Former Secretary O'Neill popped up the other day on Bloomberg Television to compare debt-ceiling holdouts to jihadists. "The people who are threatening not to pass the debt ceiling," he said, "are our version of al-Qaida terrorists. Really."
Really? Absolutely.
"They're really putting our whole society at risk by threatening to round up 50% of the members of the Congress, who are loony, who would put our credit at risk."
But hang on, generally speaking, when you hit your "debt ceiling," your credit is at risk. If you've got a $10,000 credit card, and you run it up to the limit, but you need a couple more grand right now, pronto, because you outspend your earnings by 50% every month and you have no plans to change that anytime soon, well, the bank might increase the limit to $15,000, or $20,000. Or they might not. There is a question mark over your credit because there is a question mark over your creditworthiness: It is at risk.
Paul O'Neill seems to regard that attitude as unhelpful. So does Timothy Geithner, his successor at what is still laughingly known as the United States Treasury. Geithner says that even to be discussing the debt ceiling is "a ridiculous debate to have."
Ridiculous? Absolutely.
"I mean, the idea that the United States would take the risk that people would start to believe we won't pay our bills," continued Geithner, "is a ridiculous proposition, irresponsible, completely unacceptable."
The best way to persuade people to believe we'll pay our bills is to borrow up to our limit, and then increase the limit and borrow a whole bunch more. This would be the 75th increase in the debt ceiling in the last half-century. Let's just get it done, and resume the party.
But if Geithner thinks that even discussing the question is "ridiculous," then, why have a debt limit at all? What's the point?
Well, because it gives us more credibility with our creditors, right? Even if we set the debt ceiling way up in cloud-cuckoo land to a bazillion trillion gazillion dollars and 83 cents, even a debt limit entirely unmoored from reality still gives the impression we haven't quite flown the coop.
Yes, but why does the U.S. government need to maintain credibility with its creditors when increasingly it's buying its debt from itself? Every month there's more and more U.S. Treasury debt and fewer and fewer people who want it. The Chinese are reducing their exposure. The investment behemoth Pimco, which manages the world's largest mutual fund, recently dumped U.S. Treasuries entirely.
To avoid the failure of U.S. bond auctions, or an increase in interest rates to make them more attractive to rational lenders, the U.S. government's debt is bought by the U.S. government's Federal Reserve.
"Quantitative easing" is extremely quantitative if not terribly easing, so raising the debt ceiling would enable us to issue more debt for us to buy from ourselves. You can see why Secretary Geithner thinks that's a no-brainer.
"If the national debt doesn't matter, why have taxes at all?" Particularly when you no longer have to "print" money, you can just quantitatively ease yourself into it.
Once we raise the old debt ceiling, we'll be pretty much at the point where the U.S. government is spending four trillion but only taking in two trillion: For every dollar we raise in taxes, we spend two.
No surprise there: The "poorest" half of the population pay no federal income tax. They're not exactly poor as the term would be understood in almost any other country, but in federal revenue terms they're dependents, so in order to fund government services for the wealthiest "poor" people on the planet we borrow money from a nation of subsistence peasants where pigs are such prized possessions they sleep in the house.
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8 comments:
Doc -
You need to put your IBD down and pick up Bloomberg Business Week or the New York Times.
I agree with Greenspan - the debt ceiling should not be a separate vote. When a budget or continuing resolution is passed, the debt ceiling should be moved (up or down, as in the Clinton years) by the very same act. A separate vote is redundant and time consuming, while Congress already has enough on their plate.
How can anyone vote "Aye" on the budget and refuse to raise the debt ceiling pursuant to same?
After WWII and prior to Reagan, revenues and spending were closely connected (though narrowly in deficit). With the ascendance of Supply Side theory, there was a disconnect between receipts and outlays that has remained in place, save for the WJC era. That connection needs to return, as do the levels of revenue (20.6%/GDP) experienced when we last enjoyed surpluses.
Duh.
While I know that we must eventually raise the debt ceiling "to avert a crisis" I also know that we are, in fact, already in a crisis that will not be resolved by raising the ceiling.
We are in a SPENDING crisis. We are not in a revenue crisis. The people we have elected for the past 41 years (I am starting with 1964 and Lyndon Johnson and all those who have followed) have steadily made promises we cannot keep. The cumulative costs are too high and many of the programs are wasteful and/or duplicative.
If not raising the debt ceiling is an effective tool in the fight against runaway spending then I consider those members of Congress who oppose the action to be DOMESTIC FREEDOM FIGHTERS.
If you think that is either overstated or corny I have this to say to you: To hell with you. We ARE in a crisis and I support those who choose to take on the battle and I condemn those who wish to continue things as they are.
Do not confuse Birthers and other wingnuts with what lies at the foundation of the Tea Party movement (of which I am not a member). What lies at the foundation of their cause is a desire to rein in government spending, and that is a good thing.
All the best,
Hags
We are in a very real FISCAL CRISIS. We have a massive deficit and debt - primarily the consequence of Reagan and Bush economic policies. The crisis will not go away by simply raising the debt ceiling. There is, in fact, much to be done.
We obviously have a revenue problem as our revenues are at 60 year lows as a percentage of GDP. To deny that suggests a lack of seriousness, understanding and/or genuine concern about the red ink.
We also have a spending problem, due largely to those promises that can't be kept absent reform.
So - are we stubborn partisans denying reality and insisting that we "continue things as they are" in revenues (and/or spending)? Or are we true patriots that want to balance the budget sooner rather than later? Are all things on the table or only those that are valued by those on the other side?
We will see. I'm an optimist - I have high hopes for a grand bargain this year. Simpson/Bowles anyone?
I guess if Macroeconomics and Home Economics were identical fields of study, then ANYONE with a balanced checking account could be Treasury Secretary!
Perhaps they should be, Mr. Eric the Dolt who was so scared by the Tina Fey look alike that he ran away for a while after the little Mad man with a gun precipitated by Tea Party anger that was not.
Perhaps we should hire a housewife to run our budget. They know how to balance things and plan for the future. They know that if they have kids, they better prepare for their future and they better prepare for their retirement.
What they would not do, I am sure, absolutely, is say, hey we are broke, let's spend more than we have on dresses (actually some so, they are called....broke) and stimulate our economy so we can prosper...sounds stupid dosen't it?
We need to tax everyone equal if this is a revenue crisis....correct?
"Tax everyone equal if this is a revenue crisis"? Huh?
How would a flat tax help? It would cut taxes on the wealthy and raise them on the poor and middle class. That is the last thing we should do.
We need to raise revenue. A lot more. Can we get there just adding taxes to the rich? Of course not. To get to 21%/GDP with the least drag on the economy, taxes will need to go up for just about everyone.
Don't worry, Jim, the poor folks and middle class will ultimately feel the bite. Of course, until now everything has been so easy for them. The po' folks are just living the dream while the wealthy are further oppressed in this Socialist/Marxist state that Obama built.
We have created a society where the poor and middle class feel entitled to extensive government services and...don't have to pay for them!
Our arguement arrives at...and the Socialists frequently state: We need the saftey net...folks want it and are not willing to do without. My point: Ok then let's all contribute, not just the high earners. I mean, you and yours are intent on breaking this country in the name of Social Justice, will not consent to ANY spending reductions, in fact the liberals want to spend more.
So that jibberish you trot out about how important the programs are and we need 21% (recently up from 20%), ok, let's all pitch in. Let's see how the public supports all this waste when THEY are the one's footing the bill.
We have indeed created a society where we are getting more government than we are willing to pay for. Clearly, we need to reconcile taxes and spending - and then begin to pay down the debt.
"We need the safety net...folks want it and are not willing to do without it." That's a fact.
"Let's all contribute, not just the high earners." Who isn't contributing that should? The poor? Won't their contribution come in the way of spending cuts?
I mean, you and yours are intent on breaking this country in the name of Social Justice, will not consent to ANY spending reductions, in fact the liberals want to spend more. Well, the paragraph above is a pack of ignorant lies. Perhaps, Doc, it is you and those like you that want to break this country by being penurious, short-sighted and downright cheap. We will call yours the Stroessner approach.
So that jibberish you trot out about how important the programs are and we need 21% (recently up from 20%), ok, let's all pitch in. Let's see how the public supports all this waste when THEY are the one's footing the bill.
That is the reconciliation that I have been calling for. The Keynesians want to connect taxes and spending. The supply siders have to break that connection or they will never be able to enact their cherished tax cuts for the rich.
Lets begin by agreeing that the budget must be balanced (sorry, Mr Cheney, deficits do matter) and ask Americans to make choices:
Higher taxes or cut Medicare/Medicaid?
Higher taxes or cut Social Security?
Higher taxes or cut Defense?
Higher taxes or cut the safety net (food stamps, AFDC, unemployment insurance, etc)?
Higher taxes or cut education?
Higher taxes or cut transportation?
and so on. I think you'll find Americans would gladly go back to the Clinton era tax rates that brought in 20.6% of GDP. You remember - when had a surplus.
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