The Solution To Our Economic Problems
Readers suggested a topic on the housing market implications of the debt talks. “What are the housing market implications of slow growth coupled with a likely near-term reduction in federal expenditures in the wake of the debt ceiling negotiations? I still maintain the way out of this without raising taxes is to let housing prices go where the market dictates. Once home prices are sufficiently affordable, the U.S. labor force will adjust as young, capable workers go where their best opportunities lie. So long as housing prices are propped up on an unaffordably high plateau, this autonomous (self-funding) economic stimulus cannot happen.”
“I’m thinking there is a potential silver lining to the partisan wrangling over the debt ceiling, which is that the housing market is likely to crash faster than ever over the next twelve or so months.”
A reply, “This grand national theater is being played to the same script that small towns always use during budget talks….If we don’t get more money we will close the fire-hall and your children will…well something awful will happen to your children. We’re serious!”
One said, “The question is, would a second Great Depression and a huge cut in public benefits for people today be the worst scenario? Or would we be better off if it occurred and this was followed by a gradual recovery? The alternative may be those under 55 later having it as bad or worse than anybody would have it now if the collapse occurs, with higher debt levels.”
One asked, “What would REALLY happen if they eliminated or significantly changed the mortgage interest deduction?”
A reply, “There’s no reason taxpayers should be subsidizing any home loans…. let alone loans up to $1,000,000!!!”
One added, “The all-or-nothing mindset is hard to shake. It took 3-4 years before the sheeple realize that it’s possible to ‘raise taxes’ without raising taxes on everybody. It will take another 3-4 years for them to figure out that it’s possible to ‘eliminate the MID’ for some houses and not others or to institute an upper limit, or to understand what ‘MID will be less than the standard deduction anyway’ means.”
A reply, “It’s naive to think that the mortgage interest deduction (MID) will be entirely eliminated. If the MID is targeted, then I surmise that a more moderate formula would come to pass. My guess is that the MID would still be available for primary owner-occupied homes and capped at the median home value. Whether or not the median home value would be based on national or local median values (think San Francisco vs. Oil City) would have to be worked out.”
“One idea for discussion: MID only for the primary owner-occupied home up to the Fannie/Freddie $417k max.”
“A large number of politicians and business people who think that the solution to our economic problems is getting house prices to start going back up, instead of the belief around here that the problem is that house prices rose too high during the bubble. The combination means that eliminating the MID is pretty much a non-starter.”
To which was said, “Most other countries, including our culturally similar neighbor to the north, manage to do fine without a MID. Aside from the lobbying of entrenched interests, why is it naive to expect that we could completely eliminate ours? We managed to eliminate the credit card interest deduction in the 1980s.”
Finally, “If they eliminated the mortgage interest deduction, one ‘advantage’ of paying mortgages would be eliminated. This would mean less demand for housing. Lower demand would encourage house prices to drop. Therefore if they eliminated the mortgage interest deduction, house prices would fall. The mortgage interest deduction is nothing other than social engineering to subsidize housing.”
The Associated Press. “A new bipartisan plan to reduce government borrowing would target some of the most cherished tax breaks enjoyed by millions of families; those promoting health insurance, home ownership, charitable giving and retirement savings; in exchange for lowering overall tax rates for everyone.”
“Democrats have several proposals that would restrict wealthy families’ use of the breaks, while preserving them for most low- and middle-income taxpayers. Such a plan would offset rate cuts for high-income families by limiting their ability to take advantage of various tax breaks. For example, current law allows homeowners to deduct the interest they pay on home mortgages of up to $1 million. One proposal would lower the limit to $500,000 and exclude mortgage interest on second homes.”
“Lawmakers have proposed limiting the mortgage interest deduction as part of an agreement to raise the government’s borrowing limit to avoid a default after the Aug. 2 deadline. But that isn’t the only concern for homeowners and prospective buyers as the negotiations heat up in Washington. Even if lawmakers strike a deal by next week’s deadline, there’s still a chance the government’s credit rating could be downgraded. That raises the prospect of higher mortgage rates, meaning those who’ve been holding tight for home prices to fall further may feel that time is running out to take advantage of low rates.”
“Here’s what you should know: What will happen to mortgage terms if the government defaults on its debt? Some borrowers could find it more difficult to get approved for a mortgage. This might happen if banks become more cautious and slow their lending to each other, as they did during the height of the economic collapse in 2008, notes Greg McBride, a senior analyst with Bankrate.com.”
“‘Any increase on Uncle Sam’s borrowing would translate to higher costs for consumers,’ McBride said.”
The Oregonian. “Q: I work in the state of Wyoming where there is no state income tax however I own a home in Arizona. My drivers license was required to be changed to Wyoming for state law purposes but here’s the question: can I still deduct the interest on my home in Arizona if I work in Wyoming and does the state of Arizona expect AZ state income taxes to be paid?”
“A: I can only address federal income tax issues since I am not trained in state income tax law. I suggest that you contact the Arizona Department of Revenue for information on any state income tax obligations you may have.”
“Under federal tax law you can usually deduct qualifying mortgage interest on your main home and a second home. It is possible that you would be able to deduct the mortgage interest on your home in Arizona as paid on your second home (your main home being the one you live in most of the time).”
“Whether or not the median home value would be based on national or local median values (think San Francisco vs. Oil City) would have to be worked out.”
Don’t forget: All Real Estate is Local
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From one cent, huh? Might be worth it to buy 100 for starting fires.
You still have to pay shipping…
“That raises the prospect of higher mortgage rates, meaning those who’ve been holding tight for home prices to fall further may
feel that time is running out to take advantage of low ratesdiscover that higher interest rates were exactly what they were waiting for.”It is interesting that the AP writer couldn’t resist throwing in an urgency message about buying houses.
How the Debt Crisis Impacts Homeowners and Buyers
http://nationalmortgageprofessional.com/news26069/how-debt-crisis-impacts-homeowners-and-buyers?
A credibility crisis, not a debt crisis? A credibility crisis seems, if anything, *more* serious than a debt crisis, given that we live in a world where the only thing backing currencies is the credibility of the government that allowed the bank to press a button and bring the electronic currency unit into existence.
Here is my take on the MID;
Retain the MID and index it to the local market…This is a one time benefit for your primary residence however, you would be able to carry the residual balance with you to another residence..This would allow people to move without a significant penalty…No 2nd home MID unless it is rented AND, just so some do not try and game the system, MID cannot exceed the rent declared on a 2nd home…Don’t declare the income, whether its rented or not, you don’t get the deduction…
I can answer the Arizona state income tax question here. If you “claim” to be an Arizona resident and earn income out of Arizona, you owe Arizona a tax on your income. I’ve worked outside of Arizona most of the last eleven years and had to pay income tax every year there, since I have my residence there.
Theoretically, you can also own or rent a residence in Wyoming and call Wyoming your residence. If you spend more than a certain amount of time of the year in Wyoming versus Arizona, maybe you would then be an Arizona non-resident and then not owe Arizona.
Sadly that I’m working in Florida now, which has no income tax, but still have to pay Arizona income tax. I still think having a Phoenix residence is worth it. Phoenix has one of the best weather airports in the U.S. and is one hour quicker on flights to the east coast than from the California cities.
The ridiculous situation is one where you have a home in, say Incline Village, NV and rent a house in Palm Springs. Well let’s say you spend 184 days out of the year in Incline Village. Let’s say you are retired and drawing money from your IRA. I doubt if the state of California can legally claim you a California resident if you spend more time in Nevada and claim it your residence.
The test is not just time spent…
I think we are missing the point here. Fannie, Freddie and Ginnie Mae are part of the US government and guarantee almost all the mortgages now being granted. If the debt ceiling is not raised, these guarantees become very risky. That leaves mostly cash buyers. Watch the housing market fall then.
See
http://www.mtgprofessor.com/A%20-%20Public%20Policy%20Issues/debt_default_would_be_a_disaster.html
Of course, the government need not default if the debt ceiling is not raised. It can simply pay out no more than it takes in. In the past turning off the air conditioning in the Capitol building, closing National Parks and the passport office, unpaid civil service holidays and foot-dragging on suppliers credit has helped focus congressional attention.
But each time the ceiling is reached the debt service itself creates a bigger hole to be filled. Threats to military pay, social security and the like are somewhat fanciful, but would the Tea Party rather pay banks and the Chinese government than our own military.
Finally the mortgage loan guarantees themselves threaten to become a black hole as fewer new mortgages, and lower housing prices encourage more defaults which turns existing guarantees into government obligations which cannot be funded by issuing debt.
It is indeed a tangled web. No wonder congress is challenged
‘rather pay banks and the Chinese government than our own military’
Since you put it that way, I would much rather stiff the evil banks and commies than our armies killing those terrorists over there so we don’t have to kill them over here.
But. Aren’t a lot of these govt bonds held by US citizens? Pension funds, maybe even you? Aw, to hell with you communist savers, I’d rather have our drones kill more brown people.
“Finally the mortgage loan guarantees themselves threaten to become a black hole as fewer new mortgages, and lower housing prices encourage more defaults which turns existing guarantees into government obligations which cannot be funded by issuing debt.”
The move to summarily guarantee GSE debt put the U.S. tax base on the hook for the GSE-issued mortgage-backed securities. Those who owned the GSE-issued MBS (including U.S. pension funds) were declared too-big-to-fail winners, but somebody else was handed the liability cost for providing this insurance (and it’s not entirely clear who that somebody else is!).
“…which turns existing guarantees into government obligations which cannot be funded by issuing debt.”
Why can’t these obligations be funded by issuing debt? How else would they be funded — by raising taxes?
It is my understanding that the last thing you want to do is fail to pay or delay paying people with guns and organized enough to use them. The second last thing you want to do is fail to pay or delay paying creditors that report to credit agencies. Doing the former threatens a fast trip to a coup, and doing the latter threatens a fast trip to third world status.
You really really have to take a long historical view on this. Yes, our MSM is composed of limp noodles who only read press releases. Yes, our politicians spend so much time campaigning that they cannot tell the difference between the truth and spin. But, a larger view of history would show that nations that cannot pay their bills experience declines in the standard of living of their population, become taken over by dictatorships, may experience coups, and take a long time to recover if ever. The options in that scenario narrow considerably, but failing to pay the military or large creditors is no option at all.
We should, therefore, expect a President aware of history, such as Obama, to prioritize paying the military and the banks. (And I’m no jingoist pro-military person). For the sake of the country, your grandparents down the road may just have to wait.
You really think the military could stage a coup in the US?
I suppose we are talking about priorities:
‘Ground the U.S. drone war in Pakistan. Rethink the idea of spending billions of dollars to pursue al-Qaida. Forget chasing terrorists in Yemen and Somalia, unless the local governments are willing to join in the hunt.’
‘Those aren’t the words of some human rights activist, or some far-left Congressman. They’re from retired admiral and former Director of National Intelligence Dennis Blair — the man who was, until recently, nominally in charge of the entire American effort to find, track, and take out terrorists. Now, he’s calling for that campaign to be reconsidered, and possibly even junked.’
‘He noted that the U.S. intelligence and homeland security communities are spending about $80 billion a year, outside of Afghanistan and Pakistan. Yet al-Qaida and its affiliates only have about 4,000 members worldwide. That’s $20 million per terrorist per year, Blair pointed out.’
“You think — woah, $20 million. Is that proportionate?” he asked. “So I think we need to relook at the strategy to get the money in the right places.”
‘Blair mentioned that 17 Americans have been killed on U.S. soil by terrorists since 9/11 — 14 of them in the Ft. Hood massacre. Meanwhile, auto accidents, murders and rapes combine have killed an estimated 1.5 million people in the past decade. “What is it that justifies this amount of money on this narrow problem?” he asked.’
http://www.wired.com/dangerroom/2011/07/call-off-the-drone-war/
Come ‘on, I said I wasn’t jingoistic. I agree with all those initiatives to end US assaults on sovereign nations and innocent people around the world.
That’s not the immediate issue. The immediate issue is whether privates and sargeants in and around DC are going to have their paychecks next month. I submit that if anyone looked through history they would find that failure to pay the military is far more important in determining whether a coup occurs than is some large-scale policy difference between civilian and military authorities.
And, I learned a long time ago, on this very blog–no place is special. Writ large, that means that the social forces work without fail. No ocean can dissipate them, no mountain range can stop them, for they do not come from afar, they surround and constitute every social sphere in which humans live. As an example, Germany was widely regarded as the most civilized nation in the world. Yet, they experienced hyper-inflation, elected a dictator, initiated a second world war, and inflicted genocide. Germany is but one example–dozens could be provided. A wise person will not regard any nation as immune to falling quickly into barbarism, for that is perhaps the clearest lesson of history.
IAT
Spending more on the military than the rest of the world combined, with over 1,000 bases overseas and hundreds of thousands of innocent killed since 2000, I’d suggest we are already in a form of barbarism. But to say we have to pay the military or else they’ll kill us all is a new one to me.
Anyway, I’m not too terrified that a Sargent is gonna come charging out of his Falls Church condo with guns blazing anytime soon.
I’m not terrified, Ben. Just calling the facts and the history as I see it. Perhaps you do not recall that during Roosevelt’s term a general and some financiers were in the process of preparing a coup attempt when the conspiracy was outed. And General MacArthur was deposed because of concerns that he would do the same, given that he disobeyed a presidential order. So, we know coups are not unheard of in the USA.
And I am surprised that you, Ben, a clearer student of human behavior I do not know, would suggest that people who have tanks and high-powered weapons under their control, are charged with helping protect the nation’s leaders (and thus have uncommon access), and routinely plan coups in other nations around the world, are somehow going to fail to avail themselves of these resources and sit idly by while they have to look at the faces of their children (who don’t have enough food) and spouse (who is afraid of being evicted/foreclosed) in hardship, when they have a ready set of people to blame. You seem to think they are machines, not people like every other footsoldier the world has ever seen.
Perhaps you are right. But, if I were president, I certainly wouldn’t bet on it. Especially if I were a president and I knew that the common footsoldier probably voted for the other guy anyway.
IAT
The problem facing our economy is debt..
As it currently stands there is insufficient currency (real money) in circulation to repay our debts which means that since of course we are not going to inject money into the economy in the form of cash we need to start thinking about WHO will not get repaid or will not get the money they were promised.
This works great until the who is YOU, then all hell breaks loose, but rest assured if we keep borrowing we will eventually get to a point where we can no longer borrow. As individuals, businesses and municipalities many are already at that point.
I am reminded of a line in a movie “Everyone wants to go to heaven… No one wants to die”. This is true of our debt problems. Everyone wants to be debt free, no one wants to be left out of their share of the debt…
IMO, inflationary or not, we need to figure out how to get folks back to work at good wages (hint 50k McDonalds jobs will not solve our problems). A good starting place if to get more money into the hands of individuals rather than just allowing an ever greater population to silently go bankrupt which seems to be our current position.
Taxes? Sure raise them, but realize that the Federal Govt will get more of less and regardless will have to deal with falling revenues.
Inflation or deflation, Inflation = your money is worth less, deflation almost certainly means your money is less. The reason I tend to support Inflation over deflation is that each time a person or business bankrupts the dominoes start to tumble and the damage done is catastrophic and long lasting, where with Inflation the damage is controlled and effects like we saw from Lehman are not fatal. Does this mean Inflation is pain free? Of course not, but it is a better solution than total economic collapse which will certainly ensue if we keep borrowing to survive…
“Everyone wants to be debt free, no one wants to be left out of their share of the debt…”
As usual, I expect the greater fools as this plays out will turn out to be the savers, as the banksters devise yet another clever financial engineering scheme* to extract (non-tax) payments from savers to pay for profligate excesses among non-savers.
Honest taxation went out the window with Ronald Raygun, and the Republican base has scored points ever since by making any effort to honestly raise taxes political anathema.
* An example of this is to encourage many average Americans to buy homes they cannot really afford, let them make unaffordable mortgage payments for a number of years thinking they are “investing” in home equity rather than “throwing away money on rent,” then precipitating a financial calamity** in order to reclaim the residual value of the homes, using federal guarantees of principle on the mortgage used to indemnify the lenders against losses on loans that should never have been made. Who covers the losses when the principle on mortgage loans are federally guaranteed?
** Don’t forget how GWB and Ben Bernanke went on national television in Fall 2008 with messages that amounted to “sell your assets now,” precipitating a major financial market collapse.
Also note that precipitating major financial market collapses offers a great opportunity for strong hands to shake down weak hands. When the weak hands are in a position where they have to sell off their assets, the strong hands get to snap them up at fire sale prices. It helps a great deal if the central bank offers strong hand Megabanks unlimited loans at near-zero interest rates, when households and small businesses are denied access to credit.
“Also note that precipitating major financial market collapses offers a great opportunity for strong hands to shake down weak hands.”
Sorry to keep digressing, but one interpretation of the Tea Party’s current efforts to hammer the economy yet again is that it will offer the Republican base (aka the 1%ers) yet another opportunity to shake down the remaining 99% of the country, when unemployment goes up yet again and many of the remaining 99% find themselves facing household-level insolvency.
I don’t understand how Tea Party supporters think they will come out ahead in this losing game. Their representatives will come out OK, but J6p will be squeezed until he becomes J1p. Don’t tax the rich means that J6p will foot the bill by themselves.
I would tend to agree we are in the final stages of Reaganomics. The problems stem not from low taxation, but deregulation.
Deregulation however, and I am not talking about silly government interference type regulation of the kind that hinders small business all the time, but the kind that stops greedy bankers and major corporations from making off with trillions in ill gotten gains at the expense of everyone else in the world.
I a word deregulation is stupid!
While Washington Fiddled The Economy Burned
Jul. 29 2011 - 2:33 pm
Posted by Sy Harding
While media focus has been almost entirely on the short-term debt ceiling foolishness in Washington, not much attention has been paid to the more serious worsening of the six-month recessionary trend in the economy.
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Friday’s report was that the economy grew only 1.3% in the 2nd quarter, worse than the 1.9% originally reported for the 1st quarter.
But there’s more. These numbers are subject to revision as later information comes in. And in Friday’s report GDP growth for the 1st quarter was revised down to, if you can believe it, only 0.4%.
That is bad enough. But what are the odds that the 1.3% just reported for the 2nd quarter will also have to be revised dramatically lower as later information comes in?
I would say quite high given the evidence.
For instance, consumer spending accounts for 75% of the economy, and tepid consumer spending was cited in Friday’s GDP report as one reason for the dismal growth in the first half.
Unfortunately, it was also reported Friday that the closely watched University of Michigan’s Consumer Sentiment Index plunged from 71.5 in June to only 63.7 in July, the first month of the third quarter. It’s the lowest level of the consumer sentiment index in more than two years. That does not bode well for consumer spending going forward.
Meanwhile, small businesses account for most of the jobs in the U.S., and the National Federation of Independent Businesses (NFIB) reported last week that its Small-Business Optimism Index dropped in June for the fourth straight month, and “is solidly in recession territory.” That does not bode well for an improvement in the jobs picture going forward.
Those aren’t the only recent troubling reports. The Fed’s own National Activity Index, released by the Chicago Fed on Monday, is an index compiled from 85 monthly economic reports. It remained negative in June for the 3rd straight month, and its 3-month moving average declined to minus 0.6, perilously close to the minus 0.7 level that has marked the beginning of the last 7 recessions since 1970.
I don’t like to be the bearer of bad news, but this looks like another of those times when facing reality and making preparations could be of utmost importance.
Everyone is looking for relief from the stalemate in Washington, and it will be a relief to get that additional worry behind us.
But the fact is that an agreement on raising the debt limit will not change what is happening in the economy.
In fact, no matter which way it is resolved, it will likely add to the economic weakness.
An agreement to raise the debt ceiling would likely include long-term government spending cuts, basically a withdrawal of the stimulus that a high level of government spending has been providing to the economy. And failure to raise the debt limit would create serious problems for the U.S. in global financial markets, and raise interest rates in the U.S., both of which would be serious additional negatives for the economy.
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“An agreement to raise the debt ceiling would likely include long-term government spending cuts, basically a withdrawal of the stimulus that a high level of government spending has been providing to the economy. And failure to raise the debt limit would create serious problems for the U.S. in global financial markets, and raise interest rates in the U.S., both of which would be serious additional negatives for the economy.”
Or, you can count on Washington to give us both. FIRST, no agreement in time, which leads the credit-rating to be downgraded. THEN, even more draconian cuts, which further exacerbate the economic problems.
Agreed.
But looking on the bright side, affordable housing is likely to be available in time for your kids to enjoy it in ten years or so. Economic chaos seems quite likely to hammer down housing demand to the point where prices go into free fall.
Some here will be dead before it’s time to buy. Unbelievable how long and drawn out the bust is.
“Unbelievable how long and drawn out the bust is.”
No, it’s not. The bubble was gigantic, by historical…and then, after it popped, we kept dumping (borrowed) money into it, in a futile attempt to keep things propped up. Japan has done this for 20 years, and counting.
If we had simply kept hands-off (other than jailing bankers and Orange-man), we would easily be out of this mess. That’s what we did with the S&L situation and it worked out fine.
“That’s what we did with the S&L situation and it worked out fine.”
We’ve since unlearned the lessons of history.
As I have no kids, this is of absolutely no comfort to me.
But it should be, as the future viability of the U.S. economy depends crucially on the ability of the current cohort of new college graduates to lay down roots and start careers where their skills will be put to productive use. This matters to all Americans, not just those who have kids.
You framed your argument in terms of “my kids” so I rejected it on that basis. If you want to frame it in terms of “society” then I am more persuadable.
And in the meantime:
From John Mauldin’s latest newsletter
“Escalating Eurozone Interbank Liquidity Crisis: Dollar-Euro Impact?
“Italian and Spanish interbank lending is freezing up. French Finance Ministry officials and banks have been in emergency meetings this week regarding Eurozone interbank market stress. IMF and EU officials are Ministry staff have been warned to be available 24/7 (irrespective of sacred August holidays!) as contagion may soon affect French banks and sovereign debt.
Finance Ministry staff have been warned to be available 24/7 (irrespective of sacred August holidays!) as contagion may soon affect French banks and sovereign debt.
“In spite of last week’s Eurozone Summit agreement on Greece and EFSF ‘flexibility’, Italian and Spanish sovereign debt yields have resumed escalation this week. Moreover, the Italians had to cancel issuance of longer maturity debt as demand was insufficient. German Finance Minister Schauble damaged confidence Wednesday when he said the EFSF would not have a blank check to purchase Eurozone sovereign debt in the secondary market.
“Eurozone banks’ primary holding of capital is in the form of Eurozone sovereign debt. It is obvious that the EFSF is not large enough to handle crises on the scale of Italian and Spanish sovereign debt. Schauble’s statement is interpreted as indicating precarious support within the German parliament for the recent Summit package for Greece and the EFSF, and that an increase in EFSF is unlikely. (Schauble is personally powerful within the CDU, so his statements most likely carry more political weight than Merkel’s at present.)
“Meanwhile, US money market funds have been withdrawing from Eurozone bank commercial paper, leaving Eurozone banks with a big gap in availability of short-term funding and a severe shortage of dollars.
“In the background, the Fed has quietly advised the ECB and some other central banks that Congress has warned the Fed not to repeat the huge liquidity support to Europe and Asia that it provided in 2008. European officials believe the Fed would be less able to come to the rescue again with increased swaplines and direct loans to Eurozone banks, as it did post-Lehman.”
John Mauldin advised several Senators and chiefs of staff recently that the dominoes of illiquidity could still strike via Europe.
Economy Is in No Shape for Debt-Ceiling Games: The Ticker
Uploaded by 6697267 at GMT:2011-07-29T16:37:49
By Mark Whitehouse Jul 29, 2011 10:11 AM PT 5 Comments
If legislators needed a reminder that now is not the time to be playing games with the U.S. economy, they received it today in the Commerce Department’s latest report on growth.
Two years after it hit bottom in mid-2009, the economy has yet to regain the losses it suffered in the recession (see chart), revised data from the Commerce Department show. In inflation-adjusted terms, U.S. output in the second quarter of 2011 was still 0.4 percent below its most recent peak in the fourth quarter of 2007.
The new data show that the economy nearly stagnated in the first quarter of this year, growing at an annualized, inflation-adjusted rate of only 0.4 percent. Excluding the change in inventories — which showed businesses accumulating stuff at a faster rate — the economy actually did stagnate. In the second quarter, growth accelerated to only 1.3 percent, well below its potential and not fast enough to make a dent in unemployment.
Given the U.S. economy’s weakness, it wouldn’t take much of a shock to knock it back into recession. Just ask the Japanese. Back in the 1990s, the government made a big policy mistake, sharply raising taxes at about the same time the Asian financial crisis hit. Result: The Japanese economy dipped back into recession.
U.S. legislators are on the verge of making a similar policy mistake by failing to raise the debt ceiling — or by passing front-loaded spending cuts — at a time when Europe’s debt problems are still threatening to develop into a full-blown financial crisis. Let’s hope the latest data on the economy curb their appetite for self-destruction.
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Can any of you Tea Party apologists kindly remind me once again why dealing a death blow to the U.S. economy seems to you a good way out of the mess we’re in?
Defaulting Like It’s 1979: The Ticker
Ticker: Defaulting like it’s 1979
By James Greiff Jul 29, 2011 2:10 PM PT
What might be the true costs of a default on the U.S.’s debt or the loss of its AAA credit rating?
Consider this: In 1979, when Washington was engaged in a similar fight over raising the borrowing ceiling, the U.S. went into technical default because the Treasury had trouble making timely interest payments. Academics who have studied that episode say the result was a long-term increase in interest rates of 0.6 percent.
No one knows what might happen to interest rates this time, but for the sake of argument, let’s think about how a similar increase might affect Americans today.
Start with mortgages, now at some of the lowest rates in history — about 4.5 percent for a 30-year fixed-rate loan. Suppose we end up with a rise in rates comparable to 1979. For someone borrowing $180,000, that would add about $23,000 over the life of the loan.
Overall consumer debt would become more expensive. Americans have total debt, including mortgages, credit cards, auto and student loans and other obligations of about $13 trillion. Higher rates would add about $80 billion a year in additional interest costs, or $800 billion over the next decade.
Analysts predict that higher borrowing costs for the federal government would add to the nation’s deficit and lower economic growth — bad news for an economy whose growth the Commerce Department today said had almost come to a halt.
It’s not unreasonable to think, too, that any slowdown would lead to an increase in the ranks of the jobless. Economists now estimate that for each 1 percentage point decline in growth there is roughly a 0.5 percent increase in the unemployment rate. That works out to a loss of roughly 650,000 jobs.
And then there are the markets. A default or downgrade would surely depress financial markets. The Standard & Poor’s 500 has declined about 2 percent this month, partly because of concerns over the stalemate in Washington. Wall Street estimates of how much the stock market might fall range from 6.3 percent to 9 percent. This is in line with the 9 percent drop the S&P 500 experienced the day the Republican-led House first rejected the planned bailout of the banking industry in the 2008 financial crisis. Bond markets might also take a hit in the event of a default or downgrade.
A market decline comparable to that of 2008 would be a blow to retirement savings. For example, American now hold about $4.5 trillion in 401(k)s and similar accounts. Say markets declined 7 percent, not an unrealistic amount in light of how destabilizing a default or downgrade might be. Such a drop implies a $310 billion loss for retirement savings accounts.
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Up and Down Wall Street | SATURDAY, JULY 30, 2011
Dire Omen
By ALAN ABELSON | MORE ARTICLES BY AUTHOR
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We must confess that for all our skepticism about the breed, we underestimated the politicians’ avidity for folly. That is, we thought even they would realize that the last thing a wobbly economy, staggering with a GDP that’s barely growing and the huge burden of 15 million or so people without jobs, needed was for the government to default on its debt. Of course, there are still a few more days before we bump up against the ceiling, so what’s our beef?
And it isn’t as if raising the ceiling happens every year, which is what an innocent might think with the all the howling the mere idea of doing it has provoked. In point of fact, it happens a lot more often than that and goes pretty much unremarked. In the past 50 years, it has been raised 78 times, 49 times under Republican presidents and 29 times under Democratic presidents. That, much as we hate to admit it, constitutes something of an irrefutable precedent — except to the considerable number of solons who were born yesterday.
Uncle Sam’s in hock, as we’ve had reason to note often of late, to the tune of $14.3 trillion, which, any way you slice it, is a lot of dough. According to a compilation by the AP, our blessed government owes itself $4.6 trillion, the bulk of which are Social Security revenues it “borrowed.” Another $9.7 trillion represent obligations to holders of Treasuries — banks, pension funds, individual investors, state and local governments and foreign lenders like China ($1.15 trillion) and Japan ($907 billion). Ah, the kindness of strangers.
Since Washington borrows roughly 40 cents of every dollar it spends, an inability to keep shelling out those bucks once we hit the ceiling is destined to cause our leaders no end of discomfort. More to the point, it’s likely to spread justifiable anxiety among the citizenry.
Nor are such concerns allayed by assurances from the Treasury Department that, to use the latest addition to bureaucratic lingo, it plans to “prioritize” who gets paid when. All that means is that if Uncle Sam owes you, gird yourself: The same bumblers who helped get us into this mess will be divvying out the monetary rations.
Nothing daunted, the sunshine boys on Wall Street are still smileyface insisting that neither downgrade of our credit rating or even default are all that big a deal. And to buttress (?) their cheerful take, they point to Greece and Argentina, both of which have suffered downgrades and the threat of default and whose economies still have a pulse (barely in the case of Greece and accompanied in Argentina by, last we looked, 25% inflation).
Well, we’ve got news for them: The U.S. is neither Greece nor Argentina (thank heaven for small favors). It’s still by far the world’s biggest economy, blessed with large and deep markets and a currency, battered as it is, that has no real rival as a medium of exchange.
Pure and simple: Downgrade would be awful; default could be catastrophic, and not just for us.
SENTIMENT WAS ALREADY MORE than a little damped by the fracas over the debt ceiling when Friday morning the Commerce Department released a real shocker of a report on second-quarter GDP: It came moping in, after adjusting for inflation, at a measly 1.3% pace, palpably shy of expectations of a 2% gain.
Strongly suggesting that the blah performance was no fluke was the slashing revision of real GDP in the first quarter to a barely visible 0.4%, from the originally reported 1.9%.
In like vein, it now emerges that the recession was much more severe than assumed — GDP between 2007 and 2010, officially gauged as more or less flat, actually shrank something like 0.3% a year.
So let’s hear it then for Main Street, which all along has been grumbling that the economy was basically punk, even while Wall Street was bidding up stock prices in celebration of a recovery that was apparent mostly on market strategists’ charts, but somehow didn’t square with what Jane and John Q. were experiencing in the real world. A recovery, moreover, that the market savants were certain would quicken as the months flew by.
Instead, it has been moving at what Ed Hyman, an old pal and boss man at the highly regarded ISI Group, dubs “stall speed.”
…
Stall speed depends on your attitude -
I sure hope the average American voter keeps straight in their mind at the time of the November 2012 election that it was the Republican Congressmen who demanded fiscal austerity measures when the fragile U.S. economy could least afford it, while Democrats in Congress and the White House held out for a less extreme approach.
Pottery barn rules suggest that if Republicans break the economy, they buy the blame.
Of course, if the Tea Party people really got their way, we wouldn’t have these ugly numbers to worry us coming out of the Bureau of Economic Analysis, as its operation would be shut down in the interest of fiscal austerity.
Bad economic news compounds debt ceiling worries
By MARK DAVIS
The Kansas City Star
Fresh reports Friday revealed that the economy is more vulnerable to damage than expected if Washington fails to raise the debt ceiling.
Three economic measures from the U.S. Commerce Department combined to show that the slow recovery, now 2 years old, is sputtering more than realized.
The department reported that the nation’s Gross Domestic Product grew at a meager 1.3 percent pace in April, May and June.
It also revealed, in a particular surprise to analysts, that the economy had stumbled uncomfortably close to a standstill early in the year. GDP growth weighed in at just 0.4 percent in the first quarter instead of the 1.9 percent originally estimated.
And the department re-measured the depth of the 2007-09 recession, discovering that the economy is struggling to climb out of a much deeper hole than previously recognized.
The protracted downturn cut the GDP by 5.1 percent instead of the previously reported 4.1 percent, the department said.
“The economy is extremely fragile to even the smallest of shocks,” said David Rosenberg, chief economist at Gluskin Sheff + Associates Inc. in Toronto. “This economy can barely stand gasoline prices going up.”
Rosenberg said that once the economy’s growth rate slows to 1.6 percent, it historically has reached something of a point of no return and recession typically has followed.
The 1.6 percent rate pegged by Rosenberg is faster than the economy has been able to grow all year.
Given the GDP numbers released Friday, Rosenberg said that the shock from a debt ceiling delay — when the U.S. Treasury would be prevented from borrowing the money it needs to meet all its obligations — could tip the teetering economy back into a recession.
The U.S. House finally addressed the debt ceiling threat Friday afternoon by approving a contentious Republican plan to raise the ceiling and cut spending. It quickly died in the Democratic-led Senate, which is working on its own deal.
President Barack Obama addressed the nation Friday morning to bring home the potential collision between the economy’s vulnerability and the politically padlocked U.S. Treasury.
“On a day when we’ve been reminded how fragile the economy is, this is a burden we can lift ourselves,” Obama said of the debt ceiling.
…
Unfortunately, the guilty will be not be punished for this debacle. The right wing spin machines are already working overtime to make sure that those whose primary source of news is Fox or talk radio will blame the Democrats.
I have a friend who thinks a balanced budget is what we need who also has a relative on Medicaid.
With friends like that, who needs enemies.
IAT
She has a good heart. She has just been listening exclusively to talk radio.
“The Solution to Our Economic Problems”
How about applying some kind of metaphorical laxative to our foreclosure constipation problem? Wouldn’t that serve to increase housing market liquidity, thereby providing economic stimulus without the need to raise taxes?
Red, White and Blue Chips Archives
July 28, 2011, 9:10 a.m. EDT
Major cities are foreclosure bottlenecks
A large majority — 84 percent — of the nation’s largest cities and towns have seen a drop in foreclosure activity in the first half of the year. But RealtyTrac says that’s because the foreclosure pipeline is clogged.
Maybe the problem is it may act more like a swap: The buyer w/the cheaper priced home has more money to spend if it was less than his rent. But the squatter who’s been in there for several years w/o making a housing payment (mortgage or rent) is all of a sudden going to be dialing back spending immensely…that is unless they’re all planning to move into Mom and Dad’s basement.
“But the squatter who’s been in there for several years w/o making a housing payment (mortgage or rent) is all of a sudden going to be dialing back spending immensely…”
What’s to stop the squatter from relocating to a cheap apartment, or even moving in with Mom and Dad, in order to husband their budget?
We have close friends (former fellow CA renters, not squatters) who plan to move their large family in with one set of parents for three months in order to save up for a down payment on a home purchase. People do what they need to do to preserve purchasing power.
One issue I haven’t seen discussed in regards the MID is whether states may drop it even if the feds don’t.
States are under no obligation to “conform” their tax laws with the IRS. For example, California income tax treats capital gains and qualified dividends as “ordinary income”.
California is in a terrible financial problem, and it requires a 2/3 vote to raise taxes. But cutting out a deduction…is that really “raising taxes”? Could they restrict or eliminate the MID without needing a 2/3 vote?
‘…is that really “raising taxes”?’
Only according to REIC propagandists. Any reasonable person understands the MID is a taxpayer-funded transfer payment to homeowners which progressively favors the wealthy.
The outcome of the debt ceiling showdown is coming into plain view, and it appears both sides of the political aisle have hit their targets.
Republicans vow to kill Democrat debt bill
July 31, 2011 - 4:44AM
AFP
US Senate Republicans have vowed to kill an 11th-hour proposal by Democratic Majority Leader Harry Reid to avert a disastrous debt default potentially just three days away.
Forty-three of the chamber’s 47 Republicans — enough to doom Reid’s proposal — wrote to Reid on Saturday to serve notice they would oppose ending debate on his plan in a procedural vote programmed for 1am (1500 AEST) on Sunday.
“We urge you to abandon this reckless proposal and instead pursue a more responsible course of action that would rein in spending, reassure the financial markets, and help promote private sector job growth,” they wrote.
…
Governance by political slogans does not seem like a constructive way forward. Details of realistic solutions to right fiscal imbalances are hard and politically unpopular; simple-minded slogans are easy and garner votes for political outsiders.
I’m encouraged that at least some MSM writers have correctly called out the Tea Party plan for what it is: A strategic default on spending the Congress has already budgeted.
Globe Editorial
The Boston Globe
Debt battle reveals danger of government by slogans
July 30, 2011
THIS WEEKEND’S actions in Congress, as members of the House and Senate wrangle with the debt ceiling and with each other, will be difficult to watch. Both the debt crisis and the political breakdown surrounding it are unsettling for all Americans. Not only must the debt ceiling be raised, but the political crisis must abate enough to reassure global financial markets that the United States will always honor its debts and obligations.
This is the overwhelming consensus of economists, and the stated aim of President Obama and the leaders of both parties in Congress. The roadblock throughout the process has been the refusal of some House Republicans to consider any increase in the debt ceiling, and the take-it-or-leave-it insistence of others on tying their support to wholly unrealistic demands. This is not only unconscionable, but deeply confusing to everyone watching the debate because it paints the issue in false and misleading terms.
It is not correct to say, as so many Tea Party denizens do, that raising the debt ceiling gives anyone, least of all the president, “a blank check.’’ Raising the debt ceiling allows the government to sell bonds to pay for expenses already budgeted by Congress. It does not increase spending. It does not promote more borrowing. If the government spends less it will borrow less, no matter how high the debt ceiling. Refusing to raise the debt ceiling is not, as some Tea Party leaders present it, like declining to take out a new credit card; it’s more like taking a pair of scissors to the credit card you already have and ignoring the unpaid balance. This doesn’t just fail to solve the problem; it makes it vastly worse by destroying your credit rating and ensuring higher interest rates for existing bills.
The response of those resisting the ceiling hike is not an argument, but rather a series of slogans culled from political ads. “Enough is enough.’’ “No more business as usual.’’ “It’s time that Washington gets the message.’’ These lines appeal to conservative talk-radio listeners, who have enough power in presidential and congressional primaries that many Republicans and even some Democrats are reluctant to correct the record. They are more interested in showing that they “get it’’ - that they hear the anger - than they are in explaining the actual effects of failing to raise the debt ceiling.
…
Baby boomers talking to themselves: “We have met the enemy, and they are us.”
BABY BOOMERS
Are baby boomers to blame for debt crisis?
July 29, 2011|By Ed Hornick, CNN
A woman takes part in a rally to protect federal health programs July 15 in Oakland, California.
Baby boomers — those born between 1946 and 1964 — have been described as “the pig in the python” and the “sandwich generation.”
They lived well, grew up in relative abundance and, some say, expected their Social Security, health care and government support to be there as they grew old.
Now, as the future of the country’s economy is up in the air, is this group of 80 million aging Americans — many of whom are sprinting toward retirement age — the ones to blame for the nation’s shaky economic system?
The answer is not so simple.
Baby boomers grew up during relative prosperity, from the economic boom of the post-World War II ’50s to the “Me” generation of the ’60s through the lucrative uptick in the Reagan ’80s. And then there were the budget surpluses they enjoyed during the Clinton ’90s.
As a result, many were able to buy second homes, take out loans at low interest rates, buy cheap gas and pump money back into the economy.
Life was good, many say, until September 2008.
In the last days of the Bush administration, the economy went belly-up, forcing Washington to bail out Wall Street in order to prevent another Great Depression.
“Keep in mind that our parents who lived through the depression understand what adversity looks like. I’m not sure baby boomers know what that looks like,” said David Cork, a demographer and baby boomer himself. “So maybe we got a bit of a taste for it two years ago.”
Cork, a Canadian businessman and author of the book “The Pig and the Python,” said the American economy has been thriving especially in boomers’ formative years, “so they’re not used to adversity.”
“It’s not because the boomers are a nasty generation. It’s just that there’s a lot of us, and we have a tendency of wanting to get it our own way,” he added. “I think we’ve been very successful at that. We’ve created great wealth, but we are looking at it at a time when you have to pay the piper.”
…
As I have elsewhere noted, the term baby boomer is usually stupidly applied. Births increased from 1945 to 1957. From 1957 to 1964 the number of births declined, reaching in 1964 the level of 1944. Only an idiot (or someone with an ideological position of which they may be unaware) would regard those born 1958-1964 as part of the baby boom. Those children experienced the post-boom bust.
They followed the boomers through institutions that had already been ravaged by the boomers. The 1945-57 group got the new facilities, the expanded schools, the expanded colleges, jobs begging for applicants, and clear sailing to promotions. The 1958-64 group got the used facilities, schools with declining budgets, colleges retrenching, high unemployment, and gridlock above them making promotions harder.
Boomers like to talk about their group to justify attention to themselves by making the group look gigantic, and they act as if everyone in the group had the same experience as the 1945-57 group. But on this list we should know — booms are not busts, and buying in for the downturn is not the same as buying in on the upswing.
IAT
“The 1958-64 group got the used facilities, schools with declining budgets, colleges retrenching, high unemployment, and gridlock above them making promotions harder.”
The tail-end of the Boomer generation clearly got the demographic shaft in so many ways. Another one was the Greenspan Social Security bandage of the early-1980s, which was to hike the payroll tax to 15.3% on tail-end boomers during their peak earnings years, up from 2% or so circa 1950, to help fund current Social Security retirees’ Winnegago purchases.
Now they face another variant of the Social Security retirement system shaft, as it turns out there is not enough money in the federal budget to fund two-or-so wars, the Bush tax cuts for top earners, plus a demographic tsunami of Baby Boomer Social Security retirements which everyone could see coming. I predict the tail-end Baby Boomers will get the least Social Security retirement benefit payments per dollar of FICA “contribution” seen by any eligible cohort. Grandpa knew what he was talking about back in 1935 when he noted the Social Security program was a bad idea.
“Boomers like to talk about their group to justify attention to themselves by making the group look gigantic”
This boomer has always said the timeframe is too long. My experience (born in 1952) is substantially different from my husband’s (born in 1948). I graduated in 1970, effectively missing the 60s. He graduated in 1966 into the summer of love.
“jobs begging for applicants”
Wrong - there were just too many of us for the available jobs. Even in high school jobs were scarce. After the Arab oil embargo of 1973, they were scarce for those of us graduating from college into the stagflation of the 70s.
“gridlock above them making promotions harder”
Those born after 1947 experienced this also.
“new facilities, the expanded schools, the expanded colleges”
We had first grade classes of 35 students packed into rooms designed for 25. The new high school opened halfway through my junior year. My brother, two years ahead of me and born in 1950, never used it. We practiced hiding under our desks during the Cuban missle crisis.
We didn’t have it nearly as good as you think we did.
Perhaps you happen to have lived in a horribly mismanaged locale, at least as a kid. My sense is your childhood is a rarity given your year of birth.
As for the 1970s, people born in 1957 turned 18 late enough to miss Vietnam and early enough to get into college with good terms. If they decided to go into the job market, well, that was unwise. When the graduated in 1979, they were able to miss Reagan raising interest rates on GSLs, removing deductions for all interest payments (including GSLs) except mortgages, and the massive 1979-1981 inflation. They graduated on the cusp of the computer take-off. Economists have documented a dramatic escalation in the relative returns to BAs versus high school diplomas right at that time.
All these facts and more tell me your experience was not common. But, in any group of people, there will be variation.
IAT
I don’t know about mismanaged. It was farming country turning into suburb. So the baby boom was compounded by an influx of population.
It would have helped this country immensely if the boomers had been willing to PAY for all of the services they demanded from government - now my kids have to pay for their largesse due to our debt.
Who says we are not willing to pay for services? The wars and tax cuts were a huge mistake and not supported by most of the boomers I know. Those who came of age during the 60s and 70s tend to favor social programs and environmental protection. Those who came of age during the 80s, the Reagan era, are the ones who favor small government and are unwilling to pay for services. The earliest of them were born in 1960.
“Keep in mind that our parents who lived through the depression understand what adversity looks like. I’m not sure baby boomers know what that looks like”
I call B.S. After stagflation in the 70s, various recessions, incomes declining, jobs shipped overseas, and other more personal kinds of bad luck, I think most of us know what adversity looks like.
I remain steadfastly skeptical that a failure to raise the debt ceiling would result in higher interest rates; on what evidence do MSM-quoted ‘experts’ say this? And if this is true, why did long-term rates go down over the past week as the prospects for an agreement to raise the debt ceiling dimmed?
I can see prospects for higher unemployment, a double-dip in the recession, and more economic hardship on American households if the debt ceiling is not raised. But none of this seems consistent with higher long-term interest rates.
Taking a Closer Look at the Result of a Credit Downgrade
By BINYAMIN APPELBAUM
Published: July 30, 2011
WASHINGTON — As political leaders race to avoid a default on the nation’s debts by striking a deal to borrow more money, there is a growing chance that a secondary goal, preserving the nation’s pristine credit rating, might slip beyond reach.
A downgrade to the nation’s credit would probably increase the cost of borrowing for the federal government and for everyone else. But the Obama administration, House Republicans, some economists and Wall Street strategists have concluded that the economic impact would be surprisingly modest, one reason that negotiations over a “grand bargain” for debt reduction broke down.
The plans being debated instead by House Republicans and Senate Democrats would not reduce the federal debt to a level that most economists regard as manageable, and it seems likely that further efforts will await the results of the 2012 elections.
A compromise between the parties would avert the catastrophic consequences of default, but even if Congress agrees to pay its bills, one of the three credit rating agencies, Standard & Poor’s, has said it may remove the United States from its list of risk-free borrowers.
…
Earlier this month, there was widespread alarm in Washington when S & P, followed by Moody’s and Fitch, another credit rating concern, warned that the soaring federal debt, and the political standoff over raising the debt ceiling, had placed the nation’s credit rating at risk.
The federal government makes about $250 billion in interest payments a year. Even a small increase in the rates demanded by investors in United States debt could add tens of billions of dollars to those payments. And the credit rating agencies have said other downgrades would follow like dominoes.
For example, Fannie Mae and Freddie Mac, the huge mortgage companies that are backed by the federal government, would be downgraded, raising rates on home mortgage loans for borrowers. Maryland and Virginia, and many local governments near Washington, their economies tied to the government, would also be downgraded. So would New Mexico, because an unusually high proportion of residents depend on federal benefits.
“A default on our nation’s obligations, or a downgrade of America’s credit rating,” 13 financial company chief executives said on Thursday in a letter to the president and Congress, “would be a tremendous blow to business and investor confidence — raising interest rates for everyone who borrows, undermining the value of the dollar, and roiling stock and bond markets — and, therefore, dramatically worsening our nation’s already difficult economic circumstances.”
…
‘dramatically worsening our nation’s already difficult economic circumstances’
IMO, this debt ceiling thing is political theater. But I have been asking myself this; if it’s such a big deal, why weren’t all these people saying anything while the debt was being accumulated? It’s not like it happened overnight.
Perhaps some insight provided w/John Mauldin after his meeting w/6 Senators and several chiefs of staff: (From his most recent newsletter)
“I have to tell you, gentle reader, that leaving that meeting I was very sober as well. They made it clear that getting it done is going to be very hard, and it will take real commitment from men and women like them to get us through this. They all noted that their mail was running 100 to 1 against cutting Medicare. Every one of them. They know that they cannot close the deficit gap just with the elimination of the Bush tax cuts. And I think I convinced any who weren’t already, that not getting the deficit under control means Depression 2.0 and a disaster.
The debate in 2012-13 will be how much Medicare do we want and how do we want to pay for it? Sadly, I think the only way is with a VAT (value-added tax), since less than 50% of citizens pay any income taxes now. Want to run on a program of taxing the “middleclass?” Didn’t think so. Want to run on a platform of cutting Medicare? That is not a winner either. We are at an impasse.
We need a massive restructuring of our entire tax code to be more encouraging of creating jobs. But that is another story for another week. It is time to hit the send button.”
So John was in there arguing to take it from Grandma and Grandpa who have paid into the system throughout their entire working lives. Is it their fault costs have inflated wildly since their contributions were collected? I wonder if they invited anyone in that will suggest it might be better to look at a few other sources before inciting desperation among the elderly.
I wonder if they’d invite anyone before them who shares sentiments w/Ambrose Evans-Pritchard that it’s the medical establishment and big pharma more than medicare that needs the restructuring. I’m not saying medicare shouldn’t be eventually overhauled. But tackling costs first would make the shifts so much less painful.
“I think the only way is with a VAT (value-added tax),…”
If you tax added value, you reduce value added. Is that what John suggests we do?
“They all noted that their mail was running 100 to 1 against cutting Medicare.”
This is life or death for many people. And the people who are most likely to write their representatives are the ones for whom it is life or death.
Some of us were saying something while the debt accumulated. We just don’t write for the MSM. Just because they finally caught up with us doesn’t make what we’ve been saying all along wrong.
I mean people saying stuff like ‘dramatically worsening our nation’s already difficult economic circumstances.’ What about all the deficit spending? That wasn’t doing just that?
It depends on how the deficit is spent, and I am assuming no country would be so stupid as to try to run increasing deficits in perpetuity.
Decades ago I borrowed for a college education. At that time I ran a deficit, which I have now made up. Others of my age group ran a deficit at the same time to buy a car, and worked rather than went to college. That car is now in the junk yard, and they are no better off.
Borrowing to invest (e.g., college, capital improvements, security (defense, not offense)) is a good idea. Borrowing to consume is damaging and should only be done in emergencies, and then one should be working very hard to get out of the emergency.
The same logic applies to countries. For decades the U.S. has financed consumption with debt, preferring historically low taxes. The debt was spent mostly on consumables or wasteful wars of conquest, which is why bridges are falling, roads are a mess, and so on. A dollar spent on defense has a much smaller multiplier than social programs (which can be regarded as investment when they make it so kids have enough food to eat that they can actually concentrate in school).
So, the U.S. deficit spending did worsen the nation’s circumstances, but it was owing to how it was spent, not that there were deficits.
“It depends on how the deficit is spent, and I am assuming no country would be so stupid as to try to run increasing deficits in perpetuity.”
You would also assume no country would be stupid enough to execute a margin call on its deficit at the very beginnings of a recovery from a 70-year-bad recession, but you would be wrong. This is what our Congress is currently doing.
“Borrowing to consume is damaging and should only be done in emergencies, and then one should be working very hard to get out of the emergency.”
Very spot on! Unfortunately, against the backdrop of the Tea Party movement to rein in deficit spending, we have another political faction who thinks the remedy for the situation at hand is borrowing to consume.
Clusterfark is the obvious logical consequence of this orthogonal intersection of political-economic philosophies.
“borrowing to consume”
AKA hair of the dog hangover cure. We have at hand the battle between the hair of the dog Keynesians and the fiscal austerity Tea Partiers, who don’t mind inducing delirium tremens in order to cure the debtoholics of their addiction.
It has already been noted here that Amy Winehouse likely died due to sudden withdrawal from alcohol. There is no reason to believe the U.S. economy will not suffer a similar fate from soon-to-be-adopted fiscal austerity measures.
It isn’t about the unsustainability of our current fiscal trajectory, folks, it’s about the abruptness of the prescribed remedy. Notice how bad stuff happens when a car crashes into a brick wall; this is what Congressional gridlock is doing to our economy as I type.
‘we have another political faction who thinks the remedy for the situation at hand is borrowing to consume’
I think this is important given the hysterics of the past few days. Look at the media going nuts because someone is actually saying enough is enough. Now, I’m well aware that the Republicans did nothing when Bush asked for debt ceiling increases. (One reason it looks like party politics to me). But there is a real disagreement about the spending from the tea party people. Are they so terrible because they think we need to stop borrowing? Are they not entitled to an opinion and to ask the people they elected to actually do what they promised? Isn’t this democracy in action, even if you don’t agree with their position?
Look, the next step is to say, we’ll never pay this off. What will that do to our credit, interest rates, the MID, etc? IMO, this country has got to stop printing and spending money like it will never end. Is now the time? Is it too late? It’s not for me to say, but the rightful place for this debate is right where it’s happening. If we keep on, it’ll be the global markets that pull the plug on the US govt, not congress.
“Are they so terrible because they think we need to stop borrowing?”
No. But the extreme abruptness of their demands and their adoption of the Luther bargaining stance lead me to suspect party politics are also at play, as they are trying to precipitate a crash before the 2012 election in the hopes the voters will blame Obama.
I agree the U.S. has to stop borrowing. But HOW you stop borrowing matters.
If you rack up 1,000,000 in credit card debt, then cut the credit card in half and refuse to pay, that’s not stopping borrowing, that’s stopping paying. The teapartiers fail to realize — the government has ALREADY borrowed the money. The debate over the debt ceiling is whether to walk away from those obligations. They aren’t being fiscally prudent, they are being deadbeats.
What *should* happen is taxes should go up to reduce the debt, and cuts in spending should be enacted (both domestic and military spending). All this can be done if all sides agree that is the formula. If either side threatens to crash the economy if their sacred cow (no tax increases for Republicans, no spending cuts for Democrats) is sacrificed, then, well, disaster may follow.
What you are witnessing is one side threatening to force the entire economy into the ditch if they don’t get their way. Clearly, that scares markets. I would’ve thought Republicans would be at least able to recognize that.
IAT
‘trying to precipitate a crash before the 2012 election in the hopes the voters will blame Obama’
Something about the timing is as you suggest, and it’s not a secret. The Rep. want another debt ceiling vote before the election, the Dems want it after the election. IMO, neither will let the govt run out of debt. This is just brinksmanship, and I for one don’t understand all the fuss.
The fuss is that there can be consequences if the nation’s credit is downgraded, and the dynamics may lead to a miscalculation that means we end up with a credit downgrade *and* delayed payments, which will be damaging to individuals.
Recall the credit crunch of 2008. Many Mom and Pop shops came dangerously close to closing shop because of a short-term liquidity crisis. Some probably did go out of business. This could lead to the same, or worse.
I think some people say the word “theatre” and they think that means it is irrelevant. But, alas, this is theatre like the Cuban Missile Crisis or Apollo 13 was theatre — lots of drama, which makes for a nice hollywood movie, but someone could really get killed. (They don’t make many hollywood movies with unhappy endings so it’s tough to come up with examples of failure.)
IAT
“If we keep on, it’ll be the global markets that pull the plug on the US govt, not congress.”
There certainly is an advantage to taking a proactive stance to solve problems, but haste makes waste.
“Many Mom and Pop shops came dangerously close to closing shop because of a short-term liquidity crisis.”
One Mom and Pop shop I know has told me that traffic and sales have been exceptionally slow the last 3 weeks.
“…this debt ceiling thing is political theater.”
There is no denying that. But the effects on the future economic situation of a rancorous debate and Republican margin call on deficit spending at a point when the economy is very weak may prove real and painful.
The Republicans are also demonstrating that an uncompromising stance can shift the dialog in your direction. This does not bode well for the future of our government. I am afraid the Democrats will remember whenever they lose a majority in the Senate.
We may find that the only things that get done will be the easy things. And we need our leaders to do the hard things.
“IMO, this debt ceiling thing is political theater.”
Then you and I are the only ones. The acting by the elected morons is for international consumption. It’s no grand conspiracy but it is the logical alternative to a hot war with China.
Meanwhile on the housing front, Realtors are still liars, housing prices are still grossly inflated, our nation is still a bought a paid for whore and we’re here still talking about it.
WTF.
There seems to be no shortage of MSM alarmists who are willing to assume a failure to raise the debt ceiling would automatically translate into higher mortgage rates.
It’s quite interesting to note that not one MSM commentator has yet acknowledged higher mortgage rates could serve to drive home purchase prices down to affordable levels, which in turn could set the stage for economic recovery. I guess this stands to reason, as most MSM writers presumably are home owners rather than recent college graduates trying to figure out where to start their careers.
Debt-Ceiling Crisis Could Wallop the Housing Sector
By Jim Tankersley
Jul 28 2011, 6:25 PM ET 5
The real-estate market is slowly getting better, but if Congress doesn’t act in time, mortgage rates could soar
It’s tough to see, given the onslaught of brutal economic and political news that has dominated recent headlines, but Thursday actually brought a sliver of good news about the beleaguered housing market: The National Association of Realtors reported that its measure of pending home sales climbed by 2.4 percent in June, followed a strong but oft-forgotten 8.2 percent rise in May.
Thursday’s report surpassed the Bloomberg consensus forecast for a 2 percent drop. But despite the signs of new life in the housing market, potentially terrible news looms on the horizon. If Congress and President Obama can’t find agreement on raising the nation’s borrowing limit, the housing sector could suffer another big hit.
Housing remains the economy’s most troublesome problem child. Unlike consumer spending and hiring, which each surged briefly during this slow-and-go recovery, housing has stayed in near free-fall (except for the period when federal tax credits were propping it up artificially) throughout the country since the financial crisis.
Home prices continued to fall, year over year, in the Case-Shiller numbers released this week. Home sales and home-building levels remain extremely depressed, and with them, employment in real estate and construction. A glut of foreclosures continues to clog the market.
Those problems figure to compound under almost any scenario in which lawmakers fail to raise the debt ceiling in time. If the government defaults on its debt, or if rating agencies downgrade its credit score, interest rates figure to soar–and likely, mortgage rates with them.
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I sort of get the advice to lock in a low mortgage rate now if you are refinancing, but if the assumption that higher mortgage rates will follow the outcome of the debt ceiling showdown proves correct, wouldn’t it make more sense for a prospective buyer who doesn’t currently own a home to wait at least a year to buy?
There plenty of reasons for prospective home buyers to delay their purchases at the moment:
1) If unemployment goes up as a consequence of the debt ceiling showdown, home prices are likely to be lower a year from now due to prospective buyer hesitance in the face of rational job loss fear.
2) If MSM-quoted pundits prove correct on rates, home prices will also fall due to the effect of higher mortgage rates crushing home purchase budget limits.
3) Recent housing market data (e.g. the May 2011 Case-Shiller/S&P Index release) suggest home prices continue to fall, and this is before the chilling effect of the unanticipated debt ceiling impasse on U.S. housing demand could possibly have taken effect.
4) We keep reading again and again about how the foreclosure slowdown is due to procedural problems, rather than any actual decline in the rate of households defaulting on their mortgages. Eventually the clogged foreclosure pipeline will become unclogged, resulting in a flood of foreclosure inventory onto the supply side of the housing market.
5) Since interest payments on Treasury debt would likely be given priority in the event the debt ceiling is not lifted, and future Treasury issuance would presumably decrease without a higher ceiling, elementary economic logic suggests that Treasury prices will increase and yields will decrease in the event of no debt ceiling compromise, as increased scarcity of a risk-free asset results in a higher purchase price
But lower Treasury bond yields will not bolster housing demand, but rather will be a related consequence to falling housing demand of a darkening economic outlook; I refer you to Japan’s housing market over the 1990-2011 period for a highly relevant example.
All signs point to declining U.S. housing prices over the next twelve months. MSM screeds hyping the urgent need to lock in low rates never mention the net worth hit that many will experience due to buying homes at a point when mortgage rates were at a generational low and the economy was headed down the tube. Prospective buyers are advised to avoid catching themselves falling knives.
Better lock in a mortgage rate now
by Sandra Block on Jul. 29, 2011, under USA Today News
If you’re considering buying a home or planning to refinance, here’s some advice: lock in a mortgage rate. Now.
Mortgage rates, which have been at historic lows for months, could shoot higher if lawmakers fail to reach an agreement to raise the debt ceiling by Tuesday, says Greg McBride, senior financial analyst for Bankrate.com.
A government default would cause Treasury bond prices to plummet, and yields would rise. “Uncle Sam’s borrowing rate is the baseline from which all consumer and business borrowing rates are determined,” McBride says. “If Uncle Sam’s costs go up, borrowing costs go up for everybody.”
Even if the default is short-lived, the ratings agencies have signaled they’ll downgrade U.S. debt. That would also drive up consumer rates, because the government would be forced to pay higher rates to bond investors.
“Consumers might look back on this period six months from now and regret it if they don’t take action,” says Mona Marimow, senior vice president for LendingTree, a loan comparison website.
So far, the debt-ceiling fracas hasn’t affected mortgage rates. The average rate for a 30-year fixed-rate mortgage for the week ended July 28 was 4.55%, only slightly higher than a week earlier, according to Freddie Mac. Rates slipped on Friday after the Commerce Department reported that the economy grew at a lower-than-expected 1.3% in the second quarter.
Borrowers who want to lock in low rates will need to act fast, says Keith Gumbinger, vice president of HSH, a publisher of mortgage data. “If the government does default, it’s going to be hard to lock in an interest rate,” he says.
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GOP Leaders Confident They Can Strike Deal With White House to End Debt Crisis
Published July 30, 2011| FoxNews.com
House Speaker John Boehner, R-Ohio, and Senate Minority Leader Mitch McConnell, R-Ky., speak at a news conference on Capitol Hill in Washington, Saturday, July 30, 2011.
House Speaker John Boehner and Senate Republican leader Mitch McConnell said Saturday that they are confident they can reach a deal with the White House to end the debt crisis just days before the nation is unable to pay all of its bills.
At a news conference held just minutes after the GOP-led House defeated a Democratic debt-limit bill, McConnell said he had spoken with President Obama and Vice President Biden in the past hour.
“I’m confident and optimistic that we’re going to get an agreement in the very near future and resolve this crisis in the best interest of the American people,” he said.
“Our country is not going to default for the first time in history,” McConnell said.”We now have a level of seriousness with the right people at the table. ….We’re going to get a result.”
Boehner added he’s also confident of an agreement with the White House “to end this impasse.”
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Posted at 02:52 PM ET, 07/30/2011
Why any debt-ceiling deal will squeeze the states
By Suzy Khimm
No matter how the debt-ceiling fight is resolved in Congress, it’s going to end poorly for the states.
If the country defaults, the states will be plunged into an immediate financial crisis: Investor confidence in government assets across the board would plummet — including the municipal bonds that states and local governments have traditionally relied upon to pay for new schools, roads, utilities, sewage systems and other basic infrastructure.
According to Dan White, an economist for Moody’s Analytics, states and local governments would see their credit ratings drop and their borrowing costs rise, and they would be forced to abruptly slash services and employees for the near future.
What’s more, one out of every three dollars of state spending comes from the federal government — $478 billion alone in 2010, according to the Pew Center on the States. And if the federal payouts slowed under a default, the states would struggle mightily to pay their existing bondholders. National default could lead to state default.
But what’s been largely ignored is how the very solution to the debt-ceiling crisis could also squeeze state and local governments that are already strapped for cash.
Among the biggest items on the chopping block in Congress are education and Medicaid spending — federal dollars that make up the largest parts of most states’ budgets. Nearly every state government has already set its budget for the next year — some for the next two years — under the assumption that federal spending would remain more or less consistent. If such money is abruptly pulled, states won’t suddenly be able to change their spending obligations or raise taxes.
“They’re going to have to eat that in some way, and many will pass [the cuts] onto local governments,” said Frank Shaforth, director of the Center for State and Local Government Leadership at George Mason University.
…
“But what’s been largely ignored is how the very solution to the debt-ceiling crisis could also squeeze state and local governments that are already strapped for cash.”
In a related story:
http://seattletimes.nwsource.com/html/businesstechnology/2015760503_moodys29m.html?prmid=obinsource
“Moody’s warned that if there’s no budget deal and it cuts the federal government’s top-notch credit rating, the equally high ratings of King County, Seattle and Bellevue, the University of Washington and five local school districts would be placed under review for possible downgrade as well.”
Opening Remarks July 27, 2011, 11:05 PM EDT
Why the Debt Crisis Is Even Worse Than You Think
If Washington is deadlocked now, how will it deal with the much bigger debt problems that lurk in the decades to come?
By Peter Coy
There is a comforting story about the debt ceiling that goes like this: Back in the 1990s, the U.S. was shrinking its national debt at a rapid pace. Serious people actually worried about dislocations from having too little government debt. If it hadn’t been for two wars, the tax cuts of 2001 and 2003, the housing meltdown, and the subsequent financial crisis and recession, the nation’s finances would be in fine condition today. And the only obstacle to getting there again, this narrative goes, is political dysfunction in Washington. If the Republicans and Democrats would just split their differences on spending and taxes and raise the debt ceiling, we could all get back to our real lives. Problem solved.
Except it’s not that way at all. For all our obsessing about it, the national debt is a singularly bad way of measuring the nation’s financial condition. It includes only a small portion of the nation’s total liabilities. And it’s focused on the past. An honest assessment of the country’s projected revenue and expenses over the next generation would show a reality different from the apocalyptic visions conjured by both Democrats and Republicans during the debt-ceiling debate. It would be much worse.
That’s why the posturing about whether and how Congress should increase the debt ceiling by Aug. 2 has been a hollow exercise. Failure to increase the borrowing limit would harm American prestige and the global financial system. But that’s nothing compared with the real threats to the U.S.’s long-term economic health, which will begin to strike with full force toward the end of this decade: Sharply rising per-capita health-care spending, coupled with the graying of the populace; a generation of workers turning into an outsize generation of beneficiaries. Hoover Institution Senior Fellow Michael J. Boskin, who was President George H.W. Bush’s chief economic adviser, says: “The word ‘unsustainable’ doesn’t convey the problem enough, in my opinion.”
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“If it hadn’t been for two wars, the tax cuts of 2001 and 2003, the housing meltdown, and the subsequent financial crisis and recession, the nation’s finances would be in fine condition today.”
I’m sure it’s coincidental, but all of this happened during GWB’s tenure in the WH. Obama gets to pick up the pieces, and also catch the blame, thanks to being GWB’s successor.
I don’t think the nation’s finances would be “fine.” They would still be on the traintrack to default if more and more jobs were outsourced. None of the tax cut or housing crises are helping unemployed college grads get a job, except that the baby boomers aren’t able to retire.
Then again, a great deal of the outsourcing (and illegal insourcing) also happened on Bush’s watch.
“If Washington is deadlocked now, how will it deal with the much bigger debt problems that lurk in the decades to come?”
It won’t. It will have to shut down. The cure for the disease of big government is always good, but it becomes more painful as long as the socialists continue to kick the can further down the road.
The debt ceiling (continued)
Glum and glummer
With the Treasury about to run out of money, John Boehner, Barack Obama and their acolytes remain at loggerheads over budget cuts
Jul 30th 2011 | WASHINGTON, DC | from the print edition
THE closer the federal government comes to hitting the limit imposed by Congress on its borrowing and thus defaulting on some of its obligations, the more frantically members of Congress churn out schemes to avert the impending disaster. As The Economist went to press, the House of Representatives was poised to vote on the latest plan, put forward by John Boehner, the speaker and leading Republican voice in the debate about the debt ceiling. But the measure’s prospects seem uncertain in the House and even bleaker in the Senate. Several more plans wait in the wings, but all face the same difficulty: passing muster both with the Republican scourges of government who run the House and the more reluctant budget-cutters from the Democratic Party in charge of the Senate and the White House. Meanwhile, the Treasury insists it will run out of money after August 2nd, whereupon it will have to stop paying at least some bills.
Since Republicans took control of the House at the beginning of the year, they have given warning that they will not simply wave through an increase in the debt ceiling, as Congress has usually done in the past. Never mind that in April a majority of them voted for an interim budget that assumed that the debt ceiling would be lifted, and for a longer-term budget resolution that would require it to leap by almost $9 trillion over the next decade. America’s deficits, they argued, were unsustainable, and the bargaining power conferred on them by the need to raise the debt ceiling presented a wonderful opportunity to stop the rot.
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Debt and politics in America and Europe
Turning Japanese
The absence of leadership in the West is frightening—and also rather familiar
Jul 30th 2011 | from the print edition
A GOVERNMENT’S credibility is founded on its commitment to honour its debts. As a result of the dramas of the past few weeks, that crucial commodity is eroding in the West. The struggles in Europe to keep Greece in the euro zone and the brinkmanship in America over the debt ceiling have presented investors with an unattractive choice: should you buy the currency that may default, or the one that could disintegrate?
In the early days of the economic crisis the West’s leaders did a reasonable job of clearing up a mess that was only partly of their making. Now the politicians have become the problem. In both America and Europe, they are exhibiting the sort of behaviour that could turn a downturn into stagnation. The West’s leaders are not willing to make tough choices; and everybody—the markets, the leaders of the emerging world, the banks, even the voters—knows it. It is a mark of how low expectations have sunk that the euro zone’s half-rescue of Greece on July 21st was greeted with relief. As The Economist went to press, it still was not clear on what terms America’s debt limit would be raised, and for how long. Even if the current crises abate or are averted, the real danger persists: that the West’s political system cannot take the difficult decisions needed to recover from a crisis and prosper in the years ahead.
The world has seen this before. Two decades ago, Japan’s economic bubble popped; since then its leaders have procrastinated and postured. The years of political paralysis have done Japan more harm than the economic excesses of the 1980s. Its economy has barely grown and its regional influence has withered. As a proportion of GDP, its gross public debt is the highest in the world, twice America’s and nearly twice Italy’s. If something similar were to happen to its fellow democracies in Europe and America, the consequences would be far larger. No wonder China’s autocrats, flush with cash and an (only partly deserved) reputation for getting things done, feel as if the future is on their side.
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Relax, people!
1) Treasury bond holders will be paid.
2) Troops will be paid.
3) Social Security retirees will be paid.
4) Federal agency workforce members and federal contractors should not relax by any means unless your position involves health or national security (TSA, border control, military, etc), as your Chinese iron rice bowl ain’t all that any more.
30 July 2011 Last updated at 19:44 ET
US Republicans confident about deal on US debt limit
Republican leaders have expressed confidence that a deal can be struck to to raise the nation’s debt limit before Tuesday, and avert possible default.
Republican Senate leader Mitch McConnell said there was “a level of seriousness with the right people at the table”.
But his Democratic counterpart said there was no “meaningful” engagement.
In a sign of the level of anxiety over the issue, troops in Afghanistan asked Adm Mike Mullen if they would be paid.
The admiral, who as chairman of the Joint Chiefs of Staff is on a visit to southern Afghanistan, said he did not know whether that would be the case if the US fails to raise the $14.3tn (£8.7tn) limit by 2 August.
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My near-term predictions for Uncle Buck, U.S. Amalgamated industries, and our symbiotic partner:
1) Near-term economic pain.
2) Survival of Uncle Buck as the global reserve currency for ‘longer than expected.’
3) China will ‘unexpectedly’ face a severe economic downturn over the next half-decade, including a real estate crash that makes the U.S. housing bubble collapse seem like a walk in the park while eating a bowl of cherries.
In a desperation attempt to compromise with the unyielding Tea Party faction of the Republican party, Democrats have signaled their willingness to sacrifice ordinary Americans’ economic security to a double-dip recession, effectively adopting austerity measures and tight money at the worst-last tail end of the Great Recession in exchange for long-term survival of the dollar as the global reserve currency.
With Reid bill, Dems turn 180 degrees from stimulus to spending cuts
By Mike Lillis - 07/30/11 07:24 PM ET
House Democrats hammered Republicans this week for their debt-limit package’s call to slash domestic programs – then supported a Democratic bill that does much of the same.
All but 11 House Democrats voted Saturday in favor of Senate Majority Leader Harry Reid’s (D-Nev.) bill to hike the debt ceiling and slash $752 billion from non-defense domestic spending over the next decade.
The Republican’s alternative, sponsored by House Speaker John Boehner (R-Ohio), would cut $756 billion from the same coffers over that span.
Neither proposal specifies where the discretionary cuts would fall, instead capping annual levels and leaving the details to appropriators. But cuts of such magnitude would inevitably impact countless federal programs championed by Democrats, including those related to environmental protection, food safety, education and medical research.
By 2021 the Reid bill would slash $118 billion from non-defense domestic programs – nearly double the $61 billion in 2011 cuts the Republicans pushed earlier this year.
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Opinion
False prophets of debt-ceiling doom
By Matthew Melchiorre
Published July 29, 2011 | FoxNews.com
If I didn’t know any better, I’d be on the lookout Tuesday for the Four Horsemen of the Apocalypse. With Aug. 2 just around the corner, President Barack Obama, Treasury Secretary Geithner, and not-so-fiscally-conservative Republicans warn of Armageddon if they don’t get their spending fix on time.
Yet the American people aren’t buying what they’re selling.
Voters are realizing what Washington hasn’t - that the debt crisis stems from a compulsive spending problem. A new Gallup poll indicates that, among Americans who follow the debt-ceiling debate “very closely,” 53 percent oppose increasing the limit; 37 percent favor an increase. A majority of Americans now seems to realize that the fear-mongering going on in Washington.
Contrary to what spendthrift politicians have been saying, reaching the federal debt ceiling does not automatically trigger default. The debt limit simply caps the amount of debt that the U.S. Treasury may issue. The Treasury has the ability to prioritize its payments to bondholders and sell off assets (like TARP funds and gold) to avoid a default situation. Debt interest payments total $214 billion for 2011 - that’s less than 10 percent of $2.2 trillion in expected tax revenue this fiscal year.
Obama’s claim that seniors may not receive their Social Security checks for August is dubious, given that the program’s annual cost is $727 billion - 33 percent of revenue. Medicare and Medicaid combined come in at $846 billion - 38 percent of total tax inflow. Paying interest on the debt and providing entitlements still leaves more than $400 billion in unspent tax revenue, plus $2.4 trillion in assets left over to cover remaining government obligations, according to Veronique de Rugy and Jason Fichtner of the George Mason University Mercatus Center. The argument that America won’t be able to pay its bills without a debt-ceiling increase is simply incorrect.
Another oft-raised bogeyman is the possibility that not raising the debt ceiling will cause a downgrade of America’s AAA credit rating and spark a selloff of Treasury bills in international bond markets. Those fears are also unfounded. In fact, three rating agencies - Egan Jones Ratings Co., Weiss Ratings, and Dagong Global Credit Rating - have already lowered their assessments of U.S. debt, and interest rates have not moved.
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Politics
July 30, 2011
Obama Faces Grumbling on the Left
By Corey Dade, NPR
President Obama may have lost a direct hand in the debt-limit negotiations, but some of his liberal base is still seething at the concessions he was willing to make to Republicans — especially Social Security and Medicare cuts that may yet be in the offing.
When a few hundred liberal activists protested outside the Capitol on Thursday, they vented most of their frustrations at Republican lawmakers — especially the Tea Party caucus — who called for deep cuts to safety net programs in exchange for raising the debt ceiling. But they also blamed Obama for agreeing to put entitlement programs on the bargaining table at all.
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We cannot make our bills as a nation without incurring further debt.
I would argue this is simply a side effect of a collapsing end game economy. Something has to change or else something WILL change.
This business of the national debt is serious business and if you can show me that raising the debt limit will not put us in an even worse situation in a year or two I might agree, but you will have to convince me that the economy is booming and small businesses are prospering rather than the rather sad facts I have which suggest they are still failing at a vast rate and causing ripples in the fabric of the economy each and every time one succumbs to the vast black economic hole we are circling…
IMO, we either print our way out or allow the economy to collapse soviet style and start all over with a currency which only allows growth based on production.
Has anyone on this list indicated that the U.S. should continue to borrow without end? Every post I have read has called for fiscal austerity. The difference is in *how* you get there.
Most do not want to basically shut down:
air traffic control
food inspections
drug testing
no to mention:
payments to contractors
payments to disabled SSI recipients
payments to doctors serving Medicaid patients
payments to creditors
Anyone can say “keep essential services going” but what counts as an essential service really depends on who you are. Which is more essential, keeping airplanes flying so businesspeople can get to their conventions (which presumably supports jobs and safety), or keeping the disabled from starving (which presumably supports our humanity).
You can bet who will *not* go unpaid. (See my earlier post). But, after creditors and the military, you have to show me all those others do not deserve to be paid. Otherwise, failing to pay them is just being a bad sovereign, and a self-destructive one at that.
IAT
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