Federal Deficit Impasse

[flow5]

By Patrick J. Buchanan

As President Bush prepared to invade Iraq in September 2002, the head of his economic policy council, Lawrence Lindsey publicly estimated such a war could cost $100 billion to $200 billion.

Lindsey had committed candor, and the stunned Bushites came down on him with both feet.

“Baloney,” said Donald Rumsfeld. The likely cost would be $60 billion, said Mitch Daniels of the Office of Management and Budget. We can finance the war with Iraqi oil, said Paul Wolfowitz.

By year’s end, Lindsey was gone, back, in Ronald Reagan’s phrase, “testing the magic of the marketplace.”

And the cost of the Iraq War? It has passed $1 trillion.

So Lindsey is worth listening to. And he is now saying that the Obamaites may be wildly underestimating the deficits America is going to run in this decade. Here is why.

The AVERAGE RATE OF INTEREST THE FED HAS HAD TO PAY TO BORROW FOR THE LAST TWO DECADES has been 5.7 percent. However, President Obama is projecting the cost of money at only 2.5 percent.

A return to the normal Fed rate would, by 2020, add $4.9 trillion to the cumulative deficit, says Lindsey, more than twice the $2 trillion in savings being discussed in Joe Biden’s debt-ceiling deal.

Second, Obama is estimating growth in 2012, 2013 and 2014 at 4, 4.5 and 4.1 percent. But the normal rate for a mature economy recovering from recession is 2.5 percent.

Hence, if we return to a normal rate of growth, rather than rise to Obama’s projected rate, says Lindsey, that would add $700 billion to the deficit over the next three years and $4 trillion by 2020.

Taken together, a U.S. return to a normal rate of growth of 2.5 percent, higher than today, and a normal rate of interest for the Fed could add as much as $9 trillion to the deficits between now and 2020.

New taxes on millionaires and billionaires who ride around in corporate jets can’t cover a tenth of 1 percent of these deficits.

Writes Lindsey, “Only serious long-term spending reduction in the entitlement area can begin to address the nation’s deficit and debt problems.”

His conclusion is logical, but seems impossible to achieve when both parties are talking of taking Medicare and Social Security off the table. Which makes his final point all the more compelling:

“Under current government policies and economic projections, (bondholders) should be far more concerned about a return of their principal in 10 years than about any short-term delay in interest payments in August.”

Lindsey is saying that the probability of U.S. bonds losing face value through inflation or default is high, given the size of the deficits we will be running and the improbability that any deficit-reduction plan now out there can significantly reduce them.

Standard & Poor’s and Moody’s are already talking of downgrading U.S. debt if the debt ceiling is not raised by early August.

Is America then headed for an inevitable default?

One Chinese economist is already accusing us of defaulting, as the Fed’s flooding of the world with dollars has seen the dollar lose 10 percent of its value against other currencies in the last year.

Holding $1 trillion in U.S. debt, China has watched the purchasing power of that U.S. paper plummet. Understandably, Beijing fears that if we ever pay back all they have lent us, it will be in U.S. dollars of far lesser value.

What should House Republicans do?

Stick to their principles and convictions.

For the cause of the deficit-debt crisis has been the explosion in federal spending under Barack Obama to the largest share of the U.S. economy since the climactic years of World War II.

Administrations of both parties contributed to this rise in the federal share of gross domestic product. But the GOP committed itself in 2010 to rein it in, without raising taxes. On that pledge the GOP triumphed and should keep its commitment.

First, because it is a solemn undertaking with a nation disgusted with politicians who say one thing and do another. Second, because our fiscal crisis, like Europe’s, is a result of too much government, not too little revenue. Third, because there is no credible school of economic thought that says raising taxes on the productive sector when one in six workers is unemployed or underemployed is the way to prosperity.

Under Obama these past two years, the nation relied on the U.S. government to pull us out of the ditch. But Obama’s $787 billion stimulus, his three deficits of 10 percent of GDP, and Ben Bernanke’s tripling of Fed assets by buying the bad paper of big banks and $600 billion in U.S. debt all failed.

For Republicans to agree now to a tax increases that would violate their principles, their promises to the voters and their basic philosophy — and be icing on the cake of Obama’s debt-ceiling increase — would be politically suicidal.

Indeed, were the Republican Party to do this, it would raise the question of why we need a Republican Party

[usaone]

Ronald Reagan raised taxes more than a few times before 1984 and won in a landslide of historic proportions.

Cuts in spending along with some tax increases is the way to go.

Compromise on both sides of the isle and get it done!!

[Virgil Showlion]

Massive cuts along with massive tax hikes is the way to go. I give the US government a snowball's chance in Hades of pulling it off, however.

[usaone]

It will get done.

It's always like this you just weren't watching 10 or 20 years ago.

[Virgil Showlion]

The U.S. wasn't projected to run perpetual $1.4 trillion deficits 10 or 20 years ago. Also, Sam didn't have to contend with boomers retiring, 16% of the nation on food stamps, a $100 trillion Medicaid/SS shortfall, Obamacare, five wars, or Fannie/Freddie collectively $6.3 trillion underwater.

[usaone]

Jul 6, 2011 19:30:20 GMT -5 Virgil Showlion said:

The U.S. wasn't projected to run perpetual $1.4 trillion deficits 10 or 20 years ago. Also, Sam didn't have to contend with boomers retiring, 16% of the nation on food stamps, a $100 trillion Medicaid/SS shortfall, Obamacare, five wars, or Fannie/Freddie collectively $6.3 trillion underwater.

Projected is the key word. In 2001 the US was projected to run 1.3 trillion dollar SURPLUSES for years.

[tyfighter3]

Maybe we should do like New Zealand did.

[bimetalaupt]

Jul 6, 2011 23:09:32 GMT -5 tyfighter3 said:

Maybe we should do like New Zealand did.

TyFighter3,
I am not sure what your reference is to.. If it is the Social Security income New Zealand has a well funded system that is actuary sound with there expanding population. This post is getting more and more political.

Flow5,
Your topic is great but is becoming more and more Political.. Can I suggest moving it to P&M as this will give you five time more eye balls..If you agree I can move it for you.. Just ask

FYI.. Note of Facts...

I posted the last income and outgo chart I have for Social Secularity.. 2010 the system had to use interest from the trust to make the benefits.. Ok it still grew by $20 Billion but the recession is hurting all systems around the world except where they are all about oil, gold or copper. etc..

Just a thought,
Bi Metal Au Pt

Attachments:

[flow5]

An Economy Destroyed
By PAUL CRAIG ROBERTS

Recently, the bond rating agencies that gave junk derivatives triple-A ratings threatened to downgrade US Treasury bonds if the White House and Congress did not reach a deficit reduction deal and debt ceiling increase. The downgrade threat is not credible, and neither is the default threat. Both are make-believe crises that are being hyped in order to force cutbacks in Medicare, Medicaid, and Social Security.

If the rating agencies downgraded Treasuries, the company executives would be arrested for the fraudulent ratings that they gave to the junk that Wall Street peddled to the rest of the world. The companies would be destroyed and their ratings discredited. The US government will never default on its bonds, because the bonds, unlike those of Greece, Spain, and Ireland, are payable in its own currency. Regardless of whether the debt ceiling is raised, the Federal Reserve will continue to purchase the Treasury’s debt. If Goldman Sachs is too big to fail, then so is the US government.

There is no BUDGET FOCUS ON THE ILLEGAL WARS & MILITARY OCCUPATIONS that the US government has underway in at least six countries or the 66-year old US occupations of Japan and Germany and the ring of military bases being constructed around Russia.

The total MILITARY/SECURITY BUDGET is in the vicinity of $1.1-$1.2 trillion, or 70 per cent -75 per cent of the federal budget deficit.

In contrast, Social Security is solvent. Medicare expenditures are coming close to exceeding the 2.3 per cent payroll tax that funds Medicare, but it is dishonest for politicians and pundits to blame the US budget deficit on “entitlement programs.”

Entitlements are funded with a payroll tax. Wars are not funded. The criminal Bush regime lied to Americans and claimed that the Iraq war would only cost $70 billion at the most and would be paid for with Iraq oil revenues. When Bush’s chief economic advisor, Larry Lindsay, said the Iraq invasion would cost $200 billion, Bush fired him. In fact, Lindsay was off by a factor of 20. Economic and budget experts have calculated that the IRAQ & AFGHANISTON WARS have consumed $4,000 billion in out-of-pocket and already incurred future costs. In other words, the ONGOING WARS & OCCUPATIONS have already eaten up the $4 TRILLION by which Obama hopes to cut federal spending over the next ten years. Bomb now, pay later.

As taxing the rich is not part of the political solution, the focus is on rewarding the insurance companies by privatizing Medicare at some future date with government subsidized insurance premiums, by capping Medicaid, and by loading the diminishing middle class with additional Social Security tax.

Washington’s priorities and those of its presstitutes could not be clearer. President Obama, like George W. Bush before him, both parties in Congress, the print and TV media, and National Public Radio have made it clear that WAR IS A FAR MORE IMPORTANT PRIORITY than health care and old age pensions for Americans.

The American people and their wants and needs are not represented in Washington. Washington serves powerful interest groups, such as the military/security complex, Wall Street and the banksters, agribusiness, the oil companies, the insurance companies, pharmaceuticals, and the mining and timber industries. Washington endows these interests with excess profits by committing war crimes and terrorizing foreign populations with bombs, drones, and invasions, by deregulating the financial sector and bailing it out of its greed-driven mistakes after it has stolen Americans’ pensions, homes, and jobs, by refusing to protect the land, air, water, oceans and wildlife from polluters and despoilers, and by constructing a health care system with the highest costs and highest profits in the world.

The way to reduce health care costs is to take out gobs of costs and profits with a single payer system. A private health care system can continue to operate alongside for those who can afford it.

The way to get the budget under control is to stop the gratuitous hegemonic wars, wars that will end in a nuclear confrontation.

The US economy is in a deepening recession from which recovery is not possible, because American middle class jobs in manufacturing and professional services have been offshored and given to foreigners. US GDP, consumer purchasing power, and tax base have been handed over to China, India, and Indonesia in order that Wall Street, shareholders, and corporate CEOs can earn more.

When the goods and services produced offshore come back into America, they arrive as imports. The trade balance worsens, the US dollar declines further in exchange value, and prices rise for Americans, whose incomes are stagnant or falling.

This is economic destruction. It always occurs when an oligarchy seizes control of a government. The short-run profits of the powerful are maximized at the expense of the viability of the economy.

The US economy is driven by consumer demand, but with 22.3 per cent unemployment, stagnant and declining wages and salaries, and consumer debt burdens so high that consumers cannot borrow to spend, there is nothing to drive the economy.

Washington’s response to this dilemma is to increase the austerity! Cutting back Medicare, Medicaid, and Social Security, forcing down wages by destroying unions and offshoring jobs (which results in a labor surplus and lower wages), and driving up the prices of food and energy by depreciating the dollar further erodes consumer purchasing power. The Federal Reserve can print money to rescue the crooked financial institutions, but it cannot rescue the American consumer.

As a final point, confront the fact that you are even lied to about “deficit reduction.” Even if Obama gets his $4 trillion “deficit reduction” over the next decade, it does not mean that the current national debt will be $4 trillion less than it currently is. The “reduction” merely means that the growth in the national debt will be $4 trillion less than otherwise. Regardless of any “deficit reduction,” the national debt ten years from now will be much higher than it presently is.

[flow5]

WAR & FOREIGN OCCUPATION increase both the Federal Budget Deficit & the foreign trade deficit.

[flow5]

COLA adjustments:

"after ten years or so the miracle of compounding comes into play. With each additional year the difference between actual inflation and the COLA adjustments will widen. When you extend this type of thinking over long periods of time it does make a very big difference. After 25 to 30 years this would be significant"


Bruce Krasting

[BeenThere...DoneThat...]

[flow5]

Federal Debt Limit (Debt Ceiling) & Deficit Talks.
July 24, 2011 -- NEW YORK TIMES:

Federal law requires Congress to authorize the government to borrow any money that is needed to pay for the programs Congress has passed. As the national debt has grown, the Treasury has periodically bumped against this debt limit or debt ceiling, as it is doing now.

Votes to raise it are among the least popular things Congress does. Much handwringing and mild drama have been the norm. But in 2011 the debt limit has emerged as a central point of conflict between President Obama and House Republicans who are intent on big cuts in government spending.

After a last-minute deal in April averted a government shutdown, Republicans focused on the need to raise the debt limit, making it clear that they would not approve an increase without at least $2 trillion in spending cuts.

If the current $14.29 trillion debt ceiling is not raised, the Obama administration says the government would ultimately have to default on its debt; without borrowing, it would not be able to pay both the government's daily bills and the investors whose bonds have come due.

That prospect is widely decried as unthinkable by business leaders and economists. Ben S. Bernanke, the Federal Reserve chairman, told the Senate that it would be a "recovery-ending event." But while many Republicans have publicly agreed that Congress must raise the ceiling, a vocal minority of members have said that the consequences of not doing so would not be as dire as administration officials and business leaders have predicted.

On May 16, Treasury Secretary Timothy F. Geithner formally told Congress that the government would have reached its $14.294 trillion debt limit that day, but for what he called “extraordinary measures” to manage the nation’s money and to buy time for lawmakers to increase the limit on borrowing. He put Aug. 2 as the rough date on which those expedients would have run their course.

Bipartisan negotiations led by Vice President Joseph R. Biden Jr., and in late May he progress had been made toward outlining $1 trillion to $2 trillion in possible savings. But the talks collapsed in June, as Republicans rebuffed Democratic insistence that a deal include revenue increases as well as spending cuts.

In July, President Obama pushed for a sweeping $4 trillion deficit-reduction deal that would include reductions in Social Security, Medicare and Medicaid as well as changes to plug tax loopholes. The House Republican leader, Speaker John A. Boehner, expressed interest, but quickly backtracked in the face of protests from conservatives opposed to tax increases.

The Senate Republican leader, Mitch McConnell of Kentucky, said he saw little chance of agreement, and proposed a complicated parliamentary maneuver to avoid default, an idea that attracted the support of the Senate majority leader, Harry Reid. Under the broad outlines of the plan, Congress would cede its authority over the debt ceiling to Mr. Obama, but would require that he increase it in several increments.

As the drive for a deficit deal slowed, it became clear that disagreements were less over dollars and cents than a broader clash between the two parties over the size and role of government. There is also a divide between older Republicans, who remember the budget showdowns of the 1990s in which they were outmaneuvered by President Bill Clinton, and a younger, more absolutist wing of the party.

The debate took a new turn on July 19, when members of the bipartisan "Gang of Six'' in the Senate introduced a proposal to cut the deficit by $4 trilion. Modeled on the recommendations last year of a bipartisan fiscal commission established by Mr. Obama, the plan calls for both deep spending cuts and new revenues through an overhaul of the income-tax code.

Two days later it was learned that Mr. Obama and Mr. Boehner had begun work again on a $3 trillion deal, one likely to be opposed by substantial parts of both parties. But on July 22, Mr. Boehner walked out on the talks.

Recent developments include:

July 23 An hourlong meeting in Mr. Boehner’s Capitol suite was followed by pessimistic assessments of the state of negotiations from the two top Congressional Democrats, Senator Harry Reid, the majority leader, and Representative Nancy Pelosi, the minority leader. They accused Republicans of refusing to give ground on how the federal debt limit would be raised.

July 22 Talks between Mr. Obama and Mr. Boehner collapse, with Mr. Boehner charging that Mr. Obama wanted to raise taxes too high and would not make “fundamental changes” to entitlement benefit programs like Medicare. Mr. Obama said Mr. Boehner had stopped returning his calls when it became clear that rank-and-file House Republicans would not agree to raise revenues on wealthy Americans as part of a debt-reduction deal, despite Mr. Obama’s concessions on reducing future spending for Medicare, Medicaid and Social Security.

The Senate rejected a House plan to substantially cut government spending and raise the federal debt limit contingent on a balanced budget proposal, leaving Congress up in the air about how to resolve its impasse over the federal debt ceiling. President Obama for the first time addressed – and ruled out – the idea that the Constitution empowers a president to increase the debt limit to prevent default and, as he put it, “basically ignore” the federal law requiring that the debt ceiling be set by statute.

July 21 The Obama administration informed Democratic Congressional leaders that President Obama and Speaker John A. Boehner were starting to close in on a major budget deal that would enact substantial spending cuts and seek future revenues through a tax overhaul.

July 20 Mr. Obama and Congressional leaders, spurred by a positive response to a new Senate deficit-cutting plan, sought to resurrect a broad budget agreement as House members condemned a fall-back proposal taking shape in the Senate. House Republicans also signaled that they might now be open to a deal that would raise more money for deficit reduction by closing tax loopholes and eliminating deductions while also reducing tax rates, as is proposed in the so-called Gang of Six plan.

July 19 A bipartisan proposal from the so-called Gang of Six senators to reduce deficits by nearly $4 trillion over the coming decade — and its warm reception from 43 other senators of both parties — renewed hopes for a deal days after talks between Mr. Obama and Congressional leaders had reached an impasse. The Senate group’s plan, modeled on the recommendations last year of a bipartisan fiscal commission established by Mr. Obama, calls for both deep spending cuts and new revenues through an overhaul of the income-tax code.

House Republicans passed legislation calling for deep spending cuts and the adoption of a constitutional amendment requiring a balanced budget. Though the legislation has no chance of passing the Senate, the 234-to-190 vote was a symbolic statement by conservatives heading into the debt limit's end game.

July 14 Mr. Obama threw the deadlocked budget negotiations back to Congress, telling Republicans and Democrats to try to work out an agreement to avert a government default, and suggesting that more ambitious efforts to cut the deficit had hit a wall. The ratings agency Standard & Poor’s warned that there was a 50 percent chance that it would downgrade the government’s credit rating within three months because of the debt stalemate.

July 13 Tension mounted as the Federal Reserve chairman, Ben S. Bernanke, warned of a “huge financial calamity” if President Obama and the Republicans cannot agree on a deal that allows the federal debt ceiling to be increased. Moody’s, the ratings agency, threatened a credit downgrade. And the latest bipartisan negotiating session ended in heightened tension: Republicans said Mr. Obama had abruptly walked out in an agitated state; Democrats described the president as having summed up with an impassioned case for action before bringing the meeting to a close and leaving.

July 12 Senator Mitch McConnell of Kentucky, the Republican leader, said a bipartisan budget-cutting deal is probably out of reach. To prevent Republicans being blamed for default, he proposed that Congress in effect empower Mr. Obama to raise the government’s borrowing limit without its prior approval of offsetting cuts in spending.

July 11 At a news conference preceding the latest round of debt-reduction talks with Congressional leaders, President Obama said that he was willing to take the heat from his own party to move beyond entrenched positions and that Republicans should do the same, and continued to insist on “the biggest deal possible.”

July 9 Citing differences over tax revenues, House Speaker John A. Boehner said that he would pull back from joint efforts with President Obama to reach a sweeping $4 trillion deficit-reduction plan tied to a proposal to increase the federal debt limit.

July 7 President Obama, convening budget talks at the White House, said Republicans and Democrats were still “far apart” but expressed confidence they could agree on an ambitious deal to prevent the government from defaulting on its debt. Though the president and Congressional leaders did not close wide gaps on the issues of spending cuts or new tax revenues, they emerged with a consensus to aim for the biggest possible deal — one resulting in up to $4 trillion in savings.

June 29 Mr. Obama bluntly argued that his party had already accepted the need for substantial spending cuts in programs it had long championed, and that Republicans must agree to end tax breaks for oil and gas companies, hedge funds and other corporate interests.

June 23 Bipartisan debt-limit talks suddenly teetered near collapse as Representative Eric Cantor, the House majority leader, abandoned the negotiations and top Republicans said they would not give in to a Democratic push for new revenues as part of a compromise. The move was seen as meant to draw President Obama into the negotiations.

Background

The national debt is the sum of all current loans taken out by the government, and the debt ceiling is akin to a limit on the national credit card, the maximum amount that can be owed at any one time. In 2000, the national debt briefly shrunk when the budget was in surplus. But since then the government has run deficits -- that is, has spent more than was covered by taxes and other income -- and the debt has steadily risen.

The United States is one of the few nations that limits its debt by law. Votes to raise the ceiling, something that happens every few years, are perhaps the least popular that lawmakers face.

Financial and government leaders alike have grown accustomed to some political brinkmanship over raising the cap, confident that Congress ultimately would do so, usually with the party holding the White House supplying most votes. (So it was that Mr. Obama, as a Democratic senator in 2006, voted against a Bush administration request to raise the debt limit; it passed with mostly Republican votes.)

What makes 2011 different, people in both parties say, is the large number of Congressional Republicans, including the many newcomers who gave the party a House majority, who are strenuously opposed to government spending, and egged on by the activist Tea Party movement to use the leverage of the debt-limit vote to make their stand.

Many Republicans dismiss the dire warnings of default. They argue that the government could maintain the confidence of investors by prioritizing interest payments. There is ample revenue to make those payments, and these Republicans — also backed by some economists and financial experts — say investors would not punish the government for failing to fulfill other financial obligations.

Prioritizing interest payments would also require cutting spending immediately by much more than either party has ever proposed. The Congressional Research Service reported in February that the government would need to stop all discretionary spending and reduce payments under programs like Social Security.

After the current limit was reached on May 16, after the Treasury completed a round of borrowing, the government faced a need to find $125 billion a month to pay its bills.

The Treasury estimates that it can avoid a crisis until early August with few if any lasting consequences by spending about $100 billion in cash that it keeps on deposit with the Federal Reserve, the nation’s central bank, and by temporarily suspending $232 billion in special-purpose borrowing programs so it can instead borrow money to finance general operations.

It is possible that a standoff could drive up the interest rates paid by the government even without a default, if investors demand a risk premium, as has happened in some cases before. But even if markets do remain calm, the cost of a standoff will rise sharply when Treasury exhausts its current measures around Aug. 2.

Then the government could stave off default for a time by selling assets at fire sale prices. The United States owns about $402 billion in gold at early May prices and about $81 billion in oil. It holds a portfolio of loans estimated to total $923 billion by September, including more than $100 billion in mortgage-backed securities it is selling slowly to investors, and more than $400 billion in college student loans.

Administration officials, however, say such a move would amount to a modest grace period bought at extravagant and wasteful expense. It would not change the fundamental need for Congress to raise the debt ceiling.

A more likely approach would borrow a page from the Clinton administration, which threatened in early 1996 to suspend Social Security payments for a month.

Congress immediately passed special legislation permitting the government to borrow the necessary money without counting it against the debt ceiling for one month. One day shy of a month later, Congress permanently raised the ceiling.

Republicans Call for Delayed Payments

Many House Republicans have said publicly that they either do not believe the government will default or that they do not fear it. Many embrace a proposal of Senator Patrick J. Toomey, a first-year Republican from Pennsylvania, for the Treasury to pay bondholders with incoming tax revenues and delay other government payments pending a resolution. Mr. Geithner and many on Wall Street call the idea unworkable.

Also, many Republicans have made comments indicating that they do not understand or do not care that an increase in the debt limit is needed not only for new spending but also to cover Social Security checks, troops’ pay and myriad other agreed-to purposes, as well as for payments to creditors holding Treasury bonds.

Another difference from recent decades, when the parties several times agreed to bipartisan budget-cutting deals to raise the debt limit, is the scale of spending cuts that Republicans are demanding as the price of support — up to $2 trillion in savings over a decade.

For Republicans and Democrats to agree on such a far-reaching deficit-reduction plan is a hurdle that is all the higher given how far apart the parties are. Republicans oppose any new taxes while Democrats say a balanced package must include higher revenues.

Also, the time frame for action on a deal is shorter than the Treasury’s debt-limit deadline would suggest: The House’s unusual schedule of recesses means both chambers of Congress will be in session simultaneously for just four of the nine weeks before Aug. 2.

[flow5]

www.nationalreview.com/articles/272560/planless-dems-mark-steyn?page=1

Mark Steyn

"Obama has done his best to pretend to take them seriously. He claimed to have a $4 trillion deficit-reduction plan. The court eunuchs of the press corps were impressed, and went off to file pieces hailing the president as “the grown-up in the room.” There is, in fact, no plan. No plan at all. No plan whatsoever, either for a deficit reduction of $4 trillion or $4.73. As is the way in Washington, merely announcing that he had a plan absolved him of the need to have one. So the president’s staff got out the extra-wide teleprompter and wrote a really large number on it, and simply by reading out the really large number the president was deemed to have produced a serious blueprint for trillions of dollars in savings. For his next trick, he’ll walk out on to the stage of Carnegie Hall, announce that he’s going to play Haydn’s Cello Concerto No. 2, and, even though there’s no cello in sight and Obama immediately climbs back in his golf cart to head for the links, music critics will hail it as one of the most moving performances they’ve ever heard"

The only “plan” Barack Obama has put on paper is his February budget. Were there trillions and trillions of savings in that? Er, no. It increased spending and doubled the federal debt.

How about Harry Reid, the Senate majority leader? Has he got a plan? No. The Democrat Senate has shown no interest in producing a budget for two-and-a-half years. Unlike the president, Senator Reid can’t even be bothered pretending he’s interested in spending reductions. But he is interested in spending, and, if that’s your bag, boring things like budgets only get in the way.

It seems reasonable to conclude from the planlessness and budgetlessness of the Obama/Reid Democrats that their only plan is to carry on spending without limit. Otherwise, someone somewhere would surely have written something down on a piece of paper by now. But no, apparently the Department of Writing Down Plans is the only federal expense the president is willing to cut. You begin to see why the Europeans are a little miffed. They’re passing austerity budgets so austere they’ve spawned an instant anti-austerity movement rioting in the street — and yet they’re still getting downgraded by the ratings agencies. In Washington, by contrast, the ruling party of the Brokest Nation in History has no spending plan other than to plan to spend even more — and nobody’s downgrading them.

Well, don’t worry. It’s coming. The domestic media coverage of this story has been almost laughably fraudulent: To the court eunuchs, a failure to raise the debt ceiling by a couple of trillion would signal to the world that American government was embarrassingly dysfunctional. In reality, raising the debt ceiling by a couple of trillion without any spending cuts would confirm to the world that American government is terminally dysfunctional.

In the debt-ridden treasuries of Europe, they’re talking “austerity.” In the debt-ridden treasury of Washington, they’re talking about more spending (Kathleen Sebelius is touting new women’s health programs to be made available “without cost.”) At the risk (in Samuel Johnson’s words) of settling the precedence between a louse and a flea, I think Europe’s political discourse is marginally less deranged than ours. The president is said to be “the adult in the room” because he is reported to be in favor of raising the age of Medicare eligibility from 65 to 67.

By the year 2036.

If that’s the best offer, there isn’t going to be a 2036, not for America. As the Europeans are beginning to grasp, eventually “political reality” collides with real reality. The message from a delusional Washington these last weeks is that it won’t be a gentle bump

[smackdown]

Sorry, USAONE, as usual your take on history is inaccurate. Prior to the Tax Reform Act... big money got taxed up to 90%, the consumer had more write-offs than just mortgage interest and Big Business had way fewer of them. Corporate America actually did pay a share of the tax burden, unlike it had done since.
Wealth is a handicap in America. Cash Flow is everything. You are young and apparently have made a lot during this COUNTER-CYCLICAL period. Two things should occur to you immediately... as cyclicality resumes, your cash stream wanes (no matter how you shift it, your core philosophy won't trend correctly and it will frustrate you). Second... you will have tasted Prime Rib before dog food and assume to know the difference. When you are hungry, you will wish you didn't.

A reminder that what the Right is apparently fighting for-- collapses the nation's integrity and viability completely if they get their way. 100% of what was done to gain this over-control position has to fall to resume integrity and viability.

"It seems reasonable to conclude from the planlessness and budgetlessness of the Obama/Reid Democrats that their only plan is to carry on spending without limit"

Wrong. You spend INTO a repetitive administrative crisis to blow it out. Much like using dynamite to choke the fire on a burning oil well. The lack of oxygen the occurs at detonation is the key. Looking at SPENDING without examining the controlled attack on REVENUE GENERATION is what it's all about. If too many cooks spoil the broth... then why has America allowed the kitchen to exceed the Fire Marshall's limit this greatly? The key now is to match pariah. If Nouveau Wealth possesses the bulk of Nouveau Debt Notes, it's a simple erasure for stability. Every core service compromised by the Republicans had a viable reciprocation to the overall economy. It was never about making poor people poorer or collapsing the Middle Class to create widespread poverty. Has has ALWAYS been about employing momentum capital to fund us out of the 20th Century's rape and pillage of resources to the 21st Century's more intelligent design of balancing ecology and economy. Technology was supposed to play a key role in that, instead it was used nefariously to make people dependent on thumb presses and squinting at bad text on small screens.
While it is not unusual for me to scratch my head at the move du jour by the government, the fact remains that a small group of very greedy people refuse to let the past Society die because it treated them so well. We had a choice-- wait for them to die off or accelerate wealth until it becomes Too Big To Not Fail based on it's own Consumption Rate. Figure it out... after next Tuesday, the USA may default on it's debts, but we mainly owe those to our own Wealth Class-- who will need FLOW to GROW and that will be destroyed on the 2nd. We the People don't have any left. The remaining option is cannibalism.

[flow5]

By Marshall Auerback

Obama has a chance to redirect our fiscal policy away from big banks and towards you and me.

In response to the debt ceiling drama, serious people are now talking about the President’s ability to use the 14th Amendment to declare the debt limit unconstitutional. That’s a welcome development in a debate too often characterized by wrong-headed economics and outright demagoguery. If Obama seizes the moment, we could not only end this damaging political grandstanding, but redirect the national conversation to what really matters: fiscal policy that addresses the needs of ordinary Americans.

As far as we know, the originator of the constitutional arguments against the debt ceiling was former Reagan Administration official, Bruce Bartlett, whose last essay on the subject, “The Debt Limit Option President Obama Can Use,” has started to gain significant policy traction. More recently, Treasury Secretary Geithner has made much the same point:

“I think there are some people who are pretending not to understand it, who think there’s leverage for them in threatening a default. I don’t understand it as a negotiating position. I mean really think about it, you’re going to say that– can I read you the 14th amendment?”

The Treasury Secretary subsequently did just that, quoting from the amendment to the Constitution adopted on July 9, 1868:

“‘The validity of the public debt of the United States, authorized by law, including debts incurred for the payments of pension and bounties for services in suppressing insurrection or rebellion’ — this is the important thing — ’shall not be questioned.”

Senator Charles Schumer has also invoked the argument. In all cases, the logic is pretty much the same: the Constitution trumps the law regarding the debt ceiling.

What’s so great about this? Well, it could kill the debt ceiling — and perhaps, along with it, other arbitrary constraints which foolishly constrain the efficacy of fiscal policy. Yet curiously, very few champions of aggressive fiscal policy are prepared to go this far, despite the fact that these pointless negotiations are surely undermining private sector confidence. They point to a very real prospect of the US economy going back into recession if the austerity plans that are currently being discussed become law.

In a recent article, Katrina vanden Heuvel makes an excellent point about the opportunity for a more progressive budget arising if Obama goes constitutional: “Invoking the 14th Amendment defuses the bomb Republicans have strapped to the hostage.” That’s right: the President could well end the debt ceiling negotiations and craft a new budget on purely progressive lines. And he could do so on very solid legal grounds, as she illustrates:

“In Freytag v. Commissioner (1991), the Supreme Court held that the president has “the power to veto encroaching laws . . . or to disregard them when they are unconstitutional.” The final word still may lie with the Supreme Court, but in the interim, the president need not wait for its opinion. “As a simple matter of constitutional logic, the president can refuse to enforce a statute he believes violates the Constitution,” said Professor Barry Friedman of NYU Law School in a telephone interview with me…

It is also unlikely that the action would be successfully challenged in court. Only Congress would have standing to sue, but doing so would require a joint resolution, something a Democratic-controlled Senate would almost certainly block.”


But there’s more. So far, our fiscal policy has largely been directed toward the top 5% of our population. It amounts to unfair punishment for lower income groups but asks nothing of our financial and corporate elites. Ending the debt ceiling could be an important step forward in redirecting policy away from bank bailouts, wasteful corporate tax subsidies and mooted tax holidays, and toward ideas such as a Government Job Guarantee, a proper healthcare system (which isn’t grounded in private health insurance) and a first-class education system for all.

The budget/debt ceiling negotiations have focused on spending cuts and tax hikes, which are neither necessary nor desirable at this juncture. The time to invoke higher taxation or reduced government spending is when our economy is operating close to full capacity, experiencing real resource constraints, and thereby threatening inflation. Progressives need to stop accepting the false logic that we “need to be responsible” and “deal with the budget deficit at some point in the future” on the spurious grounds of “affordability”, solvency,” or “because the bond markets won’t fund us any longer.” That’s all wrong.

Here’s a better idea: Invoke the 14th amendment and then stop talking about the budget deficit altogether. The US is not broke and cannot go bankrupt. Let go of that myth. When invoking the 14th, the President could argue that the deficit reduction principles embodied in the debt ceiling limit should never be an object of government policy. He can point out that non-discretionary elements of the budget — the automatic stabilizers like unemployment insurance — will fall as economic growth resumes, thereby reducing the deficit. He can remind us that there is only one reason why growth slows relative to productive capacity: Some sector spends less than before while another sector does not plug the spending drain.

Progressives have gotten into the habit of talking about making “sacrifices” now by starting the process of reducing the deficit. But this is a slippery slope, because it neglects the reality that shrinking the government’s deficit will require either that the private sector spend more relative to its income or that the US current account deficit fall sharply. The fact is that households are still heavily indebted and business spending remains flat; the external sector is not adding net aggregate demand to the US economy. That means that the public deficit is insufficient to close the spending gap. So an arbitrary attempt to reduce the overall stock of government debt is doomed to failure.

Remember, the budget deficit (and the corresponding negotiations over the debt ceiling) cannot be considered independently of the other sectors in the economy. Reducing the government sector deficit from the current 9% or so of GDP toward balance will require some combination of a private sector movement toward greater spending (and likely more private sector debt accumulation - which got us into this mess in the first place), along with a reduction in our trade deficit which, in aggregate, would amount to a total of 9% of GDP. That’s a massive adjustment.

As Randy Wray has argued:

“The problem is that actually trying to balance the budget through spending cuts or tax increases could reduce economic growth… Lower economic growth could conceivably reduce our current account deficit-by making Americans too poor to buy imports, by lowering US wages and prices to make our exports more competitive, and by reducing the value of the dollar. Note that all of those are painful adjustments for Americans. And it might not work, because it requires the US to slow without that affecting the global economy-if it also slows, US exports will not increase.”

A sovereign government can always determine spending and taxation levels, assuming the absence of silly self-imposed limits such as a debt ceiling. What it can’t do is determine in advance the size of the tax revenue or the overall amount directed to the automatic stabilizers. These are both a reflection of economic activity largely outside the control of government. And that means, as Wray notes, that “the budgetary outcome-whether surplus, balanced, or deficit-is not really discretionary.”

The notion of a debt ceiling limit is arbitrary. And it is not grounded in any kind of economic logic. If there are legitimate constitutional reasons to eliminate the debt ceiling, we have a wonderful opportunity to eliminate a host of constraints that foolishly direct government policy away from public purpose.

==================

grasping at straws

[smackdown]

So... if the President invokes the 14th Amendment and acts to salvage the economy from money grubbers, what happens next? Certainly, we need the jobs back that were stolen by Big Hired-In executives over the past decade. We'd need to tank the markets pumping up Platform Businesses and close Banks who stole from the People to invest in foreign countries and force mass-suppression on us all. He absolutely would need to go after all retained Law Businesses for facilitating catastrophic Asset Collapse by taking advantage of the gross bankruptcies and foreclosures Americans faced without legitimate counter representation or inspection of the validity of Due Process, Diligence and Documentation.

In short-- if Obama presses the button on the 14th Amendment, he literally destroys the entire SCAM the GOP has been pushing on us for the last 10 tens at least. Is there a JAIL big enough for all those egos?

[Driftr]

He'd better invoke the 14th and tell Turbo Timmy to pay the interest on the debt first with the receipts he has or I'm going to write him a mean letter.

[decoy409]

flow, this here little line sums up so much from Wray,

"The notion of a debt ceiling limit is arbitrary."

Stuck in time with numbers instead of 'The BIG Picture' are many.

[smackdown]

The Big Picture is only visible to those who have seen it prior to the current era. The damage done by money grubbers is very significant. Younger people have no clue how bad some things get.

A friend of mine lost power this past weekend. No biggie for him. His son emerged from his room wide-eyed and said "my computer stopped working."
My friend replied "the power is out." His son responded "guess I'll go make myself some (microwave) popcorn." When the son emerged empty-handed from the kitchen, he was-- direction-less. I've seen that in other kids, no means of survival without technical assistance.

[lifewasgood]

Upset is putting it mildly, but just wonder how much of the upset folks are misguided?

[blackcard]

Question? Are all Federal debts considered equal? The discussed analogy explained to me went something like this.

All treasury investment debts, like bonds and T-Bills must be paid with interest. Because this is like borrowing money from a bank and agreeing to pay the loan back with interest. To not do so would be a default.

All entitlement programs Social Security, Medicare and Medicaid do not have to be paid. Because this is like promising to pay someone, but without a payment-on-demand certificate to back it up. Therefore no default would occur. Like promising money to a friend or relative and then saying "Sorry, but I can't pay you today."

What is everyones take on all this?

[silverguy25]

Are all Federal debts considered equal

Not at all. Priority will be given to the recipients that pose a greater danger should things slide. Military will get theres...contractors...banks....

[decoy409]

silverguy25,why you did not include in the danger police and fireman? Don't think they will hold those up? I am thinking the military can do one of those two jobs.

[decoy409]

blackcard,do you think they will just continue to create in order to cover pilferred and gambled away promise notes claiming to hold the value they were given? After all,bottom line is it's just paper.

[flow5]

"What is everyones take on all this?
"

from an economic standpoint only interest is "untouchable"

[smackdown]

It's about revenue-generation, not cutting expenses or raising the debt ceiling. It's about looking at the window and recognizing mass-poverty with the intent of connecting THAT to massive pillaging by administrative and executive greed who put wealth above national stability. Common Sense says it's like seeing a fully glass of water teetering on the edge of a table. Greed says: "Let it fall, I'm not thirsty" and fails to consider the damage the shattering glass and water will make. Common Sense doesn't speak at all. It sees the glass and pushes it back to a safe area on the table, even if it means getting wet in the process. It's our economy. The ramifications of letting it fall exceed the danger of retracing it to a safe location.

[flow5]

NEW YORK (CNNMoney) -- The two calamity-avoiding debt ceiling measures under consideration in Congress have something in common.

House Speaker John Boehner says his bill has $1.2 trillion in DISCRETIONARY SPENDING CUTS over ten years. Senate Majority Leader Harry Reid says his bill has about the same level of such cuts.

If either bill is adopted, the cuts would easily be some of the biggest in history.

Here's the problem: NOBODY KNOWS WHICH FEDERAL PROGRAMS ARE ON THE CHOPPING BLOCK.

The bills for the most part avoid targeting specific programs for cuts. Instead, THEY SET SPENDING CAPS that would limit growth over a ten-year period.

But which hard choices will have to be made? Cuts to social programs? The Food and Drug Administration? Foreign aid?

Those DECISIONS WOULD BE PUT OFF UNTIL SOMETIME IN THE FUTURE. For now, lawmakers would be agreeing to only a top-line number.

That leaves everybody in the dark.

"Because the WHOLE PROCESS HAS BEEN DONE IN BACK ROOMS, the public has very little insight, and consequently, no voice in what's going to be cut," said Craig Jennings, the director of federal fiscal policy at OMB Watch, a group that monitors federal spending.

FEDERAL SAFETY NET PROGRAMS COULD BE ON THE LINE, said Jennings. "It's things like food inspections and the National Weather Service."

Grassroots groups and Washington lobbyists would normally fight to protect those funds, but the ambiguity has limited organized response.

"If you put out a certain menu of programs that are going to be reduced, the targets of those cuts will have less time to organize and mount a defense," Jennings said.

Spending caps could lead to "some really stupid allocation decisions," said Norman Ornstein, a resident scholar at the conservative American Enterprise Institute. "You might cut in places where the long-term costs will be greater, and even do some things that endanger public safety."

The lack of details might make it harder for Americans to understand the stakes, but it does make it easier to push the deal through Congress. The ambiguity seems to be part of the strategy -- on both sides.

"They don't want to put pen to paper on that stuff, and I certainly don't blame them," said Bill Frenzel, a guest scholar at the Brookings Institution and a Republican who served 20 years in Congress.

Press Secretary Jay Carney said as much on Tuesday when questioned by the White House press corps about a lack of detailed disclosures during talks with John Boehner.

"WHEN YOU PUT FORWARD A POSITION ... on difficult issues ... it becomes charged politically, and YOUR CHANGES OF ACTUALLY GETTING AN AGREEMENT DIMINISH SIGNIFICANTLY," Carney said. "That's how it works."

Elected Democrats have thus far been restrained in their criticism of the caps -- underscoring the importance of raising the debt ceiling no matter how painful future cuts may be.

And now it's way too late for a drawn out fight over spending priorities.

"It's no way to govern, but it's better than the alternative -- a default," Ornstein said

[BeenThere...DoneThat...]

...we need to make major cuts in mandatory spending, too... I'd like to see about $10T over the next decade... that'll be a start...

[smackdown]

"we need to make major cuts in mandatory spending, too."

Foolishness. Spending is relative to revenue generation... just like in your household. You don't "cut" spending if you need what you buy. The first area where we need to investigate spending is the military machine. It would make more sense to have the spouses of soldiers buy the supplies instead of some department full of accounting types. The spouse is already working with a shortfall in revenue. The MORE IMPORTANT aspect is to create revenue where there is plenty of it. NO financial sector component should be publicly-traded. ALL of them need a flat tax or a sharp axe severing them from existence. No economy, no society, ever in history survived by making profits on it's currency by keeping it from flowing through the streets of the nation.