The Hidden History of the Debt Limit Hijack: Democrats Started It

By: David Dayen, Firedog Lake

Monday August 1, 2011 1:26 pm

I have a piece in the American Prospect today on five turning points in the debt limit fight. I think they’re actually in descending order of importance, and the biggest one is right at the top – this deal is the function of horrible economic stewardship in 2009 and 2010.

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There is one turning point I, because of space constraints, did not include in there. That happened at the end of 2009, when Evan Bayh, Kent Conrad, Dianne Feinstein, Mark Warner and Joe Lieberman threatened to not increase the debt limit if they didn’t get in place a fiscal commission that would recommend spending and entitlement cuts. That’s right, Democrats started the hijacking of the debt limit. Barely anybody remembers this, but it set the stage for the deal being voted on today.

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For the first time, perhaps in history, members of Congress tied spending cuts to raising the debt limit. This was the blueprint off of which John Boehner and the Republicans worked. The panel that Conrad wanted, along with Judd Gregg, would have had a mandate to reduce the deficit through spending caps, tax reform and entitlements, and would have submitted recommendations for an up-or-down vote without amendments or the possibility of the filibuster. That’s EXACTLY what’s in the bill being voted on today.

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At this point, President Obama, who had pivoted onto deficit reduction at the end of 2009, said he would by executive order put together the deficit commission. And so the original Catfood Commission was born. They’ve been talking about deficits in Washington, in the middle of a jobs crisis, ever since.

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The President could have stepped in at any time and shut that down. He could have told Conrad or Bayh to shut up and follow his lead. But this assumes that the President was against the whole idea of deficit reduction in the first place. We know he was not. In fact, all of these alternative solutions have to assume an actor in the White House who wanted to see a clean debt limit increase. It’s important for the public to know there were alternative, pushed by liberals and progressives, to what we see coming to pass today. But it’s just as important to recognize that nobody currently in power wanted to pursue them.

The WØRD- 8/1/11

The only way for lawmakers to avoid voter reprisals is by creating an anonymous Super Congress.  With the proposed Super Congress, only 12 lawmakers will have to make unpopular recommendations, and the rest of Congress can avoid blame.

Why yes, I am guest hosting TDS/TCR.  Thank you for asking.

Regular Features-

• Late Night Karaoke by mishima
• Cartnoon by ek hornbeck
• Countdown with Keith Olberman by TheMomCat

Featured Essays for August 1, 2011-

• One way to distract the markets by: gjohnsit
• The Military Veteran: No Revenue = No Sacrifice by: jimstaro
• And Now A Word From Our Sponsor by ek hornbeck
• On Speaking To Power, Or, When Sanity’s Gone, There’s Always Satire by: fake consultant
• House Not Selling? by: Lasthorseman

DocuDharma

Evening Edition is an Open Thread

1 China blames unrest on Pakistan-trained ‘terrorists’

By Marianne Barriaux, AFP

8 mins ago

Just to answer my rhetorical question from today’s Monday Business Edition, things are very bad indeed.  I particularly like this piece because it’s got lots of crunchy numbers.

Recession Took Bigger Bite Than Estimated

By Alex Kowalski, Bloomberg News

Jul 29, 2011 8:30 AM ET

Gross domestic product shrank 5.1 percent from the fourth quarter of 2007 to the second quarter of 2009, compared with the previously reported 4.1 percent drop, the Commerce Department said today in Washington. The second-worst contraction in the post-World War II era was a 3.7 percent decline in 1957-58.

Meaning this is the worst since the Great Depression.

(T)he jobless rate doubled, climbing from 5 percent at the start of the downturn to a 26-year high 10.1 percent in October 2009. The strongest quarter of the recovery is now the first three months of last year. Growth decelerated every quarter thereafter.

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The improved GDP reading for 2010 belies a marked slowdown over the year. After expanding at a 3.9 percent annual pace in the first three months, now the strongest quarter of the recovery, growth cooled until reaching a 2.3 percent rate from October through December.

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The economy expanded at a 1.3 percent annual rate from April through June of this year, less than forecast, the Commerce Department’s advance report for the second showed. Growth in the prior three months was revised down to 0.4 percent from 1.9 percent. … GDP has yet to surpass the pre-recession peak.

So what’s a State or Community to do to create economic growth?

How about host a Nuclear Waste Dump?

Volunteer Towns Sought for Nuclear Waste Sites, Panel Says

By Brian Wingfield, Bloomberg News

Jul 29, 2011 5:07 PM ET

U.S. communities should be encouraged to vie for a federal nuclear-waste site as a way to end a decades-long dilemma over disposing of spent radioactive fuel, a commission established by President Barack Obama said.

A “consent-based” approach will help cut costs and end delays caused when the federal government picks a site over the objections of local residents, the Blue Ribbon Commission on America’s Nuclear Future said today in a draft report to Energy Secretary Steven Chu.

Did you hear that?  Blue Ribbon!  How could they recommend anything bad?

The 15-member commission set up by Obama in 2010 is weighing options for disposing of waste from U.S. nuclear power plants. Chu named the panelists after Obama canceled plans to build a permanent repository at Nevada’s Yucca Mountain, about 100 miles (161 kilometers) north of Las Vegas. The Yucca site was opposed by politicians from the state, led by Senate Majority Leader Harry Reid, a Democrat.

The panel recommended that a new federal corporation run the disposal program, taking over the task from the Energy Department. It also called for designating permanent and interim storage sites, supporting research and overhauling the Nuclear Waste Fund, which has $24.6 billion from fees paid by utilities.

And they’re going to privatize it!  No icky bureaucrats.  What could possibly go wrong?

Japan’s nuclear disaster this year focused new attention on the issue. Tokyo Electric Power Co.’s Fukushima Dai-Ichi plant suffered meltdowns and radiation leaks after a March 11 earthquake and tsunami, prompting concerns about the safety of spent fuel in cooling pools.

So we’re going to concentrate it!  Too bad for you New Mexico.

The Blue Ribbon Commission cited as a “success” the U.S. Waste Isolation Pilot Plant near Carlsbad, New Mexico, which has accepted and disposed of some defense-related nuclear waste for more than a decade. The defense-waste plant shows that “nuclear wastes can be transported safely over long distances and placed securely in a deep, mined repository,” the report said.

With the right incentives, “there will be a great deal of support” for a waste site near the New Mexico facility, former Senator Pete Domenici, a Republican from the state and panel member, said in an April 19 interview.

Who needs caves when you have Barack Obama in charge?

Herr Doktor Professor–

What Would I Have Done?

August 1, 2011, 11:01 am

I would have made a statement declaring that giving in to this kind of blackmail would constitute a violation of my oath of office, and that my lawyers, on careful reflection, have determined that there are several legal options that allow me to ignore this extortionate demand.

Now, the Obama people say that this wasn’t actually an option. Well, I hate to say this, but I don’t believe them.

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It’s much, much too late for Obama and co. to say “Trust us, we know what we’re doing.” My reservoir of trust is now completely drained. And I know I’m not alone.

Where’s My Relief Rally?

August 1, 2011, 11:05 am

Weren’t we supposed to have a big rally in the stock market now that the threat of default was past and our deficit was on the way to being solved?

Um, well.

Dow down 77 at the moment. And long-term interest rates – a barometer of hope or lack thereof in recovery – have fallen to 2.73 percent.

Mr. Market is apparently underwhelmed.

Meanwhile, in the Global Economy

August 1, 2011, 11:37 am

Bad news all over. In the US, Manufacturing growth hits lowest level in 2 years. In Europe, my favorite current indicator of the eurozone crisis, the Italy-Germany bond spread, has blown out again. And while part of this is due to falling German rates – which, like falling US rates, reflect growing pessimism about growth – the Italian bond rate is once again at 6 percent, a level that invites a self-fulfilling debt spiral.

Oh, and in Britain, poster child for wonderful expansionary austerity, we have this:

For the fifth consecutive month, the manufacturing sector has disappointed expectations. In the past six months, the headline composite index has crashed by 12.5 points, a record only exceeded post-Lehman in 2008. Output has been slightly better behaved over the past few months, but July’s 2 point decline to 50.6 leaves it slightly below May’s trough. Worryingly, the temporary supply-chain disruptions that depressed output in May appear to have eased, indicating that July’s weakness might be more structural.

I’m so glad we have a deal that will bring the confidence fairy to our rescue!

If I Were In The House

August 1, 2011, 11:55 am

I guess I have to be explicit at this point: yes, I would vote no.

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(T)he people who claim that terrible things would immediately happen in the markets also claimed that there would be a big relief rally once a deal was struck. Not so much: the Dow is down 121 right now.

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(T)he idea that a temporary disruption would permanently damage faith in US institutions now seems moot; if you haven’t already lost faith in US institutions, you’re not paying attention.

This guy knows nothing.  It’s only a fucking Nobel Prize in Economics.

Barack Obama has a Peace Prize!  So there.

Monday Business Edition

G.D.P. Shocker: U.S. on Verge of Double-Dip Recession

Posted by John Cassidy, The New Yorker

July 29, 2011

When healthy, the American economy grows at an annual rate of close to three per cent. The Commerce Department’s latest report on the gross domestic product (pdf) shows that between April and June, it expanded at an annual rate of 1.3 per cent, and between January and March it grew at an annual rate of just 0.4 per cent. The first-quarter figure is particularly stunning. Previously, the Commerce Department had estimated growth in the period at 1.9 per cent. What is to prevent a similar downward revision to the second-quarter figures? Nobody can say.

Consumer spending, which is the driving force of the American economy-it makes up more than two thirds of G.D.P.-has stalled badly. After expanding at an annual rate of more than two per cent for the previous year and a half, it was essentially flat in the second quarter. Unless consumers spend more readily in the second half of the year, there is no prospect of an economic rebound. But with gas prices still high, unemployment ticking up again, and their elected representatives in Washington paralyzed, it seems unlikely that American families will be flocking back to the malls anytime soon.

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Retail sales hardly grew at all in June. Wall Street analysts who had been predicting growth of close to three per cent for the rest of the year are now busy trimming their estimates. Industrial production, the other item that the N.B.E.R. watches closely, has also been showing weakness. The Fed’s index of industrial production declined slightly in April and May, before rising slightly in June. Manufacturing, the biggest component of industrial production, had its weakest quarter since the previous recession ended in mid-2009.

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In one sense, the new G.D.P. figures are even worse than they seem. Bear in mind that they are all annualized. This means the government statisticians take the actual growth rate in the quarter and (roughly speaking) multiply it by four. Reversing the process (dividing by four) reveals that the economy expanded by just 0.1 percent in the first quarter and by roughly 0.3 per cent in the second quarter. These figures are so small as to be trivial.

Zandi (no Keynsian he) has predicted a loss of 1.1 million jobs from current policy, an analysis reinforced by Goldman Sachs.

We know what happens from implementing austerity policies in a Lesser Depression from the examples in Britain-

British Economy, After Austerity, at Zero Growth in the Past Nine Months

By: David Dayen, Firedog Lake

Tuesday July 26, 2011 8:15 am

What’s amazing about this debt limit debate, and the headlong rush to austerity, is that we have empirical evidence of what can result, in this kind of economy, when you massively roll back spending. We even know what happens when you do that amid the threat of a debt downgrade rather than the fundamentals of the financial markets. All you have to do is look to Britain, which has never been the same since their austerity package was unveiled by the Tories.

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Britain rolled back demand during a time when the economy was already weak, and they are suffering through the consequences. Instead of looking at this as a problem to be avoided, US policymakers are on the verge of emulating it. And not even in a good way: the British plan was at least somewhat balanced, with tax increases along with the spending cuts. This shows that the idea of a “balanced approach” is still flawed, because either way, you’re reducing demand during a time with a demand shortfall.

And in States–

Conservative Budget Cuts Bad for State Economies

• Bigger State Spending Cuts == Higher Unemployment Rates
• Each 10% Cut == .04% Increased Unemployment
• Bigger State Spending Cuts == More Private Employment Losses
• Each 10% Cut == 1.6% Lost Private Employment
• Bigger State Spending Cuts == Weaker Economies
• Each 10% Cut == 1.6% Economic Contraction

State spending data are adjusted for inflation using the GDP price index. National changes have been removed from data on state unemployment rates, private payroll employment, and inflation-adjusted GDP growth to more clearly identify state-level economic performance. The analysis in the three charts weights each state’s data by population size to give a better reflection of a national average effect of cutting state government spending on economic performance. Weighting the analysis as such does not materially change the significance or size of the effect of cutting state spending.

AUSTERITY DOES NOT REDUCE THE DEFICIT OR DEBT!

Sure Cure for the Debt Problem: Economic Growth

By CATHERINE RAMPELL, The New York Times

Published: July 30, 2011

Before its economy crashed, Ireland was a star of this sort of debt reduction. In the 1980s, Ireland’s debt dwarfed its economy. Over the next two decades, though, that debt shrank to about a quarter of gross domestic product, largely because the economy went gangbusters.

“Ireland went from being, you know, the emerging market in a European context, to a very dynamic economy,” says Carmen Reinhart, a senior fellow at the Peterson Institute for International Economics and co-author of “This Time Is Different,” a history of debt crises.

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The same happened during the prosperous 1990s, which began with deficits and ended with surpluses. Former President Bill Clinton is often credited for that turnabout, as he engineered higher tax rates. But most economists attribute the surplus years primarily to extraordinarily rapid growth.

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While it may be difficult or impossible to grow our way out of debt, the G.D.P. figures announced on Friday suggest that we could quite possibly shrink our way into bankruptcy. The austerity measures that Congress is debating would almost certainly slow growth further. That, in turn, might actually worsen the debt problem – the exact opposite of what their proponents suggest.

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The problem is that reducing spending or raising taxes just now would hurt the already fragile economy. Another recession would not only be painful for ordinary Americans but would actually worsen the debt problem by reducing tax revenue.

Don’t believe it? Consider this: Of the $12.7 trillion in additional federal debt that was accumulated over the last decade, about a third came from the souring economy.

Back in the Great Depression, Washington tightened its belt with disastrous results. Congress severely reduced spending in 1937, plunging the economy back into the hole. Ultimately, that meant even more federal borrowing.

Leaving aside the moral bankruptcy of starving the poor and elderly to death while leaving the wealthiest one tenth of one pecent untouched and accelerating their robbery of the middle class, this is bad, bad, bad economic policy.

And Barack Obama and the Democrats know it.  The People know it too.

Obama Approval Drops to New Low of 40%

Similar to his approval rating for handling the debt ceiling negotiations

by Jeffrey M. Jones, Gallup

PRINCETON, NJ — President Obama’s job approval rating is at a new low, averaging 40% in July 26-28 Gallup Daily tracking. His prior low rating of 41% occurred several times, the last of which was in April. As recently as June 7, Obama had 50% job approval.

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Though Americans rate Obama poorly for his handling of the situation, they are less approving of how House Speaker John Boehner and Senate Majority Leader Harry Reid are handling it. Gallup does not include ratings of Congress or congressional leaders in its Daily tracking, and thus, there is no overall job approval rating of Boehner, Reid, or Congress directly comparable to Obama’s current 40% overall job approval rating.

Obama’s job approval rating among Democrats is 72%, compared with 34% among independents and 13% among Republicans. In the prior three weeks, his average approval rating was 79% among Democrats, 41% among independents, and 12% among Republicans.

Americans’ Ratings of the Economy Also More Negative Amid Stalemate

The debt crisis may be contributing to a generally sour mood for Americans that stretches beyond political ratings. For example, Gallup’s Economic Confidence Index, which is also tracked daily, averaged 49 July 2628, down 8 points in the last week and down 19 points since early July. The current index score is the worst Gallup has measured since March 2009.

The index consists of two questions, measuring Americans’ ratings of current economic conditions and their assessments of whether the economy is getting better or worse. Currently, 52% say economic conditions are poor, the highest since August 2010. And 75% of Americans say economic conditions are getting worse, a level not seen since March 2009.

Electoral victory my ass.

Regular Features-

• Late Night Karaoke by mishima
• Six In The Morning by mishima
• Cartnoon by ek hornbeck
• Pique the Geek 20110731: Yeasts, Interesting Beasties by: Translator

Featured Essays for July 31, 2011-

• The (T)’s Continue the "Screw You" to Soldiers/Vets and Families of by: jimstaro
• Congressional Game of Chicken: Countdown to Default (Up Date x 3) by: TheMomCat
• Meanwhile by: jimstaro
• The death penalty for flirting (aka gay panic) by: Robyn
• The Wealth Gap by TheMomCat

DocuDharma

Evening Edition is an Open Thread

1 Burglars hunt down rhinos in museums

By Laurent Thomet, AFP

14 hrs ago

I told you most of what’s worth knowing yesterday.  Since then there’s been a lot of pushback from British Formula One fans on the BSkyB deal but Bernie seems to be exploiting a loophole in the Team agreement that says that as long as some of the the races available on free TV the teams can’t block it.  On the other hand there is no real team agreement, just a temporary letter of extension that expires at the end of the season and the sponsors, who are in this for the advertising are pissed, and they have deep pockets.  Bernie is tring to buy them off with a $1.7 million cut each from the $680 million deal.  Like the New York Times paywall, Bernie’s last experiment in Pay TV in the 90s had to be dropped because it was just flat out unprofitable.  He couldn’t deliver the audience.

Teams are also asking for a rethink of the 2012 Schedule because it has 7 races in 10 weeks.

You’re going to get sick of the phrase “Monaco without the houses“, but there’s no denying the 2.73 mile track is twisty with lots of elevation change and no long straights.  This is thought to disfavor the Red Bulls which won’t be able to show their speed.  Teams will be running their big high down force wings that we haven’t seen since the Principality (though they’ve been re-engineered) and McLaren is thought not to have as effective a Drag Reduction System as some.  Red Bull is having difficulties of their own charging their KERS electric boost system which sucks so much energy out of the cars that it’s effecting brake balance and causing slips and spins.

It’s also usually very hot which will stress engines, brakes, and tires, tires, tires.  You’ll hear a lot about tires since they were decisive at Nurburgring with McLaren doing exceptionally well on stop times and Hamilton extracting unexpected performance out of the harder compound to thwart 2 passing attempts by Red Bull and Ferrari.  Given the speeds (actually slower than Monaco) there is a one pit strategy possible despite the Super Soft compound.  Still, the alternate Softs are not much different in performance and while Buemi and STR may fancy themselves clever by saving all 3 sets of the Supers in Qualifying given their 5 position penalty (for which they got a bad rap in my opinion, I think the replays show Heidfeld is just as responsible) there might not be enough race to use them all up before they are forced to switch to the just plain Softs.

The Silverstone and Nurburgring results didn’t change the standings as much as the announcers would have you believe.  The Driver’s Championship is a 3 way tie for second between Hamilton, Webber, and Alonso.  In the Team competition once again McLaren failed to finish both of its cars.

Your half hour of hype starts at 7:30 am on Speed.  Rebroadcast 4:30 this afternoon.  I want to once again encourage you to read this great piece on the 1936 race.  My last year’s coverage is here and here.

• F1: Hungaroring Qualifying
• Formula One Official Site
• Speed Racecast

This is the 11th race of 19 and the last before the summer break.  We will resume August 27th in Spa.

Pretty tables below.