Posts Tagged ‘Debt Ceiling’

Economic Choices: Between Terrible and Worse

August 3, 2011 1 comment

Can we be realistic here? The debt ceiling “compromise” signed into law Tuesday fixes nothing and ensures continuing uncertainty in financial markets and more ideological warfare in the months ahead. But congratulations Washington for putting the matches away and not burning the house down.

As all sides hold their noses while they get a good look at this really ugly baby, here’s what has not been accomplished.

Deficit Reduction: A little bit- but not much. $2.4 trillion over ten years against a $14 trillion debt with most of the cuts still to be determined by a “Super” committee of 12 angry, feuding lawmakers who start meeting around Thanksgiving. This ought to give us that much more to be grateful for.

Reduction in Entitlement Programs: They’re responsible for most of the debt but even the draconian cuts that automatically take place if our angry, feuding lawmakers can’t come to an agreement- don’t address Social Security, Medicaid or Medicare recipients. Some think this a good thing with a reeling economy causing so much misery but for a so-called attempt to bring spending in line, not a smart move to ignore consideration of the major contributors to the national debt.

Revenue: Two major commissions that set about to solve deficit-spending in the past year both came to identical conclusions. It cannot be accomplished by cutting alone. This is not about partisanship- it’s about math. There were plenty of Republicans on both these panels who endorsed the concept of raising revenue as a part of balancing budgets. See this column in the Washington Post that discusses these commissions and their discoveries. Alan Greenspan, one of the last human beings on the planet you would expect to favor tax increases is now in favor of exactly that. Blogged about it a few months ago.

Rational Process: We will forever more be holding future extensions of the nation’s debt ceiling hostage to the ideological flavors and fights of the day. This has nothing to do with party. Other than whichever party is out of the White House will, from now on, be pushing the nation’s economy to the brink in order to extract whatever it can from perpetually horrified future Presidents, Democrats and Republicans alike.

The Current Economic Mess: The 1,000 point Dow Jones meltdown that would have been expected had the debt ceiling not been passed was replaced instead by a 265 point meltdown out of fears stoked by today’s weak and struggling economy that the debt ceiling agreement does little to address.

But in the end, was it a good thing the debt ceiling bill passed? Well, as Alan Greenspan put it so eloquently in September of 2010, “Our choice is not between good and bad but between terrible and worse.”

Assorted Thoughts on the Debt Ceiling Crisis

July 26, 2011 1 comment

Ok, I’m beginning to panic. The political system is broken but these people are gambling with our money- our retirement savings. Do I sit here like a moron, do nothing and just watch Wall Street collapse next week? Can we change to a Parliamentary system?

I’ve never seen anything like this. Congress is supposed to pass increases in the debt ceiling automatically. There’s been hardly a peep about this from lawmakers in the past. Oh, there have been a few symbolic votes against raising the debt ceiling by a handful of lawmakers including Barack Obama when he was a junior Senator. But the outcome was never in doubt and that’s why some took the liberty to make political points by voting nay.

But this time…is different. There are two proposals being floated right now; one by Democratic Senate Majority Leader, Harry Reid. No one thinks it has the votes to pass the House. Republican House Speaker, John Boehner, has a plan that can’t pass the Senate and has been rebuked by the Tea Party folks in his own party.

There is currently no plan that can pass. Yet- since 1962, the debt limit has been increased 74 times. It’s been raised ten times over the past ten years. Routine votes. Not even a news story.

Now, Pandora’s box has been opened. Attaching conditions to something as important as raising the debt ceiling means either party not holding the White House will be using this tactic for their respective causes every time the nation needs to increase the limit on the national credit card. Why didn’t this President insist on clean passage with no strings, like every President has before him? Why did he allow this to become a political football? Maybe he didn’t have a choice- I don’t know.

But you can’t run a country this way. Much less a country whose currency and economy have been the underpinning of the world economy for the past 70 years or so. This is a recipe for economic catastrophe. Even if they burn the midnight oil all weekend as they’re expected to do and maybe solve it this time…what about next time? Is this going to become an annual event? Or maybe we’ll be flirting with economic ruin every six months. Or we could make it weekly and turn it into a TV reality show.

A New Form of Government?

Could our Founding Fathers have messed up with this system of government? Were their assumptions that lawmakers would eventually reach compromise a silly, altruistic notion? Did they not foresee a time when divided government might utterly fail the people?

With a parliamentary system- you cannot have such deeply divided government. A party wins a majority and its legislative leader becomes Prime Minister. That person stays in power until the day comes they can’t preserve their majority on one issue or another then there’s a vote of no confidence and it’s off to new elections. Or if a party can’t reach a majority, the plurality party cuts a deal with a minority party and they form a coalition government. They only stay in power if they work together.

And under a Parliamentary system, you generally have fewer national elections too. The way our system works, the presidential campaign season is basically every two years- and now lasts for two years. Most true legislative progress occurs between a Presidential election and the mid-term election because everyone knows that once the calendar turns on the two year-mark- the day after mid-term elections-it’s political silly season; all posturing, no substance.

And we can Americanize it. We can call the Prime Minister “President,” keep the Supreme Court and do away with the House of Lords.

So based on the current tea leaves that point to economic calamity next week, I am poised to liquidate my mutual funds and stocks then write my Congressman and beg him to introduce a Constitutional amendment to change the American form of government which is not working so well at the moment.

Final Historical Footnote

I pointed out the day after the mid-term elections last November that the last two occasions in American history that the U.S. Senate was controlled by Democrats and the House of Representatives was controlled by Republicans, the following happened; the American Civil War and the Great Depression. Go ahead, look it up.

Looks like we’re sort of getting both. No bloodshed, but a deeply divided nation and a potential economic calamity.

The Public and Deficit Spending

The last American President who paid off the national debt

Surprise, surprise.  A new survey finds Americans don’t like most of the remedies being proposed to deal with the nation’s $14.2 trillion deficit.  They strongly oppose any major changes to Medicare and don’t like big cuts in defense spending.  The only thing they do approve of in large numbers is increased taxes on rich folks.

The poll by the Washington Post and ABC News  seems to support the notion that Americans say they don’t like government all that much- until you start taking away the government goodies they like. 

So leading up to the high drama of the vote expected in July on raising the national debt ceiling, polls like these underscore the high risks politicians are facing- especially those on the cutting side of the equation.  As for higher taxes, the strong support for higher rates for those making over $250,000 a year is one thing.  Higher taxes across the board are very unpopular.

So how do you deal with a public that finds the deficit troubling but isn’t enamored with most of the proposed solutions?   Seems to me politicians are either going to pander which always seems to be their initial instinct- or you could split the differences- but that might involve both sides giving up their sacred cows.  In other words, they may have to act like adults.

But is the situation as dire as most are now painting?  Let’s put it this way, where was Standard and Poor’s in the late 1940’s when the percentage of the national debt compared to the Gross Domestic Product was around 40%?  Because right now, huge as it is, that $14.2 trillion represents only 11% of the GDP.  Standard and Poor’s says that’s enough to earn a “negative” rating on America’s future prospects as an investment.  But it’s been way worse.

History finds that deficits…not balanced budgets are the norm.  Posted on this couple of months ago.  According to NPR’s Planet Money team- the last time the United States actually paid off all its debt was during the administration of Andrew Jackson.  This would have been in the 1830’s.

Fact is, as much as the President and his political adversaries both pontificate about how government needs to balance its budget just as American families do- it’s a total crock.  Governments are not families.  Some argue a certain amount of deficit spending can actually be helpful.  Banks make money.  Government spending tends to keep the economic machine well greased.  Societal needs like spending on highways and infrastructure and even health care- get met.   Besides, even American families that balance their budgets think nothing of holding hundreds of thousands in debt on 50-year home mortgages.

The trick…as in just about everything in life…is doing things in moderation.  Don’t expect any politician to make that case.