The Debt Ceiling … Again

I think I’ve made my contempt for Obamacare pretty clear. I’ve pointed out its deep flaws, its underestimated expenses, its dubious Constitutionality. In my more cynical moments, I wonder if its flaws aren’t the point: to make the system so much worse that people will demand socialized medicine. We’re already seeing employers shed insurance and rates go up. It’s been hitting me personally as my employer has had to raise insurance rates because of increasing costs.

But you know what? As much as I hate Obamacare, it’s not worth crashing the debt ceiling over.

As you know, we reached out statutory debt limit a few months ago. The Treasury Department has been using various means to avoid exceeding it, but those means will run out within a month. And a significant fraction of the Republican caucus is already contemplating a debt ceiling crash, refusing to raise the debt ceiling unless Obamacare is repealed or defunded.

Let’s take those demands on their own terms. Repeal is not going to happen with a Democratic Senate and White House (and might not happen even if they were in GOP hands). Defunding it sounds good, but as Tom Coburn has reminded us (PDF), this will not actually stop the law from being implemented. The statutory parts will be in place. All that will be denied are funding for insurance exchanges and subsidies. Let me clarify that: people and employers will still be forced to buy insurance, but the mechanisms designed to ease the financial burden will be denied. I don’t see how that’s better.

So this tactic will be ineffective at best and bad at worse. And in return, we would get … the first ever default on American debt. The negative impact of that on the American economy is not imaginary. Look what happened last time:

High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)

Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011 (see chart). Payroll growth subsequently recovered and has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been.

There are also more visible permanent scars. The sense that the U.S. political system could no longer credibly commit to paying its debts led the credit-rating company Standard & Poor’s to remove the U.S. government from its list of risk-free borrowers with gold-standard AAA ratings. Just as a poor credit score raises the interest rate you pay in the long run, so a worse credit rating will probably raise the interest rate on our national debt.

The debt ceiling fight caused 300,000 fewer people to find work that summer, even is we assume no longer-term impact. Real progress was made on the debt in the next two years, but if a debt ceiling crash raises interest rates even 1%, that will mean a spike in federal interest payment that will wipe out almost all of those gains. Is that worth having what amounts to a national temper tantrum over Obamacare?

But there is something more dangerous at play here. When the Republicans threatened to hit the debt ceiling in 2011; when Obama voted against it years earlier; there was at least a strain of thought involved. We couldn’t raise the debt ceiling, the crashers told us, because we were going to default anyway. Our debt was out of control. Would you extend more credit to someone who was already wildly overspending? We couldn’t possibly raise the debt ceiling until our fiscal path was stable.

But this isn’t a fight over debt. If it were, we’d be talking about tax reform or entitlements. This is threatening to crash the economy if the Republicans don’t get their way. If we allow this precedent to be set, where does it stop? Judicial nominations? Union regulation? Are we going to threaten the debt ceiling when Republicans don’t like the table arrangements at White House banquet?

This isn’t a negotiation. This isn’t a tactic. This isn’t politics. This is a hostage situation. The GOP is holding a gun to the country’s head and threatening to blow the brains out of our economy if they don’t get what they want. That I want the same thing — the repeal of Obamacare — is irrelevant. You don’t deal with a termite infestation by burning the house down.

Pause a moment. Put aside your feelings about Obama and Obamacare. Do you want this precedent set? Do you want the Democrats to use it against President Rubio? Do you want them to threaten to hit the debt ceiling if he doesn’t fund abortions? Or pass universal daycare? Or raise taxes on the rich?

This bullshit must stop. It’s gone too far. This isn’t a game; this is our country. It’s bad enough that we’re staring down the barrel of a politically-disastrous government shutdown. But a debt ceiling crash? As much as Obamacare is going to hurt us, it’s peanuts compared to that. Millions of us are still unemployed; others in precarious positions. For a bunch of people with guaranteed jobs to promise to make things worse for no discernible gain (other than making talk-radio yammerheads happy) is the most breath-takingly irresponsible unconservative thing I can imagine. And, unfortunately, it’s about what I’ve come to expect.


Our Shrinking Debt

This is good news:

U.S. debt has shrunk to a six-year low relative to the size of the economy as homeowners, cities and companies cut borrowing, undermining rating companies’ downgrading of the nation’s credit rating.

Total indebtedness including that of federal and state governments and consumers has fallen to 3.29 times gross domestic product, the least since 2006, from a peak of 3.59 four years ago, according to data compiled by Bloomberg. Private- sector borrowing is down by $4 trillion to $40.2 trillion.

So how can this be with trillion dollar deficits? Well, the private sector and non-federal public sectors are unravelling a tremendous debt bubble that built up in the last decade. Consumer debt is down by $1.3 trillion. Short term corporate debt is down by 55% as well. This isn’t as good as corporations need to borrow to grow. But for that much debt to be unravelled without a complete economic catastrofuck or massive inflation is remarkable.

It’s also helping with the national debt. Because consumer debt is so far down, the treasury has the loan market pretty much to itself. So all our borrowing is coming at low prices, despite the S&P downgrade.

I expect things to change soon. With debt down to much more manageable levels, people will start borrowing again. And if we can get control of federal finances, that will make borrowing even cheaper for private interests. Four years ago, I said that our economy would not move until we’d unravelled the tremendous debt we’d built up. We’re on our way to doing that, thankfully.

The Piper Must Be Paid

Last week Obama warned Eric Cantor not to call his bluff, it looks like the top credit agency just called his. It isn’t surprising when you think about it. The official reason S&P gave was that it is making the move because the deficit reduction plan passed by Congress on Tuesday did not go far enough to stabilize the country’s debt situation. It did not help that the very day after the agreement the debt was increased by $238 billion, that Obama had promised an extension of even more unemployment payments and increased investmentsspending for schools, high speed rail, green jobs, and infrastructure costs. The other shoe to drop is the second S&P action, issuing a “negative outlook” for the future, risking even further downgrades.

Adding insult to injury we also have China scolding us for not being very good capitalists:

China said Friday that debt deals in the United States and in Europe would not be enough to save their economies and “concrete steps” must be taken to rebalance the global economy.

“The only way the Americans have come up with to improve economic growth has been to take on new loans to repay the old ones,” a blistering commentary published on the official Xinhua news agency said.

“To eat May’s grain in April, however, will never be a permanent solution to a problem,” the report said.

Jeez, how embarrassing, next thing they will be lecturing us on the size of our carbon footprint. When they start using biblical characters to rub it in, we are really in trouble, oh crap:

“The current bailouts offered by international bodies such as the EU are in a sense, to ‘rob Peter to pay Paul’,” it said.

Since misery loves company, we could take solace in the fact that most world economies are in the dumper, I mean, at least in North America we are holding our own, right?

The economy rebounded. Between 1995 and 1998, a $36.6 billion deficit turned into a $3 billion surplus. Canada’s debt-to-GDP ratio was cut in half in a decade. Canada now has faster economic growth than America (3.3% in 2010, compared to 2.9% in the U.S.), a lower jobless rate (7.2% in June, when the U.S. rate was 9.2%), a deficit-to-GDP ratio that’s a quarter of ours, and a stronger dollar.

Well, at least we are not Mexico, that something, right?

Mexico’s unemployment rate is now at 4.9 percent, compared with 9.4 percent joblessness in the United States. Thanks for this go straight to our wonderful Community Organizer Barrack Obama.

This is really depressing

Moodys and Fitch (the other ratings agencies) have not followed suit, keeping us at triple A.

As with most bad news (and shady WH deals) they usually are announced on Friday’s, as if no one would notice this.

The optimist in me (the glass half full side) would like to think that this might be the impetus, the kick in the butt, needed to shock those Washington power guys into reality, that their pussy footin’ days are over, but then I hear the WH response, no where in there is ,”Gee, this is serious, we need to hit that reset button, change our whole way of thinking, and do something substantive to address the debt problem”. But, sadly, all we get is a Treasury response that the “system is flawed”, no mea culpas anywhere.

The Constitutional Question

Hmm. Now this is interesting:

Growing increasingly pessimistic about the prospects for a deal that would raise the debt ceiling, Democratic senators are revisiting a solution to the crisis that rests on a simple proposition: The debt ceiling itself is unconstitutional.

“The validity of the public debt of the United States, authorized by law… shall not be questioned,” reads the 14th Amendment.

“This is an issue that’s been raised in some private debate between senators as to whether in fact we can default, or whether that provision of the Constitution can be held up as preventing default,” Sen. Chris Coons (D-Del.), an attorney, told The Huffington Post Tuesday. “I don’t think, as of a couple weeks ago, when this was first raised, it was seen as a pressing option. But I’ll tell you that it’s going to get a pretty strong second look as a way of saying, ‘Is there some way to save us from ourselves?’”

By declaring the debt ceiling unconstitutional, the White House could continue to meet its financial obligations, leaving Tea Party-backed Republicans in the difficult position of arguing against the plain wording of the Constitution. Bipartisan negotiators are debating the size of the cuts, now in the trillions, that will come along with raising the debt ceiling.

It’s not just Democrats. Bruce Bartlett is among a small handful of conservatives arguing this case. And they may actually have a point. The debt ceiling has always been kind of an ad-hoc thing. It’s only in the last few years that it’s become a political issue. It would definitely require the Supreme Court to decide on the validity of the debt ceiling.

That having been said … let’s not go there. For one thing, this is an attempt by the Democrats to weasel out of balancing the budget. They don’t want to make the hard choices on spending. They would love to find a loophole allowing them to avoid making any choices.

For another thing, as the HuffPo notes, this is unlikely to save the economy if we crash the debt ceiling. If we’re sitting around having a Constitutional debate about the debt, the bond markets are going to get spooked anyway. Arguing the fine points of Constitutional Law while the economy crashes around our ears would be about as close to fiddling while Rome burns since … well, since Nero fiddled while Rome burned.

And, to be frank, this is a strange place for the Left to start getting originalist about the Constitution. They’re willing to take a “living breathing Constitution” attitude when it comes to states’ rights, enumerated powers, free speech, the right to bear arms, the commerce clause, eminent domain, freedom of religion, etc., etc. But suddenly, when it comes to debt, they’re a bunch of Antonin Scalias? Please.

I expect the line of argument to gain some ground, however. Eventually, Republicans may figure out this is a way to weasel out of having to eliminate tax deductions and credits to raise revenues. And if there’s one thing we’ve learned about Congress, it’s that they will always take the weasel route if they can.

Haven’t some of us been saying so?

What you ask? Well, that the real problem is the financial obligations to keep up the socialist bullshit:

When adding in all of the money owed to cover future liabilities in entitlement programs the US is actually in worse financial shape than Greece and other debt-laden European countries, Pimco’s Bill Gross told CNBC Monday. Much of the public focus is on the nation’s public debt, which is $14.3 trillion. But that doesn’t include money guaranteed for Medicare, Medicaid and Social Security, which comes to close to $50 trillion, according to government figures. The government also is on the hook for other debts such as the programs related to the bailout of the financial system following the crisis of 2008 and 2009, government figures show. Taken together, Gross puts the total at “nearly $100 trillion,” that while perhaps a bit on the high side, places the country in a highly unenviable fiscal position that he said won’t find a solution overnight.

Lets’ break this revelation down…

Current US debt, yes, the same one Obama wants raised pronto so the left can keep spending like it’s other people’s money, is at $14.3 trillion. That’s the debt the Chinese recently accused us of already defaulting on. But that debt figure seems dwarfed by the $50 trillion in guaranteed Medicare, Medicaid, and SS outlays of $50 trillion! And that’s according to the government’s own numbers, which means you can likely double that freaking number based on past performance. $50 trillion! Wow? Is this adjusted for Obamacare? I bet not.

Then we have the bailout of the financial sector for which we get no details or numbers. Wonder how much of that is money we had to pay because the democrats wanted to play Santa Claus with homeownership, directly to the financial institutions that put their necks on the chopping block giving loans to bad risks, and how much more to bail out Freddie & Fannie, which they used to launder the shitty loans through before sending them to be auctioned for primo dollars on the credit default swap market? Last I heard Freddie & Fannie are going to stick us with anywhere from $1 to $65 trillion, but Gross seems to think the number is in the high thirty trillion from that $100 trillion debt obligation. This is scary stuff!

To think that we can reduce that within the space of a year or two is not a realistic assumption,” Gross said in a live interview. “That’s much more than Greece, that’s much more than almost any other developed country. We’ve got a problem and we have to get after it quickly.”

Worse than Greece? Ouch! And I cry bullshit! Debbie Wasserman-Shultz says president Obama has turned the economy around! Nothing to worry about people. All is peachy.