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U.S. economy – debt ceiling crisis 2011
Written by Diana Thebaud Nicholson // November 28, 2011 // David/Terry Jones, Politics, U.S. // Comments Off on U.S. economy – debt ceiling crisis 2011
Wikipedia’s entry on the United States debt ceiling crisis includes a lengthy discussion of the arguments regarding the implications of the 14th Amendment to the Constitution
Narcissism should not be the basis for economic policy
— Martin Barnes
(The Economist) On March 4th the federal government will run out of money unless Congress first passes a bill voting more; a few weeks after that, it will bump up against the federal debt ceiling, now set at an apparently insufficient $14.3 trillion, unless, again, Congress votes to increase it. The stage is set for a savage spring. read more
‘Taking the Hill’: NBC gets a rare look inside Congress Note: this link may change post-broadcast
With more than 30,000 employees and 535 legislators between the House and Senate, the U.S. Capitol complex is like a city unto itself. Months ago, NBC News received permission to flood the Hill with cameras for a day-in-the-life documentary shoot. What no one knew at the time is that the Capitol would be in the midst of grinding talks over the national debt while we were there. This slideshow consists of photos taken while dozens of NBC TV cameras roamed the buildings and grounds this past Wednesday, July 27. The resulting documentary, “Taking the Hill: Inside Congress,” aired Sunday, July 31.
David Jones‘ Aug 3 op-ed in the Ottawa Citizen proclaims We Ain’t Dead Yet and argues that The denouement of the debate in recent weeks was precisely what analysts predicted: a limited increase in debt the U.S. government can contract.
Vanity Fair | November 2011: Debt and Dumb
As a young artillery captain in the Revolutionary War, Alexander Hamilton learned a crucial lesson: Good credit, based on the power to tax, is essential to a nation’s security. As the ﬁrst U.S. Treasury secretary, he built America’s ﬁscal policy on that principle. Will the Tea Party destroy his legacy?
The surest sign that Republicans killed the supercommittee is their continued insistence that they didn’t.
(Slate) What we’re supposed to hear, and hear, and hear, is that Democrats didn’t care as much about reducing the deficit as the GOP did, that they were obsessed with hiking taxes, and that they wanted the whole shebang to fail to prove a point. The reason Republicans keep saying this, as Jonathan Chait explains, is that it looks to most people like they triggered the supercollapse because they wouldn’t deal on taxes.
Barney Frank’s Exit May Leave Wall Street Rules Vulnerable to Republicans
(Bloomberg) U.S. Representative Barney Frank’s decision to retire at the end of his term will leave House Democrats without one of their most skillful debaters and their chief negotiator on banking and finance.
Frank has been at the forefront as Congress tried to prop up and reform the financial system during the most distressed economy since the Great Depression.
During 30 years in Congress, the 71-year-old Massachusetts Democrat has inflamed Republican critics with his advocacy for gay rights, cuts in defense spending and a strong government role in housing for low-income people. He led the Financial Services Committee during the 2008 credit crisis and was instrumental in passing the $700 billion bank bailout. He co- authored what would become the 2010 Dodd-Frank Act — a 2,300 page overhaul of Washington’s rules for Wall Street.
Grover Norquist: a misleading accounting of recent history
(Fact Checker|WaPost) We don’t fact check political philosophies, but Norquist’s appearance on “Meet the Press” on Sunday gives us an opportunity to look at some of the facts that he uses to make his case. As can be seen from the excerpts of the interview above, Norquist is unabashedly partisan — in his view, economic growth literally ends the day Democrats win power in Congress. That already begins to stretch the bounds of economic logic, but what about some of his other assertions?
Peter Orszag: Blame Supercommittee’s Failure on the Income Gap
(Bloomberg) The supercommittee’s failure to reach a substantial agreement this week is disappointing but unsurprising. The old model of politics, in which bipartisan agreement was the key to success, simply doesn’t work anymore. In the new model, there is almost no overlap in views across party lines, and government function requires either domination by one party (as was the case for much of President Barack Obama’s first two years in office) or more automatic decision-making (as I have suggested elsewhere). What’s causing today’s hyper-polarization? Although political scientists still debate the issue, a growing body of evidence suggests that, as economists such as Paul Krugman and Ed Glaeser have argued, increases in income inequality may play a significant role.
The supercommittee flops —Do-nothing Congress may find a way to raise taxes
(The Economist) Until recently, it had been assumed that whatever their differences, Republicans and Democrats could come together to protect a tax cut for working people amid an extremely fragile recovery. The failure to reach any supercommittee deal may have poisoned the water sufficiently to cast even that into doubt.
Grand deficit-cutting effort ends with whimper
(Reuters) – Washington’s most ambitious effort in years to come to grips with its mounting debt is set to end with a whimper on Monday as negotiators plan to announce they have failed to reach a deal. Analysis: Fallout from deficit-reduction panel failure
The Pledge: Grover Norquist’s hold on the GOP
(CBS News) As head of Americans for Tax Reform since 1986, Grover Norquist has transformed a single issue – preventing tax hikes – into one of the key platforms of the Republican Party. As Steve Kroft reports, his biggest coup was getting more than 270 members of Congress, and nearly all of the 2012 Republican presidential primary candidates, to sign a pledge promising never to vote to raise taxes. But some opponents say the pledge may be hindering a solution to America’s debt crisis.
(CSM) Six days left: Slowly, for super committee, failure is becoming an option
The Tea Party reveals what Republicans really want the supercommittee to do.
(Slate) The Tea Party’s solution: Do the maximum. The commission’s draft budget makes the Bush tax cuts permanent. It allows workers born after 1981 to opt one-half of their payroll taxes out of Social Security, which would cost “about $500 billion” in revenue. It goes on to find $9.7 trillion in overall savings, by dramatically scaling back the post-1933 welfare state. Anyone who wants to opt out of Medicare can do so. Medicaid becomes a block grant program; so do food stamps. The Affordable Care Act is repealed. Physician payment rates are kept at 2011 levels.
That was just the entitlement care portion of the budget, though it got some of the biggest cheers at the relocated hearing. (The biggest cheers probably went to the abolition of executive branch “czars,” even though that reform wouldn’t save any money.) More savings were found in the discretionary side, as long-loathed programs were blasted out of existence. The budget ends all farm subsidies, the ethanol tax credit, “foreign aid to countries that don’t support us,” earmarks, the Departments of Education and Energy (except for nuclear research, which would remained funded, just at the Department of Defense), HUD, most of the EPA, the Small Business Administration, the Bureau of Reclamation, the National Endowment for the Arts, and AmeriCorps. Amtrak and the TSA would be privatized. By 2015, the amount of soldiers deployed overseas would be cut back to 45,000.
(Spiegel) Larry Bartels, one of America’s leading political scientists [and author of Unequal Democracy: The Political Economy of the New Gilded Age, also believes America has entered a new Gilded Age. … much as the economic giants of the Gilded Age developed such enormous influence that they could dictate basic political conditions, today’s Wall Street bosses and CEOs have successfully arranged extensive deregulation for their industries.
Warren Buffett brings his fight to raise taxes on rich to Congress’ supercommittee
Deficit ‘super committee’ flooded with ideas. Will any of them work?
(CSM) The 12-member congressional “super committee” charged with reining in future federal deficits has been deluged with recommendations. But as of Friday, the deadline for committees of Congress to present their recommendations, there is little indication that any big, bipartisan deal is on the table. … many of the ideas have been rattling around the halls of Congress for years: raise taxes, invest in small businesses, cut wasteful spending, cut more deeply at the Pentagon, go after unneeded agricultural subsidies, and so on.
But early reports signal that lawmakers have mainly seen this as a partisan exercise that restates rather than reconsiders fixed party lines. For Republicans, it’s calls to cut spending and entitlements. For Democrats, it’s calls to raise taxes and avoid entitlement cuts.
Starbucks CEO says 100+ businesses to withhold campaign donations over debt
(Yahoo! news) Heads of over 100 major companies have joined Starbucks Corp. CEO Howard Schultz in a pledge to boycott political donations until Congress and the president agree on a long-term debt and deficit plan, Schultz announced in a letter Wednesday.
“Remarkably, the initiative triggered a national dialogue and a groundswell of support,” Schultz wrote, adding … he “heard directly from thousands of concerned citizens and was astounded by the volume of support we received through calls, emails, social media exchanges and various other public votes of confidence.” That included over 100 business leaders who signed on to Schultz’ initiative.
McConnell, Boehner Make Deficit Committee Appointments
Republican leaders of the House and Senate announced their picks Wednesday for the “super Congress” deficit committee slated with finding about $1.5 trillion in savings. Their announcement comes a day after Senate Majority Leader Harry Reid appointed three Democrats to the 12-member commission.
On the Senate side, Sens. Jon Kyl (R-Ariz.), Pat Toomey (R-Pa.) and Rob Portman (R-Ohio) will serve on the commission, Senate Minority Leader Mitch McConnell announced. Reps. Dave Camp (R-Mich.), Fred Upton (R-Mich.) and Jeb Hensarling (R-Texas) will represent House Republicans, said Speaker John Boehner.
All six Republicans have signed a pledge to Grover Norquist’s Americans for Tax Reform that they will not vote to raise taxes. That’s really helpful.
They will join Democratic Sens. John Kerry (D-Mass.), Patty Murray (D-Wash.) and Max Baucus (D-Mont.), whom Reid appointed to the commission on Tuesday. House Minority Leader Nancy Pelosi (D-Calif.) has not yet made her appointments.
Superconfusion: Democrats say the supercommittee has the power to raise taxes. Republicans say it doesn’t. Who’s right?
(Slate) Harry Reid waited until just moments before the debt deal was approved to hand House Republicans a big surprise.
“We need to have a fair approach to this joint committee,” he said, closing his remarks about the deal. The new “supercommittee” would have to demand more from “billionaires and multimillionaires,” and it would have to look at tax hikes as a way to avoid the “trigger” of automatic cuts. “We’ve had too much talk these days of saying ‘there will be no revenue.’ That’s not going to happen. Otherwise, the trigger’s going to kick in.”
Two minutes before the final vote, and nobody could agree what the key component of the deal actually did. Republicans had wrangled their last “ayes” for the plan by promising that the committee would never, ever succeed in raising taxes. They reiterated as much after Reid’s speech, with House Majority Leader Eric Cantor flitting from interview to interview, promising that taxes were supercommittee kryptonite. There were “structural scoring impediments to imposing tax increases,” explained Paul Ryan, R-Wis., chairman of the House budget committee. Republicans interpret Ryan’s word like tablets brought down from Mount Sinai, so that calmed them a bit.
Robert Scheer: The Recovery Is Dead, Long Live the Recovery
(HuffPost) Neither party has ever dared to use the deficit ceiling to blackmail the entire nation — until now. And for that, the GOP is the party clearly at fault. But it is also true that it was Barack Obama who folded.
The die has been cast. Obama’s “nearly complete capitulation to the hostage-taking demands of Republican extremists,” as an editorial in the normally sedate New York Times described the deal to raise the debt ceiling, is a disaster in the making. It rules out a vigorous government response to the persistent economic stagnation in which joblessness, housing foreclosures and an ever-widening gap between the top 2 percent and the rest of Americans have become the norm.
But to use the word “capitulation” is too kind, since this president, as was Bill Clinton before him, is clearly one of those “New Democrats” who welcomes the opportunity to jettison the legacy of Franklin Delano Roosevelt as outmoded political baggage. Otherwise, why would Obama have reached for a “grand bargain” in which he even put Social Security and Medicare cuts on the table before the Republicans rolled him? More Robert Scheer columns
Generational Balance, Not Budget Balance: Laurence Kotlikoff
(Bloomberg) Debt crises make great drama. The big shots attend meetings, look terribly worried, then stomp out, accusing each other of bad faith. Finally, at the witching hour, they reach agreement and tell us all is fine, for now.
The tough thing is sorting out what’s really going on. In the U.S. case, the answer is: not much. We need tax increases and spending reductions far beyond what’s being negotiated. Cutting the deficit by $1 trillion to $2 trillion over 10 years sounds like a big deal, but not when our unfunded Medicare and Social Security liabilities, by my calculations, are growing by more than $4 trillion a year.
Obama’s Hope-a-Dope Strategy
(Mother Jones) It’s easy to second-guess a president. And this week is producing a flood of second-guessing. Obama and his aides are disdainful of the snap-judgment cable chatter. They know that while it’s natural for progressives to crave a more confrontational approach, there’s no way to prove consistent fisticuffs would yield better outcomes. And they believe that making what progress they can on the economy and other policy matters—rather than scoring points in pugilism—will probably help Obama most in 2012 (as well as serve the nation).
The debt-ceiling showdown has put Obama’s operating assumptions to a serious test. “Sometimes, he can appear as weak and indecisive,” a past aide says. “But he is a pragmatist. He believes you can’t achieve universal health coverage, green energy, a clean environment, rebuild America—his fundamental beliefs—if the country isn’t behind you. But in a profoundly polarized world, can this work?”
And speaking of second guessing A diminished president, a diminished global power “… The Obama team operated in rapid response campaign mode, giving higher priority to demonizing Republicans than in honestly negotiating with them.”
And the second-guessing begins
What the White House Left on the Table
By NATE SILVER
The vote on the debt ceiling bill shows that President Obama could have shifted the deal tangibly toward the left and still won passage without too much of a problem.
(fivethirtyeight/NYT) … in the end, exactly half of the Democratic caucus members voted for the debt ceiling bill, which makes it hard to classify the deal as “terrible” from their point of view.
But almost three-quarters of Republicans voted in the affirmative. And even the Tea Party came around in the end. By 32-to-28, members of the Tea Party Caucus voted for the bill, despite earlier claims — which now look like a bluff — that they wouldn’t vote to raise the debt ceiling under any circumstances.
These results seem to suggest that Mr. Obama left something on the table. That is, Mr. Obama could have shifted the deal tangibly toward the left and still gotten a bill through without too much of a problem. For instance, even if all members of the Tea Party Caucus had voted against the bill, it would still have passed 237-to-193, and that’s with 95 Democrats voting against it.
Specifically, it seems likely that Mr. Obama could have gotten an extension of the payroll tax cut included in the bill, or unemployment benefits, either of which would have had a stimulative effect.
George Monbiot: Debt deal: anger and deceit has led the US into a billionaires’ coup
The debt deal will hurt the poorest Americans, convinced by Fox and the Tea Party to act against their own welfare
(The Guardian) There are two ways of cutting a deficit: raising taxes or reducing spending. Raising taxes means taking money from the rich. Cutting spending means taking money from the poor. Not in all cases of course: some taxation is regressive; some state spending takes money from ordinary citizens and gives it to banks, arms companies, oil barons and farmers. But in most cases the state transfers wealth from rich to poor, while tax cuts shift it from poor to rich.
So the rich, in a nominal democracy, have a struggle on their hands. Somehow they must persuade the other 99% to vote against their own interests: to shrink the state, supporting spending cuts rather than tax rises. In the US they appear to be succeeding.
Partly as a result of the Bush tax cuts of 2001, 2003 and 2005 (shamefully extended by Barack Obama), taxation of the wealthy, in Obama’s words, “is at its lowest level in half a century”. The consequence of such regressive policies is a level of inequality unknown in other developed nations. As the Nobel laureate Joseph Stiglitz points out, in the past 10 years the income of the top 1% has risen by 18%, while that of blue-collar male workers has fallen by 12%.
The deal being thrashed out in Congress as this article goes to press seeks only to cut state spending. As the former Republican senator Alan Simpson says: “The little guy is going to be cremated.” That means more economic decline, which means a bigger deficit. It’s insane. But how did it happen?
House passes bill to prevent US default
A vote in the Senate will be held on Tuesday
(AP via NBC) Emergency legislation to avoid an economy-rattling government default sped through the House Monday night, a scant day before the deadline for action — the dramatic vote made all the more memorable by Rep. Gabrielle Giffords’ first appearance in Congress since suffering a head wound in a shooting six months ago.
The vote was 269-161, but all eyes were on Giffords, who drew thunderous applause as she walked into the House chamber and cast her vote in favor of the bill.
A final Senate sign-off for the measure is virtually assured on Tuesday.
After months of fiercely partisan struggle, the House’s top Republican and Democratic leaders swung behind the bill, ratifying a deal sealed Sunday night with a phone call from House Speaker John Boehner to President Barack Obama.
Debt deal’s prospects in House uncertain
(FT) The House of Representatives will be the last hurdle before a deal can be signed by President Barack Obama and both parties will probably face defections
Robert Landori blogs about The Theatre of the Absurd
Most of the time people call this building “the US Capitol”.
Today, many characterize it as The Theatre of the Absurd, or The Kabuki Theatre.
Because, in its hallowed halls, members of the Senate and of Congress are presently behaving as if they were performing at Montreal’s Just for Laughs Festival.
I am a Canadian with no ax to grind. Like everyone around the world, though, I watch, perplexed, as the globe’s most powerful nation clumsily stumbles toward shooting itself in the foot by destroying its AAA Credit Rating, thereby probably precipitating yet another world economic crisis of unimaginable proportion.
Don’t the ‘wise’ US legislators realize that they have already undermined the power of the US Dollar to the point where oil-producing countries have begun not to accept payment for their products in US Currency, that the Russians, the Europeans and the Chinese are in the process of creating a “currency” based on a basket composed of a mixture of Euros, Rubles and Yuans or some other mix designed to replace the US Dollar as the currency of international debt settlement?
Debt Ceiling Deal Reached To Avert Default
(HuffPost) President Barack Obama and Republican congressional leaders reached historic agreement Sunday night on a compromise to permit vital U.S. borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts.
Reid gives his blessing to debt ceiling accord
Potential size of cuts to military spending emerges as potential obstacle
(NBC Nightly News) According to congressional leaders, a debt deal is “very close” and will probably be a two-step plan that cuts spending by about $2.8 trillion.
Debt ceiling update: tax increases still a no-go
First, the outline of the emerging debt ceiling deal (via Reuters):
1) The emerging deal includes a two-step process to cut the deficit about $2.8 trillion over a decade while increasing the debt ceiling by a similar amount to cover U.S. borrowing beyond the November 2012 election.
2) Lawmakers have already largely agreed on caps to annual discretionary spending over 10 years, although their estimates of the savings, $1 trillion, are greater than the nonpartisan Congressional Budget Office’s tally of $750 billion.
3) A further $1.8 trillion would be recommended by a special committee appointed by Congress that would make its recommendations by late November.
4) Negotiators Sunday were trying to overcome one of the last major sticking points — a proposed enforcement mechanism, or “trigger,” to ensure additional deficit reduction gets enacted into law. Across-the-board cuts would be triggered if Congress failed to act on the panel’s recommendations.
It seems as if the cuts triggered by the enforcement mechanism will hit Medicare providers and defense, if debt cuts can’t be agreed on. But it is also important to note that Republican leaders certainly believe that the structure of the super-committee will be such that it would be virtually impossible for it to recommend tax increases. This is key because the history of congressional committees and gangs would suggest that tax hikes would be on the table. A GOP aide describes it this way to me:
It has an undefined mandate of deficit reduction but the way that is constructed would essentially make it impossible to raise taxes. Anything scored by CBO is based on current law. Current law assumes that taxes are going to go up by three-and-a-half trillion dollars next year [over ten years]. So anything you do to the tax code, unless it starts off with a $3.5 trillion tax increase, it’s going to be adding to the deficit … It’s almost impossible for them to touch taxes because if they do, almost anything will be scored as a tax cut, making it that much more difficult to reach the $1.5 trillion that they need to get to.
Saturday’s debt-ceiling surprise: GOP and Obama are talking again
(CSM) After a rancorous day in which Republicans vented their anger at the Senate and President Obama, GOP leaders said they are in talks with the president and that ‘the country is not going to default.’
US Debt Debate: Annihilating Democracy with the Tea Party
(Der Spiegel) Democracy depends on compromise and the American government depends on all branches working together. The Tea Party movement shuns both, preferring instead to drive the state into bankruptcy. On principle. … These lawmakers no longer view themselves as part of the political system. Instead, they identify themselves as its enemy. They see themselves as outsiders, even as they sit in Congress and enjoy the kinds of job benefits they would like to strip from their fellow Americans. A succinct analysis of the current situation.
Boehner Rewriting Debt Ceiling Plan, Faces Tea Party Opposition
Six days away from a potentially calamitous government default, House Republicans on Wednesday appeared to be slowly coalescing around a plan by House Speaker John Boehner to avert the debt crisis – a plan Boehner was still retooling to increase its complement of spending cuts. But Senate Democrats insisted the short-term solution Republicans were crafting would leave the economy on shaky footing.
Robert Scheer: Debt Madness Was Always About Killing Social Security
(HuffPost)This phony debt crisis has now passed through the looking glass into the realm where madness reigns. What should have been an uneventful moment in which lawmakers make good on the nation’s contractual obligations has instead been seized upon by Republican hypocrites as a moment to settle ideological scores that have nothing to do with the debt.
House ‘Deluged By Calls And Emails’
Kyle Anderson, a Democratic spokesman for the House Administration Committee, said in a statement that
“House operators and Member offices are being deluged by calls and emails from Americans who understand the seriousness of default and, unlike many Members on the other side of the aisle, feel that the stakes are too high to play political brinksmanship. These are the people with Social Security and Medicare benefits at stake, individuals with pensions and retirement accounts invested in the financial markets and business owners whose continued existence is based upon their ability to access capital markets at reasonable interest rates. Their message, and sense of urgency, are clear,” Anderson said.
‘Stalemate’: Obama Pleads for Compromise while John Boehner Holds Firm on Spending Cuts
(ABC News) With the U.S. government hurtling toward an Aug. 2 deadline to avoid default, President Obama and House Speaker John Boehner squared off on national television tonight, making their separate cases about how to go about deficit reduction and raise the debt ceiling.
Bob Schieffer: Party leaders unable to lead on debt
(CBS) This is a gridlock that is far from being solved. This is a very different kind of situation than we’ve had in recent years in Washington. Most people in Washington will tell you that the leaders are ready to deal, that Speaker Boehner is ready to deal, that Barack Obama is ready to deal, that the Majority Leader in the Senate, Harry Reid and his counterpart Mitch McConnell are ready to deal. But they cannot get the followers to follow the leaders.
Obama calls for action, compromise on debt
Boehner: ‘The sad truth is that the president … wants a blank check today’
(MSNBC) The measure Boehner and the GOP leadership drafted in the House called for spending cuts and an increase in the debt limit to tide the Treasury over until sometime next year. A second increase in borrowing authority would hinge on approval of additional spending cuts sometime during the election year.
Across the Capitol, Senate Majority Leader Harry Reid wrote legislation that drew the president’s backing, praise from House Democratic leader Nancy Pelosi — and criticism from Republicans.
The Democrats’ measure would cut $2.7 trillion in federal spending and raise the debt limit by $2.4 trillion in one step — enough borrowing authority to meet Obama’s bottom-line demand.
The cuts include $1.2 trillion from across a range of hundreds of government programs and $1 trillion in savings assumed to derive from the end of the wars in Afghanistan and Iraq.
Clive Crook: Washington is drowning America
(FT via Globe & Mail) First, political polarization in Washington and the country at large has weakened the capacity to govern too much. Second, the U.S. faces challenges that test this diminished capacity in new ways.
The founders intended delay, deliberation and compromise — not paralysis. In recent weeks and months, the new incapacity has been self-evident. But the debt-ceiling impasse is only one instance. This weekend thousands of workers were laid off because of a failure to renew the Federal Aviation Administration’s operating authority — just another partisan breakdown, hardly worth mentioning, in hitherto routine legislative business.
Across government, leadership positions are unfilled because the administration cannot get its nominees confirmed. Denial of fiscal support is another weapon. The administration’s healthcare reform faces a campaign of legal, procedural and budgetary attrition that is especially vicious.
Why investors turn to gold amid debt-ceiling uncertainty
(CSM) The price of gold went up $12.90 an ounce on Monday alone, closing at $1,614.40. But if the debt ceiling is raised, the gold price could come down over the short term.
Leaders fear D.C. trust deficit, dysfunction will go global
(Politico) As Washington scrambles Sunday to avert default, the deficit of trust among leaders in Congress is becoming almost more important than the debt numbers themselves.
Having broken off talks Friday with the White House, Speaker John Boehner is trying to achieve much of the same $3 trillion package in a two-stage process tied to raising the debt ceiling in increments of $900 billion first and then about $1.6 trillion next year. Boehner’s goal is to show his conservative rank and file that he has locked in savings at each step, but the process is so tilted against Democrats it risks blowing up in the Republicans’ face — with huge unknown consequences for both parties and the nation.
Nothing has been finally agreed to, but the first stage of the Boehner plan — to be enacted before Treasury’s Aug. 2 deadline — would call for a $900 billion debt ceiling increase that would be paired with cuts from future appropriations by about $1.2 trillion over the next 10 years.
The treatment of funding for disaster aid and Pell Grants for low-income college students remains an open issue. But, further aggravating Democrats and possibly creating a point of dispute between Boehner and Senate Minority Leader Mitch McConnell, House Republicans raised the prospect Saturday night of yet another disapproval vote on the first debt ceiling increment — to be held in September.
All this pales next to the second step required to complete the job of raising the debt ceiling a total of $2.4 trillion to $2.5 trillion to get past the 2012 election.
This second installment of $1.6 trillion will be needed by Treasury next winter and will sorely test a new joint deficit committee to implement many of the more difficult entitlement cuts, including to Medicare, discussed with the White House.
The Urgent Need for a Debt Deal Before a Monday Market Panic
(The Atlantic Wire) The debt ceiling talks, to the nation (and the world’s) increasing frustration and fear, reached a bleak moment Friday evening when President Obama said that House Speaker John Boehner walked away from negotiations to raise the debt ceiling. President Obama called an urgent meeting Saturday morning at the White House, which ended without resolution less than an hour later, the New York Times reports. The meeting, as various sources have speculated, was probably not a happy one. …
So both sides — at minimum — have agreed that the debt ceiling issue is a matter of some serious urgency, with serious progress required this weekend. But lest it seem this paralysis will be ending that quickly, Boehner also said that he was not necessarily looking for a full-blown deal by Sunday, just signs of progress. Politico also reports that after the meeting, “there was no sign that the parties had resolved their differences.”
22 JulyGrover Norquist’s Pledge Is a Colossal Failure
(The Atlantic) In 1986, Grover Norquist and his organization, Americans for Tax Reform, created the “Taxpayer Protection Pledge,” which he describes as “a simple, written commitment by a candidate or elected official that he or she will oppose, and vote against, tax increases.” It has recently come under repeated fire: it became a tool for ethanol subsidy apologists, for example, and most recently, it emerged as a needless obstacle in negotiations over raising the debt ceiling.
Federal Reserve Actively Preparing For The Possibility Of U.S. Default
Democrats, Republicans still at odds on debt ceiling
WASHINGTON (Reuters) – With five days remaining before President Barack Obama’s deadline for a deal to raise the U.S. debt ceiling, Republicans and Democrats have yet to agree on a big plan to cut the nation’s deficit and raise its debt limit in time to avoid an unprecedented U.S. default
Independent voters siding with Obama on debt fight
(CTV News) It’s possible the debt-ceiling debate will turn out badly for President Barack Obama. For now, however, it may be helping his image with a vital group: independent voters, who have decided the last several elections.
Polling by the Pew Research Center suggests that unaligned voters are increasingly alarmed about the prospects of failing to raise the debt ceiling by Aug. 2. Their mood could help Obama next year if he can build and sustain an image as an accord-seeking leader trying to protect average Americans.
Two months ago, Pew found that independents, by 49 per cent to 34 per cent, were more fearful that raising the debt ceiling would lead to higher government spending, as opposed to chiefly fearing the harmful effects of keeping the ceiling unchanged. This month, independents split evenly on the question.
Shields and Brooks on Political Risks, Rewards of Debt Standoff – they are no more sure of the outcome than anyone else.
Dicing with debt and the future
The Theory of Inevitable Compromise, and why it is probably wrong
(The Economist) As the whole world knows, America’s government is in danger of defaulting after August 2nd unless Congress raises the federal debt ceiling so that it can keep borrowing enough to pay its bills. For a while the markets assumed that because a default would be so scary, Republicans and Democrats would have in the end to agree on the spending cuts the Republican-controlled House demanded as its price for raising the ceiling. The Theory of Inevitable Compromise was that each party would have to give a bit because voters will punish whichever proves too stubborn. But here are eight reasons to wonder whether the theory is true.
First, for the theory to work, both parties need to believe that failing to raise the ceiling will trigger a default and the “huge financial calamity” Ben Bernanke, the chairman of the Fed, gave warning of this week. Not all Republicans do believe that. John Boehner, the House speaker, is a believer, but the freshmen who bobbed into Congress last November on a tidal wave of tea are not. Some say that the government could keep paying foreign creditors by slashing domestic spending, and that this would be just fine—even though Mr Obama refuses to guarantee even that Social Security (pension) cheques would go out without a deal.
Republican offers new U.S. debt proposal
But fix would be tied to future spending cuts
(CBC) Senate minority leader Mitch McConnell suggested giving President Barack Obama sweeping new power to, in effect, unilaterally increase the nation’s debt limit to avoid a first-ever default on U.S. obligations.
McConnell’s offer would allow the president to demand up to $2.4-trillion in new borrowing authority by the summer of next year in three separate submissions. However, Obama would also be required to simultaneously propose spending cuts of greater size.
Those increases in the so-called debt limit would automatically take effect unless both the Republican-controlled House and the Democratic Senate enact legislation specifically disapproving it and even then Obama could exercise his authority to veto such legislation. Significantly, the president’s spending cuts would be debated under normal procedures, with no guarantee they ever come to a final vote.
Obama confident US debt deal can be struck
(Reuters) – President Barack Obama is confident Democrats and Republicans can cut a “significant deal” to trim the U.S. deficit and increase its borrowing limit to avoid a damaging default, the White House said on Monday.
Despite the White House’s optimism, both Republicans and Democrats showed little willingness to compromise after deficit reduction talks led by Vice President Joe Biden collapsed suddenly on Thursday.
With polls showing Americans deeply worried about the sputtering economy, both sides are talking tough in an ideological battle over how best to cut a U.S. deficit that is projected to be $1.4 trillion this year.
Republicans say the solution lies in trillions of dollars in spending cuts, while Obama’s fellow Democrats say the deficit cannot be meaningfully reduced without increasing tax revenues, something their opponents reject.
China warns U.S. debt-default idea is “playing with fire”
(Reuters) – Republican lawmakers are “playing with fire” by contemplating even a brief debt default as a means to force deeper government spending cuts, an adviser to China’s central bank said on Wednesday.
The idea of a technical default — essentially delaying interest payments for a few days — has gained backing from a growing number of mainstream Republicans who see it as a price worth paying if it forces the White House to slash spending
US reaches debt limit: What comes next?
(CSM) US government has reached the debt limit set by Congress, Treasury’s Tim Geithner said Monday. Treasury has ways to keep paying the nation’s bills until August. All eyes are now on Congress.
The event didn’t catch the Treasury or Congress by surprise: Mr. Geithner has warned for months that Treasury borrowing was nearing the cap. But it does guarantee that wrangling will intensify in the weeks and months ahead over the terms under which Congress will raise the limit to allow more borrowing.
President Obama’s Budget Speech Backfires: S & P Slaps US with Negative Rating
(technorati.com) By making such a partisan budget speech, the President contributed to the world view that the US was not serious about reducing our national debt. His “toxic” speech gave credibility to S & P’s claim that the US has no clear path to solving our national debt problems. Perhaps now, our political leaders will stop the partisan bickering and work together to solve our national debt crisis before it is too late. This is not a time to cling to idealogy. Each side will have to take risks with their political base in order to reach a bi-partisan agreement this year. Let’s hope the President leads by signaling to the world that the US will have a credible bi-partisan plan for debt reduction this year, rather than attacking the Republican plan as the central theme for his 2012 re-election campaign..
Agency sounds alarm on U.S. debt
The nation’s credit rating has a chance of being lowered, Standard & Poor’s said, shocking investors.
(Philadelphia Inquirer) An unexpected warning by a major credit-rating agency on America’s soaring debt shocked global investors and threatened still wider consequences for the U.S. economy, even as a new sense of realism emerged in the deadlock between President Obama and congressional Republicans over fiscal policy.
U.S. Hasn’t Crashed Through Debt Ceiling Yet, but Getting Closer
Debt ceiling brawl threatens economy, consumers
(MSNBC) Washington is gearing up for a battle over how many trillions the federal government can borrow to pay its bills, and it’s shaping up to be an even bigger brawl than the one just resolved over funding the government for the next six months.
While investors viewed last week’s budget brinksmanship as a minor event, they are beginning to grow concerned that many lawmakers and ordinary Americans, fail to grasp the implications of even suggesting the United States would default on its debt obligations.
What is a political football to Congress could end up flattening the economy and hurting consumers by lowering the nation’s pristine credit rating and sending interest rates sharply higher.
Risks to Boehner in Debt-Ceiling Brinkmanship
By NATE SILVER
Trying to extract concessions to avoid a default on the federal debt, Republicans risk setting off a crisis even worse than a government shutdown.
Although John Boehner and the Republicans are coming off what is widely being scored as a victory on the argument over the 2011 budget, they risk overconfidence as Congress turns its attention to the next debate, which is the fight over raising the federal debt limit.