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

We will be well rid of him in 2012.

I think you missed the whole point of the Laffer Curve concept. It doesn't begin to tell us what taxes will be, or what they should be. All it does is observe that for any given revenue desired, there are two rates that will yield the same revenue, ceteris paribus.

they are demanding cuts in spending now, and if delivered, I suspect will entrertain tax increases later.

In my view the discriminator here is the likely (in my eyes) effects of the huge increases in government's use of its expanded regulatory power and inefficient giveaways to its favored constituents to significantly slow our economic recovery from the recent recession.

I will agree with you that the liberals have a difficult time making adjustments to social security, Medicare, and medical, but those are the very programs that needs adjustments to bring revenue in line with cost

#12 According to the Congressional Budget Office, the Social Security system will pay out more in benefits than it receives in payroll taxes in 2010. That was not supposed to happen until at least 2016. Sadly, in the years ahead these "Social Security deficits" are scheduled to become absolutely horrific as hordes of Baby Boomers start to retire.

Increasing spending with no revenues only exacerbates our government's ability to reduce the debt.

Poll: Thumbs down on the debt-ceiling deal
By Susan Page, USA TODAY
Updated 2h 8m ago

WASHINGTON — The hard-won, last-minute agreement to raise the debt ceiling and cut the deficit gets low ratings from Americans, who by more than 2-1 predict it will make the nation's fragile economy worse rather than better.

By Carolyn Kaster, AP

In a USA TODAY/Gallup Poll taken hours after the Senate passed and President Obama signed a debt ceiling bill, 41% of people polled said the deal will make the economy worse.

In a USA TODAY/Gallup Poll taken hours after the Senate passed and President Obama signed the deal, a 46% plurality disapprove of the agreement; 39% approve. Only one in five see it as a "step forward" in addressing the federal debt.

"People don't know jack" about the particulars of the agreement, "but what you heard about the process throughout was that it was horrible," says Joseph White, a political scientist at Case Western Reserve University who studies budget policy. "Most people assume that whatever came out of this horrible process was pretty crappy."

The sour reaction even after a compromise was struck underscores why the negotiations were so difficult, says Stan Collender, a former staffer on the House and Senate budget committees who is a partner at Qorvis Communications. "There was almost no way at all that elected officials were going to win on this one. No matter what they did, a lot of people were going to dislike it."

The poll finds some paradoxes.

Though Tea Party conservatives succeeded in setting the parameters of the debate, supporters of the Tea Party are among those most unhappy with the outcome. Only 22% of Tea Party supporters approve of the deal, compared with 26% of Republicans generally and 58% of Democrats.

About 4,000 FAA employees and tens of thousands of workers on FAA construction projects have been on furlough since then. None of them, the Transportation Department stresses, are critical safety workers like air traffic controllers, who are paid under a separate system.

"Safety is not compromised — never has been, never will be," Transportation Secretary Ray LaHood said Tuesday in an interview with MSNBC TV. "What is compromised are 70,000 construction workers right smack dab in the middle of the construction season."

<background story is explained...>

Schumer said Mica's maneuver was like "someone puts a gun to your head and says, 'Give me your money.'"

"You leave out the whole context that there's being a gun held to your head," Schumer said. "And that is not fair, and that is not right."

Here's the thing: Mica has all but admitted that's what he's doing.

The rural airports provision is "just a tool to try to motivate some action to get this resolved," Mica said last month at an airport executives conference.

If the union issue could be settled to House Republicans' satisfaction, "the rest can fall into place within 20 minutes," he said.

... worth the read for anyone trying to understand the back story.

Quote:

"You leave out the whole context that there's being a gun held to your head," Schumer said. "And that is not fair, and that is not right."...

more hostage taking.

........I'm just wondering when the price of bonds are going to drop and the rates increase? The feds inability to service the debt will only become more difficult as our economy continues to shrink.

Beware of perceived safe havens

By Richard Milne

Risky assets do not cause crises. It is those perceived as being safe that do.

Such a statement might sound counter-intuitive. However, it reveals much about the current crisis as well as the recent past. The subprime crisis of 2007-08 was exacerbated by the fact that so many of the mortgage-backed securities spewed out by banks were rated triple A. That meant they could essentially be considered “risk-free” for banks, when, of course, they were anything but.

“Follow the money” might have been the mantra for Bob Woodward and Carl Bernstein in investigating the Watergate scandal. But “follow the debt” would be a better way of summing up where investors should be looking for the next bubble.

And that all points to government debt, which is following in the footsteps of emerging markets, corporates, banks and consumers over the past 15 years.

The sovereign debt crisis is not just limited to the eurozone but may spread throughout the developed world. That risk is evident in the fact that government debt has become the triple A asset of choice since the credit crisis. It has gone from representing about 10-15 per cent of total securities issued over much of the past decade to 35 per cent in 2009.

The danger behind this is that current and future banking and insurance regulations place triple A rated issuance, particularly from governments, on a high pedestal as the risk-free asset. Financial institutions complain, often discreetly, that they are being forced to buy assets they don’t want to.
But the fact that regulators have pushed them into buying triple A government debt means the fallout from the current sovereign problems in Europe and the US would quickly spread throughout the entire financial system.

The scale of the problem is highlighted by a recent report from the Bank for International Settlements, spotted by my colleague Tracy Alloway. It revealed how asset-backed securities accounted for about two-thirds of the explosive growth in triple A securities between 1990 and 2006. In all, triple A issuance went from representing about 20 per cent of all securities in 1990 to 55 per cent in 2009, helped by the big rise in government debt. The push by regulators for banks and insurers to own sovereign debt leaves a sour taste in many people’s mouths, even being likened to “premeditated theft” by professor Geoffrey Wood of Cass Business School. At the very least, it looks odd to force financial institutions through rules to buy assets from the countries that helped draft those rules.

The problem for banks stems from the Basel II regulations from 2004. In the words of one banker, they “empowered rating agencies beyond their wildest dreams”. The rules allow banks to set aside no capital for any sovereign debt rated above double A minus. Even for debt rated below that, if it is the debt issued by the country where the bank is based, there is “national discretion” to apply a lower risk weighting.

To be fair, regulators on both sides of the Atlantic are trying somewhat to reduce the reliance on ratings in the new regulations being published. The Dodd-Frank laws in the US require regulators to reduce their reliance on ratings, raising questions about whether the Basel rules can be introduced there. In Europe, the European Commission announced a similar desire to cut the dependency on ratings this month as it presented its plan to introduce Basel III rules.

But it is clear that ratings will still play a big role with triple A debt the star. For instance, Basel III’s rules on liquidity say that so-called level 1 assets – the highest-quality ones – can include anything given a zero risk weighting by Basel II as well as domestic government debt.

Solvency II, the new regulations for insurers, takes a different approach but ends up in a similar place. It forces insurers to mark their liabilities against a risk-free rate, essentially derived from government borrowing costs. This, in turn, forces them to invest in sovereign debt as, if they don’t, there would be huge volatility between the valuation of their assets and liabilities, leading to big rises and falls in an insurer’s capital. The new rules also make insurers set aside more capital for what are deemed to be riskier investments, heightening the push to buy government bonds.

All this makes the consequences of any “safe asset” blow up all the more serious. Regulators have assigned higher risk ratings to activities such as providing loans to small and medium-sized businesses in a move likely to put a brake on bank lending.

But by favouring triple A government debt they are increasing the risks throughout the financial system as well as in the sovereign bonds themselves by allowing governments to increase their debt burdens so cheaply. The nervousness over a potential US downgrade shows the potential for trouble should this risk-free illusion be shattered.

Copyright The Financial Times Limited 2011

If Schumer ever really has someone holding a gun to his head, what words will he use to describe his predicament?