Entries Tagged as 'default'

Republicans Win the Spin Cycle

David Frum August 1st, 2011 at 9:22 am 67 Comments

It’s going to be hard for Democrats to depict the Republicans as extremist and irresponsible when President Obama is hailing the results of the debt-ceiling showdown as a “bipartisan deal to avoid default and reduce the deficit.”

Boehner’s New Plan – Even Deader

July 29th, 2011 at 3:46 pm 75 Comments

A few thoughts on the implications of Boehner adding a “Balanced Budget Amendment” to his debt-ceiling bill (which would now require that Congress pass a BBA before a second debt-ceiling increase could take place early in 2012):

Adding the BBA makes the bill very likely to pass the House. This addition appeases Tea Partiers, who had denied Boehner the majority he needs to pass it.

The Boehner bill as it stood on Thursday night might not have been able to pass the Senate; the Boehner bill of today definitely can’t. The very thing that makes the bill likely to pass the House – its Tea Party pedigree – will kill it in the Senate.

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A Recovery Menaced By Dysfunctional Politics

July 29th, 2011 at 11:28 am 79 Comments

In a time of fundamental uncertainty, case what do we know for certain?

No, order that’s not a Yogi Berra kind of question.

Timing of passage of an increase of some size in the national debt ceiling remains uncertain.

Which side will blink first remains uncertain.

Final form of the legislation remains uncertain.

Market reaction remains uncertain.

But we do know some things for certain.

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States Will Be Slammed by Default

July 27th, 2011 at 4:22 pm 40 Comments

A federal default could cascade through state governments, cialis sale forcing tax increases and budget cuts on local taxpayers. Medicaid budgets could be slashed. Federal money for unemployment benefits could halt. State colleges could lose federal grants.

The Pew Center on the States reports that the municipal market would get swept along in the wreckage, severely constricting state budgets.

Different states would experience different kinds of shock.

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How to Protect Your Finances in a Default

David Frum July 26th, 2011 at 8:19 am 45 Comments

Six months ago I thought a federal default unthinkable. Default now seems all too sadly possible. How can individuals protect themselves from the economic consequences of a worst-case scenario?

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Stumbling Toward Disaster

David Frum July 22nd, 2011 at 7:22 pm 140 Comments

There’s blame for all in the debt talk breakdown.

The president walked away from Simpson-Bowles, declined to present plans to reach long-term budget balance, etc. etc. etc.

But in the argy-bargy, keep this in mind: the debt problem has become a debt crisis for one reason only: because Republicans put the threat of debt default on the table.

That never needed to happen.

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The Jobs Report is Awful, but a Default is Worse

July 8th, 2011 at 10:19 am 19 Comments

The latest jobs report is truly dismal in that it shows a slight gain in jobs. However, it isn’t the “death blow” or sure sign of a double-dip recession that might send President Obama packing even against a very weak Republican candidate. While two straight months of bad jobs reports creates a real opening for the GOP the problem is that with few exceptions neither the Republicans in Congress or the campaign trail have any novel medicine for what ails the nation or any plans to create jobs. (Some commercials coming out of Mitt Romeny’s campaign at least acknowledge the unemployment problem.)

In fact, a growing faction (and I count a few people I consider friends as members of it) somehow seems to think that a default on the debt would get the nation’s house into order on the basis that it would cut spending. It would cut spending, and cause a worldwide depression at the same time. Republicans need to do a lot more to convince voters that they can govern and a legitimate jobs plan would be a very good start.

Default Will Extract a Political Price from the GOP

David Frum July 5th, 2011 at 10:57 am 38 Comments

David Brooks delivers a withering column in today’s NYT:

The struggles of the next few weeks are about what sort of party the G.O.P. is — a normal conservative party or an odd protest movement that has separated itself from normal governance, the normal rules of evidence and the ancient habits of our nation.

If the debt ceiling talks fail, independents voters will see that Democrats were willing to compromise but Republicans were not. If responsible Republicans don’t take control, independents will conclude that Republican fanaticism caused this default. They will conclude that Republicans are not fit to govern.

And they will be right.

Republicans in Congress need to understand that there will be a political price to them, not only to the president, if they force the United States into reneging on its contracted obligations. They need to hear that message from inside, from donors and supporters. That’s not a “pro-Obama” message as some hot-heads charge. It’s a pro “full faith and credit” message. The Obama program can (and in large measure should) be repealed. But default is not an acceptable tool of politics.

Brooks’ column is a manifesto for the times, it should be nailed to the Republican equivalent of the church door at Wittenberg.

There is No Upside to a Default

June 30th, 2011 at 9:11 am 52 Comments

Can anyone explain to me slowly what exactly congressional Republicans are doing on the debt ceiling?

Yes, try I perfectly understand the need to restrain borrowing (relative to GDP), find since increasing debt means increasing interest payments, clinic that means an increase in overall spending, and that in turn forces the government to borrow even more. This vicious circle has to be broken sooner or later lest the country eventually goes bankrupt.

But would a refusal to raise the debt ceiling really restrain government borrowing? Yes, but only in a very narrow technical sense that the principal would stop increasing. However the default would cause the interest rates to increase, and that would increase the cost of the debt service – just as if trillions of dollars were added to the national debt! There are two important differences though: when we increase the national debt by deficit spending, 1) we buy something useful and 2) all that spending stimulates the economy. The default has no upsides whatsoever.

Furthermore, the default would raise interest costs not only for the government, but also for businesses and individuals. Essentially, it would have the same dampening effect on the economy as a tax increase would. Again, with an important difference: at least an actual tax increase would also reduce the deficit and therefore government borrowing. The default has no upsides whatsoever.

So the Republican negotiating position vis-à-vis Democrats seems to be “Unless you abandon your plans to increase spending and hike taxes, we will do the rough equivalent of these things, only with all the pain and absolutely no gain.” Why did Republicans start a high stakes fight over the debt ceiling when the extreme weakness of their position was obvious from the start? It’s not like nobody ever warned them.

Obama is Capitulating on the Debt Crisis

David Frum June 29th, 2011 at 5:43 pm 82 Comments

“Call me naive,” President Obama invited viewers of today’s press conference.

Mr. President, invitation accepted: Unless that performance today conceals some unimagined occult plan, yes, you are naive.

Congressional Republicans have refused to raise the debt limit unless the Obama Administration agrees to large and immediate spending cuts. They have their finger on the nuclear button and are threatening to detonate unless they get their way. It seems crazy that they would actually do it, but congressional Republicans have done a pretty good job of convincing the Administration (if not yet the financial markets) that they just might do it.

Obama has responded by entering into negotiations with the congressional Republicans. These negotiations have not gone well, largely because Republicans are united upon an all-spending-cuts, no-tax-increases approach to deficit reduction.

So what does Obama have to say to that? At his press conference:

Mr. Obama repeatedly mocked tax breaks that he said were for “millionaires and billionaires, oil companies and corporate jet owners,” saying that voters would not look kindly on Republican lawmakers who defended such breaks at the cost of cuts in popular programs like health care, education and food safety.

But he did not explicitly say that he would reject a deal that did not eliminate such breaks, saying that he believed his adversaries would eventually agree to what Democrats have called a “balanced approach” that included trillions of dollars in spending cuts along with tax increases.

“If you are a wealthy C.E.O. or hedge fund manager in America right now, your taxes are lower than they have ever been. They are lower than they have been since the 1950s. And they can afford it,” Mr. Obama said. “You can still ride on your corporate jet. You’re just going to have to pay a little more.”

How lame is this answer?

Let’s count the ways.

1) The stuff about corporate jets is just … crapola really. It’s the Democratic equivalent of Republicans pretending that the deficit can be closed by cutting PBS and the National Endowment for the Arts. If Obama, the supposed grownup in the room, wants to make the case for revenue measures, let him make the case for relevant revenue measures.

2) 30 or so days before a forced default on the financial obligations of the United States seems a poor choice of a time for negotiations over budget measures. Why is Obama allowing himself to be engaged in this way?

3) Why for that matter is Obama surrendering to the demand to change the subject from jobs to deficits? Surely Obama believes that rapid budget-cutting will be deflationary? And therefore irresponsible in the context of  10% unemployment, near-zero inflation, and 1% interest rates on federal debt? Why has he allowed himself to be pushed into measures he regards as irresponsible?

4) Beyond that why isn’t he yelling his head off about the Republican default threat? Why isn’t he being specific about what it could mean? And why isn’t he doing what Lyndon Johnson would do – making it clear that if H-Hour does arrive, he’ll use disbursement power just as politically as Republicans are using the power of the debt ceiling: eg, paying Medicaid bills from Blue states first, Red states later? Paying farmers and other Republican constituencies with IOUs, while hoarding cash for Democratic voters?

5) For that matter, why isn’t he hammering home the point that Bruce Bartlett makes in this column.

The Constitution itself emphatically states that the public debt of the United States “shall not be questioned.” Yet these so-called conservative constitutionalists are doing precisely that , calling that public debt into question by refusing to vote the federal government the instrumentalities to pay its obligations.

On this issue, Obama has passed the point where he looks reasonable. He looks too weak to do the job of the presidency. And we are all left to wonder if he looks weak because he is weak.