Thoughts on the debt ceiling fight
It’s hard to get reliable information on what would actually happen if the debt ceiling were not raised.
Tom Coburn says it wouldn’t be such a big deal:
“We’ll continue to pay our interest, we’ll continue to redeem bonds, and we’ll issue new bonds to replace those. So it’s not entirely accurate,” Coburn said, saying that attention needs to focus on long-term solvency of government programs. “What we need to do is have a discussion.”
Coburn said negotiations over the budget and debt ceiling go hand in hand, because the debt ceiling is a myth.
“The debt ceiling and the CR are the same thing. There is no such thing as a debt ceiling in this country because it’s never been not increased, and that’s why we’re $17 trillion in debt,” Coburn said.
Naturally, the administration says otherwise:
On Sunday, Treasury Secretary Jack Lew warned Congress that if it doesn’t raise the debt limit by Oct. 17, when the Treasury predicts the limit will be reached, it is “playing with fire.”
If you look at the comments to this piece at National Review on Coburn’s statements, you’ll see that there’s a very wide (and adamantly-stated) difference of opinion on whether he’s right or wrong. So, which is it?
Jack Lew’s “playing with fire” remark can’t necessarily be credited either, because it fits in quite nicely with the usual fear-mongering we’ve grown accustomed to from the Obama administration.
So—is the boy crying “wolf,” or is that wolf really poised to attack?
Oh—and did Obama just blink on the debt ceiling, at least in the short term? If so, that would be good news. But no statement of this administration can be trusted to mean what it seems to mean.
The White House and the Democrats would have us believe that what the Republicans are doing re the debt ceiling is unprecedented and one-sided brinksmanship of the worst sort (note the left’s rhetoric on the subject), and that no president should be negotiating with such a vile crew. Is the US public buying it? They certainly were at the beginning, but as time has gone on, and the theatrics of the administration have increased and become more transparently manipulative, perhaps the White House is getting the idea that it’s not going quite as planned.
Republicans insist there is nothing unprecedented or unusual about what’s happening—except for the administration’s refusal to negotiate (see also this).
I feel uncertain about any prognostications I might make on this, but my gut feeling each time it has happened has always been that Congress and the president will come to a short-term stopgap solution and then kick the can down the road. Right now, both are probably waiting for the 2014 elections, hoping to increase their power and leverage at that point.
[ADDENDUM: Obama seems to be contemplating positioning himself as the reasonable, conciliatory Democrat, and Reid as the nasty hard-ass. Interesting. That’s nothing new, of course. He’s long tried to give the message that Washington DC is screwed up, but he’s not part of that—he stands aside, looking down from his gentle Olympian heights of rationality.]
[ADDENDUM II: John Hinderaker of Powerline weighs in.]
And just what exactly is “playing with fire”? What does that mean?
Obama doesn’t have a clue except that he believes that “he won” and therefore what he says goes in all “57 states”, bitter clingers be damned.
Short sighted actions by the administration would no doubt take place if the GOP does not copitulate. This is not because there are no alternatives, but because it would be seen as politically beneficial to the Democrats. Much like the artificially imposed pain from the National Park Service.
In reality there would be displacement of some government jobs and spending that we as a nation simply can not afford. This belt-tightening would cause some groups significant pain, however, in the longer-term we would be much better off economically since we would be more competitive with less overhead burden. Any organization that ever has had to lay off workers understands that life goes on and it is usually healthier for having adjusted to reality.
This government shutdown is unique, unprecedented?
Nope:
â—¾September 30 to October 11, 1976 (10 days)
â—¾September 30 to October 13, 1977 (12 days)
â—¾October 31 to November 9, 1977 (8 days)
â—¾November 30 to December 9, 1977 (8 days)
â—¾September 30 to October 18, 1978 (18 days
â—¾September 30 to October 12, 1979 (11 days)
â—¾November 20 to November 23, 1981 (2 days)
â—¾September 30 to October 2, 1982 (1 day)
â—¾December 17 to December 21, 1982 (3 days)
â—¾November 10 to November 14, 1983 (3 days)
â—¾September 30 to October 3, 1984 (2 days)
â—¾October 3 to October 5, 1984 (1 day)
â—¾October 16 to October 18, 1986 (1 day)
â—¾December 18 to December 20, 1987 (1 day)
â—¾October 5 to October 9, 1990 (3 days)
â—¾November 13 to November 19, 1995 (5 days)
â—¾December 5, 1995 to January 6, 1996 (21 days)
See here: http://www.outsidethebeltway.com/a-brief-history-of-federal-government-shutdowns/
A default? No one really knows. Yes, the government has enough money coming in to pay the interest and roll over expiring debt, but it doesn’t have enough to pay all its bills. Some agencies, departments, and programs would not be funded. Unnecessary departments like Education, Energy, HUD, Commerce, Agriculture, etc. would have to be reduced or abolished. These are absolute necessities in the eyes of progressives and they would scream bloody murder. The people these departments employ would also scream bloody murder. There would be a short term hit to the economy as the federal government largess was removed from segments (The people who are laid off, mostly state and local governments and some corporations) of it. Should some entitlements have to be reduced, there would also be a fervent outcry.
What would happen in the global marketplace? Interest rates would probably go up and many nations would worry about whether the U.S. could endure such a calamitous (in the eyes of progressives) austerity program and still be the guarantor of freedom of the seas. Many would clap their hands in delight to see the Great Satan going through such contortions. Some would move to take advantage. It would be unpleasant but, IMO, not ruinous.
I agree with you, neo. I think there will be a short term agreement of some sort. Neither side wants to face the unknowns of the marketplace.
Default will not happen.
The cost worldwide of the allowing the debt of the world’s reserve currency to default is so great that politicians will be “nightmare scenarioed” by major central bankers and leaders of other countries into capitulation. Already today China has an op-ed in their largest circulation daily voicing concern.
http://www.zerohedge.com/news/2013-10-07/suddenly-nervous-china-tells-us-earnestly-take-steps-avoid-default
That being said, we do seem to be reaching the monetary end-game, the Keynesian end-point. The new debt the Federal Reserve creates has less and less beneficial impact on the real economy. Pushing new debt into the system is no longer like feeding a roaring fire, it is like pushing on a string. Nothing’s happening.
The differences “this time” are structural yet the old cyclicality playbook is still being used to attempt to goose the economy back into full employment. The Fed Reserve has been doing the same thing for years now and unemployment is still very high and GDP growth is very low. GDP growth is near stall speed, in fact, which is why the Fed chose not to “taper”, or remove a paltry fraction of the 85 billion/monthly they create by fiat.
I say all that to say this: Default is not gonna happen right now BUT we MUST do something about the debt bomb. With no growth worldwide, servicing debt has become onerous and the gov’t borrowing nearly a trillion a year stifles private enterprise. Without the golden goose of private enterprise, gov’t can’t coerce its revenues higher, it can only create more debt. That debt will stifle opportunity for generations to come.
1/10th of 1% (10 basis points) increase in the rate we pay on 17 trillion in debt is an interest payment of $32432.00 per minute.
mike, 2:29 pm — “The cost worldwide of the allowing the debt of the world’s reserve currency to default is so great . . . .”
For how long will we have the luxury of our dollar being “the world’s reserve currency”? If I recall my recent financial history correctly, China has already taken steps to help dethrone the dollar. From their standpoint, I can’t say that I blame them. We’re looking more and more pathetic in the world’s eyes.
If the boy who cried wolf isn’t believed, why doesn’t he just carve up the sheep to make evidence for his own claims?
Thus engineer the disaster and present himself as the solution?
Ymarsakar:
Indeed.
If Boehner’s House doesn’t cave, why wouldn’t Obama double down? What has he to lose? The worse it gets, the more the MSM will place the blame upon the Repubs. Low-information voters will, as usual, buy it and 2014 sees the dems regain the House. Remember, the MSM has a year to incessantly repeat the Big Lie and establish it as ‘fact’ in the public’s mind.
Hinderaker, along with Ryan on Meet the Press, point out that Obama has a constitutional duty to pay on the debt. Given Obama’s constitutional record, what evidence is there that he will suddenly take seriously his constitutional obligations regarding the debt?
Obama has closed off National Parks and Memorials but kept open the military base’s golf course that he uses. Which the MSM has buried. So why wouldn’t he, if the debt ceiling is not raised, not start closing bases and furloughing border patrol agents? Given a choice (and he does have a choice) between cutting back on departments like Education, Energy, HUD, Commerce, Agriculture, etc. and the Immigration and the Border Patrol and the US Military…is there really any doubt as to where he’ll cut?
Sure conservatives and repubs will scream, so what? As long as the MSM keeps the public in the dark and assigns blame to Republicans, the dems get the votes in 2014 from a public outraged at ‘out of control republicans under the influence of wild eyed, racist tea party fanatics’, like Ted Cruz.
Obama and the dems don’t care what the truth of the matter might be, they only care about getting enough votes to advance their agenda. Since Obama and Reid have pushed for this shutdown, it’s clear this is a political strategy, conceived to bring them the vote in 2014. They’re counting on ignorance, stupidity and gullibility to give them that vote.
They’re betting that H.L. Mencken was right, “No one in this world has ever lost money by underestimating the intelligence of the great masses of the plain people. Nor has anyone ever lost public office thereby.”
In the story, didn’t the little boy who cried wolf get eaten?
Don’t raise the debt ceiling. Either pass a balanced budget with current levels of taxation or increases taxes proportionately. People should know and feel that there are material consequences when they dream of instant or immediate gratification. The effort to nurture dissociation of risk is a principal sponsor of corruption.
n.n.,
I of course agree as to material consequence and find your aphorism that “The effort to nurture dissociation of risk is a principal sponsor of corruption” to be an interesting formulation.
“Don’t raise the debt ceiling. Either pass a balanced budget with current levels of taxation or increases taxes proportionately.”
Liberals will never vote for a balanced budget, leftists welcome unsustainable expenditures, their goal is the collapse of America.
Re: increasing taxes ‘proportionately’, according to IRS data, the top 1 percent (1.35 million) of American taxpayers paid almost as much federal income tax in 2010 ($354.8 billion) as the entire bottom 95% of American tax filers ($388.4 billion) while 47% of Americans paid no fed income tax. That, by no stretch of the imagination can be called proportional. It’s simple theft by the mob and a tactic of incremental redistribution of wealth.
“Obama seems to be contemplating positioning himself as the reasonable, conciliatory Democrat, and Reid as the nasty hard-ass.”
That would certainly be in-character for Obama. How many of his constituents has he thrown under the bus now? I’ve lost count.
Deep down, he must know that losing the Senate will be a monumental blow to his agenda, but I’m not sure his ego will allow him to accept any part of the blame.
I sure hope not.
MJR – You are right in that our privileged status as the custodian of the world’s reserve currency will be withdrawn one day. When that day will be is a great question I don’t have the answer to.
China is but one of several countries that have taken steps to begin to minimize dollar hegemony although none of them have an acceptable alternative yet. The breakpoint of debt to GDP that has been a death knell of currencies in the past is approximately 100%, roughly where we are now.
And speaking of looking pathetic in the world’s eyes, here’s another cover article from Indonesia this past weekend.
http://www.zerohedge.com/news/2013-10-07/now-chinese-are-wagging-their-fingers-obama
So… why did Democrats fight so hard against being labeled anti American, un American, and traitors…. again?
Ymarsakar Says:
“If the boy who cried wolf isn’t believed, why doesn’t he just carve up the sheep to make evidence for his own claims?
Thus engineer the disaster and present himself as the solution?”
So are you saying the Senate Majority Leader and the President have engineered a refusal to negotiate as a means of providing a disaster that the Pres. can then come riding in on his white horse and rescue everyone from? Interesting. The M.O. certainly fits with the Rules for Radicals advice to never let a crisis go to waste and if you don’t have one, make one, so maybe your theory contains some truth.
I’d rather skip the parables and conjecture and deal in observable fact. Three things that have remained in constant flux since the founding of the country are spending, revenue and debt. Checks and balances built in through the constitution allow for two of the three branches to participate in the debate regarding those three items of contention as well as assigns responsibilities to each branch. Our debt is growing so rapidly that the very foundation of the dollar as the reserve currency for the world is in jeopardy. The fact of so much debt as a burden on the economy is critical too, since without a robust economy, many negatives begin happening regarding employment, revenue, and ability to service debt. These are facts. Do you consider these facts “crying wolf”?
The situation we find ourselves in today has been decades in the making and any remedy is not going to be a cakewalk and it has to involve all of us. Without a solution, several things will happen and none of them are good for us, our economy or our children’s futures.
Prudence in the face of danger often requires a degree of alertness that others may not possess. (Think of a person witnessing the withdrawal of the ocean, exposing the floor, prior to a tsunami. Prudence says get away but many stay and examine the fish flopping about on the seabed until the time to run is past.)
Frankly sir, if I thought anyone deliberately engineered a national debacle so as to attempt to increase their own political capital or that of their political party I would consider it a violation of their oath of office and quite possibly treasonous. The sausage-making we are all witnessing now is just a messy political brinksmanship-made-for-TV that neither party is handling well. The problem can only be swept under the rug so long. How would you resolve the spending, revenue and debt issues and when?
So… why did Democrats fight so hard against being labeled anti American, un American, and traitors…. again?
I don’t understand the context of your question here. Could you elucidate?
Frankly sir, if I thought anyone deliberately engineered a national debacle so as to attempt to increase their own political capital or that of their political party I would consider it a violation of their oath of office and quite possibly treasonous. The sausage-making we are all witnessing now is just a messy political brinksmanship-made-for-TV that neither party is handling well.
Ah, I see. I take it you’re not ready to believe yet.
How would you resolve the spending, revenue and debt issues and when?
It’s not up to me to change the world, enslave its denizens to create utopia on Earth. That’s up to the Left. Those who don’t believe in their evil, will be shown by the Left what the real deal is, one way or another. Whether they like it or not.
I don’t understand the context of your question here. Could you elucidate?
2004 charges that Democrats using propaganda against Iraq and Bush were being unAmerica. Still don’t remember? Or perhaps were you on one of the participating sides.