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Guest Post: America's Endless Budget Battle
Authored by Ken Rogoff, originally posted at Project Syndicate,
Perhaps investors are becoming inured to the United States’ annual debt-ceiling debacle, now playing out for the third year in a row. But, as the short-term antics become more routine, the risks of long-term dysfunction become more apparent – a point underscored by the shutdown of the federal government.
President Barack Obama is right to complain of blackmail. The US Congress cannot expect to use the threat of default – that is, a weapon of mass financial destruction – as a normal means of extracting concessions. Unfortunately, because Obama himself has established a history of making concessions in the face of congressional brinkmanship, the debt-ceiling debate has morphed into more than just a short-term political fight.
Increasingly, the battle over the US government’s debt ceiling reflects a deeper constitutional power struggle between the president and Congress. This struggle, if left unresolved, could profoundly weaken the government’s ability to make significant economic decisions in the future.
Of course, a breakdown in political civility would hardly make the US unique; all too many countries suffer some degree of political dysfunction. It would take some doing to match (or exceed) Italy’s record of governmental paralysis. But if Congress continues to hijack US economic policy, it bodes ill for the economy’s otherwise bright long-term prospects.
At least for now, the rest of the world has seemingly unbounded confidence – reflected in very low borrowing rates – in America’s capacity to put its house (of representatives) in order. No one can imagine that a country with so many unique economic advantages would risk such a damaging self-inflicted wound as default would cause.
But this time could be different. Obama needs to force his Republican opponents to blink, and there is no guarantee that they will. In the past, it was Obama who blinked, knowing that even if a catastrophic debt default was largely caused by congressional Republicans, he would likely absorb some of the blame in the next election. Now that re-election is behind him, Obama could be inclined to take more risks, with an eye toward securing his economic legacy.
What will that legacy be? Despite the federal government’s destructive impulses, the US economy is showing great resilience and looks set to become stronger. Of course, Obama would love to see this trend continue, as would almost everyone else. Unfortunately, a US debt default, even a technical one, would have unforeseeable consequences that could threaten the recovery.
Consider what happened when the Federal Reserve misplayed its hand with premature talk of “tapering” its long-term asset purchases. After months of market volatility, combined with a reassessment of the politics and the economic fundamentals, the Fed backed down. But serious damage was done, especially in emerging economies. If the mere suggestion of monetary tightening roils international markets to such an extent, what would a US debt default do to the global economy?
Much of the press coverage has focused on various short-term dislocations from counterproductive sequestration measures, but the real risk is more profound. Yes, the dollar would remain the world’s main reserve currency even after a gratuitous bout of default; there is simply no good alternative yet – certainly not today’s euro. But even if the US keeps its reserve-currency franchise, its value could be deeply compromised.
The privilege of issuing the global reserve currency confers enormous advantages on the US, lowering not just the interest rates that the US government pays, but reducing all interest rates that Americans pay. Most calculations show that the advantage to the US is in excess of $100 billion per year.
There was a time, during the 1800’s, when the United Kingdom enjoyed this “exorbitant privilege” (as Valéry Giscard d’Estaing once famously called it when he served as French President Charles de Gaulle’s finance minister). But, as foreign capital markets developed, much of the UK’s advantage faded, and had almost disappeared entirely by the start of World War I.
The same, of course, will ultimately happen to the dollar, especially as Asian capital markets grow and deepen. Even if the dollar long remains king, it will not always be such a powerful monarch. But an unforced debt default now could dramatically accelerate the process, costing Americans hundreds of billions of dollars in higher interest payments on public and private debt over the coming decades.
Ironically, the debt-ceiling fight is not really about debt. The Republicans are hardly debt hawks when they control things. The last Republican presidential candidate, Mitt Romney, and his vice-presidential running mate, Paul Ryan, campaigned in 2012 on a program that would likely have added trillions of dollars to the US debt over the next ten years, owing to tax cuts and increased defense spending. Rather, the debt-ceiling debate is about the size and reach of government.
Yes, the US should worry about its soaring public debt – and about the rising pension and health-care costs that loom large. Despite baseless politically motivated claims to the contrary, the academic research still overwhelmingly suggests that very high debt is a drag on long-term growth.
Of course, Americans should worry just as much about the quality of education and infrastructure – not to mention the natural environment – that they are leaving to future generations. But, above all, they need to leave a legacy of civil political decision-making. That essential feature of effective government is now at risk.
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This isn't a political problem, hasn't been for a while. This is a MATH problem.
This is a MATH problem.
Indeed, but only FEAR buys votes.
We can't have people doing math, can we?
I'm battling the budget for my grandkids....they're just toddlers and can't really fight for themselves yet.
The Entitlement booze is running out. Goin to be a lot angry drunks out there.
You know how much fight somene has when they've got the DT's and hung over? Not much.
They've already got their marching orders.
http://americandictators.blogspot.com/2013/10/despite-government-shut-do...
That link presents a nice little summary of the problem.
They do.
However they might accidentally kill the person that knows how to solve the pressing problem of multiple nuclear plants out of control. Who the hell knows where they are. Could be anybody or anywhere or any age on earth. Then they can all die buried underground with their children spitting on them while they fade away to nothing. It's sort of a no win scenario with zero reward.
Fuck Obama...he talks out of both sides of his mouth and tells you what he wants you to hear and then does what the fuck he wants. Why would I support him in this debate?
Being talked AT and WITH are quite different aren't they? And It's not a 'debate' if you were never part of the conversation either. Easiest just to keep on trucking and disregard then.
“How did I go bankrupt?"
"Two ways. Gradually, then suddenly.”
Enest Hemmingway
Gradually, meet Suddenly. He'll be taking over from here. Thanks for all your good work up to this point.
quite a ways to go until we hit that sudden part. Never underestimate the power of printing money.
...and there's one thing worse than an angry drunk -- and angry, sober drunk.
That's what this is about in my book. We're really on the brink of being controlled by a majority who feed at the trough. When the scale tips there will be nothing but voting for more of the same.
The people who do pay taxes should not have to carry the burden for those who decide they don't want to work. The public purse of this country should not be used for the living expenses of those who elect to sit at home and do nothing.
OMG WTF are Michelle and the Girls going to do without the WH chefs????
Oh this fucking market........I LOVE IT!
They keep this bullshit up and we'll never have to open this bitch back up!! No urgency here, 800,000 worthless idiots that I DONT HAVE TO PAY TODAY! Its like Christmas and my birthday all rolled into one!
This is soooooo good for Ted Cruz & Company, no hurry now bitchez on wall street, tick tock MF's, everyday that goes by that we aren't past this, is a day closer to the debt ceiling without a debate and cave in, by you know who!
Some misreading of tea leaves is taking place.
GOP House seats are gerrymandered, just like Democrat seats. Their voters are cheering them. There is essentially no pressure on them. The Democrats have misread this.
They are looking at 1997 and saying "look at how the shutdown hurt the GOP". That was a lifetime ago. Seats are fare more secure now. There is no pressure and there will be only rewards, not punishment.
Also, Boehner is retiring as Speaker after 2014. He has said so. No pressure on him, either.
The whole dynamic is being very badly misread.
Exactly, these banker's puppets have not accomplished the only real job they have (balance the budget) since 2008. Give them a choice, pay back all compensation since 2008 or be executed.
It's clear the black budget is now Trillions...heh heh
Printing is like breathing, the rest is facial makeup.
Meh, you can't "print" a number of essential commodities. Most of which are required to actually get anything done in the real world. So perhaps "shutdown" is the appropriate term here after all.
You can create anything with fiat. The sooner you learn to live within a corrupt system the happier you will be. I'm not saying join them, I'm saying work it girl....
Well, there is a political problem, but it isn't the one anyone is talking about.
We have a Democrat President and Democrat congressional leadership who is determined to destroy (aka "fundamentally change") the USA, and a Republican congressional leadership that definitely wants to help the President and Democratic leadership destroy the USA, but the problem is, they also want to get re-elected as Republicans. Because you have to maintain the 2-party facade at all costs.
This shit gets a little tricky, you know.
We just need a dark horse leader to emerge from the shadows, someone the true patriots of the homeland can rally around. Someone not afraid of final solutions.
Well, if you saw Santelli talking this morning you would come to the conclusion that he is still deeply asleep and is nothing but a MSM establishment shill.
He was calling for a "compromise" and was gushing about our "Constitutional Republic" actually working things out. WTF?
Actually I don't agree with you...
IT IS a political problem...
I'll even say more...
OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!!
OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!!
OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!!
OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!! OBAMA YOU FAILED BIGTIME!!!!!
This would be a good time to shut the NSA down - those fekking thugs trampling all over our civil rights and liberties and using our money to do so.
Government shutdown... Ho Hum.
Latest News: US Collapse Countdown
http://tersee.com/#q=shutdown&t=text
Yep...I think the House will pass the debt ceiling pretty quickly and just keep the shutdown going.
Some in congress are saying the shutdown will last 7-10 days... only that? Awwwww.
More Obamacare goodness :
http://frontpagemag.com/2013/dgreenfield/obama-inc-to-deny-cancer-treatm...
Obama Inc. to Deny Cancer Treatments by Redefining What “Cancer” IsObamaDoesn'tCare because it's all about the fact that he's got his name on the biggest piece of Marxist legislation the country has ever experienced. Any price paid by the little peasants is not going to bother the Marxist con man.
Now you know how deeply in debt to the company store everyone is. Including all the fed employees. If you think private sector pay stubs are ridiculous, you should check a govie one. I was on a contract a couple of years ago and worked with an awesome govie engineer/tech goon. (yes there are good people in gov, just stuck in the lie that pension is worth anything, sad)
Any case, for shits and giggles we go over line by line what in addition to the usual UN-necessary overhead everyone gets capped with, I'm not kidding death by 15-17 nibbles. 70% of a paycheck ripped to pieces for what? Every year something new gets put on and another item hidden under another line. It's pretty awful what they do to their own people.
The House could offer a compromise.
Fund ObamaCare, defund the Secret Service.
"Despite the federal government’s destructive impulses, the US economy is showing great resilience and looks set to become stronger."
Bull-fucking-shit. The US economy is in the toilet. We are in the midst of a goddamn depression, though you'll never see that discussed anywhere.
I have balanced my budget every day of every year. CONgress's only fucking real job is to manage the countries budget (purse strings), something that they have failed to do since 2008.
They have not done their job, fire them all and claw back ALL compensation since 2008.
...the US economy is showing great resilience and looks set to become stronger...
Bullshit.
...the economy is showing great resilience and looks set to become stronger...
Isn't that exactly what Romulus Augustus said in 475 AD?
Ken spins the coimpany line - not an ounce of justfication for thqat ridiculous assertion, probably because he knows too well how it would be shredded in this forum. Just how does he measure "strength" ? - Certainly not in volume terms, and any numbers denominated in dollars are very clearly a waste of eyework, thanks to the bearded idiot turning the handle.
This gem was bad enough:
"Obama could be inclined to take more risks, with an eye toward securing his economic legacy."
Really? Legacy?
Then he drones on about all we're saving due to low rates. Guess what. When the needed defaults occur we'llsave even more, and that next house you buy will be at 1995 prices.
"But, above all, they need to leave a legacy of civil political decision-making. That essential feature of effective government is now at risk."
So . . . do you mean the guillotine option should be taken off the table? Do you call confiscatory theft using a monopoly of force and monopoly currency civil? How about revolution? Do you think that would be "less-than-civil"?
A shutdown is when the guillotines come out.
This asswipe rogoff has never suggested that oBUMMER weasel compromise on anything. Fuck him. Stand strong TEA!
"At least for now, the rest of the world has seemingly unbounded confidence – reflected in very low borrowing rates – in America’s capacity to put its house (of representatives) in order."
Interest rates are reflective of FED manipulation, not of America's capacity to put its house in order.
The moment the FED hinted it would taper its MANIPULATIVE 85 billion a month bond buying, rates shot up on the long end.
I guess that was a case of "foot meet mouth".
The GOP/Tea Party will not blink - at least not for a while. The Tea Party types in particular are desperate to show they have legislative impact - not just electoral impact at thel local level.
Despite a number of TP successes in geting their folks elected, they have not been able to translate this into making a real difference in DC.
Now, however, they have their moment in the sun and they have been able to frustrate the more main stream GOP types (ie The Speaker etc). They will not back down on this until there is a really nasty backlash against them - which is not evident yet - or until they win some real consessions against The White House.
The funny part in all of this is that the TP is really on to something useful - the US govt needs to get its spending house in order and it needs to break away from its banking masters on Wall Street. The TP and the OCCUPY movement have more in common than either side is willing to admit....
As noted above, these GOP seats are safe. The districts are gerrymandered, just like Dem districts. The GOP folks are being cheered by their voters, not disliked.
It's being badly analyzed by the Democrats. The GOP would not be pushing this if their polling didn't show an advantage.
Oh, and let's remember Boehner is retiring as Speaker after 2014. Zero pressure on him, too.
The Republicans are the mistaken ones. Obama will have them put in jail. This will probably lead to serious violence of some kind.
The Republicans won't blink, but once the debt ceiling is breached, Obama's least risky option is to declare the Republican party to be a terrorist organization, suspend Habeas, put all its House members into Gitmo and declare their seats to be vacant, hold special elections for those seats in which only Democrats can run, and then get the debt ceiling abolished for good. And this is excatly what he is going to do in about 3 weeks.
You are havin' a laugh I think Ken.
Time for Murrica to STFU as the Chinese ambassador so succinctly put it.
The land that brought us deceit, propaganda, and manipulation of all markets taken to their highest, best concealed and most accomplished form will not be missed at the top table. Perhaps when it has learned to face the world with honesty and a little less greed then it might find a better welcome. Until then, as countless snooped on millions suffer, the only americans welcome in the rest of the world will be those whose address is on mainstreet.
Sleep well.
more off days for government workers w/ back pay approved later of course. fire up the barbie or pull out the clubs....its party time in DC. what a joke.
Can we just stop pretending this has anything to do other than raising the amount of debt in the system?
Those $200 TRILLION in future liabilities are not going to pay themselves, and they certainly cannot be paid off without increasing the debt supply.
How the hell does this tripe make it on ZH?
Talking about Mittens and Ryan vs. Obama and co?
What is this, Yahoo news now?
But watch all the mouthbreathers fall all over themselves saying "their" guys want to pay off the debt and the other guys want to...........
<facepalm>
pods
What human nature refuses to do, Mother Nature will eventually do for/to him.
What goes up, will come down.
" Despite baseless politically motivated claims to the contrary, the academic research still overwhelmingly suggests that very high debt is a drag on long-term growth. "
Math does not suggest, math is.
Math does not suggest 1+1=2. Math is that 1+1=2. Math does not suggest that a financial bubble will burst. Math is that 100% of bubbles burst and deflate. Math does not suggest that a boom will end in a bust. Math is that 100% of booms end in a bust.
..."at least for now, the rest of the world has seemingly unbounded confidence...reflected in very low borowing rates"
Is this guy a cherry or what?
Look Fucknuts,
Maybe you should do a little research to understand exactly how horribly ineffective US government deficit spending has become before lecturing people on things like "low borrowing rates."
The effective borrowing rate of the US government is over 300% in the past five years.
The US is a kleptocracy. Taxation without representation is Tyranny. Deficit spending allows cowards to become tyrants. These debt-ceiling moments should be moments of accountability. The "full faith and credit of the US government" is entirely dependent on the wallets of the Amercian people.
"Despite baseless politically motivated claims to the contrary, the academic research still overwhelmingly suggests that very high debt is a drag on long-term growth."
Still true...Tee-hee (cough, cough) Krugman...
I caught that too (and mentioned it in a different comment) but you scored first! Very amusing, these Ivy League fellows.
The fact of the matter is 90% of Americans simply don't give a shit, the government could disapaer tomorrow and almost none of them would even notice.
The only ones that even care if the Govt is around are the big corporations who are dependent on corporate welfare for survival.
Lets face it, the average American is only harmed from government, government really doesn't "do anything" to benefit the majority of Americans................ anything that can be done by government can be done by private entities for cheaper, sure it may take a while longer to accomplish but the cost will be lower and the quality of whatever is being done will be higher.
As for health-care, there is no reason to insure every man woman and child, its a completely unnecessary act, and its not fair to people who work hard and make sacrifices to stay healthy, why should they be forces to pay into a system to "bail-out" their fat fuck of a neighbor who made bad health choices?
It's cheaper to just take care of the sick on a case by case basis............................. do away with "insurance" all together and nationalize the care centers................ hospitals.
De-fund the national parks and throw all that money into nationalizing hospitals! the parks and animals can take care of themselves, sell this land off already so it can be developed and just mandate 30% of it be reserved for wild life not to be touched.
"The only ones that even care if the Govt is around are the big corporations who are dependent on corporate welfare for survival."
That's the currently popular socialist "victims versus villains" view.
Don't forget Mr. and Mrs. middle-class mortgage-holder. They like their subsidised (at our expense) interest rates. And don't forget the entitlement-dependent "people of Walmart". Not to mention the subsidised farmers, the subsidised public transit user, the 99-week unemployed, the zillions of government "workers" and the subsidised military government employees...
Purchasers actually do not obtain any benefit from a subsidized interest rate on their mortgage because it makes the purchase price of the house proportionally more expensive.
I saw a Park official on the news last night commenting on a park closure. It looks like nobody will be allowed to set foot in "their" park without the presence of a uniformed Smokey the Bear. Users that will be refused entry complained about the shut-down rather than asking why they couldn't go in anyway without "supervision".
So much for enjoying the wilderness.
Yeah, right, let those folks wander off alone with no park rangers on duty and get hurt and there'll be no end to the complaints about how somebody should've done something.
All this is now is pass a budget season, or raise the debt limit season. Congress just buys the dip they create thru proxy and then when they "fix" it they will sell.
"This struggle, if left unresolved, could profoundly weaken the government’s ability to make significant economic decisions in the future."
GOOD!
Exactly. Like they have had a stellar record on their past decisions.
NASDAQ100 is heading toward another 13 year high - on the day of the US government shutdown.
ruh-roh, I think I am going to vomit at my desk again.
thats because Ichan expressed an interest in AAPL
Just love these dueche bags who write these krypto Obama infomercials. I guess the winner gets a job at the White House.
The Noble Obama must make important decisions! oh Fucking Crap! This author is more than an Obama ass kisser, he's a Moron:
"Ironically, the debt-ceiling fight is not really about debt."
"Despite baseless politically motivated claims to the contrary, the academic research still overwhelmingly suggests that very high debt is a drag on long-term growth."
"Of course, Americans should worry just as much about the quality of education and infrastructure – not to mention the natural environment – that they are leaving to future generations. But, above all, they need to leave a legacy of civil political decision-making. That essential feature of effective government is now at risk."
The CR is not an appropriate mechanism for funding the government...a real budget needs to be presented. If this is allowed to continue there will never be another budget ever, it'll be just CR's till the whole thing implodes.
Unless Congress passes a real budget keep it shut down, they're just playing games. Get in there and do some real work and do a budget.
yes but the president proposes the budget
I asked a co-worker to dig and get arround in the meaning of a shut down and provide me with some Visual on it.
Since this was one of article sources he read had to posted (Funny, well business funny, no Jim carey)
http://mcccode.com/photo/budget-funny
enjoy
What a piece of crap article. This isn't the debt ceiling debate. That's 2 weeks away.
Look who wrote it.
http://en.wikipedia.org/wiki/Kenneth_Rogoff
IMF and Fed Reserve, nuff said. Thanks Bob...
Also a Trilateralist and CFR member. A master chess player. Even he doesn't know what he really thinks.
What a bullshit post this POS is. Why won't the Senate give the little guy the same fucking deal that big corporations get? Because the progressives are at war with anything independent that's why. They want you dependent on their fucking hand outs and way of life. Now get in line you fucking serfs. Can't have you out there taking care of yourself or being free and independent now can we....
That's why this 'shutdown' is going to end very soon. The Government mostly pushes paper to corporations in the form of payments, credits, subsidies, grants. gifts and picking up tabs for services and work it performs on behalf of corporations.
The little people don't really care because the government does nothing for them: it only collects fees and levies fines on them.
The Tea Party is ripping up the national Black Card and all Prof. Rogoff can do is cry waaaaah, waaaa.
1) Not sure what concessions obama has ever made.
2) Not sure why it's the GUBMENT'S responsibility to set any policy other than trade.
3) Time for a re-set. And if there's a blood-letting? Good. Trim the fekking fat. (and get out the ropes)
this guy is right about one thing, this is a power struggle between two branches of government, and the executive has accumulated a lot more power than the FF imagined, (mostly due to the perceived advantages of having a unitary decider to respond to immediate cold war threats) Bush abused the hell out of that meme, and now its time to roll back POTUS. Obama wants to resist this change, (now that i am in charge you white folks should pick some cotton) but Congress seems up to the fight. they have nothing to lose single digit approval (mostly because they have no authority - why should we respect them, and why should they behave rationally? but all that will come back into balance. and who knows, maybe if government shuts down every so often the lobbyists will get tired of the game and go home.
"the economy’s otherwise bright long-term prospects."
?????
" Despite the federal government’s destructive impulses, the US economy is showing great resilience and looks set to become stronger."
QE1,2,3 is not the mark of a resilient economy. A government that has borrowed 6 trillion dollars is not the mark of a resilient economy.
Did ZH post this pablum as an attempt at comic relief?
FUBAR article.