Here We Go Again - the Debt Ceiling Follies

The Republicans are gearing up for another go at the social safety net as a bargaining chip in raising the debt ceiling.  Of all the phony crises generated by this gang, this one appears to have the broadest appeal outside the wing nut faction.  People's memories being short and the number of safe Republican House seats being what they are, there's plenty of time for them to shut down the government before the mid-term elections.  Whether they have the stomach for another shutdown is anyone's guess.  Obama has said he will not negotiate policies based on the debt ceiling and so the stage is set.  Here for your enjoyment is everything you really need to know about the national debt. 


The US has been in debt every year since its founding with the one exception of 1835.  Public debt has been the norm, not only in the US but in nearly all countries, for the past 200 years.  The sad fact is that much of the public debt has been undertaken to finance wars. 


US public debt as a percentage of GDP (72.5%) is about in the middle of the pack - the world average is 64%.  Of the 10 largest economies, the developing BRIC nations (Brazil, Russia, India, and China) have a lower ratio.  The remaining nations in the top 10 - i.e., the large advanced industrial economies of Japan, Germany, Italy, France, and the UK- have a higher percentage of debt to GDP than does the US. 


The national debt, currently in the range of $17 trillion is not the same as the budget deficit.  The budget deficit is the difference between annual expenditures and revenues.  The national debt is the accumulation of the annual deficits plus bonds issued in support of wars.  The deficit for 2014, $514 billion, will be the smallest since 2007 - i.e., since before the economic collapse of the Great Recession. 


Basically, if Congress does not raise the debt ceiling, the US will either default on its debt (shorting its creditors) or not spend money on previously budgeted programs (stiffing its citizens). 


Until recently, raising the debt ceiling was a routine procedure.  It's been done about 90 times since 1917, when the debt ceiling was first defined.  From 1979 until Republicans gained control of House of Representatives in the 1994 elections, the ceiling was automatically raised by a parliamentary rule (the "Gephardt rule") whenever a budget was passed.


The most notorious debt ceiling debacle was in 2011, after Republicans took control of the House of Representatives.  The Dow Jones Industrial Average fell 2000 points over the July-August time frame after US credit rating was downgraded for the first time in its history.  (Hmm, are we seeing a trend here?)


The debt ceiling "crisis" exists because Republicans have chosen to make it so.  It can be solved immediately by the single step of going back to the Gephardt rule - automatically raising the debt ceiling when a budget is passed. 


If Congress can't bring itself to pass this common sense solution and must look other places to get our deficit and debt under control, here are a few suggestions.

• Increase the maximum earned income limit on Social Security. 
• Introduce another surcharge on household incomes over one million dollars but make it applicable to dividends and capital gains as well as earned income.
• Reduce wasteful and exorbitant military spending to pre-Cold War levels. In 2013 dollars this would be about 100 billion dollars - a savings of 500 billion dollars annually.  This step alone would just about wipe out our current deficit.

Useful links


America's Staggering Defense Budget [Washington Post, January 7, 2013 blog]


List of Countries by Public Debt [Wikipedia]

A World Cup Update & Waiting for Default

As we wait for the United States to default on its debt for the first time in its history in an incredible display of arrogance, extremism, and dysfunction, here's an update on an area of international interest to keep our mind off the coming debacle.  I'm talking, of course, about the 2014 World Cup qualifiers.  The first rounds in all regions are now complete and twenty one sides have qualified.  The remaining eleven slots will be filled in a series of home-and-home playoffs. 

Here are the teams that have already qualified for the 2014 World Cup Tournament:

- Graphic is from FIFA website

The remaining tournament teams will be selected by November 19 after a series of home and home playoffs. This is what it looks like:

Intercontinental playoff (SA-Asia): Uruguay vs. Jordan

Intercontinental playoff (NA,CA, Caribbean - Oceania): Mexico vs. New Zealand

Africa has completed Round 1 of its qualifiers.  The following 10 African teams are vying for the 5 slots allotted to the continent: Ghana, Ivory Coast, Nigeria, Burkina Faso, Cameroon, Tunisia, Algeria, Ethiopia, Senegal and Egypt.

Europe has completed Round 1 of its qualifiers. Nine teams have qualified. The eight best second-place teams from Round 1 will compete for the remaining 4 tournament slots: Greece, Portugal, Ukraine, Sweden, Romania, Iceland, Croatia, and France.

Default

Hopefully, the USA will come off looking better in the tournament than we do in the coming default.  The Party of Tea is an embarrassment to this nation and the effects of their actions, should the default occur, will affect other countries as well as our own.  A New York Times article from today describes the consternation of the rest of the world well: A common question crossing continents remains quite simple: The Americans aren’t really that unreasonable and self-destructive, are they?   'It just goes to show that it’s not only Greece that has irresponsible and shortsighted politicians,” said Ioanna Kalavryti, 34, a teacher in Athens. 'We’ve been held hostage by our reckless politicians, and the interests they serve, for more than three years now. I guess our American friends are getting a taste of the same medicine.'

One Week to Default

As the government shutdown enters its 10th day, we are more than halfway to the US defaulting on its debt for the first time in history.  Default is expected to happen on October 17 unless Republicans reverse their intransigence on raising the debt ceiling.  "In 2011, the last time we were in a major debt ceiling standoff, the U.S. lost its top credit rating, business and consumer confidence plunged and the impasse shook the stock market. All this, even though lawmakers ultimately reached a deal." [Huffington Post, Oct. 8]

This is all happening because Republicans want to stop Affordable Care Act.  "Obamacare", as it was been named by its detractors, reforms health insurance and extends affordable health insurance to tens of millions of Americans.  This law has been passed by Congress, signed by the President, and upheld by the Supreme Court.  In 2012, it (along with taxes on the wealthy) was the distinguishing issue in the Presidential election.  Guess what?  Obama won - by 5 million votes and overwhelmingly in the electoral college (332-206).  The campaign of lies and distortions against the Affordable Care Act [See this piece in Media Matters about 15 Myths perpetrated by the right-wing media] have managed to shake its acceptance with the public and the start-up computer glitches have made it more difficult to sign up for insurance with the health care exchanges. 

With Republicans refusing to budge and with the government shut down for the first time in 17 years, 800,000 government workers have been furloughed and the economy is losing $160 million per day.  Bad as all this is, what could happen if the government actually defaults?  Today, the NBC News website had an article by Jeff Cox that points out some worst possible outcomes:

• "Depression and Unemployment" - "Financial shockwaves, beginning at the Treasury and Federal Reserve, would make their way through banks and eventually blow a hole through the Main Street economy. Just as in the 2008 financial crisis, businesses would quit hiring amid the uncertainty."  Unemployment rate went from 5 percent in 2005 to 10 percent in 2009 as a result of the Great Recession.  Unemployment is currently at 7.3 percent.  We could ill afford another 5 percent on top of this figure.
• "Dollar down, prices and [interest] rates up" - "Among the biggest impacts could be mass selling of the U.S. dollar, an event that would threaten the greenback's standing as the world's reserve currency. That would pound consumers' buying power by boosting prices for everything from groceries to clothing to the gas we pump into our cars...homeowners and prospective homeowners would have to say goodbye to the low mortgage rates "
• "Down go your investments" - "Estimates among Wall Street analysts are the market would drop between 10 percent and 20 percent — with the upper end at what Wall Street defines as a bear market."
• "Social Security payments halt" -starting with the November 1 payment for the duration of the default.
• "Banking operations freeze up" - "If the Treasury and related securities were in default, one does not know what they would be worth," [banking analyst] Bove said. "Assume a Latin American valuation of 10 to 20 cents on the dollar and an estimated $1.28 trillion in U.S. banking equity would be wiped out."
• "Money market funds break" - "The $2.7 trillion money market industry operates on a basic premise: Millions of American depositors won't lose money."  Bove notes : "A Treasury default would make this virtually impossible and millions of Americans would lose billions of dollars."
• "Global markets walloped" - "Some of our biggest trading partners are equally rattled by the prospect of the U.S. defaulting on its debt. The International Monetary Fund this week warned that a default would push the U.S. economy back into recession and cause 'major disruptions' for global markets."

These are worst case scenarios but, considering that the United States has never in its history defaulted on its debt, do we really want to take a chance that none of these will occur?  All this to stop an already passed law that makes health care affordable and accessible to tens of millions of Americans.  What are these people thinking? 

They Just Don't Get It

The bargain struck by Obama and the Republicans averted a financial market disaster but at a price to the nation's well-being. 

Once again the compromiser-in-chief was outmaneuvered by the right wing and came away with nothing other than a debt ceiling increase that will keep the country running through the 2012 elections.  Good for Obama and the Republicans.   Good for the wealthy and corporations. 

Not good for the working class, the middle class, seniors, the unemployed, women and children who will be asked to shoulder the burden of the deficit reduction. 

Not good for the economy as Obama will have no ability to grow jobs by public works programs.  Not good for the economy because the totally discredited supply-side economics which haven't worked in 30 years continue not to work:  manufacturing level is now at its lowest level in two years and the Dow is down 46 points as I write this.  Basically the manufacturing data trumped the debt agreement.

It didn't have to be this way.  Obama could have invoked the 14th amendment and gotten a "clean" debt ceiling increase - just has been done for the past four decades.  Or he could have taken the trickle-down theorists to task - why not raise the income taxes on the wealthy and corporations and then provide income tax credits and payroll tax holidays to those who actually create jobs in the USA?  If trickle down/ supply side economics works then surely they should have no objection.  In the meantime we could use the increased tax revenues to provide more to those in our country who really need it and stop the continuing redistribution of national income to the wealthiest.  Half of our income goes to the wealthiest 10 percent.  Believe me - they can afford the increased taxes and still not go "mansionless".