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.