Tuesday, July 26, 2011

A couple of minor and obvious debt crisis observations 

A couple of fairly obvious debt crisis observations that nevertheless I have not seen elsewhere:

1. There is an argument popular in liberal circles that because the United States is virtually alone in requiring a separate political process to raise the authorized national debt we should change our system. The objection is that our system allows for the making of political mischief after the actual budget is done and legislated. There are, however, at least two reasons why that argument is not quite so brilliant as the big government liberals propose.

First, the other rich countries with the supposedly better approach to debt have parliamentary systems. The executive function is a mere extension of the legislature, so an incremental check makes no theoretical sense. In our system the executive branch is an entirely different source of power. It issues bonds, collects taxes, and coins money, but in each case only with the particular authorization of the legislative branch, the power of which countervails the executive. It is entirely reasonable for the legislative branch to put in place whatever mechanisms it deems reasonable to ensure that the executive branch does not act without authorization. Indeed, given the history that presidents of both parties have blown off both the Congress and the Constitution when circumstances warrant, a clear law to confine the President in the matter of burdening our posterity seems like a damned good idea.

Second, corporations that raise money by multiple means and regular issuance (such as in the commercial paper market) often if not almost always operate within an overall debt limit that has to be raised by the board in order for the management to raise more debt than authorized in the aggregate. Why? It is considered good governance for the board to assess and cap the aggregate debt that the corporate can incur, even if the board does not authorize each individual borrowing. That way, the corporation can act flexibly, taking advantage of favorable borrowing opportunities that might come along on very short notice, even as it operates within a budget approved by the board and under a debt limit imposed by the board. Well, if those practices are good governance for public companies, should they not also be true for governments?

2. Judging from the president's speech last night and all the bleating from the press, the freshmen Republicans are nuts, or at least profoundly unreasonable, for sticking to their convictions in the face of a widespread belief in Washington and probably elsewhere that they should "compromise." Hence their unpopularity among establishment politicians of both parties. It seems to me, though, that Washington's "problem" with the freshmen Republicans is precisely that many of them do not care if they are re-elected. They are amateurs doing what they think is right, acting in accordance with the commitments that they made in the campaign, damn the torpedoes. Annoying that might be, but isn't that exactly how big government romantics of all stripes, and especially in the press, believe that politicians ought to behave?

Release the hounds.


By Anonymous Anonymous, at Wed Jul 27, 12:07:00 AM:

I just watched five minutes of Bill Maher and Lawrence O'Donnell bitterly criticizing Obama for not holding to his guns. I also watched Fox interviewing several GOP politicians going after Boehner, essentially on the same grounds.

If "compromise" means everyone goes away from making a deal angry, then we are probably getting close.  

By Anonymous E Hines, at Wed Jul 27, 08:27:00 AM:

freshmen Republicans...acting in accordance with the commitments that they made in the campaign....

It is a measure of Obama's integrity and that of the Progressive Congressmen that they insist that commitments be broken so that business as usual can be done.

It is a measure of the NLMSM's integrity that they decry Conservative Congressmen for keeping their commitments while hailing Progressives who "hold to their guns."

Eric Hines  

By Blogger dmoelling, at Wed Jul 27, 08:52:00 AM:

What is interesting is that with reduced federal income (crappy economy) it is subsidies to state and local governments that are the real protected entitlements under Obama. This is despite all the talk of Social Security and Medicare being the problems. In CT our deep blue Governor is fighting with the State Employee unions for concessions but not touching aid to cities or Medicaid. This means the Teacher Unions and SEIU (nursing homes) are calling the shots.  

By Anonymous Ignoramus, at Wed Jul 27, 10:20:00 AM:

1) You link to Arianna Huffington, who suggests that if we were only more like Europe we wouldn't have a debt crisis.

2) We have divided government at the moment. Usually that's a good thing, or at least preferable to what we just had: nearly fillibuster-proof Democratic control.

The freshman House Republicans are in office for a reason. O&Co didn't want to get the message that was sent in November 2010.

Obama is quite good at community organizing. His most recent nationwide address was intended to hit all the Tea Party buttons. It was an invitation for folks like me to call their Congresscritter to rant -- thus only hardening positions among House Republicans.

Obama doesn't want a House bill to pass. That's his short-term priority. If the House puts a bill to the Senate, then blame falls more squarely on the Democrats. If it doesn't the House Republicans split apart.

Obama doesn't want a deal on the debt ceiling, at least not in July. He wants a crisis he can manipulate.

I put the odds of seniors missing at least one check as better than 50 / 50.

A USA downgrade probably won't result in a sell-off in Treasuries in the near-term. There's nowhere else for money to go. But it may have significant second- and third-order effects, as other debt get downgraded in lock-step.

Does anyone disagree?  

By Anonymous jt, at Wed Jul 27, 10:37:00 AM:

I was so torqued I couldn't watch any more of what Boehner said in response, which should have been "the President is lying", but if seniors miss any checks, or any of the other priority payments are NOT made, then I certainly hope the GOP makes that crystal clear to Americans. It would be inexcuseable.

I figured Boehner was at least on all the other non-Fox news feeds, and he had the opportunity to put the real talking points out there: We are operating as a federal government making all the same mistakes that drove individuals to bankruptcy, foreclosure, crisis ... why? and, we HAVE sent budgets to Obama, and some sound ideas, and they've been vetoed.  

By Blogger Georgfelis, at Wed Jul 27, 10:42:00 AM:

"Obama doesn't want a House bill to pass." I would add “In the Senate” The Dems have gone absolutely insane, they demand we increase taxes in the middle of a recession and no amount of logic can sway them from their idiocy. Lemmings.

I put the odds of seniors missing a check at 0.000001%. Those old people not only vote, but volunteer, serve at polling places, and donate.

And sadly, I have to agree. A US downgrade won't result in a selloff of Treasuries. Our government debt market is screwed, but just about everybody else's is screwed worse.

I have to hand it to the Republicans, not only does it appear they have grown a spine, but they have kept their tempers while negotiating with the worse set of immature idiots short of Hollywood Actors.  

By Blogger darovas, at Wed Jul 27, 01:23:00 PM:


By Blogger Diogenes, at Wed Jul 27, 10:19:00 PM:

Baseline budgeting is the problem. Each governmental agency is allowed to increase spending in following years based on current levels, some set 7% others 10% and so on, regardless of the rate of inflation, the cost of competitive goods and services or indeed whether the programs have outlived their purpose.
Baseline budgeting is designed to achieve at least two objectives: provide funds to expand programs or increase available funds for compensation of government employees without taxpayer approval.
This corrupt practice is solely for the purpose of reelecting incumbents, not unlike the problems seen in Wisconsin and other states.
I suspect this all began when President Kennedy authorized unionization of Federal employees.  

By Blogger Miss Ladybug, at Wed Jul 27, 10:59:00 PM:

I also keep hearing that "entitlements can't be touched". But I also hear that "one Congress cannot bind a future Congress from acting/not acting". In my mind, those two ideas are in direct conflict. Why are entitlements "untouchable" "mandatory" spending when one Congress cannot bind a future Congress from doing something? Entitlements are the real problem, and we HAVE to fix it. We can't ignore the elephant in the room because it was deemed at some point to be "mandatory spending"....  

By Blogger nun, at Thu Jul 28, 12:09:00 AM:

The son's often take over for the retiring father in this entrepreneurial enterprise I am involved in. Sadly the genetic gun seldom strikes as accurately in the successor's case and the son, as he learns the business, ( while buoyed with the proverbial silver spoon in the alimentary canal),enjoys the respect meticulously built by his father for quite a long time. The son may even believe that he possesses equal talent to his parent, ( he may but due to the different upbringing I.E. said silver utensil he can't use it properly). Thus we suffer the quirkiness of the Democrat today who believes in his usually well educated, little heart that America can keep printing money this way due to the special relationshipss built transaction by transaction over time by relative giants in world finance. The world is not in the recession that it was, has less stake in our future than it did, and controls us more than even a decade ago. Watch out Lilliputians,
your actions have grave consequense!  

By Blogger Noumenon, at Thu Jul 28, 07:27:00 AM:

I haven't seen that point about corporate debt ceilings elsewhere either. It's a good contribution.  

By Anonymous sirius, at Thu Jul 28, 12:57:00 PM:

There's really a very simple way to deal with this problem, and I'm frankly surprised to find the Democrats so much more clever on the issue than the freshman Republicans who can't seem to figure it out. What we do is, we print increasingly bigger amounts of money so we can spend even more.

Yeah, that's the ticket.  

By Anonymous Anonymous, at Thu Jul 28, 02:22:00 PM:

14 July 1776

Mr Madison and Co:

I am a resident of the colony of Mass and am deeply concerned, fearful, and distressed upon hearing of the document you recently signed in Philadelphia.

We must have compromise, dialogue, and high tea with His Majesty's representatives. If this does not happen I fear and expect that all we have built here in the New World will be destroyed. Heck, if you do not compromise even France will have nothing more to do with us.


Mit Newt Rockefeller the 4th  

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By Blogger Kurt, at Sat Jul 30, 10:53:00 PM:

Diogenes makes an excellent point about baseline budgeting being the problem. If the lamestream media would actually report the reality that all of these so-called "budget cuts" are, in fact, still increases (albeit smaller increases) over what was budgeted the previous year, I expect that the public opinion on this sham would change rather rapidly to support Cut, Cap and Balance. But of course, the lamestream media could never allow that to happen.  

By Anonymous Ignoramus, at Sun Jul 31, 08:04:00 AM:

"all of these so-called "budget cuts" are, in fact, still increases (albeit smaller increases) over what was budgeted the previous year"

Which is why -- even if a deal gets struck soon -- we still face the threat of a ratings downgrade.

O&Co have been making "not having to face this again in four months" a selling point. But our underlying fundamantal problems aren't going away.  

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