Hitting our Heads on the Debt Ceiling

Sometimes we’re a bunch of idiots. As a nation I mean, not so much as individuals (though some would certainly qualify). I’ve seen people advocating for not raising the debt ceiling and I honestly understand the frustration that leads to that argument. Those who advocate this position are really just upset that the country is carrying a deficit and going deeper into debt every day. They are thinking that $14.3 Trillion is an unimaginable sum and scratching their heads as to why the ceiling would need to be raised even further. They figure that by not raising the ceiling, it will force the government to reign in spending and balance the budget. Unfortunately, this simply isn’t true.

No matter what the final budget that comes out of Washington this year looks like, nothing changes the fact that we’ve already budgeted for the current year, and unless it’s raised, we’re going to hit debt ceiling. In fact, we already have, but Treasury Secretary Geithner took action to “create additional headroom” so that the department could continue to fund obligations and effectively extending the deadline to August 2. These are “measures” such as raiding government retirement funds for their treasury bonds. This is not good.

President Obama knows this is playing with fire saying:

“The full faith and credit of the United States is the underpinning not only of our way of life, it’s also the underpinning of a global financial system. We could actually have a reprise of a financial crisis, if we play this too close to the line….”

Federal Reserve Chairman Ben Bernanke is also sounding the alarm, noting a failure to raise the ceiling could cause:

“severe disruptions in financial markets,”

Even former Fed Chair and fiscal conservative guru Alan Greenspan says in plain English that he’s “scared” and calls the games being played over the debt ceiling an:

“extraordinarily dangerous problem for this country.”

Okay, but why is this such dangerous stuff? Why doesn’t it make sense to enforce the ceiling and let the government slash everything they need to in order to regain fiscal sanity?

I don’t want to sound alarmist here, but this really is important. There are real consequences to not raising the debt ceiling that would impact everyone in this country, potentially setting us back to the the great depression. Our country is already in trouble with a sluggish economy and huge levels of unemployment (myself included). Failure to raise the debt ceiling would cause credit rating agencies such as Moody’s and Standard & Poor’s to downgrade United States’ debt, just as they did on Monday to Greece’s. They did this because they felt that:

a default on some debt appears “increasingly likely.”

There are several negative consequences for us if this happens in the US. One is that the cost of borrowing will increase so that those lending us money, such as Japan, China and the UK, will demand (and be able to get) a higher rate of return in exchange for taking on the now riskier debt. This is also true for individual bondholders, companies who invest in T-bills, etc. Some large bondholders may, if the situation gets dire enough (although I don’t think it will), unload some or all of their US debt, causing a spike in the interest rate.

Another consequence is that the US government itself, the largest holder of Treasury bonds, with about $8.5 Trillion invested in them, may start to dip into these bonds to pay debts. These bonds are currently being held in trust funds (see my last article which references how these differ from discretionary spending here) for things like Medicare, Medicaid and Social Security. Selling them would destabilize Social Security and wreak further havoc on an already underfunded Medicare/Medicaid system. It would also have the effect of flooding the bond market with securities that nobody would want to buy, further driving up the interest rate and thus the cost of debt.

A flood of Treasury securities on the market will spur the Federal Reserve to purchase bonds if they wish to keep the lending rate low, putting more money into the system and lowering the value of our currency. This would have a deleterious effect on our buying power as citizens and thus create a huge drag on the world economy. Nobody would want to hold US dollars because there would be increasing fear that a government default would erode the economy. This in turn causes a panic induced “sell” mindset among currency traders, pushing the value of the currency down.

If the Fed opts not to purchase the bonds, interest rates would skyrocket, causing a those who can even get a loan right now to defer. This would have the impact of further reducing economic expansion through business start ups or freezing demand based upon borrowing. Because of the above factors, the stock market would also likely plunge due to falling demand and skittish/risk averse investors not wanting to get soaked. Falling demand would in turn precipitate another round of layoffs because, contrary to conservative ideas, companies hire when there is more demand, not when taxes are cut.

If the debt ceiling is not raised, the government would either have to default or immediately fill an an estimated $125 Billion per month hole (most likely with cuts). This is equivalent to approximately 40% of government spending, a Tea Party wet dream. If this occurs, it will almost certainly effect all functions of the government causing mass layoffs which further damage the economy. Lower levels of employment also further reduce the tax base of the government and increase demand for government services such as Unemployment Insurance, food assistance, cash assistance, etc. It also has the effect of further reducing market demand since people without income will spend significantly less.

Unfortunately, this is exactly the approach the right wingers want to take. They are attempting to force us into a choice between austerity and default. Nobody really wants the latter because of the reasons outlined above, but to those who wish to “drown [government] in a bathtub“, the former is pure bliss. People like Grover Norquist would love to force this on us again and again in order to roll back the great society and new deal. They’re taking the nation hostage over it because it could, in “one fell swoop“, eliminate the programs that the right has been fighting for years. Programs such as Social Security, Medicare/Medicaid, Headstart, Pell Grants, etc. Programs that help the poor, elderly, weak and disabled. Programs that prevent many people from slipping out of the middle class.

These are the kinds of cuts that come as the strings attached to IMF bailouts. Why do you think they’re revolting in Greece?

Time and again, it has been shown that recessions are when government spending is most needed, and in fact increasing spending puts people back to work putting money into people’s pockets and increasing demand, thus healing the economy. When people have more money and have economic security, they will spend more, creating more demand and more demand means more jobs. This is Keynesian Economics, a well known and simple formula that was proven to work back in the 30’s and 40’s. This is a time when we need to increase government spending, not decrease it, even if it causes a larger deficit. This will help pull us out of this recession and bring us toward greater and broader prosperity, it worked during the Great Depression and there is no reason it wouldn’t work today. While our immediate deficit and the national debt are important long term concerns, we must take a more long term approach to them, incurring more debt now, but coming up with a solid plan to pay it off.

Those on the right want to convince us that that there are only two choices here, default or austerity, but this is a false choice. There is actually a third option, tax increases. If we are serious about paying off the debt, and I know I am, we must implement tax increases, such as the Schakowsky Plan, on those who make the most in our society. Those who make the most benefit the most from the infrastructure provided by our government, and should therefore pay more for the privilege of living under it. If the government wasn’t there with all the incumbent legal, military, police and judicial protection their money receives, these people would have their wealth stolen. In anarchy, the bandits wouldn’t head to the ghetto, so it’s only fair that those who are benefiting the most from the government pay more for it. It’s the only just way to eliminate our deficit and pay off our debt.

Cross Posted on Daily Kos

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Mr. Obama, It’s Time to Launch a New Apollo Program

I occasionally get forwarded one of those emails from some unwitting friend calling for a one day boycott of gasoline. They say something like: “Don’t buy gas on May 30th to send a message to the oil companies that we won’t stand for higher gas prices.” My universal response has been to tell my friend that if they want gas prices to go down, stop driving a car entirely, buy a bicycle, don’t use any fossil fuels if at all possible. A one day boycott is a laughable concept on its face as it doesn’t change the behavior of the companies that are being targeted. Even if everyone agreed not to buy gas tomorrow, they’d simply go today or the day after tomorrow causing a bump in sales on the days around the “boycott”.

The issues surrounding energy policy, however, run so much deeper. Those of us in the reality based community acknowledge that the extreme weather we’ve been experiencing the last few years is likely tied to global climate instability. We also see the pollution caused by our dependence on fossil fuels resulting in increased incidence of asthma, allergies, and other conditions and diseases. We see that nuclear power is not the answer because it leaves behind poisons that cannot be gotten rid of and the risk of catastrophic failure is just too high. There is also the little problem of our dependence on fossil fuel’s effect on our foreign policy. The invasion and subsequent occupation of Iraq is, in large part, driven by the desire to control the world’s second largest oil reserve. Afghanistan is important, not because it has oil, but because it stands between rich natural gas and oil fields in Turkmenistan and the the Arabian Sea and has been in talks with Unocal since the mid-nineties to create a pipeline to export these resources. Not to mention national security problem of being so dependent on oil producing nations, many of whom coordinate their actions through OPEC.

The current policies are driven by entrenched interests, consumer demand, the state of our transportation infrastructure (ie. lack of alternative transportation modes), relative price of fossil fuels when the above named cost are externalized (nationalized), etc. Obviously, a one day boycott won’t do a darn thing in the face of these factors. The question then becomes, “What can we do about it?”

For all the reasons I’ve listed and more, it is imperative that we make the transition to a clean and renewable energy system as soon as possible. Our economy is currently at the mercy of those who control the oil spigots. If OPEC chooses to tighten supply, prices not only spike at the pump, but on everything that uses oil or gasoline in its production or transportation to market…which is to say, nearly everything. If it is our national policy to attempt to gain control of the spigots to prevent said economic disaster, then we pay for it in blood and treasure. The true cost of oil, between the wars to gain/protect access to it, the environmental impacts, the government purchased automobile infrastructure and the direct subsidies to the oil industry is hard to estimate. I’ve seen estimates all over the map, but according to a comprehensive study done in 1998 by International Center for Technology Assessment:

The majority of people paying just over $1 for a gallon of gasoline at the pump has no idea that through increased taxes, excessive insurance premiums, and inflated prices in other retail sectors that that same gallon of fuel is actually costing them between $5.60 and $15.14. emphasis added.

And that was in 1998, when gas was just over a buck! If you simply use an inflation calculator to help determine today’s range, it’s more like $7.73 to $20.89. That doesn’t include the change in the price at the pump of about $3 a gallon. So, perhaps an estimate of between $10.73 and $23.89 would be a more accurate range, the average of which is $17.31. If we knew that it costs us over $200 to buy a full (12 gallon) tank, how would that impact our driving habits? How would it compare with alternative fuel vehicles? Would Amtrak start looking like a better option?

And what about our power plants? Our whole system is set up to burn fossil fuels such as coal and natural gas or use nuclear as a “clean” alternative. While the coal companies want you to believe in “clean coal”, there really is no such thing. Mining the coal certainly hasn’t gotten any safer. Natural gas hydraulic fracturing or “fracking” is linked to dozens of cases of water contamination. Nuclear, as I’ve stated already, is both perilous and poisonous. The radioactive waste is simply too toxic and the power plants too dangerous.

The interests allied against us are strong, determined and entrenched. They have pockets deeper than the Mariana Trench and the inertia of a sedentary, complacent, uninformed American public and the system that already exists. We will need to be equally determined, and while we do not have the resources of the fossil fuel companies, we do have a more powerful force, the power of the people.

It is well past time for us to take action. To force our politicians to stand for us, the majority of the people who feel the myriad harms of the current system. We need real leadership from Mr. Obama. We need to call upon the President to take a bold new step, as President Kennedy did in his 1961 address to congress launching the original Apollo Program. He must enunciate a broad vision of a future free from dependence on fossil fuels and propose an aggressive timeline for moving us toward a clean energy future, a new Apollo Program. If he will not willingly take this step, it is time to bring the force of our collective voice to him. We need him to realize that this is not just a matter of pollution, climate change, disease, war and national security, it is a matter of justice.

Cross Posted on Daily Kos

On Compromise and Capitulation

In my cross post of last Sunday’s article regarding the Rules for Republicans (as sited on the Oregon Tea Party website) titled “Wow. Just Wow.”, this comment on my sparked my attention:

And yet you don’t have to browse (1+ / 0-)

around on this forum for very long to see the mirror image of that attitude among some commenters here, only they believe these things about Republicans as a group.

These are the people who decry the Obama administration for negotiating and compromising with Republicans in Congress in order to pass legislation.

I agree with you, that people with this attitude are an obstacle to progress, but we should recognize that they’re on the left as well as on the right.

While there certainly are people in the Daily Kos community who do believe the flip of the Rules for Republicans about Republicans, I’m not sure why the commenter chose to state that these are the same people who “decry Obama for negotiating and compromising with Republicans in Congress in order to pass legislation.” I certainly believe that while Republicans in Congress are wretched, I don’t believe that the average Republican voter is. As stated in last week’s post, I tend to find them “misguided, deluded, inaccurate, lacking the facts or simpleminded”, but not evil. I do however fault Obama and the Democratic leadership for willingly undermining the “Democratic wing of the Democratic party.” So I responded:

When compromise is unnecessary (0+ / 0-)

…then why use it? At this point, with Republicans in control of the House, compromise is necessary, but when Dems had a 60 seat majority in the Senate and control of the House and Presidency, why compromise with Republicans? Why even talk to their side if they’re ultimately unwilling to vote for the legislation? We’d get better policy which would result in better political outcomes. There is also a difference between compromise and capitulation.

to which said commenter then replied:

Of course Democrats never really had (0+ / 0-)

a 60 seat majority. They had for a brief time after Franken was seated, 58 Dems, 1 socialist and 1 Lieberman. And before that, they had 57 Dems, 1 socialist and 1 Lieberman. And of those Dems, a good block of them were/are weevily backsliders.

As I recall, Lieberman threatened to block health care reform if there was a public option in it. Health care reform got watered down largely through having to negotiate with Democrats in the Senate, not the Republicans!

Honestly, I really get tired of hearing people complain about compromise being capitulation. From my experience in negotations as a lawyer, this criticism strikes me more as a sound bite cliche rather than an accurate description of the results.

The first point here, while accurate, is a nit pick. I was referring to the Democratic caucus which includes Sanders (not really a problematic guy) and Lieberman (a tremendous pain in the ass). The second point is also true, the Dems had to negotiate with the Dems, but they also for some inexplicable reason (perhaps to “appear reasonable”?) brought Republicans into the discussion. The third point is what really rose my eyebrows. I think a lot of people don’t understand the difference between compromise and capitulation.

Here’s the New Oxford American Dictionary definition of Compromise:

Compromise, n. an agreement or settlement of a dispute that is reached by each side making concessions.

.

Here’s the definition of Capitulation:

Capitulation, n. the action of surrendering or ceasing to resist an opponent or demand.

As you can see, a compromise is based on mutual respect and mutual power. Activist organizations engage in direct action campaigns to alter a power relationship. When a corporation, for instance, has all the power and abusing a community, there’s not much an individual can do about it, but if a lot of community members organize, they can start to challenge the corporation’s actions because they’ve altered the power balance. If they negotiate first, they will lose because they have not demonstrated their power, and are therefore not considered worthy of compromise. However, when they use this power to shut down a store, pursue a crippling boycott, or participate in mass demonstrations, the opposition suddenly views them as worthy of concessions. While it does not succeed in all cases, it is almost always better than doing nothing at all.

Organizations, politicians and constituencies capitulate when they have not demonstrated power, even if they have all the power in the world. This is where both Obama and those of us on the left failed in the health care debate. We were fractious (as usual) and sedentary. The right was united in their opposition and vocal. They dominated the news and won the publicity battle. While Obama did eventually pass a weak bill that included the moronic individual mandate, he had an opportunity (an I would say a responsibility) to lead and he failed. Had he taken a position on the issue and fought for it, the outcome would’ve been a more robust reform package, a more energized base, and a demoralized opposition. This could’ve been a home run.

So here’s my response:

When you start from a weak position… (0+ / 0-)

you’re negotiating at a disadvantage. Obama took “single payer” or “medicare for all” off the table from the get go. This worsens the bargaining position. He also didn’t fight. Compromise is not always necessary (or at least not to such an extreme). I know Lieberman and the corporate Dems are/were the issue, but why not go to Connecticut, Montana, North Dakota, etc. and stump for the strongest possible plan instead of just saying, “well, we can’t do it if Joe/Max/Kent don’t want to go along.”?

Obama’s unwillingness to fight for progressive policy on anything is what makes him a capitulation machine. If you fight and lose, at least you’ve fought and the people would have your back. But negotiating out of the gate is a recipe for failed policy and bad political outcomes. The president is responsible for generating a strong negotiating position for his desired policy. He must take it upon himself to get out there and generate the pressure on those dissenting voices within his own party and the opposition. He did so against Kucinich, so I know he knows how. This only leads me to the conclusion that weak policy is what he had in mind in the first place, so capitulation was not only the outcome, it was the game plan.

The difference between compromise and capitulation is in a compromise, both sides get some things they like, but nobody gets everything and a capitulation is when one side gets most or all of what they like and the other side gets very little or none of what they want. The difference is determined by how one side is seen by the other side of the negotiation. If you are seen as weak, the outcome will be capitulation to all of the demands of the other side (in this case, the insurance industry and their bought off congress critters on both sides of the aisle), if you are seen as strong, you may in the end compromise, but you’d get a lot more out of the deal then a complete cave in and abdication of your values.

Some progressives say that the health reform measure was good. Some say it was better than nothing. I agree with the latter, but just barely. The individual mandate is a corporate giveaway and a politically toxic idea (witness how it was used in 2010). Obama and therefore the Dem leadership started from a weak position, lessened that position by not fighting and eventually came up with a plan that would enrich the insurance companies and help mobilize the right while demoralizing the left. You can call it what you will, but I call it capitulation.

While compromise is sometimes necessary, it is not always. Many times we can attain a better policy and more positive political outcomes through standing by our highest values of justice, equality and liberty.

Cross Posted on Daily Kos.