(6 pm. – promoted by ek hornbeck)
That’s right. I don’t know in what world some people are living in, but they should pay attention. Yes they should actually pay attention to what Grover Norquist is saying and how much these stupid debt ceiling crisis I predicted are playing into his hands. (h/t Addison)
And so this constant state of crisis and delayed/short term appropriations are going to be official soon.
The Republican-led House today passed a bill to “suspend” the nation’s debt limit until May, which if passed by the Senate and signed into law, would stave off for a few months the risk of letting the U.S. government default on its loans.
House Democrats, meanwhile, grumbled that the short-term bill amounts to political gimmickry that keeps Washington in crisis mode.
“The premise here is pretty simple,” House Speaker John Boehner said on the House floor. “It says there should be no long-term increase in the debt limit until there’s a long term plan to deal with the fiscal crisis that faces our country. Every hardworking taxpayer in America knows that they have to do a budget. Every hardworking taxpayer understands that you can’t continue to spend money that you don’t have.”
House Democrats also complained that the bill prolonged the debate over the debt limit rather than solving it.
“The good news is that our Republican colleagues finally realized that America should pay its bills and dropped their condition that that be matched by cuts,” Rep. Chris Van Hollen, D-Md., said in a news conference. “The bad news is they’ve decided that America only needs to pay its bills for three more months.”
Yes, even when that 3 month suspension becomes a raise only every few months more down the line it won’t be close to normal standard procedure as some have tried to claim. This is true for a number of reasons; past raises of debt ceilings were never crisis showdowns and always were routine until Obama put them on the table as something to be negotiated. So given the completely different context comparing past debt ceiling raises to now I needn’t go any further, but I will. What happened in 2011 was unprecedented and we are still dealing with the fallout right here and right now. It almost happened to former President Bill Clinton in the 90s but even Jonathan Chait admits Clinton was much more politically savvy in dealing with it than Obama so it was averted.
Leading up to the post WWII boom from 1940-1945 during FDR’s last term there was one debt ceiling raise a year. Then when Truman became President he was savvy enough not to leave it or raising taxes on the rich to fund things instead to the GOP in Congress in sellout deals just to pass routine measures. Also LBJ prevented that from occurring from 1964 to 1967 when there was one debt ceiling raise a year and even one for two years from 1967-1969; these were all years of serious spending and public investment appropriations; the creation of Medicare and the Great Society could not have been possible under this modern political travesty across the political spectrum. FDR, Truman, and LBJ were real leaders who knew how to handle Congress and their threats.
Of course I relate all of this from the past to now thus assuming Obama didn’t want this to happen, but one now has to wonder if Obama actually wanted this crisis. After all, he is rejecting the only two solutions for getting out of the mess he made via the fully legal Platinum Trillion Dollar Coin leading to High value Platinum Coin Seigniorage and invoking the 14th amendment but I shouldn’t need to explain that again. Back during this whole mess in 2011 President Obama threatened to veto a clean debt ceiling raise unless the dumb-ass sequester would be put in. You know, because austerity is awesome in a prolonged period of high unemployment, higher real unemployment, and rising poverty.
Not to people who really care about such things of course, but you get the idea; the delusion that we live in the 90s and there are such things a confidence fairies and bond vigilantes wanting balanced budgets to get serious about for their investments, which is nonsense BTW. Yeah, because that is what’s important instead of real people suffering needing real resources. Nope. And because people need real resources they need income to get those resources and spending is income for all of them. And we need more spending since the bust of the Housing bubble to the this net jobless recovery than we are currently outputting.
So basically in order to excuse having to pay off Congressional appropriations every few months as “normal” one would have to assume that it would have been no problem for Congress to pass portions of the American Recovery and Reinvestment Act of 2009 each quarter even though it barely passed as it was. And from that example, one would truly hope some people would understand that you can’t authorize or pay for the kind of spending appropriations needed for any real long term good this way. And since debt ceilings have now become legislation fights like the ARRA was we can loosely compare them that way even though the stimulus was just an appropriation that would be paid for over the years by each bi-yearly and then yearly debt ceiling; a badly needed one that helped, but one that wasn’t up to the task.
You get the idea. This is a failure, a massive one. I said so multiple times in 2010 and 2011 and that it would lead to this.
I’m not the only one who has noticed this. The failure that just keeps on being extended amounts to a United States of Crisis to Crisis causing permanent damage. (h/t bobswern)
Congressional Republicans “are determined to try to take advantage of what they believe to be the leverage afforded by these deadlines to force policy changes they could not get through normal politics,” said Ronald Peters, a political scientist at the University of Oklahoma’s Carl Albert Congressional Research and Studies Center. “Once the president and Congress begin to think in terms of leverage points instead of policy, the whole system gets out of kilter.”
It also gets costlier. Unable to agree on annual spending bills to fund the government, Congress and the president have settled for stopgap measures — known as “continuing resolutions” — that do little more than maintain current budget levels and breed inefficiencies within agencies.
According to estimates prepared by the House Appropriations Committee, the failure to enact a full-year spending measure last year meant, for instance, that the Defense Department couldn’t award a five-year contract for the CH-47 Chinook Helicopter that would have saved the agency $423 million or a multiyear contract for the V-22 Osprey tilt-rotor aircraft that was projected to save $762 million because the negotiated pricing agreements expired in December.
Reforms to an affordable housing program estimated to save taxpayers $300 million were also pushed off, according to the panel, while U.S. Customs and Border Protection was left with a $315 million shortfall for salaries and expenses that could harm efforts to guard the nation’s borders.
You see failing to enact a full years’ spending measure is not something routine or desirable that we can look back on to now as no big deal as some have tried to claim. when the government has to spend for longer periods because of the damage left over from the downturn of the housing bubble as well as the fact that government just doesn’t work well this way it shows that there are really no excuses. Short term appropriations mixed with every short term crisis every few months because of political malfeasance is an example of our government as a whole not being able to govern.
This system is not well designed as it is, but when we have politicians looking to preserve its worst elements by rejecting the only real solutions to this self induced political debt ceiling and austerity crisis it shows a form of entropy. There is too much at stake to keep this circus rolling. This what must change about our system. This is a long piece from Dan Kervick at NEP, but one of the best I have read in a long time. It gets to the heart of the matter of what needs to change about our fiscal and monetary system operating together properly instead of failing the American people like the politicians who refuse to change it.
The fundamental point here is that in its decisions about currency issuance and bond issuance our hypothetical government follows Abba Lerner’s Second Law of Functional Finance:
LL2: The government should borrow money only if it is desirable that the public should have less money and more government bonds, for these are the effects of government borrowing.
The use of the term “borrowing” is actually quite misleading in application to a currency-issuing government. To say the government borrows money only means that it issues bonds and exchanges the bonds for currency that the public already holds, currency that was itself issued earlier by the government. Lerner’s point is that the government should carry out these swaps only if it sees a public policy interest in swapping interest bearing bonds for non-interest-bearing currency. Since the government issues the national currency, it can never have the problem of being unable to redeem its IOUs, since it can always simply issue the currency it uses to redeem the bonds.
Notice that for our hypothetical currency-issuing government the decision about whether to issue bonds and swap them for currency while running a deficit is strictly a policy option. The government doesn’t need to borrow to run a deficit, and always has the option of simply spending more currency into the private sector than it taxes out of the private sector, in effect creating and issuing currency in the process. It doesn’t need to finance the deficit by acquiring the additional money from some external source, since the government itself is the source of the currency. If the private sector economy is stagnating, and running below capacity with high unemployment, the option of deficit spending without further borrowing might prove best.
Now suppose our imagined government wishes to run a deficit during a given period of time, and voluntarily makes the decision to issue new debt to accumulate back from the public sector a total amount of currency equal to the gap between spending and tax revenues. We’ll say that the government is in that circumstance operating a bond-driven deficit. With bond-driven deficit spending the net amount of currency held by the non-governmental sector does not change. However, the total value of government-issued financial assets held by the public does increase by an amount corresponding to the value of the bonds that are issued. Suppose instead, however, the government carries out its deficit spending in such a way that none of the gap amount is offset by bond sales – it simply spends more into the economy than it taxes out of the economy. In this case we will say that the government is running a currency-driven deficit. With a currency-driven deficit, the quantity of currency held by the public increases, while total value of the bonds held by the public does not. Obviously, our imagined government can operate deficits that fall on a spectrum between the two extremes of a bond-driven deficit and a currency-driven deficit.
Thanks to our Representatives in all branches being essentially unable to govern and a central bank unaccountable to the public, our system is being constrained politically even though it has very little real constraints operationally except for politics. There is very little reason to tie spending to issuing new bonds so the elites in our society that essentially own the bond market can lend us our own money and get paid interest off of it. We can spend using a currency driven deficit and manage wealth that is automatically created for the private sector through these deficits. We can do this while managing government created financial assets on a lesser level to set interest rates per one of the only uses not useful at the moment.
So essentially this is our system’s capacity should we be smart enough to realize it and use one of the only two real solutions(high value PCS) to get around the political malaise we are in; especially with a do nothing Congress set for the horizon thanks to Dems revealing that most of them actually like the filibuster and didn’t really care about our concerns. It can’t be said that there are no solutions. There is just no will.
There is no honesty in Washington DC. They are deluded themselves into thinking this crisis to crisis mode won’t have massive damage. And anyone else making excuses for a general lack of governance is also deluded into thinking a system works with broken levers.