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

First, it's just about how American government works. Those checks and balances are sometimes great and sometimes a pain in the ass. No dictators here, evil or benevolent.

Second, a huge part of his campaign is how he would be a forthright, moderate, rational negotiator, who would reach across the aisle in good faith and try to get stuff done. People wanted that, that was a big part of his appeal. That's a big part of why he was elected.

And that's the thing -- default IS a big deal, and DOES need to be avoided.

sozobe wrote:

And that's the thing -- default IS a big deal, and DOES need to be avoided.

Not at all cost. America is better off with a default than it would be with a second Great Depression.

And that's a realistic risk with both immediate spending cats and immediate spending increases that are too drastic.

I get that. But my problem is that all elements of the checks-and-balances system hold positions well to the right of the voters they're supposed to represent. My problem with checks and balances isn't that they lead to results that are too moderate. It's that they're not working.

Um. I don't know if this is a valid statement, because it's entirely likely that a default would CAUSE a 2nd depression.

Cycloptichorn wrote:

Um. I don't know if this is a valid statement, because it's entirely likely that a default would CAUSE a 2nd depression.

No it won't, because a default wouldn't affect the interest payments on America's existing debt.

The difference between defaulting and not would be a percentage point of two on the annual interest on all new debt. This may cause problems for balancing America's budgets in the long run, but is fairly benign in the short run. Default wouldn't be pretty, but I don't wee it causing a depression.

Ever wondered how many bills the federal government pays in a month? It’s not 100, or 1,000, or 10,000, or even 200,000. It’s 80 million. Every month. And according to a new analysis by the Bipartisan Policy Center, if the debt ceiling isn’t raised by Aug. 2, the Treasury Department is going to have to figure out which 30 million of those bills should go unpaid.

The BPC’s analysis was led by Jay Powell, who served as undersecretary of the Treasury in George H.W. Bush’s administration. It’s not pretty. Powell and his team estimate that if we don’t raise the debt ceiling, Treasury will only be able to pay 55-60% of the federal government’s bills in August.

The paper lays out a few scenarios for how that might go. In the “Protect Big Programs” scenario, Treasury pays bills related to interest on the debt, Medicare and Medicaid, Social Security, defense suppliers and unemployment insurance. That means it stops paying military salaries, gives up on the FBI and the Centers for Disease Control, cuts all funding for food stamps and education, shuts down air control, tells NASA to head home, freezes the paycheck of every federal employee, and much more. In another, the Treasury Department tries to protect the social safety net, but has to stop supplying the troops, sending out tax refunds, inspecting offshore oil rigs, etc.

This also leads to an extraordinary assertion of executive power. The executive branch carries out the laws enacted by Congress. Asking them to “prioritize” across different spending needs is asking them to selectively decide between different laws that Congress has passed.

Since the Treasury has never had to make these decisions before, no one quite knows how they’ll be made. The BPC estimates a 44 percent drop in federal spending, but can’t precisely estimate where that drop will happen. That means nobody else can, either. So as we get closer to doomsday, companies that contract with the federal government will start hoarding cash to tide them through a period in which they might stop being paid. Seniors and other Americans who rely on federal transfers would be wise to do the same. And then if we do pass the borrowing limit, the economy is going to have to absorb a sudden and sharp drop in federal spending, which will reverberate among businesses that don’t directly work with the government but sell to those who do.

Plan B Emerges on Debt
Sens. Reid, McConnell Quietly Discuss Way to Keep Government From Default
By CAROL E. LEE And JANET HOOK

A backup plan to cut the federal deficit and keep the U.S. government from default gained momentum Thursday on Capitol Hill as President Barack Obama and congressional leaders took a break in negotiations to determine if they can reach a deal.

The so-called Plan B is taking shape in quiet discussions between Senate Majority Leader Harry Reid (D., Nev.) and Republican leader Mitch McConnell (R., Ky.), away from unhappy House Republicans who don't favor the approach.

It would link a package of spending cuts to a plan Mr. McConnell proposed earlier this week that would give the president the power to raise the debt limit through 2012 in three installments, unless two-thirds of Congress voted to block it. It likely wouldn't include any tax increases, a senior Democratic aide familiar with the discussions said.

Messrs. McConnell and Reid are also exploring the idea of creating a committee to identify further spending cuts and force a congressional vote on the package. The mechanism would be similar to the commission once established by Congress to make politically difficult choices to close military bases.

The ideas face enormous political and procedural hurdles, especially in the House where conservatives are determined to keep pressing for deeper spending cuts, and even Senate leaders say they are far from finding the middle ground they seek. But the effort has gained traction as time for achieving a deficit-reduction deal is running out.

Standard & Poor's on Thursday followed Moody's Investors Services' decision to review U.S. government debt for a possible downgrade. S&P said in a written statement it had placed its AAA long-term and A-1+ short-term ratings on review with "negative implications."

The firm said that "owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days."

Mr. Obama and top lawmakers gathered at the White House Thursday for a fifth day of talks aimed at reaching an agreement that Republicans have linked to any increase in the government's $14.29 trillion borrowing limit.

After spending an hour and 20 minutes sifting through potential savings in entitlement programs and through tax increases, Mr. Obama suggested leaders go back to their members and figure out by Saturday what kind of a deal is possible, a Democratic official familiar with the meeting said.

"If he hasn't heard back from them with a plan of action in that time frame, he may call another meeting for the weekend," the Democratic official said.

The most likely outcome is the plan Messrs. McConnell and Reid are working on, a Democratic official said. It would include roughly $1 trillion in deficit reduction, but would come with no tax increases and no Medicare savings, a Democratic official said. It could include an extension of unemployment insurance, the official said, which would cost $40 billion.

It is the smallest of the three options, and Mr. Obama, who will hold a press conference Friday, told leaders he still prefers a larger plan. But the only way to get even to the $2 trillion deal Mr. Obama pushed for in Thursday's meeting is to include tax increases, which Republicans oppose, or significant Medicare cuts, which Democrats oppose without concessions from the GOP on taxes.

The signs of progress come even as the debt talks had grown more contentious in recent days. Before Thursday's White House meeting, Mr. Reid said House Majority Leader Eric Cantor (R., Va.) "has shown that he shouldn't even be at the table" in the negotiations.

Mr. Cantor has presented the most vocal and determined GOP voice of opposition to tax increases in the White House talks, and was seen as a key force in derailing House Speaker John Boehner's efforts to craft a big bipartisan deficit-cutting deal with Mr. Obama. Mr. Cantor last month walked out of deficit-reduction negotiations led by Vice President Joseph Biden.

A Cantor spokeswoman responded to Mr. Reid by saying, "This isn't a question about personalities."

After a heated exchange with Mr. Obama at Wednesday's meeting, Mr. Cantor remained silent at Thursday's more businesslike session, according to aides briefed on the meeting.

Treasury officials say the government will not have enough cash to pay all its bills after Aug. 2 if the debt cap is not increased. And they say leaders need to reach an agreement by the end of next week to get legislation enacted before that date.

Washington's paralysis is stoking concern on Wall Street and around the world over whether policy makers will act soon and avoid defaulting on financial obligations, including debt payments. Even before a formal credit default, the stalemate risks a possible downgrade of U.S. government debt.

For China, which has the world's largest pile of foreign exchange at $3 trillion—an estimated two-thirds of it in dollars—the inability to resolve the debt-ceiling dispute, and the longer-term deficit problem, is especially worrisome.

China has long talked of diversifying, and officials have said in the past year that Beijing has bought more European debt.

"We hope the U.S. government adopts responsible policies to protect the interests of investors," said Chinese Foreign Ministry spokesman Hong Lei, whose government held at least $1.152 trillion in Treasury securities as of April, and is the U.S. government's largest creditor.

Senate efforts to craft the compromise for now have circumvented Mr. Cantor and the Republican-led House, where the proposal has received a cool reception. Many members rejected the idea when Mr. McConnell proposed it Tuesday without spending cuts attached, and Mr. Boehner said at the time that it could not pass the chamber.

On Thursday, however, amid attempts to include spending cuts and another mechanism for deficit reduction, Mr. Boehner opened the door to Mr. McConnell's proposal if the White House budget talks collapse.

"What may look like something less than optimal today, if we're unable to get an agreement, it might look pretty good a couple weeks from now," Mr. Boehner said.

In a Thursday radio interview with conservative talk show host Hugh Hewitt, Mr. McConnell said he wanted to included in his legislation a provision establishing a special congressional committee—made up equally of Democrats and Republicans from both the House and Senate—that would identify entitlement savings to reduce the deficit. It would be required to report back by the end of the year and its findings would be brought before the House and Senate on an "expedited'' basis.

Mr. McConnell suggested the legislation to give the president authority to raise the debt limit would be passed first by the Senate, then sent to the House, and include spending cuts that emerge from the White House negotiations.

"The key is, will the president agree to something the House Republican majority will pass,'' he said.

During their Wednesday meeting, Mr. Obama commended Mr. McConnell for his proposal, Democratic officials familiar with the meeting said. He also didn't bristle at the notion of being responsible for raising the debt ceiling. "If Senator McConnell wants me to wear the jacket for that, I'm happy to wear the jacket," Mr. Obama said, according to the Democratic officials.
—Damian Paletta
and William Kazer
contributed to this article.

Will Debt Crisis Wedge GOP Away From its Business Base?
July 14th, 2011 at 3:10 pm
By David Frum

Isn’t it conceivable that Obama’s real end-game in these budget talks is to destroy Republican presidential fundraising for 2012 by goading congressional Republicans in 2011 into appearing maximally reckless and irresponsible?

If so, you have to say: the plan’s working brilliantly.

There's a big-picture thing that you seem to persistently not get about Obama.