Tag: United States public debt

Yes, the Debt Ceiling Matters

There is an effort on to pretend the debt ceiling is no big deal. We won’t default, they say, because Obama can simply re-direct spending to make sure our debts get paid. Why, hitting the debt ceiling could be a good thing, forcing the government to live within its means and balancing the budget in one fell stroke.

There are multiple problems with this line of thought, the primary one being that this would be an awfully big gamble. If the ceiling-deniers are wrong, the result will be economic chaos. A huge amount of the global economy rest on the idea that US debt is reliable. If that pillar is tumbled, it could be chaos. Sure, it might not be the disaster some fear. But do you really want to pull that trigger to see if the chamber is empty?

Second, it’s not clear that Obama has the Constitutional authority to balance the budget like this. Spending, as you know, originates in the House. And under laws passed by the House, most spending continues to go on even in the case of a shutdown. To prioritize debt, Obama would have to break the law and possibly violate the Constitution by essentially writing his own budget. Even if that passed Constitutional muster — do you want to give Barack Obama unfettered control of the national purse? It thought we didn’t like executive overreach.

Third, prioritizing our spending to allow for debt may not be logistically possible. Our government pays its bills — millions per day — through an automated system.

The Treasury Department maintains that it has no ability to pick and choose which bills to pay if it’s short of cash. According to the agency’s inspector general, its computer systems are designed to “make each payment in the order it comes due.” Full stop.

Under this view, if Congress fails to lift the debt ceiling, the U.S. government will only have money to cover about 65 percent of its bills. Some payments will simply fail to clear. Perhaps a payment to a defense contractor comes up short. Maybe a Social Security check bounces. Maybe an interest payment to bondholders fails.

For people who say our government is too big, the GOP seems to be kind of clueless about just how big it is and how much money flows into and out of its coffers. Two years ago, Obama noted that, with a debt ceiling breach, he couldn’t guarantee that Social Security checks would be paid. He was accused of trying to scare seniors, but what he said was correct: if any check comes in when the federal coffers are registering zero, it will not be paid. If anything, Plumer understates the problem. Both federal revenue and expenditures are highly variable depending on the time of year. Even if the budget were perfectly balanced over a fiscal year, we would run a debt in some months and a surplus in others. Under a no-more-debt scenario, this would make federal payments erratic at best.

The response to this has been to say, basically, the a default would be such a catastrophic thing that the Treasury would find a way to avoid it. I simply can not buy into that appeal to magic: problems have to be solved, not thrown out there in the hopes that a solution will magically present itself within the next week. This was the same thing they said about the sequester: it was such a bad way to cut spending that Congress would certainly find a better way to cut spending.

But aside from that, do you trust this Administration to not default in this situation? Right now, their healthcare exchanges are a debacle. And that’s with less than a million visitors a day and years to prepare. Do you really trust this Administration to carefully sort and prioritize the millions of bills our government pays every day and not fuck it up? On a week’s notice, you expect this? This isn’t a challenge on Survivor; this is our full faith and credit.

I recently had a debate about what Obama should do if we hit the debt ceiling. We came to the conclusion that he would be in a position where he would violate the Constitution either way: either by refusing to spend money Congress has authorized or by taking out debt Congress has not authorized (even with the shutdown, the government is obligated under law to continue a great deal of spending; Congress would have to pass a raft of laws to stop that spending). My opinion was, in that situation, that Obama should just issue debt. Congress’s spending authority is well-established Constitutional law. A President does not have the legal authority to refuse to spend money they have authorized or to make statutory alterations to programs. Congress’s authority to limit the debt, however, has never been challenged in the courts and some legal scholars believe the debt ceiling violates the 14th Amendment (although there is a lot of disagreement on this.

If your choice is between two Constitutional crises — and no doubt the Republicans starting impeachment proceedings either way — should you take the one with less fiscal uncertainty and more legal uncertainty?

Of Ceilings and Coins

Ugh. Do I have to write about this again? Apparently.

Let’s be clear. Hitting the debt ceiling is a seriously stupid idea. The debt ceiling was never intended to be a debt control measure. It does not, in fact, limit the amount of debt we can run up, only the amount we can pay to creditors for things we’ve already authorized. Here’s Ezra Klein on what will happen if we crash the debt ceiling.

The choices [the government] will face quickly become stark. It can cover interest on the debt, Social Security, Medicare, Medicaid, defense spending, education, food stamps and other low-income transfers, and a handful of other programs, but doing all that will mean defaulting on everything — really, everything — else. The FBI will shut down. The people responsible for tracking down loose nukes will lose their jobs. The prisons won’t operate. The biomedical researchers won’t be funded. The court system will close its doors. The tax refunds won’t go out. The Federal Aviation Administration will go offline. The parks will close. Food safety inspections will cease.

This is the difference between a debt-ceiling shutdown and a government shutdown. As Shai Akabas, a research at the Bipartisan Policy Center, puts it, “in a government shutdown, the government is shutting down future obligations. With the debt ceiling, They’ve already obligated the money. They owe these people the payments now, and they can’t make them.”

This means businesses that have already done work for the Feds won’t be paid and will have to lay off workers. It means government agencies — prisons, for example — will not be able to contract basic things like food and electricity because they don’t have the money. A government shutdown is something that can be prepared for and dealt with. It’s not even clear that we have the ability to selectively pay our bills.

That’s to say nothing of the hit the economy would take because of the uncertainty (Remember uncertainty? That think we’ve been blaming for the slow economy?) and the wallop our government would take in the bond market. We’ve already had one downgrade. A second debt ceiling hit could raise the interest rates at which people will loan us money. And every point of interest rate hike is a $160 billion hit on the budget. That’s a bigger impact than all the spending cuts and tax hikes anyone has discussed. “Giving in” on raising the debt ceiling is like giving in on not burning your own house down.

I just wanted to get out of the way before I address the $1 trillion coin yet again. This is the idea that we should mint a $1 trillion coin to pay our debts. The typical liberal response to criticism of the coin idea is “well, the platinum coin may be dumb but hitting the debt ceiling is really dumb”. I know that. I just wrote several paragraphs about that. No one is seriously disputing that.

But here’s the thing: the debt ceiling foolishness does not make the trillion dollar coin a good idea.

I know that should go without saying, but it apparently does. Last week, the trillion dollar coin was a fringe idea we snickered about. Today, it’s being taken seriously by people who should know better. The platinum coin idea is being defended by heavyweights like Laurence Tribe, who argues that because the law does not expressly forbid the coin idea, it could be legal (although the former Mint Director disagrees. And Paul Krugman has written a third op-ed in support of the idea in which he calls on the treasury secretary to wear a clown suit. Metaphorically. I hope. Actually, I don’t. Geithner wearing a clown suit would be the most productive thing he’s done in four years.

The thing is that, even we posit that the trillion dollar coin is legal and doable, the platinum coin problem runs into many of the same fucking problems as a debt ceiling crisis. Klein again:

Imagine a Japanese bond trader who hears we’re now running our government off of a trillion-dollar coin created through a loophole in the law. Is there any way that trader is going to keep lending to America at near-riskless rates? The result might be better than default, but it won’t be good.

That, of course, involves pretending that the platinum coin would not precipitate a gigantic legal and constitutional battle that will bring about they very economic chaos it is designed to prevent. I’m really glad that someone from Harvard thinks the platinum coin is legal. God knows we can’t decide what to do in this country until Laurence Fucking Tribe weighs in. But no matter what opinion anyone has on the coin’s legality, this does not mean the everyone in America is obligated to accept it. Somebody won’t and they will fight it in court. Of course, I’m sure the ensuing legal battle will be blamed on Republicans for daring to oppose Obama. That will be a great comfort while we’re all out of work.

McArdle:

The trillion dollar platinum is an absurdity wrapped in a legislative incongruity inside a farce. It is the logical extension of an utterly illogical legislative process that only becomes more irrational with each passing day. Each partisan battle has become stupider than the last. Silly loopholes are exploited for bargaining power, and the resulting stalemates are generally solved with a temporary patch that solves the immediate problem by creating a bigger one down the road. When the bigger problem arrives, naturally the other side seeks an even sillier loophole, resulting in an even more temporary patch.

We are now approaching the era of permanent fiscal crisis.

The Great Platinum Coin Caper is everything that is wrong with Washington: a stupid partisan maneuver that erodes the institutions of our government for no gain other than an immediate political win. The only good thing that can be said about it is that the President seems to be too sensible to actually consider doing it. Nonetheless, the fact that intelligent people like Professor Krugman are even discussing this debacle, much less endorsing it, is a depressing reminder of just how nasty and short-sighted our nation’s capital has become.

The more I read these pro-coin articles, the more I think this is really about giving the middle finger to the GOP. The Left has long wanted Obama to have a temper tantrum to match the hysterics that the GOP sometimes descends to (ignoring that Obama doesn’t have to have a temper tantrum because they’re always having one on his behalf). This isn’t about economics. This isn’t about the economy. And it’s certainly not about the debt. It’s about winning one from those damned GOP bastards by some bit of trickeration. It’s about saying, “Ha-ha! Got you!”

It won’t work. Even if it works, it won’t work. The only way to get out of the debt ceiling crisis is either for the GOP to come to their senses or for Obama to give into their faux demands and pretend to cut spending.

You know, it’s January. We are nine days into this year. I’m going to call it right now. The platinum coin will be the Official Stupidest Fucking Thing I Blogged About in 2013. It just shows that the vener of “reasonableness” that the Left has cloaked themselves with in recent years is just that, a veneer. The minute the wind turns, they turn just as idiotic as a talk radio host on meth.

Update: You know, it might advance the debate a bit if the liberals would acknowledge, for once, the Senate’s failure to have a vote on a budget bill for three years. That’s where this problem got its initial start.

Update: Douthat nails it.

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 Worst is Yet to Come

Building on Rich’s post on debt, I stumbled across this article that summarizes Harrisburg, PA’s recent attempt to declare bankruptcy. Essentially, the city got themselves $310 million in debt (that’s $6,000 per resident) on an incinerator. Yes, a fucking incinerator. They took on a bad obligation, compounded it by signing a deal with the lowest bidder for renovation (lowest bidders always cost more) and are now trying to impose a commuter tax to get out of the hole before the state essentially takes over the city and forces them to lease or sell city assets.

This is not even the only scandal among Pennsylvania small towns. Numerous towns are facing financial difficulty over interest rate swaps and mine is potentially facing millions in losses on a possibly illegal naked interest rate swap — that is, we might have to fork over millions to pay interest and penalties on a loan we never took out.

This is going on everywhere in America. Not only are cities, counties and states in debt, many are tangled in such complicated financial schemes, it’s not clear how they’re going to crawl out. All over the country, people have forgotten the first rule of finance: do not invest in something you don’t understand; do not take on debts you don’t understand. And we’re supposed to believe these twerps will clean up Wall Street?

There are some people who are starting to get it:

Some 8 million U.S. consumers stopped using bank-issued credit cards in 2010, according to the credit-reporting agency TransUnion. The average credit-card balance has fallen 10 percent this year from 2010, to $6,472; U.S. consumer debt has dropped for 12 consecutive quarters, from a peak of $14 trillion in early 2008 to $13.3 trillion last spring, mainly because of mortgages repudiated or abandoned. People are cutting visits to the hairdresser, buying used cars without financing, and living on surplus cheese as they trudge toward the promised land of a debt-free existence.

Of course, many economists are claiming that this is a bad thing because we should all be out spending, spending, spending to “stimulate” the economy. Well, excuse my lack of Economics PhD, but what he fuck do they think the last decade was all about?! We borrowed and spent like mad — in both the public and private sector. The result was an empty economy with essentially zero growth and all economic gains concentrated among the wealthiest. Is that what we want to go back to?

We keep running against this reality: there is no short-term fix for the problems we are in. We can minimize the pain, but we can’t fix the economy with band-aids. Long-term fixes that will slowly right the ship over the next decade are the only answer. And part of that long-term fix is de-leveraging the country.

There is simply no alternative. As even Ezra Klein — in a great leftish article on the economy — acknowledges that this is not just a downturn in the business cycle. Financial crises are different. And while Klein wouldn’t agree, I think this cycle is different because of the truly staggering amount of debt out there.

As mentioned in the Atlantic article, one positive affect of the Great Depression was to instill an aversion to debt in a generation of Americans. My parents’ generation is obsessed with being debt-free (some of them anyway) and not getting into complex financial entanglements. I hope against hope that one of the good things to come out of this will be an aversion to debt among younger people. The OWS crowd and their calls for student loan forgiveness make me shudder for the future. But I just had a 5 year-old girl tell me today that people spend too much and need to save. And all her little friends agreed. If we want more people like that little girl and fewer like the whiny entitled students, we need to face reality about our debts. And make that reality as crystal-clear to the American people as we possibly can.

PS – The Atlantic article has one huge flaw. It describes Japan as having deleveraged their debt. I’m not sure what parallel universe Earth that Japan is on. On this reality’s version of Earth, Japan’s debt is more than twice their GDP. They also don’t mention countries that deleveraged successfully, like Canada or Sweden.

PPS – Oh, and we can we put a fucking axe through the lie that government budgets are being slashed?

Consensus! The debate is over…

Well, not really but that’s how they operate on the left, so I wonder how they will react to this revelation:

The majority of economists surveyed by the National Association for Business Economics believe that the federal deficit should be reduced only or primarily through spending cuts.

The survey out Monday found that 56 percent of the NABE members surveyed felt that way, while 37 percent said they favor equal parts spending cuts and tax increases. The remaining 7 percent believe it should be done only or mostly through tax increases.

That tells me 56 percent of economists understand the problem with our politicians and spending, 37 percent are still hoping the politicians this time will actually institute real cuts if they get revenues, and only 7 percent are insane or stupid enough to think the answer is to fleece the productive even more. Looks like the grand majority is however for cuts, an aggregate 93% of economists that believe government is way too big and spending too much, and that’s an awesome thing to see, despite the fearful belief of some 37% that more taxes will not simply make these morons forgo any real cuts. The 7% that want tax increases only are to be made fun of. I bet most are part of the Obama Admin though. That was a joke CM, so don’t ask for proof please.

It gets better too.

As for how to reduce the deficit, nearly 40 percent said the best way would be to contain Medicare and Medicaid costs. Nearly a quarter recommended overhauling the tax system and simplifying tax rates and exemptions. About 15 percent said the government should enact tough spending caps and cut discretionary spending.

How about a balanced budget amendment – with no loopholes please! And also make everyone pay taxes. It is very clear now that the compassionate conservative move to spare the lowest earners from paying taxes just served to divorce them completely from the reality that the others paying taxes are already paying far too much. But there was also some bad.

According to the survey of 250 economists who are members of NABE, nearly 49 percent of those responding said the country’s fiscal policy should be more restrictive, while nearly 37 percent said they believe the government should do more to stimulate the economy. The remainder said fiscal policy should remain the same.

A striking 37% of these idiots either still think Keynesian economics work and that the problem was they didn’t spend enough or that government spurs economic growth. The reality is that it can certainly stump or kill economic growth, but as far as I am concerned whatever “stimulus” they do is at best mediocre, and more likely fictitious, because they do not account for the impact that taking all that wealth from others that do far better growing it has in any of this nonsense. And printing new money or borrowing it might short term look like it helps, but now that we are there economically and doing this stupid crap, we can clearly see that the jump in inflation and the weight of the huge debt load that comes with this, has a far greater overall impact on the economy.

Finally there is this:

At the same time, more than 70 percent of the people that responded said they expect U.S. fiscal policy to be more restrictive over the next two years.

One can only wish.

UPDATE: And many others are pointing this discrepancy in government spending vs. revenue collection out, like Byron York does in this awesome article at the Washington Examiner:

There’s no doubt federal spending has exploded in recent years. In fiscal 2007, the last year before things went haywire, the government took in $2.568 trillion in revenues and spent $2.728 trillion, for a deficit of $160 billion. In 2011, according to Congressional Budget Office estimates, the government will take in $2.230 trillion and spend $3.629 trillion, for a deficit of $1.399 trillion.

That’s an increase of $901 billion in spending and a decrease of $338 billion in revenue in a very short time. Put them together, and that’s how you go from a $160 billion deficit to a $1.399 trillion deficit.

But how, precisely, did that happen? Was there a steep rise in entitlement spending? Did everyone suddenly turn 65 and begin collecting Social Security and using Medicare? No: The deficits are largely the result not of entitlements but of an explosion in spending related to the economic downturn and the rise of Democrats to power in Washington. While entitlements must be controlled in the long run, Washington’s current spending problem lies elsewhere.

The truth is a bitch.

Was the WH behind the S&P and Moody credit rating hit job?

When I saw the news yesterday that Moodys put the US rating on a downgrade watch and that was also followed immediately by Standard & Poor’s pushing the same narrative, I immediately became suspicious of the timing and this idiotic warning. Remember that Moody and S&P where the people that kept telling us that all those mortgage security packages, replete with bad loans almost guaranteed to go south, repackaged through Freddie and Fannie, where great investments up until the whole house of cards came crashing down. I smell a rat here, and think this whole concerted attempt by these two to push us into giving the democrats what they want – more debt – isn’t a coincidence at all.

I am still surprised at the fact congress has not subpoenaed the management of S&P and Moodys to figure out what they knew. At a minimum it would prove – if they are going to make the claim they just didn’t know better – they have no fucking clue what they are talking about, or worse, and this is what I suspect happened, they would have to come clean on why they continued to pretend the buckets of shit where being lauded as a buckets of gold. Whether it was done so the fat cats could keep getting bigger houses, faster cars, and nicer fortunes by selling that junk off to everyone, or simply because they figured that nobody would ever catch on, if they knew and let it go on, it was criminal.

Enter Tim Geithner, whom I remind you was the Chairman of the New York Fed when everything was collapsing back in 2008, and for not catching on that the world was melting down around him, got rewarded for his that and his lack of concern about paying taxes like the rest of us by Obama, to the post of Secretary of the Treasury. Let me also point out that Tim has some real cozy relations with both the heads of Standard & Poors and Moodys. So, you can see how I am now immediately suspicious about this concerted effort by these two to convince people that allowing the democrats to force us to rack up trillions more in debt is better for our rating than putting an end to their insane fiscal policies.

What I suspect we have here is Obama telling Timmy to call his buddies and then telling them to help these collectivist tax-and-spend-command-economy nutjobs push their agenda, by making this ludicrous announcement in the hopes it forces the republicans to break down and give in to the Obama/democrat bullshit promise of cuts in the far away future – which guarantees they won’t happen ever – and tax increases that will hit the economy even harder, and that’s just plain wrong. But will the media figure this out and report this or just go right along and continue to shill for Obama and the democrats? I know, rhetorical question. For all their talk about the evil capitalists and the evils of capitalism, these collectivists sure seem to be in bed with the biggest and baddest of them all, and these bastards sure seem willing to say whatever lies it takes to help keep them in business.

UPDATE: More details about the real reason that our rating will be hammered and confirmation that what I was thinking was the reason behind S&P and Moddy doing their announcements come from this WSJ article. Some prime quotes:

So the credit-rating agencies that helped to create the financial crisis that led to a deep recession are now warning that the U.S. could lose the AAA rating it has had since 1917. As painfully ironic as this is, there’s no benefit in shooting the messengers. The real culprit is the U.S. political class, especially the President who has presided over this historic collapse of fiscal credibility.

Moody’s and the boys are citing the risk of a default on August 2 as the proximate reason for their warning. But Americans should understand that the debt ceiling is merely the trigger. The gun is the spending boom of the last three years and the prospect that Washington lacks the political will to reduce it in the years to come.

On spending, it is important to recall how extraordinary the blowout of the last three years has been. We’ve seen nothing like it since World War II. Nothing close. The nearby chart tracks federal outlays as a share of GDP since 1960. The early peaks coincide with the rise of the Great Society, the recession of 1974-75, and then a high of 23.5% with the recession of 1982 and the Reagan defense buildup.

From there, spending declines, most rapidly during the 1990s as defense outlays fell to 3% of GDP in 2000 from its Reagan peak of 6.2% in 1986. The early George W. Bush years saw spending bounce up to a plateau of roughly 20% of GDP, but no more than 20.7% as recently as 2008.

Then came the Obama blowout, in league with Nancy Pelosi’s Congress. With the recession as a rationale, Democrats consciously blew up the national balance sheet, lifting federal outlays to 25% in 2009, the highest level since 1945. (Even in 1946, with millions still in the military, spending was only 24.8% of GDP. In 1947 it fell to 14.8%.) Though the recession ended in June 2009, spending in 2010 stayed high at nearly 24%, and this year it is heading back toward 25%.

This is the main reason that federal debt held by the public as a share of GDP has climbed from 40.3% in 2008, to 53.5% in 2009, 62.2% in 2010 and an estimated 72% this year, and is expected to keep rising in the future. These are heights not seen since the Korean War, and many analysts think U.S. debt will soon hit 90% or 100% of GDP.

The problem is G-O-V-E-R-M-N-T S-P-E-N-D-I-N-G, which has gone up by an insane factor since democrats took the levers of government over after making the ridiculous promise that they would be more fiscal disciplined than their predecessors, not the fact that government, now run by command economy collectivists completely detached from reality and spending at record numbers that make the people they replaced look like pikers, isn’t stealing even more money from the productive sector to buy votes. That’s why we can not let them win this fight. Cuts now, no taxes. The big government gravy train must go the way of the Dodo bird.

The Democrats’ Latest Joke

Apparently, the Democrats are putting the finishing touches on their first budget proposal in over two years. And … well, it was not worth the wait:

Senate Democrats have drafted a sweeping debt-reduction plan that would slice $4 trillion from projected borrowing over the next decade without touching the expensive health and retirement programs targeted by President Obama.

Instead, Senate Democrats are proposing to stabilize borrowing through sharp cuts at the Pentagon and other government agencies, as well as $2 trillion in new taxes, primarily on families earning more than $1 million year, according to a copy of the plan obtained by The Washington Post.

With debt-reduction talks under way between Obama and congressional leaders, Senate Democrats are unlikely to adopt the blueprint. However, it has gained broad support among those eager to chart a path to solving the nation’s budget problems without making politically painful cuts to Social Security and Medicare.

A few random points. First, canceling only the Bush tax cuts would raise taxes by $700 billion or so. If the Democrats want to raise taxes by $2 trillion, that means HUGE increase in marginal rates. They project a top rate of 39.6%. They are also targeting offshore tax shelters, which is Democratspeak for instituting double taxation on foreign earnings for American companies.

Second, I smell a rat on the budget numbers. If they are not touching entitlements, that means they reduce the deficit over the next ten years but blow it up in the out years. This is exact opposite of what Ryan’s plan does, which is to tolerate more mid-range debt in return for more long-range fixes.

Third, their spending cuts are small. $350 billion for non-defense spending, $900 in in defense. But they are counting $600 billion in reduced interest.

In the end, this is not a serious plan. The President is negotiating with the Republicans from their blueprint, not the other way around. This is mainly a bone to Democrat special interests. But at least we now know where their priorities are.

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.

Social Security system is in deep trouble

As our political class is locked in a fight about government, with one group begging for cuts while the other refuses to let go of the idea that the problem is government isn’t taking enough money already from people, to tackle our out of control spending, one of the items I am afraid isn’t being discussed is the need for serious and massive SS reform. Social Security is in real bad shape. How bad? Well according to this Fiscal Times column, its in horrible shape right now. Here are some facts:

*Since last year, the present value of Social Security’s long-term funding gap widened by $1.1 trillion. In one year.

* Last year, the trustees reported that Social Security would be unable to pay all of its promised benefits beginning in 2037; now the expected default year is 2036.

* The year in which Social Security is projected to start running in the red—that is, the year in which it will start adding permanently to the budget deficit—advanced from four years in the future to one year in the past.

Let’s look at each of these in turn, starting with the first one: SS is running in the red because of a $1.1 trillion funding gap. Not my words. Here is the meat of that argument straight form the article.

First, Social Security stalwarts can’t say any more that the program doesn’t increase the deficit. Until last year, Social Security actually reduced Washington’s need to borrow, since the program took in more FICA tax revenue than it had to pay out in benefits. That was supposed to continue (with the exception of last year and this) until 2015. But in one of the more alarming changes from last year’s trustees report, the year of permanent red ink (revenues falling below costs and staying there) jumped ahead to 2010. In other words, we’ve been operating in the red for a year now, and it’s not going to change.

SS is running in the red and impacting the deficit. That’s started in 2010, instead of as had been projected in last year’s report to not be an issue until 2015, because of this widening funding gap. Currently that Ponzi scheme is taking in $1.1 trillion less than it needs to pay out, and the Baby Boomer retirement bonanza hasn’t even gone full swing. So that brings us right back to the second argument that the defenders of the status quo use to pretend SS isn’t in big trouble: that SS has a large stash of money put away that can be tapped for quite a while. But there is a huge problem with that thinking, because that fund they can tap is simply a bunch of government IOUs, not real money. Let’s look at the article again.

At least until 2037—er, make that 2036 —Social Security can make up the shortfall by tapping its trust fund. Tapping the fund means, essentially, that Social Security presents a bill to the U.S. Treasury and Treasury has to pay. Of course, Treasury has to get the money from somewhere. And that means higher taxes, reduced spending elsewhere, or more borrowing. More borrowing means a wider deficit. Got it? To use the highly technical language of accountants, Social Security has gone from being a deficit good guy to a deficit bad guy five years ahead of schedule.

First off, it looks like every year that we look at a new report, it looks that the numbers have changed in such a way that the projected date that they run out of that IOU money happens earlier and earlier. But the real problem is the IOUs means that basically we have a situation where the Treasury will have to scrounge for money that it doesn’t have to pay off the IOUs. Worse yet is the fact that at the current pace things are going the bill that the financial arm of the SS will present the US Treasury each year to make up its own shortfall will be going up.

The US Treasury will have to then raise taxes, borrow, and/or cut spending on other things to pay back the IOUs. My bet is that the whole scheme implodes long before 2036, by a couple of decades at least, unless SS is reformed. The next time some liberal moron tells you that this SS crisis is made up and a ruse by evil people that want to throw Grandma off the cliff or under the bus, point out this horrible reality. SS is already broke, and the US Treasury simply doesn’t have the ability to pay them back for the IOUs you claim make the whole point moot short of destroying the economy.

And those that say that the problem isn’t that the Ponzi scheme was not just abused terribly but a scheme that was doomed to failure the moment that the left made it the mandatory retirement system it was never intended to be – because it ignored the fact that the whole scheme was set up as a lottery that rewarded the one out of over 90 people that actually lived long enough to collect – but that the Baby Boom generation was simply to big, and their mass retirement is responsible for the strain SS is now under, are also in for a rude surprise. Once all the Baby Boomers are gone, Gen X is going to face the same problem because Gen Y is yet again smaller than it. For a Ponzi scheme to stand a chance, the number paying in has to continue to increase and be larger than those taking out. If that’s not maintained, it implodes. Ask Madoff. Unlike the government though, he is now in the slammer for doing this stuff.

Here is what it all comes down to: to keep SS alive in its current incarnation we will need to put more money into the system, pay out less, and then a lot later, or do all three. If we raise the age to where it should be – in the 70s – it will shock too many people and cause a lot of hardship. If we cut the pay too drastically, people that then do collect aren’t going to get much value anyway from a system that basically robbed them. And as we all clearly see, with a ton of other liberal fantasy land obligations already competing for our cash, even if we basically took all the money from the rich people and the corporations like the crazy people tell us we should so we can avoid dealing with the fact we are running out of other people’s money, we ARE running out of other people’s money.

As I realized more than 2 decades ago, it now seems almost a given that SS will collapse under its own weight as the political class that benefits the most from this scheme continues to refuse to address the issues and fix it. Just remember that when Ronald Reagan proposed SS privatization back over 30 years ago and was shot down by the left over it, that it would have cost us less than $800 million to fix it. Now SS has a $1.1 trillion annual gap. A decade from now when it runs multi trillion dollar gaps, what’s the solution going to cost us, huh?

The lesson here is that there are no free lunches paid by others. Sooner than later it all ends up badly.