Summary: The debt crisis deserves attention not just as a potentially serious event, but also because it illuminates many aspects of America: the flaws in our political structure, weaknesses in the GOP, and our excessively credulity. This post, the sixth in this series, looks at the crisis, and why we have difficulty seeing it clearly.
Contents
- Significance of this debate
- The SecTsy warns us
- An analysis of the problem
- How quickly will the Treasury hit the wall?
- Effects of hitting the debt ceiling
- Other posts in this series
- For More Information
(1) Significance of this debate
A characteristic of Americans today is our credulity. We believe whatever our political leaders tell us. Much of the Left believes that humanity faces not just a crisis but doom, or even extinction, from climate change — no matter what the IPCC and major climate agencies say.
On the Right their authorities give them a similar mixture of fact an fiction, but perhaps are even more delusional — Rush on radio, Fox TV, National Review in print, and countless right-wing websites. Let’s look at the one example, concerning the debt limit crisis: “The AP Misreports the Debt Ceiling“, John Hinderaker, Powerline, 14 October 2013 — He makes several valid points. But he grossly underestimates the mechanical difficulty (and hence risk) of rolling over hundreds of billions in debt without violating the debt ceiling, and his conclusion is incorrect.
Would a default on U.S. Treasury bonds be a disaster? Of course. No one denies that. But what does that have to do with spending on programs like Social Security? Social Security is not a debt obligation; and, in any event, it is discretionary spending that would be cut if the debt ceiling were reached, not entitlements.
… The Treasury says that without the ability to borrow more than the $17 trillion we already owe, the federal government won’t be able to “pay its bills.” What they mean by that is that spending will be cut: henceforward, it will have to equal revenue, just as though a balanced budget amendment had been enacted. When Democrats talk about “paying our bills,” they mean maintaining spending at ever-growing levels.
It’s a common opinion on the Right:
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- 54% of Republicans believe the US “can go past the debt ceiling without major problems”, per a Pew poll.
- Some are delusional, such as Ted Yoho (R-FL) in the Washington Post: “You’re seeing the tremor before the tsunami here. … I’m not going to raise the debt ceiling. … I think we need to have that moment where we realize [we’re] going broke, … I think, personally, it would bring stability to the world markets,”
For an look at the range of GOP viewpoints:
- “Crisis? What Crisis?“, David Weigel, Slate, 7 October 2013 — “How House Republicans are convincing themselves that defaulting on the country’s debt wouldn’t be the disaster everybody claims it’d be.”
- “For Many Hard-Liners, Debt Default Is the Goal“, Bruce Bartlett, New York Times, 14 October 2013 — He held senior policy roles in the Reagan and George H.W. Bush administrations and served on the staffs of Representatives Jack Kemp and Ron Paul.
They are wrong for three reasons. First, failure to pay bills owed to vendors is a form of default. Second, failure to make payments due for social security is not a default, but would mark a milestone — decreasing people’s confidence in the government (perhaps a feature, not a bug to some conservatives). Third, there would be even larger consequences (discussed below).
Let’s examine what experts say about the debit ceiling, the mechanics and consequences of hitting it.
(2) The Secretary of the Treasury warns us
Letter from Secretary of the Treasury Jacob Lew to Congress about hitting the debt ceiling:
Treasury now estimates that extraordinary measures will be exhausted no later than October 17. We estimate that, at that point, Treasury would have only approximately $30 billion to meet our country’s commitments.
This amount would be far short of net expenditures on certain days, which can be as high as $60 billion. If we have insufficient cash on hand, it would be impossible for the United States of America to meet all of its obligations for the first time in our history.
… The House of Representatives recently passed legislation that includes an ill-advised provision to prioritize payments, which would not protect the full faith and credit of the United States. Any plan to prioritize some payments over others is simply default by another name. The United States should never have to choose, for example, whether to pay Social Security to seniors, pay benefits to our veterans, or make payments to state and local jurisdictions and health care providers under Medicare and Medicaid. There is no way of knowing the damage any prioritization plan would have on our economy and financial markets.
(2) An analysis of the problem
Analysis of this by the Bipartisan Policy Center
Interest on the federal debt would likely be prioritized in either scenario – it is paid on a separate computer system {Fedwire}.
… Treasury might attempt to prioritize some types of payments over others. Prioritized payments would be made on time, others would not. This option may not be possible to implement using Treasury’s current financial systems. It would involve sorting and choosing from nearly 100 million monthly payments. {run on many different systems}
Treasury must “roll over” well over $370 b in debt that will mature this year during the Oct 18 – Nov 15 period. As one security matures, the principal and interest for that security would be paid for with cash from the issuance of a new security. In a post-X Date environment, this operation may not run as smoothly.
If the X Date arrives on October 18 (the beginning of the BPC range), the Treasury would be about $106 billion short of paying all bills owed between October 18 and November 15 (20 business days). Approximately 32% of the funds owed for the period would go unpaid.
On a day-to-day basis, handling all payments for important and popular programs (e.g., Social Security, Medicare, Medicaid, Defense, military active duty pay) will quickly become impossible.
The reality would be chaotic:
- Many service providers unpaid
- Unfair results, unanswered questions
- Treasury picking winners and losers
- Widespread uncertainty
- Public uproar and Intense global media focus
- Economic disruption
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(3) Why not just prioritize payments?
Several computer systems run the government’s payment systems:
- Systems of government agencies submit bills to the Treasury
- The Bureau of the Public Debt makes payments of principal and interest through the Fedwire system
- DoD pays throught their Disbursing Offices
- The Financial Management Service makes other payments (internal and external) through the Automated Clearing House.
One valid point made by conservatives is that articles about the potential effects of hitting the debt ceiling often describe as a certainty (often with hysteria) our default on principal and interest payments. That need not happen. The Treasury could give priority to payments through Fedwire, and the 14th Amendment gives it the authority to do so. It would be operationally difficult, with high risk of error. Also, the logic of that — paying creditors but letting grandmothers starve — might prove politically problematic, as explained by Morgan Stanley economist David Greenlaw in a July 8 report:
While it is true that the government takes in a good deal more in receipts than it pays out in interest on the debt over the course of a full year, on certain days the government takes in much less than it pays out. For example, the Treasury has an interest payment of about $30 billion due on August 15. On that day, it will take in about $15 billion in tax receipts, so it won’t even have enough to make the interest payment alone. Are the proponents of prioritization suggesting that the Treasury should withhold all of the $22 billion social security payment due on August 3, so it can cover a debt service interest payment that is due a couple of weeks later?
Further prioritization (choosing which bills to pay) is legally problematic, as explained in a report by the Inspector General of the Department of the Treasury, 24 August 2012 — Excerpt:
Treasury officials stated that Treasury also reviewed the idea of attempting to prioritize the many payments made by the federal government each day. Treasury noted that it makes more than 80 million payments per month, all of which have been authorized and appropriated by Congress.
… While Congress enacted these expenditures, it did not prioritize them, nor did it direct the President or the Treasury to pay some expenses and not pay others. As a result, Treasury officials determined that there is no fair or sensible way to pick and choose among the many bills that come due every day. Furthermore, because Congress has never provided guidance to the contrary, Tr easury’s systems are designed to make each payment in the order it comes due.
Further prioritization is also operationally problematic, as explained by Mark A. Patterson — now senior fellow at the Center for American Progress, was chief of staff at the Treasury Department from 2009 until May 2013 where he was deeply involved in the 2011 debt-ceiling negotiations — in an interview by Ezra Klein of the Washington Post.
That’s an underappreciated complication with any prioritization scheme. The U.S. government’s payment system is sprawling. It involves multiple agencies. It involves multiple interacting computer systems. And all of them are designed for only one thing: To pay all bills on time. The technological challenge of trying to adapt that to some other system would be very daunting and I suspect that if we were forced into a mode like that the results would be riddled with all kinds of errors.
(4) How quickly will the Treasury hit the wall?
Alec Phillips of Goldman Sachs, quoted by the Financial Times:
…the practical problem is that on November 1, the payments the Treasury must make are so large that the Treasury would already be nearly a week in arrears after the first day it has depleted its cash. So while this sort of strategy might be employed, the practical effect in early November would probably be indistinguishable from a decision to cease payments entirely.
(5) Effects of hitting the debt limit
Bad in the short-term, with a recession likely from anything but a brief default. However even a brief delay in payments will stain our credit record for decades. The reputational loss might be the largest long-term result.
(a) Business Insider quotes a October 5 research report by Goldman Sachs economists Alec Phillips and Kris Dawsey about the effects of cutting government spending after hitting the debt ceiling:
Failure to raise the debt limit would eventually lead to a sharp reduction in spending and could result in a rapid downturn in near-term economic activity. A very short delay past the October deadline — for instance, a few days — could delay the payment of some obligations already incurred and would create instability in the financial markets. As noted in prior research, this uncertainty alone could weigh on growth.But a long delay — for example, several weeks — would likely result in a government shutdown much broader than the one that started October 1.
… Using our cash flow projections as a guide, we estimate that the revenues the Treasury will receive in the month following the October 17 deadline would equal only about 65% of spending going out, implying a far greater fiscal pullback than will occur as a result of the ongoing shutdown. In essence, a prolonged delay would force the Treasury to rapidly eliminate the budget deficit to stay under the debt ceiling. (The deficit has significant seasonal fluctuations and CY Q4 is normally a higher-deficit period, offset by lower deficits or surpluses in other periods, particularly CY Q2.)
We estimate that the minimum pullback in spending that would be required to remain under the debt limit for one month without an increase would be equivalent to 1.7% of GDP (annualized). However, if the Treasury decided to set aside interest payments and make other payments in arrears, we estimate it would result in a pullback in primary (i.e., noninterest) outlays of 4.2% of GDP (annualized). In both cases, the effect on quarterly growth rates (rather than levels) could be even greater. If this were allowed to occur, it could lead to a rapid downturn in economic activity if not reversed very quickly.
(b) “Analysis of 2011-2012 Actions Taken and Effect of Delayed Increase on Borrowing Costs“, General Accountability Office, 23 July 2012 — Consequences of the brief debt ceiling crisis in 2011:
GAO estimated that delays in raising the debt limit in 2011 led to an increase in Treasury’s borrowing costs of about $1.3 billion in fiscal year 2011. However, this does not account for the multiyear effects on increased costs for Treasury securities that will remain outstanding after fiscal year 2011.
(6) Other posts in this series
- Most of what Democrats say is wrong about the Republicans’ recent actions in Congress
- Let’s learn from this inevitable crisis, which results from flaws in our system
- About the crisis: The GOP is right. So is Obama. That’s why it’s a crisis.
- A new political party for a New America: the Tea Party GOP
- Minting a trillion dollar platinum coin: the easy fake solution, so we can avoid fixing our problems
(7) For More Information
A comprehensive analysis: “On The Debt Limit“, Bruce Bartlett, 8 October 2013
“The electoral ramifications of the shutdown are far from clear“, John Sides (Assoc Prof, Political Science), Washington Post, 14 October 2013
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“failure to make payments due for social security is not a default”
I thought the result of the Reagan changes to Social Security was to create trust funds, which are invested in government securities. Payments to beneficiaries, I understood, come from those funds; so wouldn’t the only way payments could not be made be if the Treasury defaulted on the obligations held by the trust funds?
What am I missing?
Coises,
The Social Security Trust funds are a slight of hand, and obligation from the government to the government. Write yourself an IOY. Are your richer?
Social security benefits are not obligations of the Federal Government, of which SS is an agency. From the Social Security website:
“Social security benefits are not obligations of the Federal Government, of which SS is an agency.”
Understood. Congress and the President, if they agree, can change the rules at any time. That wasn’t my point.
(There is an interesting observation in that last article which I hadn’t heard or considered before concerning the interaction between the debt limit and Social Security cash flow, but it’s not directly relevant to my point here.)
If payment is due on a government bond which I hold, and it is not paid, that is default; what I intended to do with the money is irrelevant.
So, again, I ask, how is it not default for the Treasury to fail to meet its obligations regarding the securities in the Social Security Trust Fund? The Social Security Administration is obliged under current law to pay certain benefits using those resources. Failure to pay those benefits would not be default, but the only reason for failure to pay would be that the Treasury failed to honor its obligations to the Fund, which it seems to me would, precisely, be default.
Perhaps this is just a technicality which doesn’t matter. Perhaps no one would think of it as default, whether it is or not.
Coises,
I do not understand the point of your quotes from the treasury website. Debt from you to yourself is immaterial. Do an experiment. Every week write yourself an IOU for a billion dollars. If you wish, set up complicated trust funds to issue and hold your IOUs. Now tell people you are rich. Try to buy or borrow with your new wealth. Report back on your findings.
“how is it not default for the Treasury to fail to meet its obligations regarding the securities in the Social Security Trust Fund?”
(a) Why should the government default on that part of the debt? Many Republicans say that defaulting on the debt is a threat to fool us, because the government has ample cash flow to pay interest and debt can be rolled over (raise new funds to pay maturing bonds). They are correct, as explained in today’s post.
However, it is operationally difficult to do same day rollovers (so as not to violate the debt ceiling) — selling $billions or tens of $billions of bonds on short notice (the bond auction calendar is done months in advance), especially during a crisis (I’ll pay you as soon as I borrow more from Sam is not what investors want to hear from a AAA credit).
But rolling over the bonds in the social security trust from — obligations owed by the Federal government to itself — is easy as pie. That part of the government is free from default, unless the government chooses to do so.
(b) Say that the government chooses not to pay itself on the Treasuries in the SS Trust Fund. How is that a default? If you rip up your IOU, do you rip your clothes — put ashes on your head — cry that you have dishonored yourself? You have defaulted to yourself. Good thing I mentioned this, or you might have done the experiment in (a) and ruined your life. How could you have paid off that IOU?
“The Social Security Trust funds are a slight of hand”
I can concede that if you can grant that the debt ceiling is, as I called it before, “a trick.” ;-)
Sure, it’s sleight of hand. So is putting a dollar a week in a piggy bank. Playing tricks on ourselves is sometimes a way of accomplishing what is desirable in the long run but unappealing day by day. (That doesn’t mean that they’re not still tricks, just that not all tricks are, on the balance, bad. We aren’t a sufficiently rational species to be always better off without tricks.) The trust funds probably confuse more than they clarify, but they did (for good or ill) isolate Social Security from budget arguments for a couple of decades.
Coises,
“I can concede that if you can grant that the debt ceiling is, as I called it before, “a trick.” Sure, it’s sleight of hand. So is putting a dollar a week in a piggy bank.”
I do not see the similarity on any level.
What makes those real is that the counterfactural (no debit limit law, never saves) are significant changes. Eliminating the Social Security trust funds changes nothing. The government’s finances are unchanged, the security of SS is unchanged, people’s benefits are unchanged.
Since the Trust Funds are only partially funded, they’re not even a reliable guide to the cash flows needed to fund future social security benefits. A law mandating creating Treasuries each year to fund the estimated benefits earned would mean that the Trust Fund was an easy to understand benchmark of future taxes to fund the promises.
Financial Traitors=Tea Party niche.
sabotures of US.
devalue US they will for International Banks (their Backers they have)
low Interest rates for US, they like NOT.
the Cliff is for Tea Party Bankers not US
blu dawgs breeding again.
KDOG sends.
Once again, an illuminating article. The longer-term consequences of a default are not clear. Probably because it depends just how long the default goes on.
I suspect that even if we do default, as long as some agreement gets reached within a couple of days and everything starts back up, there won’t be large consequences. The government might even issue intermediate senior debt instruments or IOUs along with an accouncement that tentative agreement had been reached on a deal, and that the final agreement would restart debt payments on [fill in the blank] date a few days away. It’s an open question what effect even a day-long default would have on long-term U.S. interest rates. Would investors really demand a much higher premium to buy American T-bills? Considering that the rest of the world issues bonds (would you prefer to buy senior bonds from India, a country riddled with corruption? Or how about China, a black-box economy with zero transparency and an awesomely cronyish self-dealing elite?) whose “full faith and credit” seem much more dubious compared with a relatively transparent and robust economy like the U.S., it’s dubious that even in the event of a temporary default, investors would abandon the U.S. T bill in numbers large enough to require substantial interest hikes by the bond market.
It’s also unclear whether Obama has a plan to bypass congress. Of course he has said he does not, but he’d have to say that even if he did, simply in order not to weaken his negotiating position. The 14th amendment requires the United States to pay its debts, a requirement in open conflict with the constitution’s mandate of the House of Representatives as the sole authority gifted with the power of the purse. It seems possible that Obama might simply use an executive order to require the Treasury to make debt payments even if we do default.
The Republicans might take Obama to court, but in that case it’s unlikely that the Supreme Court would for example grant a restraining order requiring the U.S. government to go into insolvency while the case was heard.
So it’s really not clear what would happen if we went into default. It does seem evident that if America went into long-term default that would place the full faith and credit of the U.S. dollar in doubt as a global reserve currency — but is that likely? Can anyone imagine 6 months or year passing with the U.S. still in default? The political fallout alone from the business community against the Republicans makes that seem most unlikely.
Snake,
This one is, IMO, less impressive. Part of the a American tradition of political analysis being a series of making stuff up.
“ut it looks like it’s taking the money and running.”
He gives no evidence of this, since it is almost certainly false.
As for all the people declaring the GOP dead, this is a tradition of amateur political analysis. During the past thirty years I have heard each the party declared toast several times.
I suggest waiting to see outcomes before declaring this game to be over. Esp with Obama’s ratings also near their lows.
I don’t believe you read the entire essay. It’s not especially focused on the Republican Party, and makes no predictions about its future that I recall. Certainly the section I quoted contains no such predictions, so I have no idea why you think it does.
If you had read the essay, you’d know that Henwood is mainly concerned with the contrast between contemporary elites (i.e., the owners, the oligarchs) with their counterparts in the postwar era, the summit of American power. In his view the Tea Party antics are mostly an example of the owning class’ strategic foolishness, shortsightedness.
Obama’s ratings have pretty much always hovered in the 40’s, and last I heard that’s pretty much where they are now. Quite frankly, I don’t see that his polling numbers have much to do with anything in the standoff.
Snake,
I did not read it. I merely cited one probably false statement.
You are correct, the excerpt did not make predictions. That was my (not stated as such) inference. I consider the author’s conclusions to be premature, difficult to factually support, and probably (in terms of eventual result) exaggerated.
These political jousts have winners and losers. Obama’s disapproval rating in the daily Gallup poll has risen significantly as the crisis evolved (from memory) from 45% to 53%. Relative ratings movements are a real-time (but short-term) measure scoring the game.
http://www.gallup.com/poll/113980/gallup-daily-obama-job-approval.aspx
For a good summary of what the current Republican Party is **really** all about, you could do a lot worse than this summary:
“…the Republican Party since the 1990s has been engaged in a form of what Vietnamese revolutionaries called dau tranh, or struggle: an endless, multi-front attack on the existing order of things, using extreme rhetoric and leveraging every scrap of power within existing institutions to make their agenda prevail”
You can find the whole essay here:
http://historyunfolding.blogspot.com/2013/02/climax-of-crisis.html
Only now do Dems — who, god help us, are nominally the opposition to all this — seem even dimly aware of what and whom they’re really dealing with. Of course, whether they give a damn is a whole other matter. Most national-level Dems cash out just as well as any Chamber of Commerce Republican ever did.
Snake,
Interesting. Thanks for posting!
Not amateurish as to GDP, and their demise has been a longer term issue, to at and before the 2008 election.
The Tea Partiers have pushed them to inanity. It would be great to see the GOP pick-up entrepreneurship and small business as new foci for their policy exhortations.
Obama is irrelevant in your discussion, he doesn’t run again; but many will run again in 2014 and 2016. Certainly, reform must occur broadly tax and spending; age rises and COLA freezes, and further into the system, which need be coupled to energy, “industrial” and a number of other policies.
Frankly I am for the government printing money. Taxation on Foreign Holdings. A devaluation of the dollar and a forced restructuring on the Global Economy.
While other countries insure against volatility in Capital Markets by structuring their economies to yield surplus, Americans have to Spend (nearly, more) money on servicing debt than it does on education, Military Pensions, HUD, Food Stamps, Unemployment Insurance, SSI, etc….. Not that I am supporting such spending, but my ears go back to when Clinton and the Republicans of the era were to pay down the debt and Capital complained there wouldn’t be nwhere for Capital to flee when save havens are required.
Funny enough, engineered surpluses and financial flows get back stopped by the American Taxpayer, while mantras of Tax Cuts and Deregulation cycle increased inequality and undermine fiscal solvency, as those who most intervene within their economies are lauded for savings, even while their Asset Bloat, and own printing far surpasses US experience.
I say Print, Print and Print and force a resolution to the global governance and domestic understanding that inhibits more rational policymaking.
I would like to present an advice from Immanuel Wallerstein whom i religously read since he has repeatedly shown correct predictions on world events. His predictions can be checked against in archives that start in 1998. He uses mathematical models with power players that influence decision making for his predictions.
His use of Samson metaphor is reminding of The Enders Game resoning; “The Samson Complex“, 15 October 2013.
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FM Note: Immanuel Wallerstein is a sociologist, now Senior Research Scholar at Yale University. See his Wikipedia entry, and a list of his syndicated columns.
Jordan,
Thank you for the reference! Looks well worth reading.
Wallerstein has been in my reading queue for a while. Gotta get through Braudel, first, though…
I do not know if Pat Buchanan read that post by Wallerstain but this is just horrifying:
http://www.rightwingwatch.org/content/buchanan-better-destroy-country-end-anti-obamacare-drive
Pingback: "Prioritizing" Federal Payments? - Public Signals
Could this be racism reaching its logical conclusion?
As institutional racism is frowned upon, and openly racist sentiments have been increasingly delegitimized, the Southern aristocracy has been forced to use increasingly subtle and indirect language (replacing “n***er” with “freeloader” and “thug”) and methods to punish and oppress black Americans – like for example voter suppression and food stamp cuts. These indirect methods are extremely effective, but have increasingly high rates of collateral damage against white voters.
But in the end, these methods failed. The black man in the white house was reelected. Now there’s only one method they haven’t tried yet – to attempt to deconstruct the government itself, which these Southern extremists see as aiding and abetting the non-whites that they hate.
It’s insane of course – like a looney toons character burning his own house to kill the mice – but it is a logical – perhaps the only – conclusion of an organization of institutional racism that is sensing its own doom. Their supporters are aging and dying off, so armageddon is the only recourse.
Joe,
That’s a scary analysis. But might be true.
I still remember Ron Paul speaking in 2003 in front of a Confederate Flag, and making a fortune publishing his newspaper with its racist articles — then wondering why people accused him of racism (details here).
Racism is a chronic toxin injected into America at the Founding, and we still struggle with its effects.
Perhaps the boomers are the last generation severely afflicted with it.
I’ve suspected for a while now that in actuality, the socioeconomic class war which the GOP has been waging — whether they consciously realize this or not (and I have no doubt that at least some do) — is a race war.
As Joe pointed out, it’s no longer considered socially acceptable in most circles to make openly racist statements in public or blatantly discriminate against certain ethnic groups (although even this is not enough to discourage or prevent some people from doing so). However, there is plenty of research — such as the studies of name bias in hiring decisions, as one example — to indicate that racism is still very much alive and well in this country even though it is largely taking place at an underground and/or subconscious level rather than at an institutional level as such. Despite this, however, many Republicans apparently still refuse to acknowledge the advantages and privileges that still come with being Caucasian (since Causcasians remain the dominant group in influence if not necessarily in population figures) within this country while at the same time denying that there is still any such thing as racial discrimination. In fact, more than a few Republicans have begun to protest that it is Caucasians who are now victims of discrimination — however, what this most likely stems from is an awareness that Caucasians no longer enjoy unquestioned and unchallenged dominance of the culture as they have done within living memory as well as anger (not necessarily unconscious) at being forced to relinquish some of this unspoken privilege.
At the same time, however, many Republicans also remain very much aware of the fact that African-Americans as a group are overrepresented in poverty…but because they 1) refuse to believe that racism or discrimination still exist, 2) avoid acknowledging the numbers of Caucasians living in poverty, and 3) seem to adhere to the Puritanical belief that wealth is an indication of moral superiority (no matter how that wealth was obtained!), it sometimes seems as if they are subtly or unconsciously attempting to justify the racist belief that African-Americans are lazy and morally inferior to Caucasians. Indeed, it’s not too hard to see how and why this kind of dog-whistle racism might be fostering and encouraging the pseudo-libertarian sentiments that have been becoming more popular within the Republican Party — if they believe that the poor (by whom they mean African-Americans) are lazy and morally inferior, then there is no longer any moral obligation to provide them with assistance because they do not deserve it. (Of course, the irony is that many of these same people not only claim to be Christians, but “born-again” Christians — and yet the New Testament is very explicit on the subject of how the poor should be regarded and treated.)
POSTSCRIPT — to my way of thinking, the fact that some people in the Republican Party are talking about putting Ted Cruz forward as a presidential candidate in 2016, despite the fact that his background is very much like what they believe Obama’s to be (a junior-level Congressman born in another country to an American-born mother and a foreign-born father) seems to go beyond simple political partisanship. If they are willing to accept Ted Cruz as a presidential candidate — despite the fact that Cruz was born in Canada and that his American citizenship would therefore be solely based on the principle of jus sanguinis (the right of blood) — then their refusal to accept Obama’s presidency as legitimate — despite the fact that Obama was born in Hawaii and his claim to citizenship is based on both jus sanguinis and jus soli (the right of soil) — can only be based on racial prejudice since the law cannot be logically or ethically be interpreted arbitrarily.
Take away trading partners taking treasuries in trade to maintain favorable balances of trade and us buying our own debt, I’m not sure many are left truly buying our paper as an investment, not at current offered interest rates.
But if rates rise that will hurt like hell, and if our trading partners tire of trading real goods for zero yield paper, that leaves only our Fed to buy our debt. Many bitch and moan about the Fed as though they were some evil independent agent bent on our destruction or beholden to the banks.
The Fed is essentially us and soon it will be us buying our own debt with printed money exclusively just like Argentina or some banana republic. Like a snake eating its own tail many tautologies will fully manifest, like government collecting taxes from government employees, and government including government spending in GDP, and us funding our own deficits by buying our own debt.
As government approaches 100% of our economy, these recursive or self referential algebras will freeze in the absolute; a sort of civilizational spread sheet #ref.
I don’t really understand the financial subtleties underlying the recent chicken derby in Washington, but I have a fear that they’re playing with hotter stuff than mere national financial ruin. Well, admittedly, that’s pretty bad, but here’s some thoughts that have been circling my head (they look like flying pink elephants, if you must know):
1. How much longer can the theater go on before the Federal Government loses its legitimacy? “Legitimacy” is a pretty ephemeral concept, but there comes a point when a government’s subjects…er citizens…begin to think it should simply be ignored. Or maybe that it’s a form of reality TV. And other governments might do likewise. It could catch on, if Congress and Mr. Obama work hard enough at it.
2. If push comes to shove, I have a feeling that the Executive Branch is going to demonstrate the irrelevance of Congress, as the perspicacious Mr. More points out above. That is, it will simply pay by executive order. (The Supreme Court wants to get paid, so I know where they will come down.) I guess that means only Congress loses its legitimacy, and we wind up with a much simpler and more streamlined form of government. (Can that be all bad?)
3. Consider this as a stunningly innovative form of protest. We’re mad as hell, and we’re not taking it any more! Shouting this over and over does little real good (as another FM column has wisely suggested), but in this brave new age, the government spares its citizens the need to actually trudge about the streets carrying signs and shouting; it short circuits the process, and carries out the protest in camera, so to speak. There’s a lot of stuff I’m mad about (like drone attacks, Daylight Savings Time, and the entire Homeland Security Department), so I can’t help but sympathize with our Congressional demonstrators. (But it might not work out well: see item 2.)
4. I’m firmly convinced that Congress must roll back Obamacare because Socialism is un-American. Socialism won’t function because America has too many lazy people who don’t work and rely on the government dole. Like me. Let me tell you, if those Social Security checks stop coming in the mail, I’m gonna take my rifle and let them (whoever they are) know just how I feel about that. And so will millions of other old farts with nothing much to lose. So I think it’s safe to say that although not paying Social Security isn’t exactly a default, technically speaking, it will be the last thing to go (just before welfare). Now if I could only remember where I put the ammo.
5. Boy am I tired. I will let you know more when I can think straight again, Mr. Maximus.
Reynardine,
“1. How much longer can the theater go on before the Federal Government loses its legitimacy?”
I suspect that is a feature, not a bug, in the GOP’s plans.
“2. If push comes to shove, I have a feeling that the Executive Branch is going to demonstrate the irrelevance of Congress”
I believe that is quite an exaggeration. As I describe in this post, there is a long history of bold Presidential actions — the perogrative — that go beyond the margins of the Constitution. Done rarely it is no problem:
“4. I’m firmly convinced that Congress must roll back Obamacare because Socialism is un-American. ”
(a) Most of the provisions are very popular (the lies are the unpopular part, but they’re fiction). Which is why the GOP strives so hard to kill it.
(b) The adoption of national health systems has not led to “socialism” in other developed nations. The opposite in fact. They were followed by the great privatization and deregulation wave of the 1980s.
(c) Every other developed nation’s health care system works either better than ours by most metrics, or far better than ours.
(d) So you are in favor of ending Medicare? Good luck with that.
(e) You are listening to too many people who lie to you.
“War of attrition between the parliament and the executive in 1575“, Carlos Álvarez-Nogal (Prof Economic History, U of Carlos) and Christophe Chamley (Prof Economics, Boston U), VOX, 21 October 2013
Summary:
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