U.S. Debt Ceiling Politics of Default Hype, Fear Mongering and Idle Threats
Politics / US Debt Jul 31, 2011 - 04:08 AM GMTBy: Mike_Shedlock
In a nearly useless face-saving maneuver, House Speaker John Boehner managed to twist enough arms to narrowly pass his bill that was instantly rejected in the Senate.
Questions abound.
Was there any point to this? If so, what was it? Since everyone knew his plan would be rejected in the Senate, why bother?
The only conceivable answer is to save face, but how much face could possibly have been saved when Boehner had to twist the arms of every Republican to narrowly pass his gaseous proposal?
As long as his proposal was going to be rejected anyway, Boehner would have been better served to come up with a rock-solid plan that Republicans would have loved to sign.
If Boehner wanted to make a statement, that would have done it. Instead, Boehner came out looking like a limp dishrag.
Senate Quickly Kills Boehner Debt Bill
The New York Times reports Senate Quickly Kills Boehner Debt Bill
After a 24-hour delay and concessions to conservatives, the House on Friday narrowly approved a Republican fiscal plan that the Senate quickly rejected in a standoff over the federal debt ceiling that was keeping the government on a path to potential default.
Demonstrating the deep partisan divide coloring the budget fight, the House voted 218 to 210 to approve the plan endorsed by Speaker John A. Boehner to increase the federal debt ceiling in two stages. No Democrats supported the measure; 22 Republicans opposed it. The White House condemned it as a “political exercise.”
In the Senate, Democrats filed a motion on Friday that started debate, running down the procedural clock while Republicans expressed their opposition. The first vote on overcoming the procedural hurdles would come early on Sunday. Unless the Democrats can win over enough Republicans to cut off debate and move to approve the Reid bill or some variant, the Republicans would be forced to hold the floor continuously, awaiting some kind of deal.
The main legislative focus was on the search for an acceptable “trigger” that would guarantee that no second installment of a debt limit increase would be provided without consideration of further spending cuts or program policy changes. Democrats say they are willing to allow a new special committee to consider sweeping deficit reduction and tax policy changes but want the debt limit increase assured; Republicans do not want President Obama to get a second increase without meeting some standard, which would be passage of a balanced budget amendment through Congress under the new House plan.Default Hype
Notice that the New York Times in the very first paragraph repeated the Obama hype regarding defaults. The odds of default at this stage are roughly zero%.
I discussed that at length on Thursday in Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay
Contrary to popular belief, the US would not default. Troops would still be paid. Medicare and Medicaid would not stop. The Bipartisan Policy Center has a nice analysis in a PDF on Debt Limit Analysis.
Prioritization
Obama's, Geithner's, and Bernanke's statements about default simply are not credible. Nor are threats of cutoffs to military pay or Social Security. Indeed those totals allow Medicaid and Medicare to be paid. ....Idle Threats and Fear Mongering
Caroline Baum repeated my message on Friday in Obama, Geithner May Regret Threats of Default
Scare Tactics
The Treasury is not going to default in August, nor in subsequent months for that matter. An estimated $172.4 billion of tax revenue next month is more than enough to cover the $29 billion of August interest payments. For fiscal 2011, which ends Sept. 30, the Treasury is expected to take in revenue of $2.2 trillion, while only $214 billion is needed to service the debt.
And even if it lacks the authority for new borrowing, the Treasury can continue to roll over existing debt.
Instead of dangling the default threat every chance they get, Obama and Geithner should be telling the world that the U.S. has every intention, and the resources, to meet its debt obligations. They should shout it from the rooftops, put a banner on the Treasury Direct website, and use the Sunday talk shows to reassure investors, not frighten them.
The administration’s stated desire to remove the uncertainty hanging over the economy flies in the face of their saber-rattling. Why, one might even conclude that they are -- perish the thought -- playing politics with the debt ceiling!Fear Card vs. Common Sense
Notice the common sense approach of Caroline Baum vs. that of Geithner, Obama, and Bernanke. Yes, a default would be a monstrous disaster. However, we are months, not days away from that.
Why Republicans do not call the president on his fear-mongering is certainly a mystery. Are Republicans that bamboozled by Presidential BS?
Great Divide
One of the more interesting political posts of the week is The Great Divide by Washington Post columnist Charles Krauthammer.
We’re in the midst of a great four-year national debate on the size and reach of government, the future of the welfare state, indeed, the nature of the social contract between citizen and state. The distinctive visions of the two parties — social-democratic vs. limited-government — have underlain every debate on every issue since Barack Obama’s inauguration: the stimulus, the auto bailouts, health-care reform, financial regulation, deficit spending. Everything. The debt ceiling is but the latest focus of this fundamental divide.
The sausage-making may be unsightly, but the problem is not that Washington is broken, that ridiculous ubiquitous cliche. The problem is that these two visions are in competition, and the definitive popular verdict has not yet been rendered.
I have every sympathy with the conservative counterrevolutionaries. Their containment of the Obama experiment has been remarkable. But reversal — rollback, in Cold War parlance — is simply not achievable until conservatives receive a mandate to govern from the White House.
Consider the Boehner Plan for debt reduction. The Heritage Foundation’s advocacy arm calls it “regrettably insufficient.” Of course it is. That’s what happens when you control only half a branch. But the plan’s achievements are significant. It is all cuts, no taxes. It establishes the precedent that debt-ceiling increases must be accompanied by equal spending cuts. And it provides half a year to both negotiate more fundamental reform (tax and entitlement) and keep the issue of debt reduction constantly in the public eye.
Obama faces two massive problems — jobs and debt. They’re both the result of his spectacularly failed Keynesian gamble: massive spending that left us a stagnant economy with high and chronic unemployment — and a staggering debt burden. Obama is desperate to share ownership of this failure. Economic dislocation from a debt-ceiling crisis nicely serves that purpose — if the Republicans play along. The perfect out: Those crazy Tea Partyers ruined the recovery!
Why would any conservative collaborate with that ploy? November 2012 constitutes the new conservatism’s one chance to restructure government and change the ideological course of the country. Why risk forfeiting that outcome by offering to share ownership of Obama’s wreckage?Refreshing Talk of Keynesian Gamble
It is marvelously refreshing to see a mainstream media writer trashing Keynesian nonsense. That paragraph alone makes me want to stand up and salute.
However, after careful reconsideration I still come to the conclusion Boehner screwed up badly.
Indisputable Facts
- Boehner wanted to compromise, announced a compromise, then walked out on talks with Obama.
- Boehner submitted a $3 trillion deficit cutting package the CBO said came in at mere $850 billion. The Tea Party rejected his proposal and rightfully so.
- The best Boehner could do in a rework of that bill was to come up with a total of $950 billion.
- Boehner announced he had votes for passage. In a feat of massive humiliation, Boehner could not twist enough arms to secure passage.
- Boehner lost whatever credibility he had in that pathetic set of maneuvers.
- In a face-saving attempt, Boehner was barely able to scrape up enough votes to pass a bill on Friday that was immediately rejected by the Senate
Those are the indisputable facts of the matter and I covered them at length in the following set of posts.
- Not Raising the Debt Ceiling Would be Blessing; Debt Limit Analysis; Interactive Map, You Decide What Not To Pay
- Boehner's Credibility Gone in Revised Proposal; Boehner Tells Congress to "Get Your Ass in Line"; Best Deal Republicans Can Get?
- Boehner Humiliated, Cancels Vote, Stock Futures Tank; Stocks and Treasuries Unusually Correlated
Indeed, unless Republicans win a filibuster-proof Senate and the Presidency they may not get another chance.
Many contend the chance was an illusion, that Democrats were not really offering 3-1 cuts. They are correct.
However, nothing was stopping Republicans from making sure the cuts were real. Moreover, and as I have stated many times, Obama said he was willing to make "hard choices".
Republicans did not even put Obama to the test. In return for $1 trillion in tax hikes, Republicans could have asked for virtually anything.
Deal of the Century
I would gladly trade $1 trillion in tax hikes for ...
- The scrapping of Davis Bacon
- The end of collective bargaining of public unions
- National right-to-work laws
Would Democrats have gone along? If not, Obama and the Democrats would have been seen as the deal-killers, not Republicans. If the Democrats accepted, it would have been well worth it.
Instead, no one knows what will happen in the next election, and Republicans will likely compromise on some meaningless plan that will not do a damn thing to fix the deficit.
Unless some miracle happens, the Republicans flat out blew it, and Boehner is one of the reasons. He may not be the next speaker, even if Republicans retain the House.
By Mike "Mish" Shedlock
http://globaleconomicanalysis.blogspot.com Click Here To Scroll Thru My Recent Post List
Mike Shedlock / Mish is a registered investment advisor representative for SitkaPacific Capital Management . Sitka Pacific is an asset management firm whose goal is strong performance and low volatility, regardless of market direction.
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