Notes on the Debt Ceiling Debate

Notes on the debt ceiling debate:

Some market observers speculate that a downgrade would be a non-event: Japan, for example, went from a rating of AAA to AA without much drama. Others suggest that a downgrade would increase Treasury’s borrowing costs by $100 billion a year or more, making our already unsustainable deficit trajectory even worse.

There are no rules to define what is systemic and what isn’t — or to accurately predict the consequences of an economic shock. Each crisis is unique. How exactly it will affect financial markets, companies and our economy is impossible to know. Nonetheless, recent examples offer guidance.

In 2008, a number of once-cherished beliefs were turned upside down: (1) that home prices in America would never fall; (2) that AAA-rated subprime securities are money-good; (3) that a major investment bank would never fail. Consumers, investors and companies allocated capital according to these truths. When the beliefs were revealed to be false, massive shocks were inflicted on the economy as financial markets rapidly adjusted to account for these new risks.

Neel Kashkari's analysis of potential impacts for The Washington Post is worth a read. And as long as we're pausing to think about credit ratings, former Secretary of Labor Robert Reich offers up his own opinion thereof:

... Standard & Poor's has gone a step further: It says even if the debt ceiling is raised next week, it might still lower the nation's credit rating -- unless the deal also contains a credible, bipartisan plan to reduce the long-term budget deficit by $4 trillion. This is something neither Senate Majority Leader Harry Reid's nor House Speaker John Boehner's plans would accomplish.

Now I don't mean to be impertinent, but as long as America pays its debts on time, who is Standard & Poor's to tell America how much debt it has to shed and by when?

Until the eve of Wall Street's collapse in late 2007, S&P gave triple-A ratings to what turned out to be some of the Street's riskiest packages of mortgage-backed securities.

Had S&P done its job, we wouldn't have had the debt and housing bubbles to begin with. That means taxpayers wouldn't have had to bail out Wall Street. We probably wouldn't have had a Great Recession. Millions of Americans wouldn't be jobless and collecting unemployment benefits. There'd be no need for the stimulus that saved 3 million other jobs. And far more tax revenue would have been pouring into the Treasury.

In other words, had S&P done its job, the federal budget deficit would likely be far smaller than it is today -- and S&P wouldn't be threatening the United States with a downgrade if we didn't come up with a plan for shrinking it.

And why has S&P decided to get into public policy now anyway? Where was it when President George W. Bush turned a $5 trillion budget surplus bequeathed to him by Bill Clinton into a gaping deficit?

Of course, this is what happens when we play by marketplace rules intended not for the benefit of the marketplace, but, rather, those who wish to control it.

Best Political Cartoon I've Seen in a While

Who: Rainer Hachfeld
What: "Republican Descent To Hell", Cagle Post
When: July 28, 2011

Nothing I could possibly say would add to this:

Republicans Put the United States of America in Their Crosshairs

Who: Eugene Robinson
What: "Why progressives need a Big Idea", The Washington Post
When: July 28, 2011

Those who would chronicle events in Washington can find no richer source of analogy and metaphor than the Three Stooges. These days, I’m thinking of the times when an exasperated Moe, having suffered the indignity of an accidental spritzing or clobbering, turns to Larry or Curly and demands, “What’s the big idea?”

The premise of the debt-ceiling fight is too far-fetched for a Stooges film, since no audience could imagine leaders of a great nation stumbling into such a mess. Moe’s trademark line is still relevant, however, even if it’s not followed by the two-fingered poke in the eyes that our elected officials richly deserve ....

.... Conservatives are on a winning streak because they have a Big Idea that serves as an animating, motivating, unifying force. It happens to be a very bad idea, but it’s better than nothing — which, sadly, is what progressives have.

The simplistic Big Idea that defines today’s Republican Party is that taxes are always too high and government spending is always wasteful. Therefore, both taxes and spending need to be reduced.

That’s basically it. There are a couple of asterisks: Many conservatives, perhaps most, don’t consider the military a part of “government” per se and are more amenable to defense spending; and even a Tea Party freshman is more likely to keep an open mind about the publicly funded infrastructure project in his or her own district. There is also an overarching philosophy about the relationship between government and the individual, and some conservatives imagine a “return” to a Jeffersonian Arcadia that never was.

In terms of the ongoing rivalry between Democrats and Republicans generally, Robinson is absolutely correct that Democrats have no "Big Idea" to pitch to voters.

But I think the key word above is that Robinson is describing the simplistic Big Idea of the GOP. Consider what we have long heard from Republicans about government, taxes, and entitlement. And then consider what happens if that simplistic Big Idea comes true. The two conditions coincide.

To put it bluntly, the GOP is presently attempting nothing more than the destruction of the United States government.

Faffing About

Who: Mark Steel
What: "Time to inflict pain on the terminally ill", The Independent
When: July 27, 2011

How do YOU suggest we cut the deficit then? You'll be asked this if you ever oppose a cost-cutting scheme, such as merging the sewer system with the library service or something. So here's one answer, we could pay a bit less to ATOS, a company that receives £100m a year from the Government for assessing who should be cut off from disability benefit.

The method they choose is to interview each claimant, asking them a series of questions such as, "Do you look after your own pets?" Because clearly if someone can feed a hamster they're capable of driving a fork-lift truck. Another is "Do you cry?" If you do, you're probably told it's all very well being depressed but there's no reason why you can't get a job imitating actresses who've won an Oscar, or hiring yourself out to appear at funerals to make it seem the deceased knew more people than they did.

During this questioning the interviewer taps the answers into their computer, which makes an automatic calculation as to whether the claimant loses their benefit. This is so much quicker as a method of assessing health than the old-fashioned way of examining someone.

Hospitals should follow this example. Instead of faffing about with X-rays and stethoscopes, the consultant could say, "Which do you prefer, pizza or a curry? Who would you rather have to dinner out of Fearne Cotton and Dermot O'Leary? OK, let's see what the computer says – aah, you've got gallstones."

It's easy to say, "I'm glad I'm not English." And then we remember that we're Americans.

The Beautiful People (Literally, It Seems)

Who: The Hill
What: "50 Most Beautiful People for 2011"
When: July 27

Just in case you haven't had enough of Beltway gravity, The Hill presents the fifty most beautiful people in Washington, D.C.

No, really.

With bright blue eyes and an easy smile, Ferko laughs when asked for beauty tips. She notes moderation is the best policy, but she has her weaknesses — all things cheese.

“I eat anything that I want, but everything in moderation,” Ferko said.

She also loves to work out and travel, saying she takes “a bucket-list trip” every year with her husband, stopping in Istanbul last year to celebrate their five-year anniversary. That followed trips to Austria, Germany, Hungary and Russia in years prior.

Ferko still likes to play soccer when she can, but don’t expect to see her between the sticks.

“I took the gloves off and I’m not putting them back on,” she said.

That's number forty-eight. Jacqueline Ferko. "A keeper", according to Kevin Bogardus. Of course, it's all a play on words. Then again, what in politics isn't?