House Speaker John Boehner (R-Ohio), as expected, is now fully invested in a temporary debt-ceiling extension. He’ll accept $1 trillion in cuts — with no revenue — now, and then consider another extension next year after additional negotiations over taxes and entitlements.
Democrats want one debt-ceiling vote, seeing no need to put the country through this twice in less than a year. Take note of how Boehner responds to this.
Boehner suggested Sunday that by trying to put the next debt ceiling debate off for so long Obama was trying to gain political advantage.
“I know the president is worried about his next re-election, but, my God, shouldn’t we be worried about the country?” Boehner asked.
It’s entirely possible that the House Speaker really is this dumb. With this in mind, I’m trying to think about how to ask the questions in a way John Boehner can understand. How about this:
1. How would the country benefit from two votes on raising the debt ceiling, instead of one?
2. If Republicans are sincerely concerned about economic “uncertainty,” why tell investors, job creators, and international markets that default is a possibility early next year?
3. If getting one debt-ceiling revision through Congress is necessary but difficult, why make lawmakers go through this twice?
Hearing John Boehner claim the high road, claiming to be “worried about the country,” might be the most hilarious thing I’ve seen in a while. We are, after all, talking about a House Speaker who allowed his caucus to launch an insane hostage strategy, threatening to crash the economy on purpose, and then refused to compromise, even after President Obama handed him an overly-generous offer.
“My God, shouldn’t we be worried about the country”? What a good question, John. Why don’t you answer it?
By: Steve Benen, Contributing Writer, Washington Monthly Political Animal, July 24, 2011
July 25, 2011
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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 |
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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 |
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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
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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 raemd95 |
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