Skip to comments.Make-Believe Debt Limit Hysteria from the Political Establishment
Posted on 10/07/2013 4:42:34 AM PDT by Kaslin
It appears that the government shutdown, which technically is a battle over annual appropriations legislation for so-called discretionary spending, is going to drag on for a while.
The Obama Administration has shown zero willingness to negotiate, even though Republicans have made a series of offers to resolve the conflict.
And the longer this fight lasts, the more likely that the shutdown battle will get wrapped up in a bigger fight over the debt limit.
The White House apparently thinks this is a good development because of the assumption that GOPers can be stampeded into a bad deal to keep the government from supposedly defaulting.
Indeed, the Administration already is fanning the flames of economic anxiety. Heres some of what the Treasury Department recently wrote as part of this world-is-ending hysteria.
A default would be unprecedented and has the potential to be catastrophic: credit markets could freeze, the value of the dollar could plummet, U.S. interest rates could skyrocket, the negative spillovers could reverberate around the world, and there might be a financial crisis and recession that could echo the events of 2008 or worse.
Im surprised they didnt warn about the four horsemen of the apocalypse and also say that default would mean cancer, tooth decay, and the heartbreak of psoriasis.
On a more serious note, there are three things about the Treasury report that are worth noting.
1. The Obama Administration is deliberately trying to blur the difference between defaulting on the debt, which would have real consequences, and defaulting on obligations, which is a catch-all phrase that includes mundane and uneventful matters such as postponing a Medicare payment to a hospital or delaying a grant disbursement to a state government.
2. The Treasury report repeatedly says bad things could happen and might happen, but never that they will happen. Well, I could be the clean-up batter next year for the New York Yankees, and I might date a couple of supermodels from Victorias Secret. But I wouldnt want to bet my life on either of those things happening. Likewise, dont hold your breath waiting for the sky to fall if the debt limit isnt immediately increased.
3. The White House wants people to believe genuine default is likely even though tax receipts this fiscal year are expected to be more than $3 trillion and interest on the debt is projected to be only $237 billion. In other words, the Treasury will collect more than 12 times as much revenue as needed to pay interest on the debt. Even someone like me, with my well-known views on the incompetence of the federal government, thinks that the Treasury Department will have no problem figuring out how to avoid default.
To be sure, there would be some real problems if the debt limit wasnt raised. The Treasury Department would have to override its own system to stop payments from automatically occurring. The bureaucrats would have to figure out how to prioritize payments.
Interest unquestionably would be paid on the debt, so theres no real possibility of default. One also assumes the Administration would figure out how to make politically sensitive payments such as Social Security checks. But this would be uncharted territory, so things probably would be messy.
All that being said, I want to reiterate that a default only would happen if the White House wanted it to happen. And while the Obama Administration has shown a willingness to inflict pain on innocent third parties as illustrated by the attempts to inconvenience Americans when the sequester imposed a tiny bit of fiscal restraint, it is inconceivable that the White House would decide to engineer an actual default.
By the way, its not just partisan political operatives in the Obama Administration who are making hysterical assertions.
Here are some blurbs from a Wall Street Journal report showing that the CEO of Goldman Sachs seems to be on the same page as the White House.
Theres precedent for a government shutdown. Theres no precedent for default,Goldman Sachs Group Inc. CEO Lloyd Blankfein said after emerging from an hour-long meeting between Mr. Obama and top financial executives. The executives, in town for a series of meetings arranged by the Financial Services Forum trade group, told Mr. Obama that even the possibility of the U.S. defaulting on its debt, should policy makers fail to raise the ceiling on the nations borrowing, would derail the nascent recovery and cause economic harm. Mr. Blankfein said they told Mr. Obama exactly how bad it would be.
And here are parts of a story from the UK-based Guardian about the views of the IMFs head bureaucrat.
Christine Lagarde, the IMFs managing director, urged Americas politicians to settle their differences before the dispute harmed the entire global economy. Speaking ahead of the funds annual meeting in Washington next week, Lagarde said it was mission critical that Democrats and Republicans raise the US debt ceiling before the 17 October deadline. Lagarde said the dispute was a fresh setback for a global economy In the midst of this fiscal challenge, the ongoing political uncertainty over the budget and the debt ceiling does not help. The government shutdown is bad enough, but failure to raise the debt ceiling would be far worse, and could very seriously damage not only the US economy, but the entire global economy.
So whats going on? Why are they making these hyperbolic statements?
Beats me, but here are my three theories.
1. They dont know what theyre talking about, either because of stupidity of laziness. Since neither Blankfein nor Lagarde are stupid, perhaps they are simply too lazy to learn how the federal government operates and they dont understand that the Treasury Department will have far more money than is needed to pay interest on the debt.
2. They understand the issues, but theyre willing to make dishonest and misleading statements because they want to please the White House. This could be because they sympathize with the Presidents agenda. Or perhaps this is a typical case of DC-style horsetrading, with Blankfein supporting the White House in exchange for some sort of regulatory favor and Lagarde providing help to Obama in exchange for more subsidies from American taxpayers for the IMF.
3. They understand the issues, but are genuinely afraid that the President is so petty and ideological that he might deliberately force a default, so they are warning about the risks of that approach. Seems totally improbable, but keep in minds that the White House is so petty and spiteful that it has been spending money in a shutdown to keep elderly WWII vets from visiting an open-air memorial!
Im guessing the second option is most accurate, but theres no way to know for sure.
In closing, lets take a step back and look at the big picture. Whats Americas biggest long-run economic challenge? Almost surely, the answer is that poorly designed entitlement programs will lead to a much more onerous burden of government spending.
The President made this problem worse with Obamacare (just as Bush made it worse with the prescription drug entitlement).
Advocates of fiscal responsibility want to address this problem now, before we get close to the point of a Greek-style fiscal collapse.
Im not sure they can win, given the structure of Americas political system, but Im damn sure glad that at least some people are trying to do whats best for the country.
Cool, this is good. Maybe they’ll put a black curtain over the WH and shut this down. I can’t wait when the President doesn’t get his check, and his stewards go to the breadlines.
Could they prioritize the interest payments over Obama-care?
nor shall any person be deprived of life, liberty, or property, without due process of law; nor shall private property be taken for public use, without just compensation.
Every American owns the seashore. EVERY American. It is not within the purview of the President to prohibit this property from each of us for his vindictive purpose, anymore than it is to IMPRISON US from WITHOUT THOSE PROPERTIES whose enjoyment is part of our individual AND united ownership of national properties and monuments. These were set aside to prevent private ownership from preventing public enjoyment. How is public seizure by the individual of the President or of the Presidency not the equivalent in effect? The seizure and closing of private property without due process or just compensation is ACTIONABLE, including impeachment. It violates the Constitution.
I say class action is appropriate.
Actually where they threw that old couple out of their home because it sits on “government property’ is actionable I think under several items.
Let me add a fourth reason that Blankfein et al are all singing the same song: because ever increasing debt keeps the rest of us on the treadmill, paying more taxes, more interest, and more for pretty much everything else via inflation, keeping us slaves to government and mortgage holders forever.
Debt payment is handled by a separate Treasury Dept. computer system than other payments. I think it’s a pretty good indicator interest payments will be made. Unless the Fed Res banks have no pull with the Treasury or WH -neither of which want to see interest rates skyrocket by missing a payment.
So it’s BS and bluster as usual.
Same as when someone stops feeding a wild animal that’s been given food. They become aggressive.
I disagree. A "default" fits perfectly within the parameters of Cloward-Piven.
Looking at it from that perspective, a default is particularly juicy as it will roil markets world-wide, not just here in the US.
“keeping us slaves to government and mortgage holders forever.”
In nine words you have explained the reason behind the baloney!
I’ll take option # 3, please: That the President is so petty and/or ideological, that he might deliberately default if he doesn’t get his free spending way.