NYT:
Officials have said repeatedly that Treasury does not have the legal authority to pay bills based on political, moral or economic considerations. It cannot, for instance, set aside invoices from weapons companies to preserve money for children’s programs.
The implication is that the government will need to pay bills in the order that they come due. President Obama has warned as a result that the government “cannot guarantee” payments of Social Security benefits or other popular programs. Officials also have disputed the assertion of some Republicans that the government could prioritize interest payments.
That doesn't sound good...
The president is in a negotiation with a bunch of assholes who are playing "chicken" with the economy. Last thing you want to do, is let them think that the car crash won't have consequences.
ReplyDeleteAnd if he's going to be very strict and conservative about whether he can use the 14th amendment, then it seems quite consistent to be very strict and conservative to treat all demands on the treasury equally. Fair's fair, right?
Looking at it, I really rather wish he would play the 14th amendment card, or the "later legislation" (directing expenditures) wins over early legislation (debt limit), therefore he ignores the debt limit when the two laws conflict. He got all legally creative with Libya, why not now?
This presents the crazies with some amusing choices: impeach (satisfy their nutty base) or don't (because impeaching Clinton worked so well for them, and it would die in the Senate). And it blows up their toy, probably for good -- why would the Senate let new debt limit legislation pass, once the old had been defanged?
All of this 'debt ceiling' stuff is premised on the notion that the Federal debt does harm to our economy.
ReplyDeleteThe premise is incorrect. It is Non-Federal debt that does the harm.
At FRED, TCMDO is total debt and FYGFD is the Federal debt, the one that goes to $14.3T.
FGtcmdoDNS is the portion of the Federal debt that is included in TCMDO.
TCMDO less FGTCMDODNS is Non-Federal debt.
Have a look at
(TCMDO - FGTCMDO)/FYGFD
or any other comparable ratio of non-federal to federal debt.
The Federal debt is not the problem.
The premise is wrong.
Arthurian - might you be able to provide a link to these numbers?
ReplyDeleteOf course, the federal government makes contracts like anybody else. Some things have payment schedules. Others are paid "net 30-60-90" etc. Other payments may not have to be paid in full, at the price of future interest charges.
ReplyDeleteThe government would have a significant degree of flexibility in payment, even if what the NYT story states is actual fact.
My husband and I finally came to an agreement on how much to raise our family debt ceiling. We decided that we need to open up at least one new credit card account to draw upon in order to keep making the minimum payments on our existing accounts. Projecting forward, we will need to open a new credit account every year for the rest of our lives. So far so good...
ReplyDeleteNow, how do we convince Chase and Capital One and Bank of America to do their part in this plan?
Susan - your analogy would work better if we add in the elements that you just lost your job halving the family income (great recession) and grandma is going to go into the nursing home in the next couple of years and you'll need to pay for that (retirement of baby boom).
ReplyDeleteUnder those circumstances, you probably would want to take out that extra credit card to pay the mortgage in the short term Then you'd also want to address the deeper problems by a mixture of spending cuts (no more eating out) and raising revenues (taking a part time job while you looked for another full time one).
I think that was kind of what the President and speaker Boehner were negotiating about a week or so back - didn't sound crazy to me.
you forgot grandpa, who got caught up in a bit of a ruckus and trashed some of the neighborhood. Now he's having to do community work and pay reparations that come out of the family budget too.
ReplyDeleteso there is no social security trust fund or per Al Gore "lockbox." At least we are clear about that.
ReplyDeleteJames,
ReplyDeleteThe first result when you google FRED2 is Federal Reserve Economic Data - FRED - St. Louis Fed, but you have to select the data and enter the calculation yourself. Check out this FRED graph showing 1950-2010. And this graph showing comparable data for the 1920-1970 period. (Source: Historical Statistics.)
The graphs show how much debt there is, other than Federal debt. They show dollars of Non-Federal debt per dollar of Federal debt. Or, dollars of private debt per dollar of public debt.
When the trend-line is rising, the economy is growing and the private sector is doing well. The trend-line rises during the Roaring '20s, and the 1947-1973 "golden age of post-war capitalism" and the so-called "macroeconomic miracle" of 1995-2000.
When the trend-line is dropping, GDP is falling or government spending is unusually high. The trend-line falls during the Great Depression and the Second World War. And since 2008.
The graphs show that our economy does well when Non-Federal debt is growing relative to the Federal debt. But the economy does poorly when private debt so vast that it impedes its own increase.
The graphs show that to have a period of exceptional economic growth, we must first reduce the level of Non-Federal debt relative to Federal debt.
The debate in Washington and in the media and on the internet is all about reducing the Federal debt. But the graphs show that the solution to our economic trouble is to reduce the Non-Federal debt. Not the Federal debt.
I'm totally confused about the whole monetary system as it exists today, and is there really a viable solution to the US deficit/debt predicament??
ReplyDeleteRaising the debt ceiling and borrowing more money will mean more money spent on interest in the future, which will mean less money for all other government expenditures, which will increase the need for future borrowing, and so on.
So what would happen if the US government simply gave up and defaulted on all its outstanding debt. Banks, pension funds, etc. would of course get wiped out and unemployment would certainly go through the roof.
But would Americans starve to death? In other words, would food still be produced and distributed? Couldn't farmers simply get paid using a new cash-based currency that the government simply printed and somehow got into circulation. There would be no need for the government to pay any interest ever again. Are central banks or banks in general really needed for a functioning modern society?
As long as we're doing flawed family analogies, let's add to the list that one of you turned down a raise (expiration of the Bush tax cuts), the other has been turning down raises for years (annual AMT adjustment), and you continue to pay cousin Ralph a rather handsome fee to beat up the little kids down the block.
ReplyDeleteAnd, while we're doing flawed analogies to families, let's add that the local bank is practically offering to pay you interest if you borrow from them.
ReplyDeleteYou could use this money to get therapy for your oil addiction, replace the noisy phone line, fix the plumbing and the driveway, install insulation to cut your power bill, and start a home-based business -- and to adapt grandma's house, so she won't have to go into the nursing home for another decade or so.
And the bank is saying hey - take as much as you want, and pay it back whenever you want. No hurry, write your own terms!
- - - - - -
Here we are on August 1, and this completely artificial, manufactured anxiety and crisis over debt has been used to roll back some of the Great Society / New Deal. Without addressing any of the fundamental issues facing ordinary Americans.
Naomi Klein's concept of 'disaster capitalism' is looking more and more accurate as a description of the political class's modus operandi.