Get Rid of The Debt Ceiling – Update

July 27, 2011

Nothing is more gratifying than when someone who you think is smart agrees with your position–even if that person has no idea who you are let alone what position they’re agreeing with you on.

Earlier this week, I suggested that the U.S. should get rid of the debt ceiling as a legislative concept.

Now comes the August 1 edition of The New Yorker in which financial columnist James Surowiecki advocates the same position, albeit using more words and better arguments than I was willing to spend time making.

The truth is that the United States doesn’t need, and shouldn’t have, a debt ceiling. Every other democratic country, with the exception of Denmark, does fine without one. There’s no debt limit in the Constitution. And, if Congress really wants to hold down government debt, it already has a way to do so that doesn’t risk economic chaos—namely, the annual budgeting process. The only reason we need to lift the debt ceiling, after all, is to pay for spending that Congress has already authorized. If the debt ceiling isn’t raised, we’ll face an absurd scenario in which Congress will have ordered the President to execute two laws that are flatly at odds with each other. If he obeys the debt ceiling, he cannot spend the money that Congress has told him to spend, which is why most government functions will be shut down. Yet if he spends the money as Congress has authorized him to he’ll end up violating the debt ceiling.

. . .

We may nonetheless end up with a halfway sensible budget deal. But that would be the result of luck, not design. Instead of figuring out ways to raise the debt ceiling, we should simply go ahead and abolish it. The U.S. economy has plenty of real problems to deal with. We shouldn’t have to wrestle with ones we’ve created for ourselves. 

I couldn’t have said it better myself.

Policy Changes Under Two Presidents

July 25, 2011

Republicans get defensive when comparisons are made between President Obama and President Bush.  That is understandable.  The chart below appeared in yesterday’s New York Times, accompanied by an article entitled “How the Deficit Got This Big” by Teresa Trich.  Ezra Klein today points out today that much of what appears on President Obama’s side of the ledger represent temporary expenditures (g., e.the $711 billion of “stimulus spending” and the $425 billion of “stimulus tax cuts”) where as the largest items on President Bush’s side of the ledger (and what at least 2o sitting GOP senators and 100 GOP House members voted for) represent recurring expenditures (e.g., the wars, the Bush tax cuts, the Medicare Part D drug benefit which will go on in perpetuity).

Klein notes, “To relate this specifically to the debt-ceiling debate, we’re not raising the debt ceiling because of the new policies passed in the past two years. We’re raising the debt ceiling because of the accumulated effect of policies passed in recent decades, many of them under Republicans. It’s convenient for whichever side isn’t in power, or wasn’t recently in power, to blame the debt ceiling on the other party. But it isn’t true.”

Sad, especially given the behavior of the GOP during the debt ceiling crisis, but true.

American Exceptionalism Is Expendable

July 25, 2011

Those who believe in “American Exceptionalism” should be  aware that the “qualitative difference” between America and other nations that make us exceptional is a depreciable asset.  It is diminished when our elected officials act like they’re running a third world country.

How can you be exceptional if your elected officials behave like spoiled four-year olds, stomping their feet and demanding their own way on every point?

How can you be exceptional if  you tell the capital markets, on whom you are completely dependent for funding and the future of your society, that you’re not capable of governing yourself and managing your affairs?

I see no path to correct this situation quickly, so we’re stuck with this for the foreseeable future.

Alexis de Tocqueville said that “in a democracy, the people get the government they deserve.”  This is our fault.  Enough of us don’t go to the ballot box and those of us that do go are careless once there.  We’ve created a society in which those best capable of guiding our country understandably don’t want to expose themselves and their families to the unnecessarily intense spotlight of public life, driven by an entertainment-media culture that is not driven by giving the American public information, but is instead driven by its own ratings–in the guise of providing “information” and generating conflict among leaders and elected officials.

I am exceptionally concerned about what the near term future holds for us.

Get Rid of the Debt Ceiling

July 24, 2011

If our leaders and back-benchers agree that the debt ceiling will be raised and we won’t default on our obligations (not just our debt–US Treasury notes and bonds, but obligations to states, municipalities, retirees, etc.), why does Congress require itself to vote on the matter?

The irrelevance of the debt ceiling, except as a political cudgel with which to beat the party in the White House, has been revealed.  It’s a completely pro forma, artificial two-step process that adds exactly zero value to the budgeting process–where Congress and the President make their spending decisions.  Keeping this charade going only tempts fate in the future.   Abolish it.

(Not So) Random Thoughts on the Debt Ceiling and the State of the Crisis

July 14, 2011

  • This is a crisis. A worldwide crisis.
  • Markets love testing the will of central bankers and giving them a number on how much they’re willing to spend to bail out Greece (or Spain or Italy) will only act as a challenge.
  • The only reason U.S. financial markets aren’t more tumultuous as the debt ceiling nonsense plays out is that their more worried about Europe blowing apart.  Not the Europe blowing up is a bigger deal than the U.S. defaulting, but it’s more immediate.  There’s, what? two whole weeks before they have to worry about a U.S. default.  Eons in trading time.
  • I think some in Congress (mostly Republicans) think that they can “fix” missing the deadline by simply passing something after the fact that raises the limit and returns the situation to the status quo ante.  That’s wrong.  Once we cross the Rubicon of default and (presumably) get downgraded, there’s no turning back.  Once a borrower indicates a willingness to consider not paying its debts, that borrower gets treated differently in the credit markets.  You can’t unring the bell. [That sound you hear is my favorite writer, George Orwell, hater of idiom, spinning in his grave at my use of two, no three! in one little bullet point. –ed.]
  • I stink at poker, but somehow I think that I’d like to play poker against President Obama.  Less so Senator Mitch McConnell.
  • Trying to negotiate with Rep. Eric Cantor (R-Petulant) reminds me of those discussions we had with our kids when they were twelve.
  • Being a big believer in the Law of Unintended Consequences, I continue to be very worried about this situation, and that fear grows with every passing day.
  • The combination of the Europe situation and our own a) immediate problems with potential default and b) our long-term structural deficits leave me fearful that we’re in for an extended period of austerity, slow- to no-growth, increasing distress among the populace and general trouble.
  • What’s happening in Europe is the sort of thing that used to start wars.
  • So if you think Europe is a bad place to invest and the U.S. is about to default, where are you going to put your money?  Corporate bonds?  (Communist) China?
  • The sinking, awful feeling I have is that this all is going to get much worse before it gets any better.

Boehner Willing To Bet Financial Markets Get The Joke

June 29, 2011

Betting Humpty Won't Break

In an interview with Hannity yesterday, House Speaker Boehner showed that he is taking the Powell “Pottery Barn (you break it, you own it) Principle” to the extreme in saying that “nobody believes that the U.S. is going to walk away from its obligations” if the federal debt ceiling is not raised by August 2nd.

If he wants to bet that financial markets will believe that an organization like Congress (if one can something that incapable of functioning an “organization) will take the necessary steps to avoid default on US Treasury debt after they’ve watched the fiasco that has unfolded over the past six months on this topic then he’s welcome to it.  But he and his party then “own” the result.

I think that Speaker Boehner ought to spend a few minutes reading up on the Law of Unintended Consequences.  Did he not learn anything from the last financial crisis in which the situation quickly got beyond the control of those responsible, and it was only through extraordinary means that control, such as it is, was restored.

If Boehner is wrong, and I think that he is, the potential tornadic impact of his cavalier treatment of the world financial markets will make Gingrich’s shut down of government in 1995 look like a gentle spring shower.

Here’s the full video:

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