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Danger in Debt Ceiling Deal?
Before I delve into the debt ceiling deal, I want to apologize to those who misread my last comment on 400 years of tyranny
as "anti-American." When you write your thoughts in a blog, it's easy
to get carried away and even though I have problems with the wars in
Iraq and Afghanistan and the pathological greed on Wall Street, it's not
the fault of regular, hard working Americans, most of whom loathe Wall
Street and corporate greed.
My comment was more to say that the world expects better
from the US. When my grandfather left Greece at the age of 20, moved to Cedar Rapids, Iowa and volunteered to fight alongside American soldiers in
the first World War, he didn't flinch. He was proud of being part of the
US army, fighting for something he believed in. When he died, the US
government kept sending a pension to my grandmother in Crete and she was
extremely grateful. When my uncle left Crete and settled in New Jersey
to become one of the first surgeons to perform laparoscopic surgery at
John F. Kennedy Hospital, he was proud to be American and extremely
loyal to his country. He died last year after battling colon cancer but
in his later years, he was disenchanted and disgusted with US policy and
the lack of leadership which he saw across the political spectrum.
That's my preamble to
the ongoing and raging debate on the US debt ceiling. I consider this
to be a purely political issue, but others will construe it as a make or
break economic issue (it isn't, only serves their political agenda to
paint it that way). Bill Schneider, a professor of public policy at
George Mason University, wrote an excellent opinion piece for Politico
which reflects my thinking, The danger in the debt ceiling deal:
The danger in the debt limit negotiations is not that the two sides
will not make a deal. It’s that they will. Specifically, that they will
reach the kind of agreement Republicans are demanding — which would cut
more than $1 trillion in government borrowing over the next 10 years.
Any
deal of that magnitude would have a devastating effect on the nation’s
economic recovery. And make the deficit situation worse. Economic
activity would slow and government revenues fall even further.
Democrats and Republicans are arguing over the correct
balance between spending cuts and tax increases. Republicans insist that
all the savings come from spending cuts. Democrats are willing to
accept some cuts but insist that the deal be “balanced” with new tax
revenues.
What they are both missing is that the exact mix doesn’t matter. What
matters is how much money is taken out of the economy at a time when
economic growth is desperately needed. Economic growth is necessary for
any deficit-reduction plan to succeed.
Ronald Reagan knew that. Reagan said in his 1985 State of the Union
speech, “The best way to reduce deficits is through economic growth.”
That is because big spending cuts and tax increases are politically
impossible.
On the other hand, growth will not be sufficient. The debt problem
has become so large that we can’t grow our way out of it without further
sacrifice. Some spending cuts and tax increases will be necessary. But
growth will have to be a major part of the solution, just as it was in
the late 1990s.
Right now, big spending cuts will damage the recovery. So will tax
increases. Bill Clinton understands that point. “I hope they make a
mini-deal,” the former president said in a recent interview at the Aspen
Ideas Festival. “I don’t think you can agree to some mega-deal on their
[Republican] terms.”
What makes the most sense, and what Clinton recommended, is a delayed
deal. “What I’d like to see them do is agree on the outlines of a
10-year plan and agree not to start either the revenue hikes or the
spending cuts until we’ve got this recovery underway,” Clinton said in
an interview with ABC News last month.
The problem is political. All we need to do right away is get through
the Aug. 2 deadline for raising the debt ceiling. The United States is
the only country in the world where a political decision must be made to
do that.
It’s never easy because it’s never a popular thing to do. To the
American people, raising the debt limit defies common sense. If the
government has maxed out on its credit card, it seems foolish to raise
the credit limit.
President Barack Obama tried to get around that argument at his news
conference, when he argued that raising the debt limit applies to money
that the government has already spent. “These are bills that Congress
ran up,” Obama said. “The money has been spent. The obligations have
been made… . This is not a situation where Congress is going to say, OK,
we won’t buy this car or we won’t take this vacation. They took the
vacation. They bought the car.”
Raising the debt limit is a problem but not exactly a crisis. Jobs are a
crisis. “If we defaulted on the debt once for a few days,” said
Clinton, speaking at a fiscal summit in Washington in May, “it might not
be calamitous.” Later, his spokesman said that Clinton had
“inadvertently misspoken.” But had he?
Early this year, Treasury Secretary Timothy Geithner warned that failing
to raise the debt ceiling would have “catastrophic economic
consequences that would last for decades.” That may have been an
exaggeration. No one really knows.
But one consequence does seem likely. Obama called attention to it at
his news conference. “If capital markets suddenly decide,” Obama said,
“you know what, the U.S. government doesn’t pay its bills so we’re going
to start pulling our money out, and the U.S. Treasury has to start
raising interest rates in order to attract more money to pay off our
bills, that means higher interest rates for businesses. That means
higher interest rates for consumers.”
Not to mention higher interest rates for the government to pay off the national debt.
It is important to raise the debt limit to avoid that consequence. But
not by caving in to Republican demands for a mega-deal — which would
have far worse consequences. That’s why Clinton urged Obama not to blink
under Republican pressure. “The White House could blink,” Clinton said
at Aspen. “I hope that won’t happen. I don’t think they should blink.”
Clinton revealed his own priority when he told ABC News, “All that
matters is putting the country back to work. We put the country back to
work and prepare for the new century, the rest of this will take care of
itself.”
A recovery-choking deficit deal would be the worst possible thing for
the country right now. How can we keep that from happening? The answer
is gridlock. If it prevents bad things from happening, gridlock can be
good.
I agree, gridlock can be good, and President Clinton is right to warn
President Obama not to cave in under Republican pressure. Moreover, I
let a senior pension fund manager know that the "debt ceiling crisis" is
exactly what the big global macro hedge funds and prop desks want
because it creates more uncertainty and volatility. He responded:
What I am really worried about is the likelihood of very pro-cyclical fiscal tightening (i.e. tightening when the economy is weak). The US economy is currently EXTREMELY vulnerable and I can’t imagine a worst possible time to cut spending and try to make a big dent in the deficit. Greece and some other European countries are doing just that, but it is basically a matter of life and death and if they want to stay in the Union, they have no choice. They are, in effect, facing a lenders’ strike. The US, on the other hand, is able to borrow and there are plenty of willing lenders. It is, to boot, extremely solvent.
Sharp fiscal tightening now would constitute a grave self-inflicted wound. It makes no sense, but I understand it is a touchstone issue from a political point of view. Most senior members of Congress and the Administration know this, Republicans and Democrats, but the rank-and-file don’t, and they appear to be in control of the national discourse, amplified through the megaphone of indentured media: whether it’s the Tea Party blogs and Fox on the one hand, or the rabid left-leaning counter-Republican outlets, the whole debate is extremely polarized and demagogical. I don’t see a lot of responsible behavior in Washington, but even less so on the internet and the media.
The debt ceiling and default are probably not key issues for hedge funds either. My strategy as a hedge fund would revolve more around knowing which way the economy is headed, and how hard the Federal government is going to push it up or down. At the end of the day, the big issues will not be addressed until AFTER November 2012. There are plenty of lenders of last resort with deep pockets and the US is not Greece, Ireland, Portugal or, for that matter, the UK or Japan. The play is a lot more on credit spreads and equities, in my opinion. And maybe, to a lesser extent, on the dollar…
I understand that many will dismiss these views as pure "Keynesian dogma,"
but that's only because they follow another religion from the Chicago
School of "Free Market" Economics. I think these people are genuinely
concerned about debt, but their myopic obsession based on a now debunked economic theory is clouding their judgment. The real crisis now isn't the debt ceiling, it's about jobs and lack of leadership on that front. The sooner we get people back to work at good jobs with a good pension, the better off the US and the developed world will be.
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Love riling up the ZH crowd, like a hot knife slicing through butter! You all need to calm down and enjoy the beautiful, simple pleasures of life. :)
These "pleasures" look artificial...
These "pleasures" look artificial...
These "pleaseures" look artificial...
You need to quit spamming this site. Take your clown show back to your own blog.
No, he just needs to stop twitching and die already (much like our terminally ill financial and monetary systems), and put himself out of our misery.
I agree, except the "simple" part. Actually, that is what makes it fun.
Regards,
STT
Fake tits suck.
Duly noted...
Although I have reservations about some of the proposals herein, I think we can find common ground on other entrants. Perhaps we should go to DC and sort this whole mess out once and for all. We could set these chicks loose on congress and have a silent coup.
I dunno Leo.... could be a tranny hiding the "package" See if Rocky or CD knows!
LOL! Ya think? Nowadays, it's tough to tell with some of these tyrannies!
I think we now are getting a better idea of what you do all day... Talk big words, try to make people think you know what you are talking about, and then surf porn all day...
Now I know why they have created this debt ceiling crisis. Remember how they all keep trying to tie any debt ceiling increase to a "balanced budget amendment"? And they're all acting as usual like it's a big good cop/bad cop WWF style fight to keep the sheeple entertained???
This report explains what will happen if they ever amend the Constitution w/ a BBA. Sounds pretty freakin' bad to me!!!
Why The "Balanced Budget Amendment" is a Hoax and a Deadly Trap:
http://publiushuldah.wordpress.com/2011/06/27/why-the-balanced-budget-amendment-is-a-hoax-and-a-deadly-trap/
As always...BTFD because these scumbags are going to sink this ship no matter what, so be prepared people!
"The US, on the other hand, is able to borrow and there are plenty of willing lenders. It is, to boot, extremely solvent." ..... a senior pension fund manager.
That is a rosy view which very few see and even fewer would agree with. And that is a major part of the present problem which is growing ever more serious at an alarming exponential rate, .... a delusional, head in the sand attitude to the situation.
And that was very kind of you, Leo, not sharing the senior pension fund manager's name.
Notice how that "senior pension fund manager" conveniently left off the fact that the federal reserve is backstopping everything, and artificially keeping rates abnormally low. (Even by historical standards).
"Keynesian dogma"...that is the exact term that was going through my head as I read your pile of horse shit.
As a previous post said, the government creates NOTHING. It regulates, confiscates, CONSUMES and redistributes, that is all.
And please, will you A-holes stop twisting Ronald Reagan quotes out of context in an attempt to convince conservatives that your point must be vaild.
Finally, if I want to hear the Keynesian and/or progressive explanation for anything I already know how to find "wikipedia". God help our children when all that is left of true knowledge and reference material is fukkin' wikipedia!
Keep in mind that people like Leo have allot to loose when the economy finally shifts back to a non-centralized economy. People like Leo are leaches to the economy and do nothing by leverage money, and provide little to no productive capacity whatsoever. Meaning, I wouldnt expect people like Leo to say anything else. Moving forward, I would expect conversations like what we saw in Greece of the "sky is falling" unless they get their way.
Centralized economies never work long term. Pain is inevitable to eliminate the non-productive capacity within an economy. The powers that be could not accept this occuring in 2008. The only thing they did by delaying it was to make sure that next time it will be a considerably more painful process.
The Bull that President Reagan let loose is now grazing on the taxpayer's pasture...Rufusbird
Leo... if TPTB really wanted to work on the debt they could. They don't. It's like asking kids if they don't want candy anymore.
Federal government is too big and cutting it back will HURT. But keep in mind it will always hurt. Same with states, counties and cities.
Plenty of solutions out there but they ALL HURT. It's really about how to spread the hurt without revolution.
TBTF should have never happened. Bad banks should have failed and good banks would have taken over. When the GOV decides who wins and fails we are doomed.
These articles keep saying that a cut in spending would threaten the "recovery". What recovery? As long as there is a large enough group of people that believe that we are on some road to recovery, then they can threaten that any cuts will hurt the so-called recovery.
If most people understood how much shit we were actually in, they'd realize that there must be some very harsh pain to come to emerge at some point into a real recovery. All these articles by "Leos" just prolong the pain for everyone, particularly those that they purport to care about. People are much too focused on the short-term (which seems understandable as nobody wants to experience pain) rather than the mid to longer term future.
The ugly conceit in this argument is that government can somehow conjure growth on a whim in a region where too much of the capital and industrial base has been exported, interest rates are too low to reattract capital, and the regulatory regime too restrictive vis a vis other available jurisdictions. Just because some faction wants the federal government to sustain a certain level of spending, doesn't miraculously conjure into being an underlying economy large enough to support it. The level of spending has and is devouring real capital, further shrinking the private economy that is the tax base.
Leo believes in Big Govt, and that Big Govt can do anything it wants to, just wave that magic wand and create "good jobs" with "good pensions", if only those wascally wepublicans would let them.
Why does ZH allow this pension beaver to post anything? I'm getting sick and tired of hearing his nonsense. He clearly believes in pensions, which is idiotic, and his posts are nothing but self-serving malarky. If you can't see beyond your own self interest, then why would ZH allow the author to post?
Oh, thank you ZH for re-enabling in Google Reader the ability to see who's posting the latest blog post. For awhile, all you could see was that silly quotation. Now it's again easier to identify Leo K's drivel and skip it entirely.
ZH, pay attention to google reader stats, if article is opened, if readers spend any time on the article. This will help you eliminate the BS.
I love ZH, so don't take this the wrong way. But I really only read the Tyler Durden posts, everything else is MOSTLY self-promotional DRIVEL.
Piss off then
no-one is making you read it.
What a waste of a comment! The fact is you ALL read me, need me to counterbalance the lopsided BS on this site. So suck it up bud, I ain't going anywhere!!!
most zh readers see that the economy is driven by monetary policy, and the debt ceiling argument is like asking who sweeps the floor after everyone goes home? a better question might be, would T party activists put a firewall between Bernanke and the US taxpayers? the average American doesn't care about the debt ceiling, and the Congress doesn't care much about the average American. even the GOP knows that if those SSN payments don't show up on time, they're looking for a new job. the GOP is all bluster on this, like usual. and they would love it if Obama would agree to their austerity program, hahahaha. if they hold up the vote, and the checks go out anyway, they look like heroes. if they hold up the vote and the checks are late, Obama is the big loser. they are in the catbird seat for the moment.
the real issue is the potential split between the Fed and UST, brought about through political pressure.
um, not really.
"The real crisis now isn't the debt ceiling, it's about jobs and lack of leadership on that front. The sooner we get people back to work at good jobs with a good pension, the better off the US and the developed world will be."
The real crisis now isn't the debt ceiling - agree
The sooner we get people back to work at good jobs with a good pension, the better off the US and the developed world will be - disagree
Sorry Leo, but it sounds like you're saying we should be doing more of the same garbage that got us into this mess to get out of it (keep it up and maybe you'll get a Nobel Memorial prize in Economics too!). I've got a good job and a great pension but it isn't helping anyone if my make-work government job isn't adding value and my pension is based on smoke & mirrors and/or will never actually pay out.
earnulf got it right - the sooner we all start living within our own means and actually forcing our governments to live within those means as well (throw in some "learning to be self dependent" in there as well wouldn't hurt - hat tip to Charles Hugh Smith!), the better off we'll all be*
*In the long run that is. Perhaps in the short run there'll be some massive economic losses, starvation, death, war... but maybe that's what we all deserve for living so unwisely as a species for so long.
+1000
Never thought I would see the day that Leo the K agreed with Dick Cheney that "Reagan proved that deficits don't matter".
Otherwise this is one of the most inane posts Leo has made yet.
I think maybe Akak is right. This guy just does this to piss people off. He has to to be some kind of schill. I cannot believe he actually buys into this rubbish from that stupid politico website , of all places.
The last President we had that really cared about us was JFK, and look what hapepned to him.
As NA has stated below in this thread, Leo is just another attention whore. The narcissistic, self-focused streak which runs through his every post is proof enough of that.
the issue for hedge funds is the flow of money QE whatever, forget the economy, the only people who talk about the economy are politicians who have to talk about it. technically there is no debt ceiling problem, as long as they monetize, and who is paying attention to the deficit? nobody, its big, end of story, it might as well get a little bigger. nothing will really happen in 2012, except of course Wall Street might shit their pants if the man they bought doesn't get (re)elected. But the economy will do just find at Dow 10000 or Dow 1000, actually for poor folks Dow 1000 is a lot better. there is one slight caveat, the 2000 problem, which is they can't figure out who won. If several candidates run, and they all win their own states, (and they don't pledge their votes, which imagine what would happen to the Tea Party if several of their candidates were able to broker the election, and they all gave their votes to Romney.) Hahaha!! Democrats aren't the only party where the constituents get screwed in the ass. pledging votes only happens at conventions so far, but if the election went to the House, look out.
the last time the debt ceiling wasn't raised on time the economy actually improved, and the last time a Fed chief did the right thing (Volker) the economy improved. it seems that these end of the world scenarios actually help the economy. not that there is an economy, we just all live in a company town, with company script. if there is any real money left its in the Smithsonian.
Whatever.
The failure of congress to faithfully execute its duties seems obvious to me. They have been a side-show for 100 years or more. Nothing these treasonous clowns might do now is going to change that.
Let's get it over with already. I'm bored with this collection of whores, thieves and extortionists (otherwise collectively known as 'our government') pretending that they retain some semblance of legitimacy and relevance.
GDP = private consumption + gross investment + government spending + (exports − imports)
If a nation runs a deficit of, say, 13% of GDP, if you balance the budget, all else remaining equal, GDP falls by 13%.
One common definition of an economic depression is "a decline in real GDP exceeding 10%." Congratulations. Instant depression.
Then, assuming you *have* a balanced budget, all things being equal, does a nation's currency tend to rise or fall when you bring its budget into balance? So, what would a rise in the $USD do to the (exports − imports) component? Isn't the *very last thing on earth we want* for the dollar to be higher against the yuan?
Someone would have to give me a non-faith-based reason to think the "I" and "C" components would rise commensurately to make up these two.
No political position, don't care about Red Team/Blue Team nonsense, just stating the definition of the index we use and what a reasonable person might expect to happen.
suppose there was a depression and nobody knew it?
Hate to be the bringer of bad news, but through heavy DEBT accumulation, the US economy has pulled forward years of consumption. Debt including the home mortgages, credit cards, and government spending. The only answer is a painful period of austerity. You can increase taxes or cut spending, but the fundamental problem is still the same and so is the answer!
The fundamental question is who should choose the spending priorities, the goverment or the private sector.
http://www.intellectualtakeout.org/library/chart-graph/1952-2011-us-government-debt-vs-household-debt?library_node=69078
Will the politicians control the government debt or will the ponzi collapse?
We can't possibly afford to fix the tires, we've spent so much on the GPS tracking system already.
or what's a GPS system worth when your'e stuck in traffic? a few ago I remember the Japanese had some 'concept' cars, autos for the future, and quite a few of them had living amenities, because (in Japan at the time) drivers spend so much time in traffic, you need a TV, a toilet, all the comforts of home. and its true we have spent a lot of money to gas teh economy, when it will probably be stuck here for a decade. I see this in my city, spending on highway and redevelopment, laying off teachers and fire fighters.
CNBC website:
Companies Ordered More Factory Goods in MayExcuse me.......that is CNBS.
Last paragraph says it all ,but without a plan or solution to create jobs. Obviously changing trade policy is the way to retain jobs but no one wants protectionism and trade wars ---so we go on being hooked on deficits. Instead we get political double talk blaming overspending, Unions, entitlements ,and even bankers who are instrumental in advocating leverage, credit and ever larger deficits through bailouts---but no job creation.
The global economic model simply no longer favors developing countries, just multinational firms. Other than trade policy , energy depletion will force change in the global economic model, but unfortunatly not a solution to creating jobs
These imbeciles in both parties gave billions to fuck-up banks, and are now in the process of cutting our balls off.
God Bless America. Get ready to short the fuck out of the market, the trick is "when."
Should make a good project for the real TA's out there.
I respectfully disagree with you leo, this is not something to continually kick down the road because "if we just grow jobs, the economy will take care of itself".
We can't grow jobs because the government has legislated them into oblivion, made them too expensive by government regulation and basically shit on the small business owner who is the major employer in this country.
Reagan grew jobs by consolidation and merger. The big got bigger and the smaller got eaten. We got a few jobs but set the stage for the decline. Mergers and acquisitions only cut jobs, not create them. The megalithic business so created demands more profits and less costs, which translates into higher productivity at lower wages.
Ask yourself why does it cost less to manufacture a 16GB SDHC memory card in China and ship it to the US for less than we can make it here? Same for paper cone cups (4oz) from South America.
The American worker gets a minimum of 7.25/hr as decreed by law. What do CEO's get paid? Congressmen? Bet the CEO's also get pensions and healthcare as do our elected representatives. How about the pud on minimum wage?
You can't create jobs where there is no demand and no profit. Wal-Mart tells it's suppliers what price it will pay, or else. Used to be they bragged about "made in America" but they sure don't any longer.
We are not blameless in this. We want the product at the lowest price, forget quality. But we also want to be paid $20/hr plus bene's with four week of vacation and every holiday off.
But unlike the government, most of us try to live within our means. The smarter ones carry little or no debt. Why shouldn't we demand that government live within OUR means instead of spending like drunken pirates who took the spanish treasure fleet?
IF not Now, WHEN? This interest rate thing is liable to spiral out of the control of the FED masters at which point all of us are going to be reduced to the toil of our labors.
Earnulf.. well said. We have been conditioned to believe globalization is good. We breakup Ma Bell and now they allow SW Bell to reconstitute into AT&T and perhaps gobble up T-Mobile. Is this good for consumers?
Globalization is good for the Banksters and large cap multinational management and stockholders. It's not real cool for millions of Americans that lost jobs. I don't buy the idea we need cheap imports... we need to manufacture again... fuck the service industry.
Make what you use and you will always have a job. Care about your neighborhood and neighbors. Don't piss in the pool you swim in.
We are running out of viable transactions.
+1
If only the QE so far had gone into the REAL economy, we might have seen some worth, but it went to bailout insolvent banks and businesses. Main Street didn't feel the benefit and they won't again if they increase the ceiling. More heartache down the road and MUCH MUCH worse. Feel the pain and live again. It won't happen - hyperinflation is the intention to clear this debt.