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Grave Consequences: Wall Street Tells John Boehner To Back Off The Debt Ceiling

Republicans are growing increasingly concerned about the impact a bruising fight over raising the nation’s $14.29 trillion debt ceiling could have on U.S. financial markets.

House Speaker John Boehner (R-Ohio) has had conversations with top Wall Street executives, asking how close Congress could push to the debt limit deadline without sending interests rates soaring and causing stock prices to go lower, people familiar with the matter said. Boehner spokesman Michael Steel said Tuesday night that he was not aware of any such conversations.

Treasury Secretary Timothy Geithner has warned Congress that without new borrowing authority, the federal government could hit the statutory debt limit by May 16.

Treasury could then implement emergency measures to continuing making interest payments on existing debt until around July 8. After that, the U.S. risks going into default, an unthinkable idea to many economists and market participants who say such an event could drive scores of large banks into failure, send interest rates skyrocketing as foreign investors abandon U.S. securities and crush the already slow-going economic recovery.

Republicans and even some fiscally conservative Democrats want to use the debt limit fight as leverage to wring more significant spending cuts out of the White House. Politicians of all stripes are worried about how independents will react to a vote — or multiple stop-gap votes — to raise the debt ceiling. Many executives on Wall Street believe Washington is playing an enormously dangerous game with what is typically a non-controversial vote.

Sen. Chuck Schumer (D-N.Y.), who leads the Senate Democrats’ messaging efforts, expressed anger that Boehner was searching for leeway on the debt limit.

“The speaker seems to be testing out how far he can venture onto a frozen lake before the ice breaks. He should listen to business leaders who are telling him to watch his step. Messing around with the debt ceiling just to satisfy the tea party will lead to higher interest rates and an economic cataclysm.”

The Wall Street executives say even pushing close to the deadline — or talking about it — could have grave consequences in the marketplace.

“They don’t seem to understand that you can’t put everything back in the box. Once that fear of default is in the markets, it doesn’t just go away. We’ll be paying the price for years in higher rates,” said one executive.

Another said that “anyone interested in ‘testing’ the debt ceiling should understand the U.S. debt traded wider [with a higher yield] than Greek debt roughly five years ago. Then go ask CBO what happens to our deficits/public debt to GDP, if the 10-year [Treasury bond] goes from 3.5 percent to 5.5 percent to 7.5 percent.” The executive said such an increase would result in a downgrade of U.S. debt by ratings agencies and an end to the dollar as the standard global reserve currency.

By: Ben White, Politico, April 13, 2011

April 13, 2011 Posted by | Banks, Congress, Conservatives, Debt Ceiling, Democrats, Economy, Federal Budget, GOP, Independents, Lawmakers, Politics, Republicans, Swing Voters, Voters, Wall Street | , , , , , , , , , , , | Leave a comment

Meanwhile…Washington’s Budget Folly

The Senate on Wednesday voted down the House budget bill, with its string of $61 billion in mostly political cuts through Sept. 30. That formally puts an end to the House’s grandstand play. But the Senate also rejected its Democratic leaders’ own plan to cut $6.5 billion. The government’s financing is due to run out in eight days. To prevent a shutdown, the two chambers will probably have to agree to yet another short-term financing bill.

That would be politically and fiscally irresponsible. But the House Republicans will be happy to agree, as long as Democrats agree to a vigorish of $2 billion a week in cuts to vital government programs.

Unless the White House and Democratic lawmakers start pushing back a lot harder — and do a better job of explaining the disastrous effects on the economy and everyday life — the Republicans will win the argument. If it keeps going on this way, they will get the $61 billion they demanded.

The White House again threatened on Wednesday to veto the House bill, and said it supported the Democratic bill that did not even draw a simple majority. It has been hosting what appear to be unproductive talks among legislative leaders; Vice President Joseph Biden Jr., who is nominally in charge of the talks, is now visiting Eastern Europe and tried to mediate by telephone.

President Obama has yet to take a firm public stand and make clear his bargaining limits and priorities. Understandably, he does not want the government to shut down and is hoping that quiet negotiations will produce better results than loud declarations of principle. But there is no sign that the House freshmen have an interest in compromise, or that Representative John Boehner, the House speaker, has any control of his caucus.

A brief shutdown, painful as it would be, would be far less damaging than a sudden withdrawal of tens of billions in government spending from the economy, which would lead to widespread layoffs.

Mr. Obama could well follow the example of Senator Charles Schumer of New York, the third-ranking Democrat in the Senate, who on Wednesday called for a “re-set” of the negotiating process. The only way to have a meaningful discussion of the budget, he said in a speech, is to consider all of its parts at once over the long term, not for a few weeks or months at a time. That includes all the issues the Republicans wouldn’t deal with in their bill: cuts to the entitlement programs and to the Pentagon budget and ways to raise revenues at the same time.

The Republicans, as Mr. Schumer noted, aren’t really interested in lowering the deficit. If they were, they would never have insisted on $800 billion in tax cuts for the wealthy without paying for them, or on repealing the health care law, which saves $230 billion over a decade.

They are only interested in slashing government, no matter the cost to the country. It is time for the president — and responsible Congressional leaders of both parties — to reject their tactics and their goal.

By: Editorial, The New York Times, March 9, 2011

March 11, 2011 Posted by | Budget, Deficits, Economy, Federal Budget, Government Shut Down, Politics | , , , , , , , , | Leave a comment

What Wisconsin Democrats Can Teach Washington Democrats

Consider the contrast between two groups of Democrats, in Wisconsin and in the nation’s capital.

Washington Democrats, including President Obama, have allowed conservative Republicans to dominate the budget debate so far. As long as the argument is over who will cut more from federal spending, conservatives win. Voters may think the GOP is going too far, but when it comes to dollar amounts, they know Republicans will always cut more.

In Wisconsin, by contrast, 14 Democrats in the state Senate defined the political argument on their own terms – and they are winning it.

By leaving Madison rather than providing a quorum to pass Gov. Scott Walker’s assault on collective bargaining for public employees, the Wisconsin 14 took a big risk. Yet to the surprise of establishment politicians, voters have sided with the itinerant senators and the unions against a Republican governor who has been successfully portrayed as an inflexible ideologue. And in using questionable tactics to force the antiunion provision through the Senate on Wednesday, Republicans may win a procedural round but lose further ground in public opinion.

Here’s the key to the Wisconsin battle: For the first time in a long time, blue-collar Republicans – once known as Reagan Democrats – have been encouraged to remember what they think is wrong with conservative ideology. Working-class voters, including many Republicans, want no part of Walker’s war.

A nationwide Pew Research Center survey released last week, for example, showed Americans siding with the unions over Walker by a margin of 42 percent to 31 percent. Walker’s 31 percent was well below the GOP’s typical base vote because 17 percent of self-described Republicans picked the unions over their party’s governor.

At my request, Pew broke the numbers down by education and income and, sure enough, Walker won support from fewer than half of Republicans in two overlapping groups: those with incomes under $50,000 and those who did not attend college. Walker’s strongest support came from the wealthier and those with college educations, i.e., country club Republicans.

Republicans cannot afford to hemorrhage blue-collar voters. In a seminal article in the Weekly Standard six years ago, conservative writers Reihan Salam and Ross Douthat observed: “This is the Republican Party of today – an increasingly working-class party, dependent for its power on supermajorities of the white working-class vote, and a party whose constituents are surprisingly comfortable with bad-but-popular liberal ideas like raising the minimum wage, expanding clumsy environmental regulations, or hiking taxes on the wealthy to fund a health care entitlement.”

Put aside that I favor the policies Douthat and Salam criticize. Their electoral point is dead on. In 2010, working-class whites gave Republicans a 30-point lead over Democrats in House races. That’s why the Wisconsin fight is so dangerous to the conservative cause: Many working-class Republicans still have warm feelings toward unions, and Walker has contrived to remind them of this.

Which brings us to the Washington Democrats. Up to now, the only thing clear about the budget fight is that Democrats want to cut less from discretionary spending than Republicans do. Quietly, many Democrats acknowledge that they have been losing this argument.

Thus the importance of a speech on Wednesday by Sen. Charles E. Schumer, a New York Democrat, intended to “reset the debate.” As Schumer noted, the current battle, focused on “one tiny portion of the budget,” evades the real causes of long-term budget deficits.

Schumer dared to put new revenue on the table – including some tax increases that are popular among the sorts of blue-collar voters who are turning against Walker. Schumer, for example, spoke of Obama’s proposal to end subsidies for oil and gas companies and for higher taxes on “millionaires and billionaires.” Yes, closing the deficit will require more revenue over the long run. But right now, the debate with the House isn’t focusing on revenue at all.

Schumer, who spoke at the Center for American Progress, also suggested cuts to agriculture subsidies and in unnecessary defense programs. He proposed changes in Medicare and Medicaid incentives that would save money, including reform of how both programs pay for prescription drugs. The broad debate Schumer called for would be a big improvement on the current petty argument, which he rightly described as “quicksand.”

To this point, Washington Democrats have been too afraid and divided to engage compellingly on the fundamentals of what government is there to do and how the burdens of deficit reduction should be apportioned. Wisconsin Democrats have shown that the only way to win arguments is to take risks on behalf of what you believe. Are Washington Democrats prepared to learn this lesson?

By: E. J. Dionne, Op-Ed Colunist, The Washington Post, March 10, 2011

March 10, 2011 Posted by | Class Warfare, Congress, Deficits, Democrats, Federal Budget, GOP, Middle Class, Politics, Unions | , , , , , , , , , , , , | Leave a comment

   

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