Need a Crisis? Create One!

Eight months ago many Repub­li­cans ran for office on a plat­form of jobs, jobs, jobs. Of course, the prin­ci­ple tool the gov­ern­ment has for cre­at­ing jobs is stim­u­lus spend­ing. Repub­li­cans do not do stim­u­lus spend­ing so once they were elect­ed they had to come up with an alter­na­tive to the jobs crisis.

Just a few months ago, there was no debt cri­sis and there was no debt ceil­ing cri­sis. No one was talk­ing about refus­ing to raise the debt ceil­ing. No one was talk­ing about low­er­ing the coun­tries cred­it rating.

But the Repub­li­cans had run through all the sym­bol­ic votes they could think of (none of which had any­thing to do with jobs) and were sud­den­ly faced with the prospect that the coun­try might start ask­ing about jobs.

So they decid­ed that the debt was a cri­sis. It was­n’t. By his­tor­i­cal stan­dards, the debt is still well below its his­tor­i­cal high. The coun­try still has (for a bit longer) top grades from the rat­ing agen­cies. Unit­ed States bonds are still con­sid­ered the safest invest­ment on the plan­et and buy­ers were still lin­ing up to buy them at very low inter­est rates.

But the Repub­li­cans decid­ed the debt was a cri­sis, and they found a way to make their beliefs real­i­ty: refuse to raise the debt ceiling!

Three days ago, Reuters report­ed that

Rat­ings agency Moody’s on Mon­day sug­gest­ed the Unit­ed States should elim­i­nate its statu­to­ry lim­it on gov­ern­ment debt to reduce uncer­tain­ty among bond holders.

The Unit­ed States is one of the few coun­tries where Con­gress sets a ceil­ing on gov­ern­ment debt, which cre­ates “peri­od­ic uncer­tain­ty” over the gov­ern­men­t’s abil­i­ty to meet its oblig­a­tions, Moody’s said in a report.

We would reduce our assess­ment of event risk if the gov­ern­ment changed its frame­work for man­ag­ing gov­ern­ment debt to lessen or elim­i­nate that uncer­tain­ty,” Moody’s ana­lyst Steven Hess wrote in the report.

And today:

Stan­dard & Poor’s reit­er­at­ed on Thurs­day it sees a real risk that future U.S. gov­ern­ment deficits may mean­ing­ful­ly miss dis­cussed tar­gets and that there is a 50 – 50 chance the U.S. AAA cred­it rat­ing could be cut with­in three months, per­haps as soon as August.

The deficit reduc­tion debate is com­ing up against an August 2 dead­line when the $14.3 tril­lion lim­it on Amer­i­ca’s bor­row­ing capac­i­ty is exhaust­ed, putting in jeop­ardy pay­ments on U.S. Trea­sury debt as well as pay­checks for fed­er­al employ­ees and soldiers.

If an agree­ment is reached to raise the debt ceil­ing but noth­ing mean­ing­ful is done in terms of deficit reduc­tion, the U.S. would like­ly have its rat­ing cut to the AA cat­e­go­ry, S&P said.

So, there was no debt cri­sis until the Repub­li­cans need­ed to dis­tract the elec­torate from their non-inter­est in jobs. Today there is a real debt cri­sis. The only thing that has changed is that now no one can be cer­tain that the US will not some­day, if not next week, refuse to meet its obligations.

At this point, if the Repub­li­cans are sin­cere in their con­cern for fed­er­al spend­ing and debt, then they have no choice but to elim­i­nate the statu­to­ry lim­it on gov­ern­ment debt. Oth­er­wise, the inter­est the US pays on its debt is going to go up. It will be expensive.

Hat tips to TPM and to The New Repub­lic.

Dear President Obama

Well, it’s been a week since I last post­ed on this sub­ject (or any sub­ject!). So we must be one week clos­er to the day the fed­er­al gov­ern­ment runs out of mon­ey. Are we clos­er to an answer?

So, where does that leave us? The House won’t pass a clean bill; it won’t pass a Grand Bar­gain; it won’t pass the Gang of Six pro­pos­al; and at least 80 House Repub­li­cans are pre­pared to try to kill the Plan B compromise.

It would seem we are not. Pres­i­dent Oba­ma has not (yet) tak­en my advice from a week ago (could it be he does not read my blog?!?!). I stand by it with one addition.

Dear Pres­i­dent Obama,

You should announce tomor­row that it is clear that the dead­line will not be met and that it is your inten­tion to see to it that all the debt oblig­a­tions of the Unit­ed States will be met, inter­est and prin­ci­ple. Prin­ci­ple will be met by pay­ing off what is imme­di­ate­ly due and then bor­row­ing that much again to do the same tomor­row (there­by nev­er exceed­ing the debt lim­it but also mean­ing that the process is going to start soon­er than August 2). You then should make it crysal clear what will not be paid. You should do this in a speech, in a press con­fer­ence, in a press release, and you should send admin­is­tra­tion offi­cials to the Sun­day (and any oth­er) talk shows to explain what will not be paid.

Obvi­ous­ly, you will have to explain again (and again) that this sit­u­a­tion exists because the Repub­li­can House decid­ed it was what they want­ed and that they refuse to nego­ti­ate insist­ing that they get 100% of what they want.

This will cause a lot of con­ster­na­tion, some short term hard­ship, and some short and long term eco­nom­ic costs. It is absurd that the sit­u­a­tion exists at all . There is, how­ev­er, a dim sil­ver lin­ing com­prised of the fun of see­ing House Repub­li­cans trip­ping over them­selves as they rush to raise the debt ceil­ing after the start to hear from their constituents.

My Advice to the President

Pres­i­dent Obama,

You need to be clear about what you will do when the debt ceil­ing is not raised. You need to state unequiv­o­cal­ly that the Unit­ed States will not default on it’s debt, that the inter­est pay­ments will be made.

It must be clear that fed­er­al expen­di­tures will imme­di­ate­ly be cut 40%. You need to be clear what 40% that will be. There ARE Amer­i­cans who are going to not get their checks and you need to let us know who that will be now.

You must be clear that even though the inter­est pay­ments will be made, the inter­est rate Amer­i­ca pays on its debt will go up and that this WILL mean that the debt of the Unit­ed States will now be even greater than what every­one has been pro­ject­ing up until now. This is because the amount of prin­ci­ple pay­ments that are due in August exceed the amount of rev­enue that will be avail­able to pay them. The only way those prin­ci­ple pay­ments get paid on time is to bor­row the mon­ey from some­one else, but the bor­row­ing lim­it has been met. When prin­ci­ple pay­ments are late, the inter­est paid is going to go up.

You should explain that you have giv­en up nego­ti­at­ing since the Repub­li­cans have brought noth­ing to the table and you now insist that the debt lim­it bill be a clean bill. You should ask Amer­i­cans who are upset with the con­se­quences that you have laid out to con­tact their con­gress­man and insist on a clean bill to raise the debt limit.

After mak­ing these con­se­quences clear to the Amer­i­can peo­ple, you need to go in to the debt lim­it nego­ti­a­tions and explain that you are done nego­ti­at­ing. The Repub­li­cans have demon­strat­ed beyond all rea­son that they have no idea what it means to nego­ti­ate and com­pro­mise and since no deal can be reached, the bill must come through clean.

Thank-you for your atten­tion to this matter.

Rich Beck­man

A con­stituent.

Who’s to Be Blamed?

The most impor­tant fac­tor influ­enc­ing who wins the pres­i­den­cy in 2012 is the econ­o­my. If the econ­o­my is show­ing improve­ment, then Oba­ma wins. If the econ­o­my has dou­ble dipped into anoth­er reces­sion, things look bad for Oba­ma. And if the econ­o­my is sim­i­lar to today’s, limp­ing along in a slow recov­ery, then it will be a close race.

There is anoth­er fac­tor that in cer­tain sce­nar­ios is more impor­tant than the econ­o­my. That fac­tor is where the vot­ers lay the blame if the econ­o­my is poor.

I have read a lot about Oba­ma’s (and the Democ­rats) poor mes­sag­ing and posi­tion­ing. But we have arrived at a point where Oba­ma has man­aged to be on the cor­rect side of the mes­sag­ing and positioning.

The Repub­li­cans are hold­ing the econ­o­my hostage. They refuse to raise the debt ceil­ing unless it is accom­pa­nied with huge amounts of spend­ing cuts and no increas­es in rev­enue. The prob­lem for the Repub­li­cans is that they are using the lan­guage of a hostage tak­er. Oba­ma ini­tial­ly asked for a clean bill, but quick­ly “caved” and entered nego­ti­a­tions. Since then, it is the Repub­li­cans who have repeat­ed­ly insist­ed that it is their way or the econ­o­my gets it.

If Oba­ma had stuck to his guns for a clean bill, he would have been just as much a hostage tak­er as the Repub­li­cans. He did not and the Repub­li­cans are now look­ing at the pos­si­bil­i­ty of tak­ing the blame for a bad economy.