High Stakes Flirting with Debt Ceiling Caps: Add a Zero to the Last House-Induced Plunge

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obama boehner.bmpSome time before July 8th, there will be a vote in Congress on raising the federal debt ceiling. Many Americans think that if you just cap the debt ceiling, the American government will be forced to stop stacking up debts. What it really means is that all of those nations and institutions and individuals who loaned America money in the past will see their repayment threatened.
Markets will be catastrophically impacted. America’s risk premium on all future loan instruments in which others lend us money will rise. In other words, we will be imposing a tax on all future economic activity — a tax that we self-imposed. The “full faith and credit of the United States government” which has not defaulted in modern times will be thrown into doubt.
It is true that both Barack Obama and Steny Hoyer voted casually and carelessly against raising the debt ceiling in the past. These were misguided votes — and they should publicly explain why these votes were irresponsible and threatened the credit position of the United States in the world. We may not like it — and I don’t like it — but the US is the world’s largest debtor nation in the world. We need financing whether we like it or not.
To threaten to cap the debt ceiling now is sending a signal that the US will not be responsible or accountable to those who have invested here.
The Republicans and Democrats who think that this vote is a way to show off their fiscally conservative creds better look back at September 29, 2008.
On that day, the House rejected the TARP — and the Dow Jones plummeted 777 points. Those who failed to understand how vital stimulating the economy was then, as read by the markets, were quickly chastened.
If the Republicans did secure a successful vote against the debt ceiling being raised — even a resolution to that effect, then add a “0″ to that plunge.
– Steve Clemons

Comments

51 comments on “High Stakes Flirting with Debt Ceiling Caps: Add a Zero to the Last House-Induced Plunge

  1. questions says:

    Here’s the website for the receipts:
    http://www.whitehouse.gov/taxreceipt
    Sadly, this site only reaches to those who reach to it, and plenty of people who need services and vote against services won’t reach out to the whitehouse.gov site.
    There should be more outreach.

    Reply

  2. questions says:

    Great minds think alike!
    This is way better than pie charts with your tax return (which I think they already do, but no one can read a pie chart!)
    http://www.democracyjournal.org/20/seeing-where-the-money-went.php
    A tax payer receipt that shows where your money goes.
    Now, it’s probably limited in some ways as no one can say for sure where particular dollars go, and likely there are plenty of people who think that their money in their accounts is more than just a data entry point, or that SoSec money just sits in a vault, or that the US can actually run out of money….
    But at any rate, letting people know where the money goes, what things cost, how to think about what they value and what they want to pay for is a wonderful idea.
    There is much in the gov’t that is opaque to the people who fund it. This opacity allows rhetoric to be far more effective than it should be. The Ryan plan (and apparently the Republican Study Group plan) depend on people’s not really understanding the most basic aspects of gov’t programs, money, institutions and how they function.
    I still think we need a lot more town meeting kinds of get togethers where people can express what they think about things but then can receive some information and then figure out what to think.
    Obama is infinitely good at talking to regular people without inflating rhetoric, without saying things that aren’t meant to be true.
    Might also be nice to have some kind of infinitely monitored website or phone system that works like a combination of 311 gov’t help and 411 information. Call and ask-a-wonk!
    Our social and financial relations are complex, we barely understand the stuff we most need (how to fill out tax forms or what the terms of a mortgage are), so how can we really understand the relationships between debt, deficit, interest rates, GDP, bankruptcy of the nation, and all the rest that wonkdom is dealing with right now?
    There is a massive communication and information gap, and it would be nice to find a non-political way to bridge it.
    Maybe even Wonk-TV — a 24 hour policy channel!
    Or weekly tv show that stars a policy wonk who has to come up with proposals for programs to solve real world crises, or, some weeks, matches people to actually existing programs.
    We don’t know a lot about how our own government works. That’s a problem.

    Reply

  3. DakotabornKansan says:

    The Corker-McCaskill Bill Proposes Cap on Federal Spending
    A prominent proposal by Senators Bob Corker (R-TN) and Claire McCaskill (D-MO) to limit total federal spending to no more than 20.6 percent of the Gross Domestic Product (GDP)

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  4. Kathleen Grasso Andersen says:

    Sighhhhh..where did the concept that Repugnicans were fiscally repsonsible originate? I must have gone through the looking glass because from where I’m standing they are just the opposite.
    The GOP is fond of claiming that raising taxes during a recession would create job loss. Glad no one told FDR. He ended the Great Depression by raising taxes to 97%. The Gipper created another deep recession by cutting taxes to 35%. Clinton ended that recession by raising taxes again to 38%…Dumbya then dug us into a financial hole all the way to China by cutting taxes again. So what does Obama do? He sings the praises of Reagan. Go figure.
    Instead of raising the debt ceiling, raise taxes on the wealthiest. All future tax cuts should be from the bottom up and the standard deduction should be indexed to the cost of living.
    Instead of raising the retiremet age for Social Security, the salary cap should be raised from $90,000 to $250,000….that’ll fix SS.
    Democratic leaders need to eliminate the abuse of the filibuster by requiring actual debate and then passing legislation that reflects the will of the majority instead of allowing the minority to commandeer the entire legislative process simply by threatening to filibuster…call their bluff and move on with the country’s business. Enough, already.

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  5. PissedOffAmerican says:

    So, if only one nuclear plant in Japan is seriously damaged by the quake, it might be possible for the nuclear industry —-s (insert your own vulgarity of choice) to present it as an anamoly, a rare event.
    But what if TWO plants are currently in crisis??? Would it be so easy for these industry —-s (rhymes with “mutts”) to continue to pimp an energy policy that jeapordizes our safety, our environment, and our children’s futures?
    Ladies and gentleman, (regular folk), meet “Tokai”….
    http://www.lucaswhitefieldhixson.com/tokai-nuclear-plant-update-high-levels-radiation-detected

    Reply

  6. UnrepresentedAmerican says:

    Gee, and, the EPA is only testing our water for radioiodine, but not for radioactive cesium or other radioactive isotopes.
    Why??? Could it be that they only want to publicly recognize contaminates with a short half life? Are they avoiding the creation of a public record that would chronicle the existence of long term carcinogens in our milk and drinking water. Establishing deniability?
    Also….
    “EPA officials, however, refused to answer questions or make staff members available to explain the exact location and number of monitors, or the levels of radiation, if any, being recorded at existing monitors in California”
    I note the monitor in Bakersfield is non-functional. Considering that this end of the San Joaquin typically gets ALL the air contamination from San Fransico down, this would be an extremely important monitor in terms of protecting the citizens of this area. Its not comforting knowing that I live at a high altitude just east of Bakersfield, yet cannot tap any resources with which to inform myself and make decisions based on that information. The agency tasked to provide that information, and protection, has proven itself untrustworthy, inept, and subject to exercising policy with prejudice, whoring itself to the energy sector and wall street, in lieu of protecting the people’s environment, health, and welfare.
    And I owe these “people” in Washington, that condone, justify, rationalize, and participate in such dereliction of duty, my respect or civility?

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  7. ... says:

    it is a win – win for the military and the banks… war is money…. must continue to expand the debt to not challenge these 2 sacred institutions..
    debt is the name of the game… keep it expanding so that the banking industry can continue to profit.. so long as the banks and the military profit, the ordinary citizen will profit from it all… no one profits from the military or the banking system in any real sense… it is a false economy…

    Reply

  8. MuzzledAmerican says:

    And, uh, while we are standing in awe of our nation’s greatness, and the competency, integrity, and saintliness of our fearless leaders, rest easy, knowing that in 37 United States utopian centers, the EPA has taken the gracious step of making sure their radiation monitors are non-functional, thereby relieving we the people of any stress we may experience at realizing the degree of irradiation we are being subjected to.
    I hope cutting funding to this stellar guardian of the people’s health and environment does not diminish their ability to continue to work in the people’s best interests.
    http://blog.alexanderhiggins.com/2011/04/12/real-time-epa-radnet-japan-nuclear-radiation-monitoring-every-us-city-single-page-16511/
    (There, Steve, is that sufficiently respectful of these wonderful men and women slaving their lives away in Washington DC in their efforts to serve the We The People???)

    Reply

  9. DonS says:

    via FDL,
    “It seems clear now that the President is not going to adopt the best strategy for passing the debt limit, by simply demanding a clean bill and letting Jamie Dimon and Lloyd Blankfein do the work of forcing Congress to act. He

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  10. davidt says:

    Seems as though the system ate my comments. Nothing
    wrong with holding others accountable if that’s what the real
    issue is (as opposed to always looking for something to
    criticize because they didn’t toady to you in the past).
    Criticize away after taking responsibility for your enthusiasm
    for the man who stands more in the way than any other for a
    modicum of fiscal fairness and our investing in the future of
    all our citizens rather than protecting the interests of the
    wealthy and well paid. And if you’re arguing that it was
    reckless for Senator Obama, why wasn’t it reckless for one of
    your Senate heroes and former employers, Mr. Bingaman?
    He may not be president but you must also be outraged by
    his reckless behaviour on this front (in his similar response to
    the Bush-Cheney debt ceiling lifting request) and conceding
    this might enhance your credibility.
    Sorry to be rough. But holding others to account isn’t much
    fun, at least to me, either.
    BTW, congrats on the piece in Politico. Sounds like you may
    have found someone from the more reasonable party to
    support as opposed to our reckless (in your view)
    commander-in-chief.
    Fondly…

    Reply

  11. DonS says:

    Which came first, the preoccupation with “national security” or entrenched financial interests that benefit from the preoccupation?
    “National security” (at the levels funded in the US), is an obscene joke that politicians genuflect to.
    The positive benefits of redirecting resources from “national security” to funding capacity for positive activity must be great. But our geniuses in DC can’t build that bridge; or wont.
    Even subtracting what amount of “national security” expenditures pay salaries of individuals, and maybe contribute to R & D, how much economic waste and destructive activity is funded?
    The US is on a permanent war footing, and growing; there is no significant “peace” dividend, from end of cold war; no conversion of major capacity to peacetime use.
    911 ushered in the new excuse/replacement for the Soviet Union; the permanent war against “terror” — advertised as such — with tactics that just happen to support the need for the same and more obscene expenditure of national treasure.
    But we don’t talk about it? We are the zombie “national security” state.

    Reply

  12. Don Bacon says:

    And also the preoccupation with “national security.” Costa Rica doesn’t even have an army, and they’ve been fine for decades — it’s a paradise.

    Reply

  13. Paul Norheim says:

    “And there’s no existential threat to Britain anywhere on the horizon.”
    And, of course, neither to the United States. “Defense” spending and concepts like “national interest”
    have an entirely different meaning in America than almost anywhere else in the world.

    Reply

  14. Don Bacon says:

    Questions as a part of the new look, will you please go elsewhere with your nonsensical off topic rubbish.

    Reply

  15. Don Bacon says:

    Liberals are making two huge financial mistakes:
    1. doubling up on war without considering the cost
    2. thinking that the economy is merely in a cyclic dip and would improve with stimulus
    The U.S. has entered a post-industrial phase without proper planning and while totally dedicated to supporting a vast and active military empire, without any meaningful, intelligent liberal leadership. So the economy will get much worse, but at least we’ll be supporting the troops.

    Reply

  16. JohnH says:

    “The U.S. Government Accountability Office (GAO) cannot render an opinion on the 2010 consolidated financial statements of the federal government, because of widespread material internal control weaknesses, significant uncertainties, and other limitations.
    The main obstacles to a GAO opinion were: (1) serious financial management problems at the Department of Defense (DOD) that made its financial statements unauditable..”
    http://www.gao.gov/press/financial_report_2010dec21.html
    But what posters at TWN will even acknowledge that there is any problem whatsoever with military spending?

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  17. JohnH says:

    Paul Norheim cited the British example, where draconian cuts were made.
    But military spending is increasing almost 5% per year. And there’s no existential threat to Britain anywhere on the horizon.
    Meanwhile, Sarkozy gutted French pensions, and what was the result? Money freed up for a little non-essential adventure in Libya.

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  18. DonS says:

    Definitely OT, but disturbing:
    1 – “Stanley McChrystal, cashiered by the President for his staff

    Reply

  19. DakotabornKansan says:

    David Brooks in today

    Reply

  20. DonS says:

    Related to topic:
    FDL puts into perspective why Obama’s takedown of Ryan’s grandstanding was a painless no brainer . . . much as Krugman udated his own praise with the caveat that if it’s only the ‘leftmost’ position (albeit mainly generalities) to be negotiated away, then it’s less than meets the eye:
    “Candidate Obama often told voters that government programs are both legitimate and necessary as a collective response to problems that can overwhelm millions of individuals if left alone. In today

    Reply

  21. questions says:

    “TEPCO said it will throw sandbags containing zeolite, a mineral that absorbs radioactive materials, into the sea near the plant, possibly on Friday, to reduce the levels of contamination in the Pacific Ocean.”
    and
    “The utility has pumped out around 660 tons of highly radioactive water from a tunnel connected to the No. 2 reactor’s turbine building into a container inside the building.
    The operation resulted in a lower water level in the vertical part of the tunnel, but the agency said that as of Friday morning the level had risen back to the same level as before the water transfer started on Tuesday.
    The water filling the tunnel is feared to have come from the reactor, into which TEPCO has been injecting fresh water to keep fuel rods inside from overheating.”
    http://english.kyodonews.jp/news/2011/04/85725.html

    Reply

  22. DakotabornKansan says:

    DeMint demands Constitution be changed to ban federal debt
    http://www.mcclatchydc.com/2011/04/14/112199/demint-demands-constitution-be.html

    Reply

  23. Paul Norheim says:

    “It’s way over my paygrade to figure this stuff out, so I go a different direction. We’re all going to die. (…)
    Some deaths feel better than other deaths do. Deaths in which we’re in control (car accidents) and deaths that are
    scattered (lung damage from the particulate emissions of the fossil fuel industry) are fairly comforting all in all.”
    I know nothing about your pay grade, Questions. What I know is that no one has ever offered me a salary to write
    statements similar to those you offered here :)

    Reply

  24. questions says:

    Krugman, via Thoma:
    “What happened over the past two weeks, then, was more about staking out positions than about enacting policies. On one side you had a combination of mean-spiritedness and fantasy; on the other you had a reaffirmation of American compassion and community, coupled with fairly realistic numbers. Which would you choose?”
    http://economistsview.typepad.com/economistsview/2011/04/paul-krugman-whos-serious-now.html
    Also h/t Thoma:
    http://greedgreengrains.blogspot.com/2011/04/sugar-obeseity-and-possible-regression.html
    The author asks the crowd to crowd source possible data bases to tie together obesity, diabetes, sugar consumption, the sugar oligarchy (which is, ummm, huge!) and the article in the NYT mag about the toxicity of sugar (indeed, I read it the other day). The way sugar is metabolized (by our livers) may cause more problems than we think.
    This post is especially interesting because it brings together many of the problems with data analysis, money for real research, the possibilities of crowdsourcing, internet rants, and whether or not we can know anything about what causes something else within the social science world.
    If we suspect that soda is very very bad for us, we cannot conduct a double blind study in which we feed huge amounts of soda to some people, and no soda to other people, and then see who dies from liver disease, gets diabetes, or gets morbidly obese. We also can’t really give diet soda to people without their knowing. It just tastes different.
    We also wouldn’t really know if there are co-factors — maybe people who have a tendency towards diabetes are drawn towards more soda. Once the soda is available, the behavioral tendency takes over.
    There’s much that’s not really going to be testable in an ethical way, so we’re left with more retrospective and comparative studies.
    Think school test scores, economic policy, and congressional behavior. Without being in control of real conditions, we have significant limits. Even with control, we still have causal direction issues. And even if we can get this all under control, we have the political, financial, and ideological conditions to deal with.
    So, just stop drinking soda! And don’t worry if it helps or not! And make sure to eat your oat bran, your omega-3 fatty acids, be on a low fat high carb AND high protein low carb diet. Exercise and don’t exercise. You CAN have it all!
    Meanwhile, the crowd might figure out that there’s something to this but not as much as we think, but probably it’s better not to have 6 cans of soda a day.

    Reply

  25. DakotabornKansan says:

    “The owners of this country know the truth: It’s called the American dream because you have to be asleep to believe it.”

    Reply

  26. questions says:

    OT Japan update, water water everywhere, most of it radioactive, and no storage tanks left to hold it edition:
    http://www.dailykos.com/story/2011/04/15/967112/-Radiactivity-Increases-in-Fukushima-Water,-TEPCO-is-out-of-Storage-Tanks
    Sad when your problem-solving strategy is itself a problem-creating strategy. But what’s a nuclear engineer with a disaster like this supposed to do?
    And here’s the food fight on radiation damage:
    http://www.guardian.co.uk/environment/2011/apr/11/nuclear-apologists-radiation
    Helen Caldicott, scourge of the pro-nuke crowd against George Monbiot, recent convert to that same crowd.
    This piece is by Caldicott.
    It’s way over my paygrade to figure this stuff out, so I go a different direction. We’re all going to die. We can die by fossil fuels, we can die from radiation damage, we can die from insufficient energy use. All three may well be killers.
    Some deaths feel better than other deaths do. Deaths in which we’re in control (car accidents) and deaths that are scattered (lung damage from the particulate emissions of the fossil fuel industry) are fairly comforting all in all. Deaths meted out from above are disturbing. Nuclear power feels more “above” and the deaths are from acute incidents, and those who die aren’t necessarily simply the workers at the plants. Mining deaths are acute, but limited to the workers underground. So we don’t panic as a society. Nuke deaths seem to worry whole cities, co-users of the oceans and the air. We worry more.
    Regardless of the scientific accuracy of Caldicott or Monbiot or Barry Brooks at Brave New Climate, the fact is that what we’re really dealing with is a choice of deaths, not no death at all.
    It’s good to have the terms of the debate clearer rather than murked out of existence by silly rhetoric. No choice we face on energy issues is a particularly good one.

    Reply

  27. Paul Norheim says:

    A couple of extracts from a Financial Times editorial comment yesterday:
    “The war over US budget policy goes on

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  28. hans says:

    Don S, you got that wrong. It’s a bottle of good wine AND single malt.

    Reply

  29. Paul Norheim says:

    There is an interesting comparison with Britain in the NYT. Excerpts:
    “Pain of British Fiscal Cuts Could Inform U.S. Debate
    By LANDON THOMAS Jr.
    Published: April 14, 2011
    LONDON

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  30. JohnH says:

    The big fallacy–”Norquist-style Republicans don’t care about deficits or debt levels in themselves. What they really care about is the government. They hate it.”
    DK–You must be referring to the non-military part of the budget. Republicans adore the military. It gets a complete blank check for anything it might dream up, busting as many budgets as it wants.

    Reply

  31. MartinJB says:

    Hi Dan,
    I agree with most of what you say there. But again, you have to be careful. Printing money to inflate ones way out of debt can produce a vicious circle. It decimates demand for ones debt, as potential debt buyers will have to worry about future inflation. Less demand, creates higher interest rates, which makes debt more expensive to service which encourages printing money to… and so it goes.
    Anyway, rates are going to rise even without going into a Greece-like death spiral, and debt service will get more expensive.
    None of this means that we have to stop borrowing money (even if we could). We just have to put the budget back on a path to decreasing deficits and eventual sustainability not perpetually increasing deficits.

    Reply

  32. Dan Kervick says:

    Hi MartinJB,
    Thanks for your perspective, since it comes from someone who is actually in the bond world.
    Just one note about the Greece matter: It seems to me that not only is it highly unlikely that we can turn into another Greece, but it is virtually impossible. Greece’s debt is held in Euros and thus Greece has almost no control over its own money supply. But the US is the monopoly issuer of dollars and can print money to finance spending and debt payment. Certainly there would be a time when that would be inflationary, and the inflation would just drive up interest rates. But given that we are still close to 9% (official) unemployment and are thus running so massively below capacity, I don’t see why well-targeted spending financed by new money would have to be inflationary.

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  33. Dan Kervick says:

    By the way, I don’t think we need a “stimulus”. We’ve had too much of the philosophy of “pump-priming”. We need a permanent government program that maintains full employment, sustains general prosperity above a minimum floor level, and forces wasted and unproductive resources out of the rent-seeking class and spreads them down onto the general public.
    Innovation, growth and prosperity are generated from the ground up. Most innovation is not the result of big-ticket, high-risk entrepreneurialism dropped upon the economy by some spaceman-god, but is just the result of a million little business people figuring out ways to do their own little jobs better by developing some small little service or product, or a tweak to an existing job or service, that didn’t exist before. The foundation of all that innovation and productivity is a deep and broad layer of prosperous consumers with a decent amount of disposable income. If the customers are manifestly tapped out, no one will invest in anything new.
    The American consumer has been pressed down, buried in debt and left behind by the high rollers. As a result, economic innovation and growth are stuck in the mud. Eventually even the high rollers will figure out that their hyperactive greed and desire to claw everything they can get from the customers who are at the bottom of the pyramid on whose apex they sit is destructive – even for them.
    We need to rebuild the middle class. The way to do it is not just to stimulate them with a little cattle prod of short-term spending. The way to do it is to use the power of democratic government to shift a massive amount of resources down to the bottom of the pyramid, where it will do a world of good.

    Reply

  34. MartinJB says:

    Dan Kervick (Apr 14 2011, 7:39PM):
    Your analysis isn’t entirely complete. As you point out, the cost of our debt service is relatively low compared to recent history. But it is going to go up. And it could go up substantially.
    Interest rates are low, especially at shorter maturities where most of the debt issuance has been of late. But those low rates at the front end (sorry, I’m a bond guy, so I speak bond lingo) are going to rise as the Fed prepares to start hiking policy rates and will continue to rise as the Fed tightening cycle persists. Thus, rates on two-year debt (for example) will likely be multiples of their current level within the next couple of years. So, as the shorter-maturity debt matures and has to be refinanced, it will be refinanced at higher and higher rates.
    Another reason rates will rise is supply and demand. As the amount of debt increases it is possible that demand will, at some point, be unable to keep up. This will force interest rates up. We are protected to a large extent by the fact that the US dollar is a reserve currency, which supports demand. But the need for reserves could flag. An exacerbating factor is concern about credit risk. As the debt piles up, worries will mount about the possibility of default, especially if politicians start playing chicken with the debt ceiling. Again, this can force rates higher.
    In sum, the total amount of debt does matter. Rates will go up, increasing the cost of debt service. The more debt we have, the more likely rates are to rise further and the more risk to the US when they do.
    At the same time, you are absolutely right that there has been some hyperbolic demagoguery over the amount of debt. It is highly unlikely that we will turn into the next Greece. But that is no reason to turn a blind eye to the very real risks.
    Sorry that went on so long….

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  35. Dan Kervick says:

    “At that point lenders lose confidence, forcing the government to pay higher interest rates.”
    But as you say, JohnH, Japan went through and way beyond the supposedly big 150% barrier without a problem. The lesson I would take is that what the credit markets really care about is both a demonstrated ability to pay and a demonstrated willingness to pay the agreed interest and coupon yields on their bonds. So long as these bonds are a sure thing, they’re going to buy them. Magic percentages seem no more significant than Mach One or the four minute mile, and other such impassible barriers of yesteryear.
    Now the United States has a clearly demonstrated ability to pay at current levels of debt and interest. So Republicans are, perhaps, trying to engineer a general populist unwillingness to pay among their impressionable and easily frightened constituents. They would like to convey the impression that the United States is an irresponsible borrower with an infirm commitment to paying its debts, so they can frighten investors into demanding a higher risk premium. If they can succeed in doing that, they will then try to declare victory by claiming that the bond buyers were frightened by the debt itself, and not by Republican caterwauling and threats the default intentionally. But of course, the only thing that will really scare away lenders is the feeling that people in responsible positions in government are debt bums.
    Let’s remember that Norquist-style Republicans don’t care about deficits or debt levels in themselves. What they really care about is the government. They hate it. They want to shrink its share of economic activity and turn almost everything it does over to the private sector and corporations. They want to cripple it for generations so that our children and grandchildren are tunable to mobilize their democratic resources to accomplish large public purposes.

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  36. Paul Norheim says:

    Well, that was the case one minute before I posted my
    comment. My last comment actually showed up on the
    frontpage, so perhaps it’s fixed now…

    Reply

  37. Paul Norheim says:

    Note to host: What is found on the front page is still not
    synchronized with the commenter-produced content on the
    actuall threads. On this thread, the problem is the opposite to
    on those below: here many comments are found on the
    thread, but not indicated on the frontpage.

    Reply

  38. DonS says:

    “Add two zeros! So be it. Raising the debt cap is nothing but kicking our problem further down the road, which means before you know it, others will have to burden an even bigger challenge.” (Pahlavan)
    You have drunken the koolaid and the koolaid is you.
    The “debt ceiling” is NOTHING except as turned into a something for political purposes. There are a score of significant financial markers that demand attention before going all wobbly about the debt ceiling.

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  39. JohnH says:

    DK–The debt/GDP ratio becomes relevant when debt gets “too high.” At that point lenders lose confidence, forcing the government to pay higher interest rates. Of course, higher interest rates have to be paid, typically by borrowing even more. Hence, a vicious cycle begins.
    My understanding is that point is reached when debt is somewhere in excess of 150% of GDP, although Japan exceeded that point without incurring problems.
    Today, US debt/GDP is 100%. This year’s debt will add another 11%. At the current rate of bleeding, the US debt could be in excess of 150% of GDP within five years. Then it would get interesting, to say the least.
    With military spending exploding and net medicare outlays growing at 7-8%, the annual budget deficit could actually grow beyond 11% of GDP, particularly if Republicans get their tax cuts or if Democrats succeed in getting additional stimulus. That would bring the 150% debt/GDP date forward.
    As much as I want to believe in stimulus, the fact is that we already have budget deficits (stimulus) amounting to 11% of GDP. And where has it gotten us? The economy is treading water, not deflating, but barely growing.
    Personally, I would like to see spending redirected from activities that have marginal growth multipliers (military spending, medicare profiteering) to activities protected from foreign competition that increase productive capacity–education, health care, and infrastructure.
    It’s easy to squander 10% of GDP blowing things up and occupying other countries, as we are doing today. I’d prefer to spend it on things that will actually create jobs in America.

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  40. DonS says:

    Coming in here very late I guess. I wonder what Brad DeLong thinks is an interest rate ‘spike’, since interest rates are currently almost magnetized in a very low trough. What duration is he talking about? And what makes him think that Repubs have any sense about bond financing beyond what their leaders instruct? Seems to me, the debt ceiling kabuki will be played out on multiple fields, and interest rate spikes will be far the lagging indicator behind simple Dow/nasdaq/s&p numbers.
    My personal opinion, the debt ceiling thing will fade from prominence to very low importance. The key will be getting MSM functionaries diverted in a bottle of good wine or single malt, depending on preference.

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  41. questions says:

    On the politics of the budget deal vote, which may very well presage the debt ceiling vote:
    “But it wasn

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  42. Dan Kervick says:

    The present-day deficit hysterics seem fixated on the debt/GDP ratio. However, at the OMB website you can find Table 15.5: Total Government Expenditures by Major Category of Expenditure as Percentages of GDP: 1948

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  43. questions says:

    On an issue like this one, it’s ALMOST nice to have a countervailing power against the House Republicans — in this case, it’s Wall Street!
    There are plenty of hints that the debt ceiling issue will be resolved in Wall Street’s favor.
    The real problem is that the Republicans have awakened a fringe of the party and have ceded to them far too much power.
    Congress doesn’t fare well as a steady and workable institution when there’s this much intensity in a faction. So the Republicans, having awakened and enlivened this faction, will pay for it by never actually being able to please them with policy.
    Two votes today, Planned Parenthood defunding and ACA defunding — they pass the House, they fail in the Senate. Will the Tea Party be happy with symbolic and basically empty gestures like this?
    We’ll see. And the debt ceiling issue will be a nice one! Especially since people will have to vote for it because the reversion point is what is unacceptable. Some Republicans will be tasked with breaking ranks, while the Tea-ist of the Tea Partiers will be allowed to vote against it.
    And they will all sweat a bit.
    I would love to watch the choreography of this vote!

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  44. DakotabornKansan says:

    Default Is Unconstitutional
    Remember when members of the House read the Constitution aloud in January?
    Thomas Geoghegan, writing at Politico, asks where did they

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  45. Pahlavan says:

    Nobody is suggesting that this imoral war should continue. We are a hawkish nation therefore the war will end only when the cash runs out, and putting a cap on debt will in fact take away a channel of unlimited cash flow that politicians rely upon to move funds around. And if this war was Bush

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  46. non-hater says:

    “Let the market drop 10,000 points if that’s what it takes to restore reality and moral wisdom back to this nation.”
    You want to induce the largest financial panic the world has ever seen in order to fix a problem that could mostly be solved much, much, much less painfully by ending Bush’s tax cuts and ending Bush’s wars? That’s… um, brilliant.

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  47. Linda says:

    “Many Americans think that if you just cap the debt ceiling, the American government will be forced to stop stacking up debts.”
    Unfortunately too many of those Americans are in the U.S. Congress!

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  48. DakotabornKansan says:

    Debt Ceiling and the Constitution
    Republicans are trying to force concessions out of the Democrats by refusing to raise the ceiling on the national debt, thus creating a technical default. There is a widespread belief among the Know Nothing Tea Party faction that a debt default is just what the country needs to force massive spending cuts. They mistakenly hold the belief that the budget could then be balanced because the government could not spend any more than the available cash flow from taxes would permit.
    It is the law that the US Government must pay its debt obligations. The debt ceiling is the result of statutory law passed by Congress.
    The Constitution, Article 14, Section 4 states:

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  49. Pahlavan says:

    Add two zeros! So be it. Raising the debt cap is nothing but kicking our problem further down the road, which means before you know it, others will have to burden an even bigger challenge.
    Our way of dealing with issues can be summed up to average american rate/tax payers getting mugged further or innocent families in other nations getting labled and bombed. Enough is enough! Let the market drop 10,000 points if that’s what it takes to restore reality and moral wisdom back to this nation.

    Reply

  50. JohnH says:

    If Congress doesn’t raise the debt limit, will the military be forced to stop bombing wedding parties and funeral processions in Afghanistan?
    Somehow I doubt it. There always seems to be a blank check for the military…

    Reply

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