Remember the “sequester,” the automatic budget cuts that were supposed to go into effect on January 2 but were kicked down the road to March 1? The result of last year’s agreement on the national debt and the recent “fiscal cliff” deliberations? Since the cuts would hit Republican causes (the Pentagon) and Democratic causes (social programs) alike, it was assumed that Congress would get rid of them. Well, it looks like they may go into effect after all. [Read more…]
House Republicans decided to adopt a “no drama” policy in regards to raising the debt ceiling:
A measure to suspend the nation’s legal limit on borrowing for nearly four months cleared a key vote in the House Wednesday, as Republicans broadly endorsed a new tactic that would temporarily remove the threat of a potentially calamitous government default from their ongoing fight with Democrats over government spending.
The measure, which would set aside the legal debt ceiling and allow the government to borrow as needed to meet spending obligations through May 18, was adopted on a 285 to 144 vote. [Read more…]
Factoid buried in a Washington Post graph caption:
The federal debt of the United States — including debt owed to the public and to parts of the government itself, such as the Social Security Fund — climbed to $15.22 trillion on Dec. 30. That marked the first time since the 1940s that the national debt was larger than the American economy, as measured by the gross domestic product. Since Dec. 30, the debt has increased an additional $4 billion.
Allan Sloan, an editor of Fortune, blames BOTH tea party conservatives AND the Obama administration for bungling our economic crisis:
What the hell is going on? We thought the worst was behind us, but it wasn’t, thanks largely to fallout from the Standard & Poor’s downgrade of U.S. credit brought on us by the incompetence of our alleged national leaders.
Only three short years ago, the world financial system was on the brink of disaster after Lehman Brothers went broke in September 2008. Those scary times seemed to have disappeared in the spring of 2009. But now, things are even scarier.
After the worst sell-off since the financial crisis, traders and passersby react to grim news about the stock markets and the global economy.
Our current mess is different from the Lehman-related horror because it stems primarily from politics, not economics. The previous fear-fest came about because Lehman’s bankruptcy disrupted financial markets in unanticipated ways. Today’s crisis was completely avoidable. You can blame it directly on the fools who brought our country to the brink of defaulting on its debts in the name of saving us from . . . I’m not sure what.
Yes, the tea party types bear primary responsibility — but they couldn’t have done it without the cowardice and incompetence of the Obama administration, which let things get way out of hand. This whole fiasco just enrages me. And it ought to enrage anyone who wants the United States to act like a real country rather than some third-rate failed state run by fanatical factions that hate one another. . . .[He goes on to detail why both sides are at fault.]
Now that I’ve finished venting, let me make one more attempt to be reasonable — and show how relatively easy it would be to solve our problems while allowing both the tea party and the left wing to claim victory and go home. This requires (1) that we survive the 2012 election cycle (boy, that’s going to be a blast) and (2) that the winners recognize that our current federal income tax rules and rates, Social Security benefit formula and Medicare provisions are historical and political accidents rather than holy writ handed down to Moses by the Lord on Mount Sinai.
We need more jobs, more growth and more tax revenue. Note that I said more revenue, not higher rates. There are lots of proposals kicking around that would cut rates, eliminate the alternative minimum tax and broaden the tax base by drastically reducing itemized deductions.
Only about a third of taxpayers, primarily higher-income types, itemize deductions, so only they would be affected. Do this right, and you end up with more tax revenue from high-income people (which allows the “tax the rich” types to be happy) but lower rates (which lets the tea party folks claim victory).
On the entitlement front, we modify Social Security and Medicare formulas, imposing higher costs on higher-end retirees (which would include me, should I ever retire). What’s in it for the right-wing fanatics? Those programs’ projected costs drop. For liberal wing nuts? They can claim victory because people are living longer than when these programs were introduced and will collect more benefits over their lifetime than originally intended.
Yes, rationality is out of style, and fanaticism is the new normal. But do we really want a national life like the one we’ve had the past few years? All shrieking and no thinking?
What do you think about his solutions? Tax reform that increases revenue, while lowering rates (pleasing liberals). Entitlement reform (pleasing conservatives). Is there any way politically to adopt that kind of centrist something-for-both-sides program?
The wild fluctuations of the stock market last week seem to be a reaction to the national deficit and the downgrading of American bonds. But, as financial analyst Liaquat Ahamed, points out, investors were dumping stocks and investing in government bonds, despite the downgrade and despite record low interest rates.
So, if financial markets aren’t worried about the full faith and credit of the United States, why is the stock market falling? An alternative view, most prominently expressed by New York Times columnist Paul Krugman, is that the markets have concluded, given the struggling economy, that budget cuts are precisely the wrong medicine for what ails us. The Obama administration was backed into a corner by the S&P downgrade and must now focus on cutting the budget deficit to the exclusion of all other policy objectives. Such austerity — whether achieved through spending cuts or tax increases — at this moment in the business cycle would only exacerbate a slowdown. In this reading, the stock market is preparing itself for the coming double-dip.
If this is the market’s message, what should we do? Instead of instituting deeper budget cuts and other austerity measures, the government should pursue the opposite: It should take advantage of the fact that it can essentially borrow for free to finance badly needed infrastructure investments. After all, our airports, roads and bridges are in need of urgent repair, and the extra investment would provide job opportunities and inject money into the economy.
Expect that to be the Democrats’ position, that we should stop worrying about the deficit and spend even more money to create jobs and get the economy going. Mr. Ahamed says, however, that this isn’t politically possible. Mainly because ordinary Americans saw the government bailing out big banks and corporations, but doing nothing to bail them out. He proposes a different kind of government activism aimed specifically at consumers and homeowners, which, I suspect, may also become Democratic proposals:
A large-scale government program to restructure residential mortgages and help households refinance underwater mortgages would reduce the debt overhang and support consumer demand. Most important, by channeling public money to help individual families, rather than Wall Street, this initiative could alter the political dynamics that currently doom any government efforts to jump-start the economy.
Can you answer this take on the economic problems and what government might do about them?
Congressional leaders have appointed the “Super Committee” tasked by the debt reduction deal to recommend spending cuts and bring the federal budget under control. There have been other such committees, of course, whose recommendations have been ignored, but this one has some clout: Its recommendations will be voted on with an up or down vote–rather than death by a thousand amendments–and if they get voted down, automatic cuts click in.
What do you know of these folks? Do you think they can solve the debt problem?
Rep. Jeb Hensarling of Texas;
Rep. Dave Camp of Michigan;
Rep. Fred Upton, also from Michigan;
Sen. Jon Kyl of Arizona
Sen. Rob Portman of Ohio;
Sen. Patrick J. Toomey of Pennsylvania
Sen. Patty Murray of Washington
Sen. Max Baucus of Montana
Sen. John F. Kerry of Massachusetts
Rep. James Clyburn of South Carolina
Rep. Xavier Becerra of California
Rep. Chris Van Hollen of Maryland