probably couldn’t have stopped the Ryan Express anyway, so great was the push from freshmen and conservatives.
That’s not to say some of the speaker’s allies from the Midwest didn’t try. Camp and Ryan hashed out their differences in a series of private meetings that, on occasion, turned testy, according to several GOP aides. Camp argued that the Ryan plan, which he backed in principle — and eventually voted for — was a nonstarter that would only make it harder to reach a bipartisan framework on real entitlement reform.
A few weeks later, Camp told a health care conference that, from a pragmatic legislative perspective, he considered the Ryan budget history. “Frankly, I’m not interested in talking about whether the House is going to pass a bill that the Senate shows no interest in. I’m not interested in laying down more markers,” he said.
House Energy and Commerce Committee Chairman Fred Upton (R-Mich.) also made the case for a more moderate approach — but his principal concern was the Medicaid portion of Ryan’s plan, an approach he believed wouldn’t do enough to reduce burdens of indigent care on states.
But even as Democrats high-five over the possibility of Medicare-fueled political gains, Republicans are trying to muster a unified defense. Cantor, for his part, stumbled by suggesting to a Washington Post reporter that the Ryan Medicare provisions might be ditched during bipartisan debt negotiations being led by Vice President Joe Biden.
Cantor later clarified his remarks and claimed he still backed the Ryan principles, but no GOP staffer interviewed for this article believed the Medicare overhaul has any realistic chance of passage.
By: Glenn Thrush and Jake Sherman, Politico, May 23, 2011
The Republican “Need for Greed” Meets the Fockers
The bet was audacious from the beginning, and given the miserable, low-down tenor of contemporary politics, not unfathomable: Could you divide the country between greedy geezers and everyone else as a way to radically alter the social contract?
But in order for the Republican plan to turn Medicare, one of most popular government programs in history, into a much-diminished voucher system, the greed card had to work.
The plan’s architect, Representative Paul Ryan of Wisconsin, drew a line in the actuarial sand: Anyone born before 1957 would not be affected. They could enjoy the single-payer, socialized medical care program that has allowed millions of people to live extended lives of dignity and decent health care.
And their kids and grandkids? Sorry, they would have to take their little voucher and pay some private insurer nearly twice as much as a senior pays for basic government coverage today. In essence, Republicans would break up the population between an I’ve Got Mine segment and The Left Behinds.
Again, not a bad political calculation. Altruism is a squishy notion, hard to sustain in an election. Ryan himself has made a naked play for greed in defending the plan. “Seniors, as soon as they realize this doesn’t affect them, they are not so opposed,” he has said.
Well, the early verdict is in, and it looks as though the better angels have prevailed: seniors are opposed. Republicans: Meet the Fockers. Already, there is considerable anxiety — and some guilt — among older folks about leaving their children worse off financially than they are. To burden them with a much costlier, privatized elderly health insurance program is a lead weight for the golden years.
This plan is toast. Newt Gingrich is in deep trouble with the Republican base for stating the obvious on Sunday, when he called the signature Medicare proposal of his party “right-wing social engineering.” But that’s exactly what it is: a blueprint for downward mobility.
Look at the special Congressional election of next Tuesday. What was supposed to be a shoo-in for Republicans in a very safe district of upstate New York is now a tossup. For that, you can blame the Medicare radicals now running the House.
And a raft of recent polls show that seniors, who voted overwhelmingly Republican in the 2010 elections, are retreating in droves. Democratic pollster Geoffrey Garin says the Ryan plan is a “watershed event,” putting older voters in play for next year’s presidential election.
Beyond the political calculations, all of this is encouraging news because it shows that people are starting to think much harder about what kind of country they want to live in. Give the Republicans credit for honesty and showing their true colors. And their plan is at least a starting point compared with those Tea Party political illiterates who waved signs urging government to keep its hands off their government health care.
When the House of Representatives voted to end Medicare as we know it last month, it was sold as a way to save the program. Medicare now covers 47.5 million Americans, but it won’t have sufficient funds to pay full benefits by 2024, according to the most recent trustee report. Something has to be done.
Many Republicans want to kill it. They hate Medicare because it represents everything they are philosophically opposed to: a government-run program that works and is popular across the political board. It’s tough to shout about the dangers of universal health care when the two greatest protectors (if not creators) of the elderly middle class are those pillars of 20th-century progressive change, Social Security and Medicare.
For next year’s election, all but a handful of Republicans in the House are stuck with the Scarlet Letter of the Ryan Plan on their record. Soon, there will be a similar vote in the Senate. It will not pass, but it will show which side of the argument politicians are on.
There is a very simple way to make Medicare whole through the end of this century, far less complicated, and more of a bargain in the long run than the bizarre Ryan plan. Raise taxes. It hasn’t sunk in yet, but most American pay less taxes now than anytime in the last 50 years, according to a number of measurements. And a majority of the public now seems willing to pay a little extra (or force somebody else to pay a little extra) to keep a good thing going. Both Ronald Reagan and George H.W. Bush raised taxes, by the way.
Given a choice between self-interest and the greater good, voters will usually watch out for themselves — unless that greater good is their own family. For Republicans intent on killing Medicare, it was a monumental miscalculation to miss that logical leap.
By: Timothy Egan, Opinion Writer, The New York Times, May 17, 2011
Debt Ceiling Warning: Inaction Would Double Interest Rates, Crash Market
Public efforts by both House Speaker John Boehner and President Obama to convince skeptical new Republican House members to add $2 trillion to the nation’s burdensome $14 trillion debt ceiling are being reinforced by dire warnings from business leaders that failing to OK the increase will lead to inflation, an immediate doubling of interest rates and a killer Wall Street crash.
“If they don’t increase the debt, there will be a huge impact on the economy,” a Wall Street executive told Whispers on background. “Interest rates would spike. S&P and Moody’s would downgrade U.S. debt, raising the price of borrowing, there would be a market sell-off, it would be a disaster.”
While Boehner, who yesterday called for a deal that would OK the debt ceiling increase in return for trillions of dollars in spending cuts, Wall Street lobbyists and banking and business leaders are meeting with several of the new Tea Party-backed House members who pledged to stop raising the ceiling to explain the impact of standing pat.
“A lot of freshmen are new to the issue,” said one of those meeting with the new members, some of whom signed pledges not to raise the debt ceiling no matter what.
Among the specifics the sources say they are telling the new members:
— Inflation could jump, though they aren’t giving any percentage growth.
— Interest rates could double if U.S. debt is downgraded. House loans, for example, that are now below 5 percent, could surge to 9-10 percent, killing any chance of fixing the housing slump or cutting the unemployment rate, now at 9 percent.
— The stock market could suffer a 10 percent drop, far more significant than the 778 point thrashing Wall Street took when the House rejected the government’s $700 billion bank bailout plan in September 2008.
“That market sell-off will look small compared to what we’ll see,” said a Wall Street executive.
So far, the campaign to turn the naysayers around is starting to work, say those involved. Helping is the expectations that the debt ceiling won’t actually be breached until August.
While there have been warnings that the vote must come sooner due to expectations that the cap will be breached this month, officials explained that Treasury can make several moves to postpone that until about August 2.
By: Paul Bedard, U. S. News and World Report, May 10, 2011
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