A Cemter Versus Right Approach to Default and Debt

[Havakasha]

http://www.washingtonpost.com/blogs/...g.html?hpid=z2



Posted at 11:10 PM ET, 07/25/2011
Obama talks to the middle, Boehner rallies the right
By E.J. Dionne Jr.

President Obama made clear tonight that the debate over the debt ceiling is not left vs. right. It’s center vs. right. There was nothing remotely “left” in this speech, unless you count higher taxes for corporate jet owners and a few other populist bits.

He summarized his approach this way: “[L]et’s live within our means by making serious, historic cuts in government spending. Let’s cut domestic spending to the lowest level it’s been since Dwight Eisenhower was president. Let’s cut defense spending at the Pentagon by hundreds of billions of dollars. Let’s cut out the waste and fraud in health care programs like Medicare — and at the same time, let’s make modest adjustments so that Medicare is still there for future generations. Finally, let’s ask the wealthiest Americans and biggest corporations to give up some of their tax breaks and special deductions.”

That’s four sentences on cuts and barely one sentence on taxes, and not even tax increases as such — just a request that the privileged “give up some of their tax breaks and special deductions.”

On the other side are “a significant number of Republicans in Congress [who] are insisting on a cuts-only approach — an approach that doesn’t ask the wealthiest Americans or biggest corporations to contribute anything at all.” He went on: “And because nothing is asked of those at the top of the income scales, such an approach would close the deficit only with more severe cuts to programs we all care about — cuts that place a greater burden on working families.”

That happens to be true. The most remarkable thing about this whole debate (other than the dangerous foolishness of one side holding the nation’s credit standing hostage to get what it wants) is that Republicans have defined their party as being committed to low taxes for the wealthy above everything else. If anything good can come out of this strange episode, it is that no one will ever be able to doubt that proposition in the future.

There were some nice touches in Obama’s address. Who would ever have imagined that it was Ronald Reagan who said: “Would you rather reduce deficits and interest rates by raising revenue from those who are not now paying their fair share, or would you rather accept larger budget deficits, higher interest rates, and higher unemployment? And I think I know your answer.”

It was also good that right out of the box, Obama reminded Americans where the big deficits came from – and where we were when President George W. Bush took office: “In the year 2000, the government had a budget surplus,” Obama said. “But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription-drug program were simply added to our nation’s credit card. As a result, the deficit was on track to top $1 trillion the year I took office.” He then explained that the deficit grew further because of the Great Recession, the drop in tax receipts it caused, and the spending he undertook to keep it from being worse. It was a direct hit at Republicans who seemed not to worry about deficits until Obama took office — and now blame him for much of the red ink they themselves spilled.

[SiriuslyLong]

What's a cemter approach?

"A Cemter Versus Right Approach to Default and Debt"

[SiriuslyLong]

Deductions for corporate jets were passed into law by our government to "stimulate" growth and employment. I thought the most dems / liberals wanted more stimulus??? How confusing is that? One day they scream more stimulus; then the next they attack the stimulus already in place.

Do you know why? I do. By standing up and pointing out this policy, it angers the constituency into voting for the candidate.

Big oil, corporate jets.... simple talking points designed to anger the voting masses. It would be humorous if it weren't so convoluted and sad.

[Havakasha]

The polls seem to suggest that Obama occupies the Center, just as i suggested by this thread.
The right wing as represented by people like Siriusly Long and Eric Cantor are on the losing side.

Most Americans would like to see a mix of spending cuts and tax increases be part of a deal to raise the debt ceiling, a new poll finds, aligning the majority with President Barack Obama’s position.

Of those surveyed for a Reuters/Ipsos poll released Tuesday, 56 percent said they want to see a mix of approaches used in an agreement to raise the debt ceiling. The poll was conducted overnight Monday, as Obama and House Speaker John Boehner (R-Ohio) voiced their views on the impasse in negotiations in back-to-back televised primetime speeches.

“It does seem to be that the popular narrative is falling on the side of the president on this one,” Ipsos pollster Julia Clark said.

Just 19 percent of Americans said they favor a plan like Boehner’s, which would rely solely on spending cuts to existing programs to reduce the deficit. Twelve percent said they would prefer a plan to reduce the deficit only by raising taxes.

Americans’ blame for the impasse is spread all around, though is particularly strong against congressional Republicans, with 31 percent of those surveyed saying they are responsible for it. Twenty-one percent blamed Obama and nine percent blamed congressional Democrats.

Eighty-three percent of those surveyed said they were concerned about the failure of the negotiations thus far, including 54 percent who said they were very concerned.

The poll surveyed 600 people, including 512 registered voters, on Monday night. The error margin is plus or minus four percent.



Read more: http://www.politico.com/news/stories...#ixzz1TGc8gwns

[Havakasha]

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TPMDC
CBO: Reid Debt Limit Bill Saves $2.2 Trillion
Brian Beutler | July 27, 2011, 9:27AM

Compared to House Republicans, Senate Majority Leader Harry Reid (D-NV) is a happy man right now.

The Congressional Budget Office says his debt limit bill will reduce deficits relative to the current baseline by about $2.2 trillion over 10 years -- much more than House Speaker John Boehner's (R-OH) bill, which scored such small savings Tuesday evening that he pulled it to include more spending cuts at the last minute.

But it's not all good news for Reid. First, Republicans are already dismissing the big numbers because they rely heavily on savings from winding down wars in Afghanistan and Iraq. Those savings are what you call "budget gimmickry," when the other party relies on them, so the GOP says they shouldn't count.

More subtly, though, the GOP has been insisting that the debt limit bill meet an arbitrary standard: new borrowing authority must be matched or exceeded by the amount by which the legislation will reduce the deficit. Democrats want a $2.4 trillion increase in the debt limit, to get Congress through 2012 before this fight plays out again. It's unclear how far $2.2 trillion in new borrowing authority would the government, but if it's before November 2012, Democrats won't be pleased, and the parties will really have to reckon with this standard.

Now, too, we know why the White House is defending House Republicans' use of an out-dated budget baseline in this debate. They make both the GOP bill and the Democratic bill look like they contain slightly deeper cuts -- and they could really use that little kick right now.

[Havakasha]

http://www.nytimes.com/2011/07/28/us...28default.html

The following is half the article. Click on link to read all.

Q. and A. on the Debt Ceiling
By MICHAEL COOPER and LOUISE STORY
Published: July 27, 2011


At first, it was just too hot to get familiar with the ins and outs of the debt ceiling debate, and then it was just too nice outside. Besides, if Wall Street did not seem overly concerned that the United States was headed toward default, why should anyone else worry? Then there is the long history of crying wolf in Washington: in April everyone finally got up to speed on the threatened shutdown of the federal government just in time to see it averted by an 11th-hour deal.


But now, palms in Washington are beginning to get sweaty and President Obama is breaking into “The Bachelorette” to address the nation about the debt crisis. Perhaps the time has finally come for a crash course in all things debt ceiling.

Q. Republicans and Democrats alike keep talking about the need to reduce the federal deficit. Won’t refusing to raise the debt limit cut the deficit?

A. No. The debt limit, or ceiling, which is the amount that the nation is allowed to borrow, must be raised if the United States is to pay for all the things that Congress has already bought: the spending in the budget bills it has already passed, the Social Security checks promised to retirees, the payments due to private companies with federal contracts and the interest on bonds it has sold. Washington has long spent more money than it takes in, and planned to make up the difference with borrowing. Both parties agree that this cannot go on forever. But if the debt limit is not raised, it will not cut the nation’s deficit or allow the government to get out of its existing obligations. It will simply make it impossible to borrow the money that the government needs to pay for them. As the nonpartisan Government Accountability Office put it in a report in February: “The debt limit does not control or limit the ability of the federal government to run deficits or incur obligations. Rather, it is a limit on the ability to pay obligations already incurred.”

Q. This sounds like an odd system. Do you mean that Congress can pass a budget that requires borrowing, and then argue later about whether to approve that borrowing?

A. That’s right. The system goes back to World War I, when Congress first put a limit on federal debt. The limit was part of a law that allowed the Treasury to issue Liberty Bonds to help pay for the war. The law was intended to give the Treasury greater discretion over borrowing by eliminating the need for Congress to approve each new issuance of debt. Over the years the limit has been raised repeatedly, to $14.3 trillion today from roughly $43 billion in 1940. But outside observers have noted that the failure to make increases in the debt limit part of the regular budget process can be risky. The G.A.O. concluded that it would be better if “decisions about the debt level occur in conjunction with spending and revenue decisions as opposed to the after-the-fact approach now used,” adding that doing so “would help avoid the uncertainty and disruptions that occur during debates on the debt limit today.”

Q. So, what happens to government spending if the debt limit is not raised? Will the United States default?

A. The United States will not have enough money to pay all of its bills. The country technically hit the debt ceiling in May, but it instituted a series of temporary measures to avoid having to raise the limit that the Treasury estimates will run out around Aug. 2. So what does that mean? The United States will owe about $307 billion during the rest of August, but is expecting to take in about $172 billion in revenues, according to an analysis by the Bipartisan Policy Center. Without enough money to pay all of its bills, the government will have to decide what to do. The possibilities range from “prioritizing” some payments and paying them first to paying bills in the order in which they were received.

The Bipartisan Policy Center analysis notes that if the government were to choose to pay the interest on its debt, Social Security benefits, Medicaid and Medicare payments, defense contractors and unemployment benefits, it could not have enough left to pay for the salaries of federal workers and members of the military, Pell grants for college, highway construction or tax refunds, among other things. Some analysts argue that as long as the nation continues making its payments on the national debt, it will not be in default. The Treasury Department disputes that, arguing that “adopting a policy that payments to investors should take precedence over other U.S. legal obligations would merely be default by another name, since the world would recognize it as a failure by the United States to stand behind its commitments.”

Q. What could a default mean for the economy?

A. It could be bad, on several levels. A default is typically a decision not to pay government bondholders back, in part or in full, but the rating agencies have said they might consider the United States in default if it fails to pay other creditors like government vendors. If the federal government interrupts payments, whether to Social Security recipients or contractors, those people will then have less money to spend, and the economy will slow down. And if the United States defaults on its debt, there is a risk that the investors — foreign and domestic — could demand a higher interest rate. Then, consumers could also feel the pinch: because the interest rates paid by corporations and consumers in the United States are tied to the rate the nation pays, interest rates could go up for everything from credit cards to mortgages. A homeowner with a mortgage for $100,000 might see her annual mortgage costs go up by $100 to $200 a year, economists say.

So the failure to raise the debt limit could slow the nation’s recovery, Ben S. Bernanke, the chairman of the Federal Reserve, warned in a speech last month. “Failing to raise the debt limit would require the federal government to delay or renege on payments for obligations already entered into,” he said. “In particular, even a short suspension of payments on principal or interest on the Treasury’s debt obligations could cause severe disruptions in financial markets and the payments system, induce ratings downgrades of U.S. government debt, create fundamental doubts about the creditworthiness of the United States and damage the special role of the dollar and Treasury securities in global markets in the longer term. Interest rates are likely to rise, slowing the recovery and, perversely, worsening the deficit problem by increasing required interest payments on the debt for what might well be a protracted period.”

Q. What could it mean for states and cities?

A. States, still recovering from the downturn, could be hurt in two ways. First, if the federal payments they rely on for everything from Medicaid to highway construction are interrupted, states that are still recovering from the recession could face serious cash-flow problems. Second, the broader economic disruptions of a default could lower tax collections again as they are still rebounding from the dive they took during the Great Recession.

“If the government stopped paying federal workers or held back Social Security checks, the resulting loss of individual income could have a profound effect on state and local tax revenues,” the Pew Center on the States warned in a recent report. The United States Conference of Mayors approved a resolution last week urging Congress to raise the debt ceiling, writing: “Economists agree that default will have an immediate and catastrophic impact on our cities, and the implications are global. A credit downgrade will plunge us into a deep, double-dip recession. We urge Washington to act now.”

Some states are already feeling the effects. Maryland postponed a bond sale after it was warned that its credit rating would probably be lowered in the event of a federal downgrade. California, which typically issues short-term bonds for cash-flow reasons at this time of year, is working to arrange bank loans instead, citing the market uncertainty. Some state pension funds are worried that a default could erode the value of their investments, which are still recovering from losses during the recession.

Q. How many times has the debt ceiling been raised, and by whom?

A. It has been a bipartisan exercise. By the Treasury Department’s count, Congress has acted 78 times since 1960 to raise, extend or alter the definition of the debt limit — 49 times under Republican presidents, and 29 times under Democratic presidents. The Obama administration has taken pains to note that President Ronald Reagan, a hero to many Republicans in Congress, raised the debt limit. In a letter on the debt ceiling last month to Republicans in the Senate, Treasury Secretary Timothy F. Geithner quoted a letter Mr. Reagan wrote a generation ago, urging Congress to increase the debt limit. “The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate,” he quoted Mr. Reagan as writing. “Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The Nation can ill afford to allow such a result.”

Q. How has the debt risen this high, and how much are we paying in interest as a nation?

[Havakasha]

i couldnt resist posting part 2 as factual information is rarely available these days.


A. There are already indications that this is beginning to happen. Switzerland’s franc strengthened to a record high against the dollar this week, as concern about the debt limit in the United States and worries about the euro, given the Greek crisis, sent investors looking for safety. Some bond funds are already moving to invest in bonds from Canada, Mexico and China. And there are concerns about what would happen if America’s foreign creditors, led by China, were to try to dump some of their American debt. In the last decade, foreign money has poured into the United States, creating so much demand for Treasury bills that it has kept the United States’ interest rate low. This month, the authorities in Beijing expressed concern about the debt standoff in the United States. “We hope that the U.S. government adopts responsible policies and measures to guarantee the interests of investors,” said Hong Lei, a Foreign Ministry spokesman.
Multimedia

The History of the Debt Limit


Q. How many times has the debt ceiling been raised, and by whom?

A. It has been a bipartisan exercise. By the Treasury Department’s count, Congress has acted 78 times since 1960 to raise, extend or alter the definition of the debt limit — 49 times under Republican presidents, and 29 times under Democratic presidents. The Obama administration has taken pains to note that President Ronald Reagan, a hero to many Republicans in Congress, raised the debt limit. In a letter on the debt ceiling last month to Republicans in the Senate, Treasury Secretary Timothy F. Geithner quoted a letter Mr. Reagan wrote a generation ago, urging Congress to increase the debt limit. “The full consequences of a default — or even the serious prospect of default — by the United States are impossible to predict and awesome to contemplate,” he quoted Mr. Reagan as writing. “Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and on the value of the dollar in exchange markets. The Nation can ill afford to allow such a result.”

Q. How has the debt risen this high, and how much are we paying in interest as a nation?

A. The United States has not always operated with such a large debt. After financing World War II with substantial borrowing, the outstanding debt held pretty stable for the next 25 years, going up to $283 billion in 1970 from $242 billion in 1946. But over the last 30 years, the debt has increased under every president — with the biggest increase under President George W. Bush, who cut taxes, added a drug benefit to Medicare and fought two wars. As the debt has grown, so have the country’s interest payments. In 2003, for instance, the government paid about $150 billion in interest costs; this year it is up to $250 billion. These interest payments are taking up more federal spending now than federal outlays on education, transportation and housing and urban development combined. Though the interest costs are substantial, they have remained lower than some economists predicted because the world has continued to lend money to the United States at very low interest rates, even as the nation’s debt has grown.

Q. Has what is going on in Washington already hurt the economy and the reputation of the United States in financial markets around the world?

A. While the drastic slide on Wall Street that some feared had not materialized as of early this week, Treasury market analysts and traders are already saying that the credibility of the United States has been damaged. Mark Zandi, the chief economist of Moody’s Analytics, said last week: “Our aura is diminished. You know people really view the U.S. as the AAA, the gold standard, and I think we’re tarnishing that.” Treasury bonds have always been considered to be virtually risk-free, and that is why many investors — in the United States and abroad — hold them and many companies use them to back up other investments. If their security is questioned, investors may shift away from them. The caveat, though, is that there are few safe places today for investors to put their cash. So some traders say that investors may see few alternatives, and opt to stay put.

Q. Has the United States defaulted on its debt before?

A. Technically, yes. In 1979, as Congress was considering raising the debt limit, negotiations ran down to the wire. The Treasury Department had what it called technological glitches, and it was late paying a relatively small number of its Treasury notes. This amounted to a technical default, not a permanent one, because the note holders were eventually paid in full. Some finance professors who have studied the incident say it led to higher interest rates.