Tick, tick. August 2nd is the Debt Limit Armageddon. Or Not.

From the Politico link that this slate story came from:



The difference here is that the Boehner Republicans didn't vote for the spending we need to pay for. The Republican party is at war with itself. We've got the Freshman 90 (or so) who never voted for any of these expenditures and they've drawn a line in the sand. Beohner has a real problem. He's got a group within his party that didn't come in to play politics as usual and they're dumb enough to push us over the edge to make their point. The sad part, to me, is that the American people were dumb enough to elect them in the first place.

Meanwhile, the "Gang of Six" senators is in with a plan today which seems to be garnering support from Obama and a bi-partisan group in the upper chamber. I don't know yet how it will play out in the House.
It seems to call for something like $3.5Tn in cuts along with $1Tn in revenue increases which somehow will be scored as not being tax increases.

On "Cut, Cap and Balance"



Heaven forbid they vote to cut the size of their own offices!!!

We are nowhere near that point. Also, it's fair to say that we have no idea when said contractionary policies are to take effect, or what those policies are. So how can we say that these policies are worth default?

You also don't address the fact that failing to raise the spending cap would lead to an immediate contraction of our economy - to the tune of dozens or a hundred billion in August alone. How can you say that it's worth forcing a contraction, in order to avoid enacting contractionary policies? And making the new debt that we will be forced to purchase far more expensive? I'd really like to see you address this seeming contradiction in your recommendation.

You know I agree with you on economic policy; we should be expanding, not contracting, at this time. Labor is super cheap and money is super cheap, so why not marry the two and profit tremendously off of it? But, that's not going to happen in the current environment, so it behooves us to take the best deal we can achieve - and if it's highly frustrating to those who really do want drastic contraction, more's the better.



Sorry, I should have been more clear. I don't like the deal either. I would rather see a clean debt limit increase, followed by an immediate expansion of various spending and the phase-in of tax raises for everyone. But these things stand a zero chance of happening, so my opinion on the matter must be shaped by what is possible, not what we would prefer.

I think you are seriously underestimating the pain of a default on our debt, and would ask that you take a second look at how doing so would bring about the things you say you don't want brought about.

Cycloptichorn

Amen to that! Voters wanted extremism, and they got it in spades.

Cut, cut, cut - not understanding we still have to pay for past commitments.

They're blaming everything on Obama, because they don't understand how Washington works.

Cut, Cap and Balance is the best plan on the table and
it's the only one that will protect our credit rating.

That's where you and I disagree. But at last you understand my reasoning now.

I repeat:

You also don't address the fact that failing to raise the spending cap would lead to an immediate contraction of our economy - to the tune of dozens or a hundred billion in August alone. How can you say that it's worth forcing a contraction, in order to avoid enacting contractionary policies? And making the new debt that we will be forced to purchase far more expensive? I'd really like to see you address this seeming contradiction in your recommendation.

So, no; I don't understand your reasoning, because it's contradictory.

Cycloptichorn

Cyclo, Thomas explained himself very well. He said,

No, he didn't, because the recommendation he makes - a default - causes that which he says is bad fiscal policy. His position is contradictory.

Cycloptichorn

RSC Cut, Cap, and Balance Proposal as of June 2011

103 House Republicans sent a letter to House Republican leadership calling for a solution that could resolve the current debt limit impasse and prevent the bigger, Greece-like debt crisis just over the horizon: Cut, Cap, and Balance.

1. Cut - We must make discretionary and mandatory spending reductions that would cut the deficit in half next year.

2. Cap - We need statutory, enforceable caps to align federal spending with average revenues at 18% of Gross Domestic Product (GDP), with automatic spending reductions if the caps are breached.

3. Balance - We must send to the states a Balanced Budget Amendment (BBA) with strong protections against federal tax increases and a Spending Limitation Amendment (SLA) that aligns spending with average revenues as described above.

With each passing day our nation’s fiscal health gets worse, leaving our children and grandchildren falling further into debt. Democrats seem to have given up, proposing even more borrowing in response to our massive debt addiction. With the problem growing larger every day, we must move quickly and unite behind a plan to cut spending and get our budget into balance.

Cut Cap and Balance -- Don’t Cut and Run


Published July 19, 2011



The U.S. House of Representatives will vote today on H.R. 2560 also known as the "Cut, Cap, and Balance Act of 2011."

If the debt ceiling must be raised (an open question for many conservatives) then this is surely the best way to do it.

The bill would significantly cut government spending, create binding caps to bring spending back to its historical average, below 20 percent of the economy, over the next ten years, and require Congress to adopt a tough balanced budget amendment to the Constitution – including a spending cap and a supermajority requirement for tax increases – before the federal government would be allowed to incur any more debt.

President Obama has issued a veto threat, saying, ridiculously, that such structural controls on spending are not necessary to restore fiscal accountability. He continues to claim he supports spending cuts of four trillion dollars, but he won’t show anyone anything specific. All we know for sure is that he wants steeply higher taxes that would make government even bigger.

House Republicans have been winning this debate, evidenced by the fact that the White House is using desperate scare tactics.

Unfortunately, Senate Republican Leader Mitch McConnell has stepped into the breach with a plan that amounts to pre-emptive surrender, undermining the growing momentum that has been building for real spending cuts and reforms.

Opponents have fittingly dubbed it "Cut and Run."

The McConnell plan allows the president to unilaterally increase the debt ceiling, subject only to a “resolution of disapproval” that Congress could pass to theoretically stop him. Because the resolution could be vetoed, this amounts to a transparent political charade to pretend to oppose a debt ceiling increase while allowing it to happen.

Any member of Congress who votes for the McConnell plan will have voted not just to raise the debt ceiling, but to allow the president the sole power to do so at his own discretion. It is an outrageous abdication of legislative responsibility.

Moreover, the McConnell Plan apparently violates the U.S. Constitution, in which the people granted legislative power to the Congress, specifically Article I Section 8, which granted Congress the power “to borrow Money on the credit of the United States.”

Worse, the strategy grants the president greater authority to borrow and spend at a time when the American people elected a Congress to stand up to the Obama administration’s big government policies. Quite simply, no Republican was elected to give President Obama more power, and grassroots activists will be justifiably outraged if his plan moves forward.

Politically, the McConnell Plan is too clever by half.

That’s why Nancy Pelosi and Harry Reid support it. They know that even if Republicans have some claim to have technically opposed the debt ceiling increase they made possible, the real result is that Democrats will score a huge political victory by walking away with a blank-check increase in the debt ceiling with no attendant spending cuts or reforms.

Unfortunately, while the House is aggressively pursuing the right approach with "Cut, Cap, and Balance," Speaker Boehner has left the door open for future support of the McConnell plan, saying last week:

“And what may look like something less-than-optimal today, if we’re unable to get to an agreement, might look pretty good a couple of weeks from now. But I think it’s worth keeping on the table. There are a lot of options that people have floated, and frankly, I think it’s an option that may be worthy at some point.”

He’s wrong. This is no time for retreat, and a couple weeks from now will still be no time for retreat. An unprecedented wave of public discontent over out-of-control federal spending swept this new Congress into power, and their clear mandate is to hold firm.

Today, the House will pass its "Cut, Cap, and Balance" plan. They should stand strong and reject the McConnell approach.

Then they must force President Obama and Democrats – who have warned that the world will end without a debt ceiling increase – to explain why obstructing popular, commonsense reforms like a balanced budget amendment is more important than stopping what they insist is a doomsday scenario.

Cut cap and balance is a side show, so why are we talking about it?

Because these idiots have backed themselves into a corner, and need to go through the motions in order to placate foolish waterboys.

Cycloptichorn

No it doesn't, and no it isn't.

Part of the vicious circle we know as the Great Recession is a state of oversaving underinvestment. A default, then, might discourage savers from buying government bonds. But right now, there are too many savers anyway. It's investors that are scarce. And a default wouldn't discourage investors to buy physical capital like machines with the money they already have.

So as long as America is in a liquidity trap, the fallout of a default would be modest. Granted, a default would cause problems further down the road, when the savings glut is over and the US needs to pay savers a risk premium on her debt. I don't want to downplay those problems, but I am saying they're not terrible enough to be worth avoiding at all cost. Look at the Argentinians---they did much better after their 2001 default than under the harsh austerity measures that preceded it. Defaults aren't necessarily bad for the economy.

The Gang of Six is the side show, why are we even concerned with what they are doing?

If only republicans were in charge...

I hardly think that's a good comparison - our economy is 20 times the size of theirs, and we act as the reserve currency for much of the world. A default on US debt would have far more repercussions than Argentinian. And do I have to even begin to describe to you the pain that the people went through, during that default?

I think that you are downplaying the very real pain that we will feel, immediately, from a default situation. It's easy for you to say the problems would be modest; for many, they would be immediate and difficult.

It is a fact, that a default would cause immediate budget cuts to the tune of dozens or over a hundred billion dollars - a month. Unemployment will rise and tax receipts will drop; it will get worse every single month, too, until a limit extension is passed. I cannot say that this is a scenario which should be encouraged to happen, in any way.

I have a hard time understanding your theory that a US gov't default would lead to a giant boon in investing in American businesses. It seems rather far-fetched.

Cycloptichorn

You are bending to the GOP that will also be painful for most Americans.

They're the ones who started with threats and demands that they themselves have reneged on; in 2010 they talked about changing social security and Medicare. When Obama put those two items on the table, they said no.

They are still demanding no taxes to make a deal. That's not negotiating.
No administration can operate under these constraints.

The worst thing our country can do during this recession is to go into an austerity program that will end up costing more jobs without any hope of a turn-around. Governments already cut over 131,000 jobs, and that includes teachers.

Obama cannot negotiate with the GOP.

I prefer that our country do not let the GOP control our economy. Their primary goal is "don't tax the rich."

Your choice.

Our past: Elect Obama... Unemployment will rise and tax receipts will drop

Our future: Re-elect Obama... Unemployment will rise further and tax receipts will continue to drop.

There's also more ruin in a bigger nation---size cuts both ways. And the dollar's role as a reserve currency isn't a big deal. (Maybe couple ten billion bucks a year at today's long-term interest rates.)


Yes, please do. I dare you to find much pain that happened during the Argentinian default, because of the Argentinian default, rather than before it.


I reject that this is a fact. A default means that the US stops paying interest on her debt. That's all a default means.


I didn't say it would lead to a giant boon in investing. I'm only saying it wouldn't lead to a collapse in investing. Saving is when you put money in the bank. Investing is when I spend your money I borrowed from the bank to buy bricks for my new house, equipment for my business, and all that. Failure of the bank to pay interest discourages saving, but it needn't discourage investment during a savings glut.