Keith Hennessey explains:
President Obama used the Gang of Six’s plan as an exit strategy. He backtracked on taxes, knowing this would force the Speaker to abandon negotiations, and knowing he could use the Republican Senators in the Gang to argue from a position of increased rhetorical strength in the ensuing debate. It’s a clever strategy but it belies the President’s public posture.
The media narrative about the president being the “only adult in the room” is now, and always was, nonsense.
[Update a while later]
The president tries to panic the markets.
Well, you have to admit, it’s one of his few talents.
[Update a couple minutes later]
A reminder, the problem isn’t the debt ceiling — it’s the debt, and the continuing unwillingness of Washington to take it seriously. The Democrats in particular insist on living in a fantasy world.
[Update a while later]
Per the above, some very worrisome thoughts:
Here’s the position I think we may be in. We’ve been negotiating with the President and The Democrats in Congress on the assumption that they’re sane. It’s okay to play hardball with these guys because eventually, whether they like it or not, reality insists upon itself and they have to cave. It’s a painful process so you expect some tantrum throwing and caterwauling, but eventually they HAVE to accept reality. Except if they’re not sane. If they want five apples and there’s only two plus two but they CAN’T ACCEPT that two plus two equals four. Orwell wasn’t just writing a parable about the eventual end point of IngSoc. He was describing what human psychology can drive Ministers to inflict upon the populace for the sake of “justice.” I’m worried they’ll pull the trigger on default as just one more “political” step in the march towards freedom from want or whatever other principle they’re operating under. They’re playing this game as if they could win, as if taxes in a downturn are a good idea with benign consequences. As if debt equivalent to GDP is survivable for the world’s anchor economy/currency, let alone sustainable.
And so maybe, just maybe, Republican strategy (what little there is of it) has badly misread the opposition. Obama tried to add 400 billion in taxes to a deal he had already agreed with Boehner at the last minute. Boehner walks out cause Obama is negotiating in bad faith and has been all along, but what if Obama is actually incapable of good faith negotiation? I think right now that it’s actually possible we won’t see a deal at all. Because the Republicans are looking at the math and at reality and saying “Okay, Democrat demands can’t be serious because they can’t possibly work” and Democrats are looking at politics and how it works and saying “We don’t have to give in cause that’s not how you win these things. You pin it on the other guy politically and then reap the political dividends.” I wasn’t around for the start of WW I, but I get the feeling I understand Kennedy’s fascination with Tuchman’s Guns of August. I’m not talking about a shooting war, but about leaders overestimating and underestimating and just plain misjudging each other in a brinksmanship scenario. In short, it could be too late to do anything when people finally wake up. The crisis may have already arrived with an economic and fiscal momentum all its own that no amount of dealing or compromise or statesmanship can stop.
They’ve been demonstrating economic lunacy for the past two and a half years (longer, really, but they didn’t have enough power to actually implement it), as things continue to deteriorate. Why would they stop now?
So Representative Boehner is going to trash the economy because only 90% of his demands were met. Typical of the radicalization of the TP/JBS Republicans and their war on the American middle class.
So President Obama is going to trash the economy because only 90% of his demands were met. Typical of the radicalization of the FDR / Alinsky Democrats and their war on the American middle class.
Eric,
Sorry, but only the TP/JBS faithful buy Representative Boehner’s snake oil.
Possible solutions?
1) Sign a bill that increases the debt ceiling by say 3/4 of a trillion now, another 1/2 a trillion in six month’s time and a 1/4 of a trillion in a year’s time, and nothing else. By gradually ramping down debt increases to nothing the immediate crisis is averted and a balanced budget is forced in a compassionate manner without any immediate deal for raising revenues of decreasing expenditures required.
2) Pass off the expenditures but not the revenues of social programs such as medicare, medicaid, social security, etc., to the state governments. This would allow the federal government to quickly balance its budget and give state governments (many of which might then increase taxes or borrowing to cover medicare, medicaid, etc., or not) the power to choose their own level of entitlement.
A high tax federal government forces every state to be a high tax state, this interferes with their right to self determination. It is a bit like the EU forcing Greece to have the same public welfare system as Germany – whether Greece can generate the tax revenues to afford such an entitlement program or not.
Obama’s declaration to veto any short term deal that did not give him a blank checkbook until after the next election does not seem motivated by the greater good of the country. That seems a purely political act and the most extremist uncompromising partisan position of anyone in these negotiations so far.
If you would just clean out the crap under your bed a simple flashlight check will let you sleep soundly.
the problem isn’t the debt ceiling
The debt ceiling is a problem, a completely unnecessary and yet very serious problem created entirely by the House GOP.
JIm the only reason the debt ceiling is an issue is because Congress (controlled by the Democrats for four years leading up to January) went on a spending spree with daddy’s (the taxpayer’s) credit card. Now the card’s maxed out and the Democrats are throwing a tantrum because the adults in the room are refusing to increase their limit without some sign the teenager’s going to control his spending.
They also had two years to both increase the debt limit and pass a budget, but they never did, and the Senate never even attempted to. And now, of course, they want to blame the Republicans.
What would be the impact on NASA? Should I be hoping for a temporary default?
JIm the only reason the debt ceiling is an issue is because Congress (controlled by the Democrats for four years leading up to January) went on a spending spree with daddy’s (the taxpayer’s) credit card.
Hardly. We would hit the debt ceiling even if the Democrats had made no changes to spending levels. No leader from either party has proposed a budget in the last four years that would have averted the need to raise the debt ceiling. The Ryan budget requires a hike in the debt ceiling. Cut, Cap and Balance requires one.
Now the card’s maxed out and the Democrats are throwing a tantrum because the adults in the room are refusing to increase their limit without some sign the teenager’s going to control his spending.
We’ve hit the ceiling dozens of times before, as a result of decisions by both parties. Until now, raising it has been a formality. If the House GOP wants to change future spending they have all the power they need — they’re the ones with the power to write appropriations bills. They don’t have to take the economy hostage, and create an entirely arbitrary and avoidable crisis. If they don’t change course soon they’re going to cause a spike in interest rates, which will cost us billions, and possibly put us back into recession, which would cost trillions.
And now, of course, they want to blame the Republicans.
It’s fair to blame the Democrats for not raising the debt ceiling last year, but the Republicans deserve 100% of the blame for not raising it this year.
They don’t have to take the economy hostage
You seem to have an idiosyncratic interpretation of the roles of hostage and hostage taker. I believe you are the type of person I wouldn’t like to carry a concealed firearm in a hostage situation…
I’m worried they’ll pull the trigger on default
There is no trigger for the Democrats to pull, default will happen unless Congress gives Obama a debt ceiling increase to sign. The GOP negotiating position is: “give us the tax and spending policies we want, or we do nothing and let the default happen.”
David Frum sums it up well:
There’s nothing to figure out. Sanity doesn’t matter. We have got to get this administration out of power.
That includes insane republicans as well, but we need some of them to have a majority.
Not ever in my life did I expect to see what we are seeing now.
It certainly is a broad road to destruction.
The hidden assumption behind “the threat of debt default” is that we can’t afford to even pay the interest on borrowed money without borrowing more money. This assumption is practically true, which is why we’re already deep in crisis.
If you’re trying to convince everyone that the delerium tremens might be lethal, even if you’re right, you need to articulate a better solution than “just gimme another drink, now!”
You cannot imagine the depths of indifference to David Frum’s opinion I have. The idiot probably voted for Obama.
Any insanity is possible from an administration that screwed bond holders in the auto industry.
Geez, Jim, how do you manage to cram so much that’s wrong into so few words? It’s a real talent, I’m telling you. Concentrated Wrong. You should bottle it and sell it to college students whose parents forced them to major in pre-med and who want to demonstrate their incompetence to do so as quickly as possible, so they can be majoring in art by spring of their freshmen year.
Here we go:
“The debt ceiling is a problem, a completely unnecessary and yet very serious problem created entirely by the House GOP.”
Wrong. As the National Review piece points out, the ratings agencies (and various categories of adults) have said that the reason for doubting the US creditworthiness is not any concern over whether the debt ceiling is raised or not by August 2 (every sane person believes the 14th Amendment protects present bondholders) — but that the failure to take serious action to stop the soaring debt when presented with the clear warning sign of having to raise the debt ceiling so quickly and steeply is evidence that the medium and long term prospects for the US paying its bills are poor.
It’s like you’e a store manager and some gal comes in to buy her 40th pair of shoes, and her Visa is declined because it’s maxed out. You’re less worried about whether she can scrounge up the cash in her purse than by the fact that she doesn’t put the shoes back. You start wondering if you should do something about the $5,000 she’s carrying on her store credit card.
“If the House GOP wants to change future spending they have all the power they need — they’re the ones with the power to write appropriations bills.”
Wromg again. The House may originate all revenue bills, but they have to be passed by the Democratically controlled Senate and signed by the President. The House can certainly send the Senate and President a bill that cuts spending and raises the debt ceiling — and by, golly, they have — but the Senate can ignore it (as they have) and the President can veto it (as he promises to do).
“If they don’t change course soon they’re going to cause a spike in interest rates, which will cost us billions, and possibly put us back into recession, which would cost trillions.”
Probably wrong. Bond-buyers are not stupid. They’ve known very well what was coming, and interest rates have already priced in their guess about what will happening. Again, what concerns bondholders is not that the debt limit ceiling won’t be raised right now — that’s certainly not going to cut off the sale of Treasury Bonds, since every day $billions come due and are rolled over, and of course the SS Trust Fund may (and perhaps must) sell some of its Treasuries to pay out benefits. None of this is a problem under the debt ceiling, since none of it increases the total debt.
What worries bondholders is that even when presented with this painful evidence of borrowing out of control the President and Senate continue to stay the course, and refuse to consider any kind of plausible reining in of spending and borrowing that has grown 25% or more in just two years.
In short, it’s how the debt ceiling is eventually raised that concerns bondholders. If it’s done in a way that is fiscally responsible, interest rates will continue low. But if the debt ceiling is raised but in a fiscally irresponsible way, interest rates will rise.
Also note higher interest rates only cost borrowers lots of extra money, and too much borrowing is part of the problem. A good case can be made that interest rates are too damn low, and have been kept too low in bad times before (by the Fed), which continues to encourage the mis-investment of capital that causes ever larger boom ‘n’ bust cycles. Higher interest rates mean lenders make lots more money (not just banks, of course, but all savers, 401(k) owners, et cetera). Is it better that people who have money to lend — i.e. careful people, savers — have more money or people who need to borrow all the time have more money? Which group is more likely to lead the economy out of its doldrums?
“default will happen unless Congress gives Obama a debt ceiling increase to sign”
Wrong yet again. Default — not paying bondholders — won’t happen at all. Even without an increase in the debt ceiling, present maturing bonds and bonds held by SS can be rolled over into new bonds, vida supra. Interest on bonds not yet mature can easily be paid, since it represents only about 6% of Federal spending and the 14th Amendment gives it first crack at incoming tax revenues (which more than cover it) anyway. SS old age pensions and Medicare are funded by their own taxes plus a small portion of general revenue — so this, too, can easily be paid.
What happens is not “default” but rather that all the rest of government, all the ag and ethanol subsidies, the Dept of Education and Commerce, Medicaid, the NSF and NOAA, the military and DoJ, all the Federal salaires and so forth — all that has to take an abrupt and enormous cut.
It’s “default” mostly in the sense that the favored Democratic constituencies are not going to get the goodies promised to them by the Democrats.
Yeah, Frum is a moron, and I believe he did vote for Obama. I think his problem is one with which Thomas and Jim seem to be increasingly familiar: having made an arguably dumb decision, they collect derision and contempt from their quondam friends and associates, and human nature militates against humiliating yourself in front of them by reconsidering your decision. Instead you double down on dumb.
Human beings are social animals. It’s been proven men in combat are happier being with their buddies without a weapon than with strangers or alone with one. Lifeboats left the Titanic half empty, because people were happier staying with a warm group of others on what might not actually turn out to be a sinking ship than striking off into the cold dark in a small scary boat.
G’day,
Reading all this makes me glad I’m not an American.
Look, raising or not raising the debt ceiling is beside the point. Sooner or latter (I believe sooner) the lenders will stop lending. Drastic , painful action will need to be taken. Taxes increased, spending cut, assets sold, etc. The only real question is when. The more you lot delay the worse it will be and the more of the rest of the world you will hurt.
Tell your flaming politicians to get of their backsides and do their flaming job.
ta
Ralph
It’s funny how when Republicans don’t want to raise the debt limit this year, they’re trying to trash the economy but when all of the Democrats in the Senate (including Obama) voted against raising the debt limit in 2006, they were being fiscally responsible.
Calm down, everybody. If the people trading Treasuries actually thought there was a chance of default, whether caused by Obama or the Tea Party, the interest rates investors demand on Treasuries would have gone through the roof over the last few months as the odds of a deal have gone down (well below 50% now). In fact over this period the interest rates creditors charge the federal government have improved. For the 10-year note from 3.55% in May to a 2.97% close on Friday.
For the financial newbies out there that means that throughout this “crisis” the investors’ trust in the creditworthiness of the federal government to pay its debts has gone _up_. The people who actually do the research on the government debt don’t believe either the Tea Party, Obama, or anybody else with substantial influence over this issue are crazy, nor do they believe there will be a credit-lowering default if there is no deal soon. As anybody who has done the arithmetic, instead of mindlessly parroting the hysteria surrounding this issue knows, there is plenty of revenue to pay for all interest payments and debt turnovers with plenty left over for other contractual obligations on top of Social Security, Medicare, and much else. So calm down already, sheesh.
David Frum? Is that the same guy who said that the Republicans would never win another election if they didn’t pass cap and trade (and thereby double energy prices)? The guy who wanted the GOP to stand by passively while Obama sicced the FCC on Rush Limbaugh? The same guy who told Bush that the key to all elections in the future was to spend tons of money and keep starting wars?
Yeah, that’s a guy with great political instincts.
A rather interesting/disturbing visual representation of the US deficit and debt in terms of quantity of $100 bills:
http://www.wtfnoway.com/
Now the politicians have figured out the problem… They’re too accountable, so they want to fix that…
http://www.huffingtonpost.com/2011/07/23/super-congress-debt-ceiling_n_907887.html
I never read Huff usually, but I had to when I read the headline.
At least I can console myself with the thought that there was great progress made in the aviation industry during the last Great Depression in the ’30s. If we’re lucky, maybe we will see similar progress in the space industry during the ’10s.
Because the House GOP prevented the Democrat-controlled Senate from passing a budget in 2009 and 2010 — years when Republicans were still a minority in both houses.
I for one hope NO deal is made.
Then either Obama chooses to starve granny
Or Obama puts huge chunks of the federal government is on furlough.
And either way the public gets to see who has been screaming the sky is falling and who has been tryign to scare you.
Incidentally, notice how rapidly the Demonrats abandoned the Fourteenth Amendment argument when they realized that this would not force a default that count be blamed on Republicans, but rather would deprive Barky’s puppeteers for spitloads of bribe money.
Why did the Obama/Boehner talks fall apart? Perhaps you need to take a peek at the Obama School of Negotiations.
Then either Obama chooses to starve granny
If he does, we can not allow the media to control the narrative. Obama would be not only breaking the law, but there is absolutely no need to raise the debt ceiling to pay social security. Social security holds bonds for just such a problem. Selling those bonds allows granny to get paid and allows for more borrowing under the current debt ceiling at the same time.
“You lie” WITHOUT apologies should be said every time Obama opens his mouth.
Of course Wodun, Darth Vader was a lot less evil.
It just keeps getting worse all the time…
The hysteria coming out of D.C. today (Sunday) was that the Asian markets were supposed to crash if they didn’t have a debt ceiling agreement by the time they opened. Several hours after the inevitable failure to get such a deal, what’s the future on the 10-year Treasury note trading at in Asia? 2.99%, basically unchanged from Friday.
Back in May investors were demanding 3.55% — they had less confidence in the full faith and credit of the United States earlier this year than they do in the middle of this “debt ceiling crisis” today. Those who hold the federal debt are actually quite happy that this “crisis”, i.e. the prospect of an impromptu balanced budget, has finally motivated D.C. to think seriously about controlling our runaway deficits.
This is on target…
http://www.humanevents.com/article.php?id=45076