debt

Behind-The-Scenes Photos From The White House Debt Negotiations

August 2, 2011

President Barack Obama brought an end to the heated debt ceiling debate Tuesday, signing a bill — passed easily by the Senate earlier in the day — that allowed the debt limit to be raised just hours before the country was set to begin defaulting on its debts. Official White House photographer Pete Souza chronicled the process throughout the last month, snapping behind-the-scenes photos of the various stages of negotiations. Take a look at the gallery below and vote on your favorite picture.

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Robert Reich: The Hostage Crisis Continues: Why Obama Can’t Pivot to Jobs and Growth

August 2, 2011

With the hostage crisis behind him, the president is now ready to talk about the nation’s real problem. Nine paragraphs into his remarks today announcing the nation has paid most of the ransom the radical right demanded as a condition for maintaining the full faith and credit of the United States (he didn’t use these exact words), the president pivoted to the agenda he should have been talking about all along: “And in the coming months I’ll continue also to fight for what the American people care most about: new jobs, higher wages, and faster economic growth.” But what precisely will he fight for now that the debt deal has tied his hands? He says he wants to extend tax cuts for middle class families and make sure the jobless get unemployment benefits. Fine, but the new deal won’t let him. He’ll have to go back to Congress after the recess (five weeks from now) and round up enough votes to override the budget caps that now restrict spending. What are the odds? Maybe a little higher than zero. He says he wants an “infrastructure bank” that would borrow money from private capital markets to pay private contractors to rebuild our nations roads, bridges, airports, and everything else that’s falling apart. Fine, but the new deal he just signed may not let him do this either — if the infrastructure bank relies on federal funds or even federal loan guarantees to attract private money. The only way he could create an infrastructure bank without sweetening the pot would be by privatizing all the new infrastructure. That means toll roads and toll bridges, user-fee airports, and entry fees everywhere else. Apart from its potential unfairness to lower-income people, such a privatized infrastructure would have the same effect as a tax increase. After paying more for roads and bridges and all other infrastructure, Americans would have less cash for to spend on goods and services. That means no boost to the economy. The president also wants to complete trade deals and reform the patent process. These may make the economy slightly more efficient, but they’re not going to have any perceptible positive impact on the lives of the 26 million Americans who are now either looking for work, working in part-time jobs but needing full-time ones, or have given up looking. More importantly, the deal he just signed makes it impossible for the president and Democrats to launch any major jobs program — no WPA or Civilian Conservation Corps, no major lending program to cash-starved states and locales, no new help for distressed homeowners, and so on. Nada. “We’ve got to do everything in our power to grow this economy and put America back to work,” the president says, now that the hostage crisis is over. But the sad truth is he and the nation remain hostage to the ideology of right-wing Republicans who won’t let the government spend more money. Yet if the government can’t spend more — at least this year and next, until the pump is primed and the economy is growing again — we won’t see job growth. And without job growth, the economy will remain anemic. That’s why even the stock market is reacting badly to the end of the hostage crisis. If you hadn’t noticed, the number of people unemployed or underemployed keeps growing. (We’ll know Friday how many it added in July, but remember it needs to add 125,000 a month just to keep up with the growth of the labor force. Anything below 125,000 means we continue to slide backward.) The reason: Consumers, who are 70 percent of the economy, haven’t been able to pick up the slack. That’s because they’re still deep in debt. Their homes have plummeted in value. They can’t borrow. Their jobs are on the line and their wages are dropping. So where will the demand come from if not government? The radical right points to the alleged “failure” of the stimulus program as evidence that government spending doesn’t work. The fact is it did work — it saved at least 3 million jobs, and would have saved far more if the stimulus was on the scale needed and directed to job creation. To be sure, pump-priming is more difficult when the well is almost dry, as it is now. And widening inequality — the rich taking home an increasing share of the nation’s total income and wealth — has left the vast middle class with even less purchasing power. But the pump still needs to be primed. And the well has to be filled: The nation must also push for real tax reform that reverses the surge toward inequality — raising taxes on the wealthy, cutting them for the middle, and expanding the Earned Income Tax Credit for the poor. To do this, though, requires that Americans understand the truth. But where will they learn it? The radical right has not only captured the federal budget. In convincing so many Americans the problem is the size of government rather than their shrinking paychecks and growing economic insecurity, the radical right has also captured the American mind. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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LIVE UPDATES: Debt Ceiling Deal Reached

August 2, 2011

WASHINGTON â President Barack Obama and Republican congressional leaders reached historic agreement Sunday night on a compromise to permit vital U.S. borrowing by the Treasury in exchange for more than $2 trillion in long-term spending cuts. Officials said Republican Speaker John Boehner telephoned Obama at mid-evening to say the agreement had been struck. Democratic Majority Leader Harry Reid said that both his party and opposition Republicans gave more ground than they wanted to. He said it’ll take members of both political parties to pass the measure. Minority Leader Mitch McConnell said that the pact “will ensure significant cuts in Washington spending” and he assured the markets that a first-ever default on U.S. obligations won’t occur. Check back here for the latest developments.

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Protesters Arrested In House Gallery After Jeering Boehner

August 1, 2011

WASHINGTON — Twenty-two protesters were arrested Monday after disrupting the opening of the House debate on a bill to resolve the debt limit crisis, Capitol Police said. Police quickly removed the protesters from the House spectators’ gallery after they interrupted the floor debate by unfurling a banner and chanting. They could be heard shouting “Boehner, get off it. It’s time to tax corporate profits.” House Speaker John Boehner, R-Ohio, was not on the House floor at the time. He has opposed any tax increases to help balance the federal budget. The group National People’s Action later issued a statement saying the protesters had come to Washington to demand that Boehner and Republicans stop protecting the wealthy and Wall Street and look for solutions that create jobs and raise revenue to help Americans in need.

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Brad Reid: Business Must Understand U.S. Individualism and Conflicting Visions

August 1, 2011

Modern Western individualism began with the Reformation translations of the Bible into native languages. A literate individual could read the text without clerical interpretation. Later the economic philosophy of Adam Smith elevated individual economic activity. Recently, the U.S. counterculture movement of the 1960s reveled in the philosophy of social and cultural individualism. At the same time, U.S. political movements advocated a vision of the collective good, starting with the U.S. “New Deal” in the 1930s and subsequently the civil rights, environmental, and consumer movements of the 1960s. It was inevitable that there would be a clash of individualism and competing collective visions. The question is how this clash will impact the future of the U.S. It appears that individually tailored goods, services, and health care will continue to proliferate as well as individualized tools of social media expression. Business will face an ever accelerating product life cycle. Established institutions such as religion and education will no longer be able to offer a single “mass produced product.” However, the potentially dangerous side of individualism is the breaking down of a collectively nationally shared social and political vision. Further complicating the movement toward individualism, some life choices, such as the decision to have an abortion, are morally offensive to influential segments of the U.S. population. Political and social fractures in the U.S. began to appear in the 1960s. The impact of the Vietnam War and the Civil Right Movement are prime examples. Competing visions have become less willing to accommodate dissent within their membership and consequently have become more extreme. Some visions essentially want the government to withdraw from the commonly understood U.S. social contract that includes such things as public education and a variety of publicly funded social welfare programs. Another vision wants to expand the utilization of public resources to create a society more like that in northern Europe. This division runs deeply through contemporary U.S. politics. Consequently the debt ceiling debate is a small part a much larger clash of opposed visions about the relative roles of the public and private spheres of influence. It also demonstrates the continuing rise of individualism with the fracturing of traditional political party discipline. Pressured by both sides in this climate are those who voice moderation or are economically in the middle class. Economic and political polarization is the order of the day. The economic distance between the wealthiest and poorest segments of U.S. society is increasing. At the same time we see an ever increasing cultural diversity in the U.S. population with groups having less dialogue. Unfortunately history tells us that such polarization produces instability that, when taken to an extreme, will collapse a society into disorder. Subsequently an elite arises to restore order. Consider the history of the French Revolution. The U.S. has already experienced a civil war, so extreme division, however improbable, is not impossible. There are those who profit politically and economically from both individualism and advocating an extreme vision. No compromise is the order of the day. Additionally, why would one who ardently believes in the correctness of his or her vision compromise it? The difficulty of U.S. national leaders in reaching consensus on macroeconomic policies demonstrates the strength of the forces driving this division. These “politicians” find it increasingly difficult and costly to be “statesmen,” that is to make decisions that are contrary to narrow partisan interests. A rapid 24/7 global news cycle has vividly broadcast to the world the conflicting visions that currently divide U.S. society. What can be difficult to accurately assess is the future impact of these visions. The recent virtual paralysis of the U.S. federal government is not to be taken lightly and will shake international confidence in long term U.S. stability. Political and economic leaders must be willing to reach across factional divisions to implement policies that benefit all of society. Universally beneficial social goals include encouraging education, job creation, innovation, robust infrastructure, and maximizing freedom. All sides at least abstractly advocate these ideals but are increasingly unable to agree on the way to achieve these ends. The writers of the U.S. Constitution developed divided government to prevent any faction from becoming dominate. We can hope that factional battles over what vision will dominate do not result in U.S. social and political collapse. Cautionary observation and analysis is an appropriate course of action for business.

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WATCH: The New Debt Ceiling Deal Media Narrative In Two Minutes

August 1, 2011

As noted here earlier , the debt deal that’s in the offing is said to be a Great and Virtuous Thing not because it results in any tangible benefit for ordinary Americans (other than the fact that, as Wall Street was promised months ago, there will be no default and thus no subsequent destruction of the global economy), but rather because everyone on Capitol Hill hates it, at least a little bit. Glibly put, the best compromise is one that leaves everyone unhappy. Which is all well and good when the grand compromise doesn’t also usher in a new era of governance that features permanent hostage-taking dysfunction. But that’s the dominant narrative, now, and you can see it in the above two-minute mashup, prepared by our own Hunter Stuart. This is how the Beltway Deficit Feedback Loop comes to fruition. As I said yesterday , “Like the rest of you, I also wonder what topic reporters will turn to now to keep from reporting on the massive unemployment crisis.” [Would you like to follow me on Twitter ? Because why not? Also, please send tips to tv@huffingtonpost.com -- learn more about our media monitoring project here .]

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Sheldon Filger: U.S. Economy Performing Much Worse Than Earlier Reported

August 1, 2011

The U.S. Bureau of Economic Analysis issued revised figures for the first quarter of 2011. It had earlier reported an annual rate of anemic GDP growth of 1.9 percent for Q1. Even if that number had been accurate, it was insufficient to reverse the catastrophic rate of unemployment and underemployment in the United States. The revised numbers are now in; the Bureau of Economic Analysis now says that actual GDP growth in the first quarter of 2011 was a virtually non-existent 0.4 percent. It also issued preliminary growth figures for Q2 of 1.3 percent, worse than expected. As with the Q1 data, it is likely that future revisions will show that Q2 did even worse. What conclusions can one draw from this miserable economic data? Two things come to mind. In the first place, any preliminary numbers on the U.S. economy that derive from official government sources are highly suspect, and likely to be overly optimistic. Secondly, after an unprecedented level of public debt that is leading America towards fiscal ruin, the best that can be accomplished by the Washington policymakers is a Japanese-style “L” shaped recession. Now, what happens to the U.S. economy when the pump-priming stops, as will inevitably happen? With revenue at historic lows and public expenditures at unprecedented highs as a proportion of the national economy, the frail American economic edifice is floating on an ocean of unsustainable debt. While the current fiscal trajectory of the United States is headed towards a calamitous train wreck, a self-imposed and immediate elimination of the deficit, or even talk of such a possibility, will further exacerbate the economic crisis that never ended in America, despite official pronouncements. In the meantime, the U.S. political establishment cheerfully debates the debt ceiling. Both sides of the argument are in denial. The bottom line that both Republicans and Democrats refuse to confront is that the authorship of the present economic and fiscal crisis is bipartisan. The only hope of avoiding a full-fledged American sovereign debt crisis and its apocalyptic ramifications is creating a path towards much higher levels of growth that will reduce the ratio of debt to GDP to levels that can be sustained into the future. Instead of a serious policy debate, however, both parties are engaged in an ideological debate on cloud nine, divorced from the miserable reality of an American economy that is imploding. If this is not an indication of dysfunction in Washington, I don’t know what is. Maybe the policymakers are not worried because they know that Fed Chairman Ben Bernanke will soon ramp up his printing press again. I am more inclined towards the vision of Dante than Bernanke, when it comes to the future of the U.S. economy.

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Tom Silva: The Other Debt Crisis

August 1, 2011

As the August 2nd deadline to raise the U.S. debt ceiling looms and much of the media attention turns towards prospects of a U.S. default on paying its bills, it may be worth remembering the debt problem that no one is talking about — one that may have even more direct implications on unemployment, consumer spending and even the next election — our educational debt crisis. Make no mistake — it’s a crisis. Student loan debt has surpassed total credit card debt in the U.S. This year’s graduating class of college seniors had the highest average debt to date, projected to reach more than $1 trillion later this year. Since 1982, the average cost of attaining a college degree has increased by 439 percent, while the typical family’s income increased by only 147 percent. The average cumulative debt incurred by a 4-year college student is $27,803. As an example of the inordinate hikes that students are seeing, University of California regents approved a 9.6 percent tuition increase on top of an already approved 8 percent tuition increase starting in the fall after a cut of $650 million in the California State University budget. Additionally, studies show the increase in the cost of 4-year institutions has been attended by a decrease in percentage of actual graduates (even factoring in 2 additional years). All of this would be tenable if four-year universities produced students that entered the market labor-ready. But According to the Clinton Global Initiative , there are three million jobs right now which have no takers because applicants lack the skills. If those positions were filled, it would cut the unemployment rate in half. But job openings, according to Bill Clinton, are being filled at half the pace of previous recessions. Clearly, we have a higher ed sector that isn’t aligned with the needs of our struggling economy. At the same time, vocational training continues to be stigmatized as an ignominious substratum, a place to consign unpromising students. The way ahead is clear: There must be a rethinking of what jobs require a traditional four year degree, and which are better served by a lower cost, expeditious option more aligned with the demands of our economy. Let us start by saying that this is not an attack on the university. We honor the original purpose, which was to foster the spirit of the Renaissance and the Enlightenment as a beacon of learning, a rejoinder to the obscurantism of the Dark Ages. The first ever university in Europe, the University of Bologna, promoted the notion of academic freedom in its charter, and we are all beneficiaries of the sciences and arts which emerged from that grand enterprise. Those institutions need to be preserved and defended against summary budget cuts. But one would be hard pressed to show how a degree in Professional Golf Management accords with the spirit of Francis Bacon or Erasmus. It proves even more difficult to explain why it is priced at six-figures when it might be more appropriately offered as a certificate course or on-the-job training. For many, the dream of earning a college degree (and the social acceptance that comes with that accomplishment) trumps a more analytical, cost-benefits approach. Simply put, strict adherence to an illusory intellectual caste system is an indulgence our nation can no longer afford. Before we continue to accept a four-year college degree as the gold standard, regardless of one’s aspirations, consider these facts: According to the Bureau of Labor Statistics, a two-year associates degree, or a certificate in a particular trade might be the smarter bet to financial stability. In their recent survey , nearly 30% of associate’s holders achieved greater income than their traditional four-year counterparts. Furthermore, more than one-quarter of those holding an industry specific certificate surpassed earnings of either counterpart. “A four-year degree in business — what’s that get you?” asked Karl Christopher, a placement counselor at the Columbia Area Career Center vocational program. “A shift supervisor position at a store in the mall.” Other countries seem less alarmed by the dichotomy between a college degree and skills training. A study in Germany found that of those who passed the Abitur, the exam that allows some Germans to attend college for almost no tuition, 40% chose to go into apprenticeships in trades, accounting, sales management, and computers . “Some of the people coming out of those apprenticeships are in more demand than college graduates because they’ve actually managed things in the workplace,” says Robert I. Lerman, Professor of Economics at American University. So, how can we keep successive generations from being burdened with a Sisyphean debt load without a guarantee of recompense? First, let’s look seriously at online universities where students are relieved of travel, lodging, even textbook expenses, and where participation has risen on average 17-19% per year since 2005 . This year, over one million adults are taking degree or certificate programs delivered 100% online in the U.S., according to Eduventures . Employers are increasingly accepting of OU applicants, but admit a bias towards traditional brick and mortar institutional graduates . Given two equal applicants, they will choose the traditional student. It is anticipated that as the current workforce “greys out”, and more hiring managers come from OU backgrounds themselves, the perception of OU inferiority will change accordingly. The other avenue is certificates. According to the Center of Education and the Workforce at Georgetown University, a post-secondary certificate adds almost $117,000 in lifetime earnings over a high school diploma or those with no other degrees. Take the curious case of Anne-Diandra Louarn, a 23-year-old native of Paris who graduated from N.Y.U.’s journalism certificate program in 2009. She claims it secured her post at France’s Tiffany newspaper, Le Figaro, where she reports for the Web site and manages the newspaper’s Facebook and Twitter pages. She had no journalism experience, other than an internship at a small social media company in New York and a two-year degree in communications from Paris Descartes University. At N.Y.U., she took seven classes, over two semesters, paying about $3,000 to complete her certificate. When applying for jobs, she says, the pedigree carried clout. “Because N.Y.U. is a very well-known university,” Ms. Louarn says, “I know it helped me.” Martin Scaglione, president and CEO of work force development for ACT advocates “certification as the new education currency – documentation of skills as opposed to mastering curriculum.” Little more than half of all certificates are awarded by public sector institutions, mostly community colleges, while only four in ten are granted by for-profit institutions. Certificates have also become a source of upward mobility for lower-income groups and minorities: Women account for close to two-thirds of certificate-holders. Black and Hispanic students earn about one-third of all certificates issued, compared to just 20 % of all bachelor’s degrees. Then, there’s the good old-fashioned trade school. Noted New York Times reporter Louis Uchitelle wrote about the kinds of jobs in demand back in June 2009 , saying: “…unnoticed in the government’s standard employment data, employers are begging for qualified applicants for certain occupations, even in hard times. Most of the jobs involve skills that take years to attain. Welder is one…Electrical lineman is yet another, particularly those skilled in stringing high-voltage wires across the landscape.” For those with visions of Victorian smokestacks, it is important to know that the new manufacturing job isn’t about pulling levers but, because of automation, increasingly involves computers, math, writing, and communicating . Over the next decade, the 20 occupations in the manufacturing industry that are expected to need the greatest number of workers will require at least some post-secondary education, according to the Manufacturing Institute, (part of the National Association of Manufacturers). Those 20 occupations, according to data from Chmura Economics & Analytics and the U.S. Department of Labor, will provide more than 1 million jobs over the decade – more than half of which will be in high-tech industries. Such jobs pay higher average wages than all others excluding health care and social assistance. Managers can earn an average annual wage of $107,970 and industrial engineers an average of $75,740. Hardly the dungeon of the educational system that it’s portrayed to be, vocational training delivers far better return on investment than most traditional universities. The key to effective vocational training is the community college system. More than 30 states, with the backing of industry and the federal government, are introducing a new national credentialing system for community college students and employers across manufacturing sectors. It has won the support of President Obama, who, earlier this month, said he would back an effort to help 500,000 community college students obtain industry-recognized credentials . The White House has also proposed a program to train 10,000 engineering students a year. “We need to triple and quadruple what we’re doing at community colleges with retraining to really start moving the unemployment numbers,” says William J. Holstein, author of the recently published book, The Next American Economy . “We need to think big, not incrementally.” Lastly, we need to promote employer-sponsored, on-the-job training. In today’s world, work and learning are becoming parallel as opposed to sequential events. The timeframe for employees to apply new and synthesized knowledge is being compressed. The only way to remain competitive as a nation is to allow working adults to keep one foot in the classroom throughout their careers. The University of Phoenix reports that its average student is now 34 years of age, which supports the modern day profile of the “Working Learner” . The same surveys found an average of 40% of postsecondary graduates deficient in these skill areas. Both increasing the number of workers with postsecondary credentials and enhancing their skill mix so they are ready for the innovation economy will require a much closer alignment of the nation’s worker-training programs and our traditional higher education system. Worker-training programs must expand public investments through the federal Workforce Investment Act and a variety of state-level initiatives as well as those programs funded by employers and through joint-management labor partnerships. Most of the elements needed for the postsecondary education system we outline already exist, but they operate according to policies that are still aligned with the mass-production economy in which technical knowledge and workplace savvy could be developed separately rather than the innovation economy that requires that they be developed simultaneously. We need our leaders in business, education and legislation to embrace smart, focused programs that drive Americans where they long to be: Back to work. Special thanks to the researcher and co-author of this article, Heather M. Carper . Heather was an honor student, whose attempt at Higher Learning at an elite college ended in nearly $40,000 debt and no degree. After over a decade in the workforce, she is currently in an accredited certificate program, and has recently applied to a state college.

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Obama Threatens Bush Tax Cuts As Part Of Debt Ceiling Deal

August 1, 2011

By Jeff Mason WASHINGTON -â The White House has one important tool in its arsenal to influence congressional talks over further deficit reduction measures in the coming months: the expiry of Bush-era tax cuts at the end of 2012. After President Barack Obama presented the outlines of a deficit-cutting deal on Sunday, White House officials stressed that he would veto any attempt to extend the tax cuts for the wealthiest Americans beyond next year unless other measures to reform the U.S. tax code were agreed. That threat, which Obama has issued repeatedly since reluctantly agreeing to extend the cuts last year, is meant to mollify critics within his own Democratic party who are disappointed that measures to increase government revenues were not part of the deal reached on Sunday. The agreement, which must still be approved by lawmakers, would cut about $2.4 trillion from the U.S. deficit over 10 years, with a congressional committee set up to find $1.5 trillion in cuts through tax reform and other deficit-reduction measures. Obama had pressed Republicans to agree to close some tax loopholes for corporations and raise taxes on the wealthy as part of a “grand bargain” deficit-cutting agreement. But Republicans balked, saying any tax hikes would hurt the economy, and that debate prevented a deal for weeks. Now, if the deal passes, the issue of raising revenues will move to the new congressional committee. The White House said if tax reform does not succeed there, the tax cuts put forward by former President George W. Bush will be history. “The president has been clear that he’s not going to sign an extension of the Bush tax cuts for the wealthy. So absent any kind of comprehensive tax reform, you have $800 billion, roughly, of revenue that’s going to be gained through the expiration of those tax cuts,” a White House official said. “That’s something that is going to be, I think, a motivational thing for both parties, to kind of control the tax reform process as you can, as opposed to be victim to the expiration of those tax cuts.” COMPETING VIEWS Officials from both parties have expressed interest in reforming the U.S. tax code, but the details of how to do that remain a sticking point. Democrats want the richest Americans to revert to paying tax rates that existed during the 1990s under President Bill Clinton. Republicans say reverting to those rates would amount to a tax hike that would stifle economic growth. White House officials said Obama would veto an extension even if it were coupled with a continuation of cuts for middle class Americans that he supports. “The president has made clear that if we don’t have comprehensive tax reform, he is not going to extend,” one official said. “And those in Congress will have to decide whether or not they will then allow the middle-class tax cuts to expire. Our sense is they probably won’t. So, again, I think that’s an incentive for everybody.” (Editing by Sandra Maler) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Paul Krugman: Debt Ceiling Deal An Economic ‘Disaster’

August 1, 2011

A deal to raise the federal debt ceiling is in the works. If it goes through, many commentators will declare that disaster was avoided. But they will be wrong.

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Jared Bernstein: The Depressing Impact of a Spending Only Trigger (Update)

August 1, 2011

Update below We’re not there yet but the contours of the budget deal that will raise the debt ceiling are coming into focus. The White House has consistently sought three things in the deal: No default Revenues to take pressure off of spending cuts Not to be back in this debate until after 2012 It’s looking like they’ll get one and three. Both are very important. But so is two. As I and others have written from the beginning of this debacle, absent new revenues, we’ll end up with spending cuts carrying too much of the load. And that looks to be where we’re headed. As I understand it, the first tranche of cuts — about $1 trillion in discretionary spending — occurs soon after passage. Then, by the end of this year, a committee of 6 Republicans and 6 Democrats comes up with a proposal for about $2 trillion in round two cuts. If the committee fails to do so, or Congress fails to enact, then an across-the-board spending-cut-only trigger takes over. Especially after the first round of cuts went exclusively at discretionary programs, this means round two will go hard after entitlements. That sounds a lot like what Speaker Boehner proposed last week. Here’s what my CBPP colleague Bob Greenstein had to say about that proposal : The first round of cuts under the Boehner plan would hit discretionary programs hard through austere discretionary caps that Congress will struggle to meet; discretionary cuts thus will largely or entirely be off the table when it comes to achieving the further1.8 trillion in budget reductions. As Speaker Boehner’s documents make clear, virtually all of the1.8 trillion would need to come from cuts in entitlement programs. (Cuts in entitlement spending totaling more than1.5 trillion would produce sufficient interest savings to achieve $1.8 trillion in total savings.) To secure $1.5 trillion in entitlement savings over the next ten years would require draconian policy changes. Policymakers would essentially have three choices: 1) cut Social Security and Medicare benefits heavily for current retirees, something that all budget plans from both parties… have ruled out; 2) repeal the Affordable Care Act’s coverage expansions while retaining its measures that cut Medicare payments and raise tax revenues, even though Republicans seek to repeal many of those measures as well; or 3) eviscerate the safety net for low-income children, parents, senior citizens, and people with disabilities. There is no other plausible way to get $1.5 trillion in entitlement cuts in the next ten years. If it’s true that the trigger in the deal is spending-only, no revenues, then the American people are about to end up with a very tough deal indeed. I’m already hearing a lot of blame cast toward the president as per this outcome. I’ll speak to that later — right now I have to go weed the back yard in 97 degree heat, which I actually find way preferable to dealing with the debt ceiling. But for now, let me say this: it is not the president who brought us to this spot. It is the actions of a group of far-right conservatives who were and are ready to push America into default for the first time in our history. Their actions would force the government into prioritizing payments and sharply increase the likelihood of our already frail economy becoming even worse. President Obama would not go there. We may have honest disagreements about that choice, but it’s a choice the president was not willing to make, and that has made all the difference. **** Update: Again, quickly running down the deficit-reduction framework as it stands: $1 trillion in cuts in discretionary spending over 10 years What does that mean? It refers to the non-entitlements in the budget: defense and non-defense programs where dollar amounts are appropriated every year. On the non-defense side, it’s transportation, education and training, child care, housing assistance, health research, energy. From a jobs perspective, a lot of infrastructure and investment in stuff like clean energy comes out of this part of the budget. A bipartisan committee (6 R’s, 6 D’s) must identify another1.5 trillion in cuts; entitlements and tax increases can be on the table, though Speaker Boehner claims his R’s will not countenance any new revenues, and I’m prone to believe him. Assuming the committee agrees on the cuts, it reports out by Thanksgiving and their proposal gets a fast-track procedure–up or down vote by the end of the year. But if the committee fails to report out or Congress won’t enact their cuts, a spending-cut-only trigger kicks in, with cuts split 50/50 between domestic and defense spending. This sequester, as it’s called, would exempt “Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side” according the White House . Those are welcome exemptions, but man, I don’t see how you get $1.2 trillion (that’s the savings required if this part triggers) after you’ve already taken $1 trillion out of discretionary and still maintain those exemptions. I predict they’ll be a lot of pressure to violate this part of the deal. Now, here’s a wrinkle a commenter asked about. Again, from the White House fact sheet: “If the Committee does not succeed in meaningful balanced deficit reduction with revenue-raising tax reform on the most well-off by the end of 2012, the president can use his veto pen to raise nearly $1 trillion from the most well-off by vetoing any extension of the Bush high income tax cuts.” Here, the White House is saying they have a fail-safe to get revenues in the deal. If the committee gets to the trigger stage without revenues, they’ll go after the high-end Bush cuts. OK, but those cuts were presumably going to sunset anyway, so on one hand, no new revenue there relative to what we expected. And what if the committee does come up with cuts (unlikely, but just sayin’)…then does the administration punt on the high end sunset? So it’s no replacement for a balanced sequester, one that required both cuts and new revenues. On the other hand, given the tenor of the times, expected or not, it would be an accomplishment to finally see the sun set on those tax cuts. The president spoke on the pending deal tonight, ending with this: “[The deal allows us to] turn to important business of doing everything we can to create jobs, boost wages, and get this economy growing faster. That’s what American people sent us to do and that’s what we should focus on in months ahead.” I agree. It’s about time. But he also bragged that “these discretionary caps will put us on track to reduce non-defense discretionary spending to its lowest level [as a share of GDP] since Dwight Eisenhower was President.” Why is that a good thing? Why are 1950s levels (relative to GDP) of investment, infrastructure, and research in medicine and innovation so damn optimal? And with all this incessant emphasis on deficit reduction, it’s going to be extremely tough to convince people that we actually might need to spend some money right now, in the short run, to help get this economy out of neutral. There’s a lot of cognitive dissonance out there…stay tuned. This post originally appeared at Jared Bernstein’s On The Economy blog.

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Debt Ceiling Deal Could Mean Problems For States

July 31, 2011

HARTFORD, Conn. — The cost of the compromise needed to raise the federal debt ceiling will likely inflict more fiscal pain on states still struggling to recover from the recession and the end of federal stimulus spending. While the details of the spending cuts to states remain unclear, lawmakers from both parties have discussed the need to cut or impose caps on so-called discretionary spending over the next decade. That could mean wide-ranging cuts in federal aid to states, affecting everything from the Head Start school readiness program, Meals on Wheels and worker-training initiatives to funding for transit agencies and education grants that serve disabled children. There also is concern among governors, state lawmakers and state agency heads that Congress will make deep reductions or changes in federal aid for health services for the needy, most notably through Medicaid. That could shift more of the costs onto states that already are having trouble balancing their budgets. “We have the potential for disaster should there be a major realignment in federal funding that results in a cost shift to states,” said Nevada state Sen. Sheila Leslie, a Democrat from Reno who recently discussed the issue with Obama administration officials in Washington. “In short, we are teetering on the edge right now, and a cost shift could send us over the cliff.” States already have closed nearly $480 billion in budget gaps since the beginning of the recession, according to the National Conference of State Legislatures. In Connecticut, for example, officials have struggled to cover a $3.3 billion deficit, accounting for more than 16 percent of the state’s main budget account. About 19 percent of the state’s non-transportation revenue comes from the federal government. “The timing is lousy in every respect,” said Benjamin Barnes, secretary of the Connecticut Office of Policy and Management. “It will certainly have a recessionary impact on the overall national economy, and that’s the last thing we want right now.” Among the programs that could be affected is a service that delivers meals to the home-bound elderly. Connecticut received about $4.5 million from the federal government for the program this year and $1.8 million from the state. Marie Allen, executive director of the Southwestern Connecticut Agency on Aging, said the program is a staple for many senior citizens on tight budgets. The federal aid ultimately saves taxpayers money because it helps keep people out of costly nursing homes, she said. “If we don’t have the support for them in the community, people end up in nursing facilities because they don’t have proper nutrition,” Allen said. “These are the real reasons why we spend more money on skilled nursing care.” State officials across the country are worried about the austerity steps demanded by fiscal conservatives in exchange for raising the nation’s debt ceiling, said Brian Sigritz, director of state fiscal studies at the National Association of State Budget Officers. He said the association expects states to be affected by cuts, if not immediately, then in the next year or two. While the legislation being considered did not cut entitlement programs such as Medicare and Medicaid, it did call for creating a special congressional committee to find additional savings. That next step likely would lead to specific recommendations to trim spending on entitlement programs. Darrell Steinberg, president pro-tem of the California state Senate, said he is concerned about such cuts, especially if they reduce payments to the states for Medicaid, which provide health care for the poor and disabled. The state’s version is known as Medi-Cal and covers 7.5 million people. Significant cuts could force California to look for ways to make up for the funding at a time when the state is slowly emerging from a recession that has left it with one of the highest unemployment rates in the nation. Lawmakers closed a $26.6 billion shortfall this year, partly with the help of rising tax revenue. “Certainly in California, we’re on the verge of turning a corner …” said Steinberg, a Democrat. “We want to go forward, not backwards.” A concern in many states is a possible change in the federal-state formula known as FMAP, which is used to fund Medicaid programs. In Nevada, for example, the federal government pays 55 percent of the cost. Every 1 percent of cost that is shifted to the state equals roughly $15 million. “The change in FMAP is probably one of the more fearful ones that we could experience,” said Mike Willden, director of the Nevada Department of Health and Human Services. Not all state officials are dismayed by the possibility of broad-based cuts in federal aid. Alaska Gov. Sean Parnell said he believes substantial funding cuts would have less of an impact on his state than allowing the federal government to stay on its current course of mounting debt. He is among a small group of GOP governors who signed a pledge urging Congress to oppose increasing the debt limit unless certain conditions are met, including substantial spending cuts. “We need a serious directional change to recover, and merely raising the debt limit will lead only to disaster,” he wrote in a recent email. The long-term effects of a compromise to raise the debt ceiling could come as a surprise to many state officials, said Rep. George Miller of California. The top Democratic lawmaker on the House Education and Workforce Committee said he has received almost no input so far from state education departments and local school districts about the looming spending cuts. He said reductions contained in the debt-ceiling legislation are “going to make life much more difficult for” for public schools. Robert Moran, who represents the American Association of State Colleges and Universities, said plans offered by the leaders of the House and Senate each kept a major aid program largely intact. Pell grants, which provide up to $5,550 to low-income students, would sustain cuts, but they would be relatively small, he said. “I think the higher-education community was probably pleasantly surprised about that,” he said. But he said colleges still face a double-whammy – federal cuts coming on the heels of deep state cuts. In many university systems around the country, departments have lost funding and class offerings have been reduced. Barry Toiv, the vice president of public affairs for the Association of American Universities, said continuing to take money out of education would slowly and steadily degrade the quality of the nation’s universities and affect America’s ability to produce the next generation of leaders. “It’s like termites in the wall, gradually eating away at the underpinnings of our innovation,” he said. “If you do that over a long period of time, at some point you’re no longer leading the world. And eventually, like with termites in the wall, you’re not really going to have a house anymore.” ___ Ramde reported from Milwaukee. Associated Press writers Kevin Freking in Washington, D.C.; Sandra Chereb in Carson City, Nev.; Judy Lin in Sacramento, Calif.; and Becky Bohrer in Juneau, Alaska, contributed to this report.

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Ken Blackwell: Avoiding the Danger of a "Clean" BBA

July 31, 2011

Liberals are trying to kill the prospect of a Balanced Budget Amendment (BBA) in the ongoing battle over the debt ceiling. Some on the Right respond that they might settle for a “clean” BBA. But there are two types of a clean BBA, one of which would be even worse than the terrible mess we have today. Some advocate that the BBA should require only that federal outlays cannot exceed federal tax revenues. They see it as two numbers, where the former must be less than the latter. But this misses one critical point. If BBA only requires government to spend less than it collects, there are two ways to fix it. The first is cutting spending, and the second is raising taxes. Many supporters of a clean BBA are not too worried. Although acknowledging the risk, they’re willing to take it on the grounds that they can use the prospect of electoral defeat to exert political pressure on members of Congress to ensure they don’t vote for tax increases. But what about the courts? What if a judge orders a tax increase? A judge could, if the BBA only says that spending must be less than revenues. Courts currently lack the power to make changes to taxes or spending. Article I and the Sixteenth Amendment of the Constitution only authorize four types of taxes — excises, imposts, capitation taxes, and income taxes — and specify that Congress is the branch with power to levy these taxes. The Framers specifically wanted fiscal control in the hands of elected legislators. “No taxation without representation!” was the battle cry that helped precipitate the American Revolution. So three fiscal levers are exclusively in Congress’ hands: only Congress can tax, spend, or borrow. Congress’ control over the purse strings gives legislators leverage over the other branches. And the members of one congressional chamber — the House of Representatives — must stand before the people every other year, ensuring that those with taxing and spending power would be strictly accountable to the voters. But a “clean” BBA would change that. It would create a constitutional command. A private party with standing could ask a federal judge to remedy a violation of a clean BBA by ordering increases in taxes to close budgetary gaps, instead of spending cuts. Advocates of a clean BBA point out that with every provision in a BBA, it becomes harder to find the votes for a two-thirds supermajority needed to vote the BBA out of Congress and propose it to the states, where it would very likely be ratified in short order. Each of the provisions in the BBA currently proposed in Congress is there for a reason. The best version is Senate Joint Resolution 10 , the Hatch-Lee version, which has eleven sections. Section 8 of the BBA in S.J.R. 10 specifies that no federal or state court can order a revenue increase under this amendment. In other words, it leaves open the possibility that political gridlock between the elected branches might result in a court cutting federal spending, but never hiking taxes. This is critically important. Federal judges hold their offices for life to insulate them from politics so that they can faithfully uphold the Constitution and laws, even when extremely unpopular. This is especially vital when public outcry pushes Congress and the president to do something unconstitutional, leaving judges free to strike it down. But to grant judges the power to raise taxes would be antithetical to the constitutional design of political accountability for taxes. It would create a perverse incentive for members of Congress who wanted to raise taxes but were politically vulnerable to foster gridlock on spending battles, then let the courts do their dirty work for them by increasing taxes to make up the shortfall. So the bottom line is that the only type of “clean” BBA that should even be considered is a second variety. In addition to specifying that revenues must exceed spending, it must also retain the current Section 8 that no judge has power to raise taxes. America’s problem is our debt, not our debt ceiling. We desperately need a BBA to tackle our debt. But a BBA that allows judges to hike taxes would be even worse than the status quo. Given how horrible the status quo is, that’s quite a statement. Ken Blackwell and Ken Klukowski are on the faculty of Liberty University. They are the best selling authors of Resurgent: How Constitutional Conservatism Can Save America.

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Debt Ceiling Deal In The Works, Default At Stake

July 31, 2011

WASHINGTON — The U.S. Senate plunged on Sunday into what many lawmakers and the White House – and millions of Americans coast to coast – hoped would be an all-but-decisive last-minute effort to raise the nation’s debt ceiling and defuse a crisis that still could lead to an unprecedented government default. As senators began debate in a rare Sunday session – just hours after Saturday night’s concluded – Democratic leader Harry Reid said he was “cautiously optimistic” agreement could be reached. But first, in a partisan vote, the Senate rejected an effort to advance a Democratic approach to resolving the debt issue. The vote was 50-49, or 10 short of the 60 votes needed to move forward on legislation proposed by Reid that would have carried out $2.2 trillion in deficit reduction over 10 years while raising the debt ceiling by $2.4 trillion. The outcome of that vote did not directly affect the behind-the-scenes negotiations on a compromise. Immediately afterward, Reid told fellow senators that while they were “not there yet,” a vote on a possible compromise could still happen Sunday. “We are hopeful and confident it can be done.” Senate Republican leader Mitch McConnell, a key player in the negotiations, said as he headed back to his office that the sides were “really, really close.” Tuesday is the deadline for averting default, the day the Treasury says it will reach the limits of its borrowing authority to pay all the nation’s bills. McConnell, R-Ky., said earlier on the Sunday talk shows that negotiators were looking at a deal that would cut spending by some $3 trillion over the next decade while raising the debt ceiling through 2012 in a two-stage process. A Democratic official, speaking on condition of anonymity to discuss the private talks, said Vice President Joe Biden had been on the phone with McConnell multiple times over the preceding 24 hours. Biden has remained a key negotiator for the White House following the more public role he had earlier in leading several weeks of debt talks with lawmakers. Appearing on CNN and CBS, McConnell said he hoped to soon be able to present to his fellow Republicans an agreement “that they’ll consider supporting.” That agreement would include raising the debt ceiling, cutting spending by some $1 trillion initially and creating a joint committee of members of Congress that would look at a larger plate of cuts including tax and entitlement changes. Sen. Chuck Schumer, D-N.Y., a member of the Democratic leadership, told CNN that while “there is no final agreement,” there was a sense of relief that the two sides were finally working on a compromise plan. Schumer later told CBS that one of the last sticking points is the creation of a “trigger” mechanism that would hit priorities of both parties if the committee does not come up with a plan for further deficit reduction. Among the trigger ideas being discussed are automatically reducing spending on entitlement programs such as Medicare along with closing tax loopholes or reducing defense and non-defense programs by an equal amount. “It should be equally tough on Democrats and Republicans,” Schumer said. McConnell said the bipartisan committee, which would be asked to come up with a plan by Thanksgiving, would have a “broad mandate” to look at all aspects of government finance, including tax reform. McConnell said he had talked to both President Barack Obama and Biden on Saturday. “I particularly appreciate that we are back talking to the only person in American who can sign something into law, and that’s the president of the United States,” he said. McConnell said the deal being worked on, while raising the debt ceiling in two stages, would satisfy Obama’s demand that there not be another divisive debate before next year’s election. The scenario being discussed would raise the debt ceiling unless there is a two-thirds majority in both houses of Congress to reject it. McConnell said that there would be no tax increases in the deal, and White House National Economic Council Chairman Gene Sperling, on CNN and Fox, said there would be no revenue increases over the next year and a half. But while keeping higher taxes out of the deal was the top priority of many Republicans, it’s still going to be a task for McConnell to sell any agreement to his caucus. Sen. Lindsey Graham, R-S.C., said on ABC that this would be the first time that he could remember that the nation is paying for future debt increases dollar-for-dollar and that “from the Republican Party’s point of view, I think we can declare victory in a limited fashion.” But he said that even with the agreement the national debt will continue to rise and “I don’t know where I’m going to land” on a vote. “From a big picture,” Graham said, “I’m not ready to vote for this.” On the House side, where GOP conservatives have pushed their party toward greater cuts and linking future debt ceiling raises to passage of a balanced budget amendment, a leadership aide said that while the negotiators appeared to be heading in the right direction, no agreement will be final until members have a chance to weigh in. Sperling said Obama has presented three principles that the final package must meet: a significant down payment on deficit reduction, major entitlement and tax reform at a later date, and an end to the uncertainty created by the threat of the nation’s defaulting on the debt. He said the nation doesn’t want to “go through this mess again around the holidays.” Under the proposed agreement, Congress would also have to vote on a constitutional amendment requiring a balanced federal budget, a top-flight GOP goal. Unlike a bill approved Friday by the Republican-run House, none of the debt limit increase would be tied to congressional approval of that amendment. Details of a possible accord began emerging Saturday night after Reid, D-Nev., said on the Senate floor that the two sides were trying to nail down loose ends and complete an agreement. “I’m glad to see this move toward cooperation and compromise, and hope it bears fruit,” he said. A Democratic official said that while bargainers were not on the cusp of a deal, one could gel quickly. A Republican said there was consensus on general concepts but cautioned there were no guarantees of a final handshake. Both spoke on condition of anonymity to reveal details of confidential talks. Any pact would have to quickly pass both chambers of Congress after a rancorous period that has seen the two parties repeatedly belittle each other’s efforts to end the standoff. Even so, the deal under discussion offers wins for both sides. Republicans and their tea party supporters would get spending cuts at least as large as the amount the debt ceiling would grow and avoid any tax increases. For Obama and Democrats, there would be no renewed battle over extending the borrowing limit until after next year’s elections. Under the possible compromise, the debt limit would rise by an initial $1 trillion. A second, $1.4 trillion increase would be tied to a specially created congressional committee that would have to suggest deficit cuts of a slightly larger amount. If that panel did not act – or if Congress rejected their recommendations – automatic spending cuts would be triggered that could affect Medicare and defense spending, two of the most politically sacrosanct programs. The government has exhausted its $14.3 trillion borrowing limit and has paid its bills since May with money freed up by accounting maneuvers. McConnell and Schumer appeared on CNN’s “State of the Union” and CBS’ “Face the Nation” while Graham spoke on ABC’s “This Week.” Sperling appeared on “State of the Union” and “Fox News Sunday.” ___ Associated Press writer David Espo contributed to this report.

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Voters Play Role In Debt Ceiling Standoff

July 31, 2011

WASHINGTON — Dear voter: Want to know why Democrats and Republicans in Congress find it so hard to work together to solve tough problems like the debt ceiling, health care and Social Security? Look in the mirror. Americans gripe about cowardly, self-serving politicians, and Congress doubtlessly has its feckless moments and members. But voters are quick to overlook their own role in legislative impasses that keep the nation from resolving big, obvious, festering problems such as immigration, the long-term stability of Medicare, and now, the debt ceiling. Here’s the truth: The overwhelming majority of senators and House members do what their constituents want them to do. Or, more to the point, they respond to people in their districts who bother to vote. Nothing is dearer to politicians than re-election, and most have a keen sense of when they are straying into dangerous waters. For a growing number of senators and representatives, the only risk is in their party’s primary, not in the general election. Most voters, and many news outlets, ignore primaries. That gives control to a relative handful of motivated, hard-core liberals (in Democratic contests) and full-bore conservatives (in GOP primaries). In politically balanced districts, a hard-right or hard-left nominee may have trouble in the general election, when many independent and centrist voters turn out. But many House districts today aren’t balanced, thanks largely to legislative gerrymandering and Americans’ inclination to live and work near people who share their views and values. The result is districts so solidly conservative that no GOP nominee can possibly lose, or so firmly liberal that any Democratic nominee is certain to win. In these districts, the primary is the whole ball game. Republican lawmakers are under constant pressure to drift to the right, to make sure no fire-breathing conservative outflanks them in a light-turnout primary dominated by ideologues. The same goes for Democrats on the left. So who turns up on Capitol Hill for freshman orientation? Democrats and Republicans who can barely comprehend each other’s political viewpoints, let alone embrace them enough to pursue a possible compromise on big issues. But what if a Republican and Democrat do decide to meet halfway in hopes of finding, say, a path to shore up Social Security for decades to come. What can they expect? In some states and districts, they can expect to be drummed out of their party for the crime of engaging with “the enemy.” That’s what happened last year to Bob Bennett of Utah, a mainstream conservative Republican senator. A relatively small number of conservative activists, led by tea partyers, bounced him from the ticket at a GOP convention. They taunted Bennett with chants of “TARP, TARP.” He had voted for the bipartisan bank bailout legislation pushed by Republican President George W. Bush. The Senate’s GOP leaders also voted for the bill. But it was an unacceptable compromise in the eyes of Utah Republicans picking their Senate nominee. In Alaska, GOP primary voters also kicked Sen. Lisa Murkowski off their ballot. She barely saved her seat with a scrappy write-in candidacy. Murkowski supported the bank bailout and, admittedly, is more moderate than the average congressional Republican. But her improbable write-in victory proved she is popular with Alaskans in general, even if her own party rejected her in the primary. Tea party leaders spell out a warning in their periodic Washington rallies. “The message is that we’re watching, and we want you to vote based on our core values,” Mark Meckler, a co-founder of the Tea Party Patriots, said at one such event. When Democratic leaders were struggling earlier this year to strike a budget deal and avert a government shutdown, Phil Kerpen of the conservative group Americans for Prosperity said sharply, “No Republican better help them.” The crowd cheered loudly. Such threats are mainly aimed at Republicans for now, largely because of the tea party’s rapid rise. But Democratic lawmakers also know liberal discontent might undo them if they stray too far to the center. “It’s astounding how often some Democratic leaders sacrifice principles when critical issues are at stake,” said a writer for the liberal AmericaBlog. The column rebuked Sen. Dick Durbin, D-Ill., for working with the bipartisan “Gang of Six” on a debt-reduction plan. A McClatchy-Marist poll this year found that 71 percent of registered voters want political leaders in Washington to compromise to get things done. If those voters skip key primaries, however, they may have little say in the matter. Political enthusiasts, whether they wear peace signs or “Don’t Tread On Me” T-shirts, will determine who gets elected in many districts before a wide swath of Americans even notice it’s an election year. Except for a recently appointed senator from Nevada, every member of Congress got there the same way: American voters elected them. People may bristle at the notion that we get the government we deserve. But there’s no denying we get the government we elect.

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Geoffrey R. Stone: The Debt Ceiling Crisis: Approaching the Witching Hour

July 30, 2011

As the clock runs down toward the witching hour on August 2, I see three possible solutions to the crisis. First, the Republicans and Democrats in Congress can agree on a compromise plan that raises the debt ceiling for a reasonable period of time and deals with at least some of the issues of spending cuts and new revenues that have thus far so furiously divided the parties. I suppose this is still possible, but it seems unlikely. Second, the Republicans and Democrats in Congress can agree to increase the debt ceiling for a reasonable period of time without addressing any of the bitterly divisive spending and revenue issues . This is pretty much what has always happened in the past. Congress has separated the debt ceiling issue from the more difficult and more contentious issues of taxing and spending. At this point, that might be the best solution, but it too seems unlikely because of Republican intransigence. Third, Congress can remain paralyzed and simply do nothing. If they follow that approach, which now seems likely, the current debt ceiling will remain in place and as of August 2 the government will not be able to borrow any more money and thus will no longer be able to pay its bills — for the first time in American history. What happens then? The most obvious outcome is that for as long as that state of affairs exists, the president will have to decide which bills to pay and which to ignore. In other words, the president would have to decide whether to suspend Medicare payments, cancel Social Security payments, withhold the salaries of government employees (including the military), default on our debt obligations, etc. With each passing day, the spending cuts would need to be deeper and deeper. Some people have argued that, even if Congress does not raise the debt ceiling, these cuts and non-payments don’t have to happen, because the president can ignore Congress’ action and just keep on borrowing to pay the nation’s bills. Some have argued that a little-noticed provision in section 4 of the Fourteenth Amendment authorizes precisely this course of action. This provision states : “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” This provision of the Fourteenth Amendment, which was enacted shortly after the Civil War, was intended, in part, to prevent the former Confederate states, when they resumed their positions in Congress, from attempting to cause the federal government to renege on the debts the Union incurred to put down the “rebellion.” A careful reading of the text, however, reveals that the provision goes well beyond that. It does not say that the validity of the public debt incurred to put down the rebellion “shall not be questioned,” but that the public debt more generally “shall not be questioned,” citing the Civil War issue as merely an illustration. So, what is the relevance of section 4 to the current crisis? What it seems to say is that the government must honor all public debt “authorized by law.” This suggests that non-payment of our existing debt is not a constitutionally-permissible option for the president. As a result, in making spending cuts beginning on August 2, the President apparently cannot constitutionally decide not to pay our outstanding debt. Rather, all of the cuts must come from ongoing expenditures. This would, of course, dramatically magnify the impact of the crisis on government programs, services and operations. Faced with this dilemma, what is the president to do? There are those who argue that this entire controversy is much ado about nothing, because the President can simply “raise the debt ceiling on his own.” They argue that, in light of “the president’s role as the ultimate guardian of the constitutional order,” President Obama should disregard Congress’ failure to authorize additional debt and assume the authority to do the “right thing” for the nation. As Justice Robert Jackson observed more than half a century ago, “the Constitution is not a suicide pact.” This is a dangerous argument. Its proponents point to the one dramatic instance in American history in which a president openly exercised this extraconstitutional authority. (President Bush II, by the way, attempted to exercise this authority secretly when he authorized the use of torture and the NSA surveillance program in violation of federal law.) But that earlier instance, involving President Abraham Lincoln, was quite a different situation. It arose at the very outset of the Civil War, when Union troops needed to get to the nation’s capital to protect it from possible Confederate attack. Confederate sympathizers in Maryland were tearing up the railroad tracks in order to prevent the Union troops from moving south to the capital. Because the local authorities, who were sympathetic to the Confederates, did nothing to prevent this interference, the only way to end the obstruction was for Lincoln to suspend the writ of habeas corpus and authorize the military to arrest and detain those who were preventing the army from reaching Washington. The problem was that the Constitution authorizes only Congress to suspend the writ of habeas corpus. But Congress was not in session, and in 1861 it could not be convened quickly. Faced with this crisis, historians and legal scholars agree that Lincoln was justified in doing what he did, even though it was not expressly authorized by the Constitution. Even if one thinks that the danger to the national interest today is comparable to that facing Lincoln in 1861, the situations are importantly different. Today, Congress is in session and is refusing the raise the debt ceiling, even though it could easily do so. Because the Republicans in Congress refuse to do this, President Obama (unlike Lincoln) is faced with a “decision” by Congress. It may be a reckless and irresponsible decision, but it is a decision and it is much harder to justify ignoring a decision than to act in a situation where no congressional action was possible. Having said this, I think the president is likely to (and should) take control of the situation and do the “right thing” for the nation, even though he has no express constitutional authority to do so. But to suggest that this crisis is much ado about nothing because the president can avoid a calamity by extra-constitutional means, and by doing something that no other president in American history has been called upon to do, is absolutely no excuse for the conduct of the Republicans in bringing us to this point. Moreover, even if the president does this, there may be serious repercussions. First, the Republicans in the House may well attempt to impeach the president for acting “unconstitutionally.” Even though this would go nowhere in the Senate, the very act of impeachment would exacerbate the dire state of politics in the United States today. Second, there will almost inevitably be litigation challenging the constitutionality of the president’s action. (Note that in 1861, Chief Justice Taney held Lincoln’s suspension of the writ of habeas corpus in Maryland unconstitutional and ordered him to lift the suspension. Lincoln ignored the Taney’s ruling.). Is that a crisis we want to repeat? The plain and simple reality is that unless the Republicans agree to raise the debt ceiling in the next two days, they will throw the nation into a constitutional and economic nightmare. If nothing else, they should have enough sense and self-discipline to know that they will pay dearly for this with the American people.

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New Dem Star Previews 2012 Argument In Debt Default Debate

July 30, 2011

WASHINGTON — The debt-ceiling battle may be a bitter fight in which the entire nation stands to lose, but Friday’s House vote also revealed that Democrats think it can hand them a winning political argument next year. They made that plain in their choice of a lawmaker to deliver the Democratic closing argument : newly-elected Rep. Kathy Hochul (D-N.Y.). Usually a party lion or leader offers the “motion to recommit” where the minority has its last chance (usually failing) to alter a bill it opposes. But Democrats went to Hochul to follow Speaker John Boehner (R-Ohio) on the floor instead of Minority Leader Nancy Pelosi (D-Calif.). The reason is simple: Hochul won a heavily Republican district last May in western New York by running hard against the Ryan budget — the spending blueprint passed last spring by the House Budget Committee’s chairman, Paul Ryan (R-Wis.), that would slash and privatize Medicare. It would cost Medicare recipients an extra $6,000 a year by 2021 if the measure passed the Senate, according to the Congressional Budget Office. Democrats think Hochul’s campaign is a model for 2012 — and they think the budget-cutting measure passed by the House Friday is an even better foil to run against. They’ve dubbed it the Ryan budget on steroids , estimating that it would cost people $2,500 more per year for Medicare than with Ryan’s plan. Further, Democrats argue Boehner’s debt bill could even kill Medicare. So when Hochul rose for permission to speak Friday and was asked by the chair if she opposed the Boehner bill, she answered with enthusiasm. “Oh, yes, I am opposed to this bill,” Hochul said. She then introduced her party’s attempt to modify it. It was an amendment that, like Hochul herself, embodied the Democratic argument that the super rich and corporations should give up some of their tax breaks before the government could cut things like programs for children and the elderly. “My amendment is a simple statement of America’s priorities,” Hochul said. “It says before we cut education for our children, we first must cut subsidies for big oil and corporate jets.” She used the phrases “big oil” and “corporate jets” repeatedly, in a sign Democrats see those talking points as effective. “I say slashing programs for seniors, young people, [the] middle class — all because we’re afraid of the influence of big oil — that is wrong on so many levels,” she said. And she lambasted Republicans for “playing chicken” with America’s economy by holding the raise in the debt limit captive to massive cuts in domestic spending. âNever, never in this history [of America] has there been an intentional disaster, perpetrated by the very people who were elected to be the caretakers of this country, and that is exactly what will happen if we refuse to take action, prevent default and pay our nationâs bills now,â Hochul said. Republicans on the floor did not appear impressed, and even could be heard laughing at Hochul — who has been in her office only since June — when she hit her time limit before finishing remarks about reaching out to the other side. But the National Republican Congressional Committee saw the campaign potential of her speech, and thought enough of it to blast right back with a statement that her charges were irresponsible and that Democrats would be to blame for default if they refused to accept the GOP spending priorities. âKathy Hochul should take a serious look in the mirror because her ânoâ vote stands in the way of forcing Washington to live within its means and preventing default,” said NRCC spokesman Tory Mazzola. “Hochul should be ashamed of herself for using such inflammatory rhetoric thatâs not based in fact and puts party loyalty ahead of fixing our nationâs problems.â Hochul’s side, however, thought she got the message across. “Congresswoman Hochul has already distinguished herself as a member of Congress as an independent champion for the seniors and middle class families of upstate New York,” Pelosi spokesman Drew Hammill told HuffPost. “Democrats are united in opposition to the Republican Default Act and Congresswoman Hochul crystalized the concerns of her constituents with this motion on the House floor.”

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11 Ways To Explain The Stakes Of A Debt Ceiling Debate

July 30, 2011

With the reported deadline to do raise the debt ceiling drawing ever closer, Washington has yet to come to terms on a deal to do so — this despite months of warnings from prominent politicians and businessmen alike, both of whom say not doing so could be potentially disastrous. No doubt the reasoning behind the invoked metaphors is to allow the involved parties to understand the stakes at hand. But throughout the months, a few particularly imaginative selections have stood out, either for the number of times used, or just sheer creativity. Indeed, the number of colorful metaphors sprinkling the political debate has now become no less than expansive. President Obama himself has referred to raising the debt ceiling as staving off “Armageddon.” Others, including Chinese officials, have described the entire decision to debate raising the debt ceiling as “playing with fire.” Some though, like Texas Governor Rick Perry, say the consequences of not raising the debt ceiling have been overstated. Below are prominent leaders who have predicted the consequences of not raising the debt ceiling and potentially defaulting:

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Senate, House Race Against The Clock

July 30, 2011

WASHINGTON — The Republican-led House on Saturday rejected a Senate Democratic bill to raise the nation’s debt limit just three days before the deadline to avert an unprecedented U.S. financial default. President Barack Obama and lawmakers remained at loggerheads on any possible compromise. With tensions high at a rare weekend session, the legislation failed on a 246-173 vote that was largely symbolic. The Senate has yet to vote on the bill. Saturday’s result, however, could pave the way for negotiations on a compromise with Tuesday’s deadline on the government’s ability to pay its bills fast approaching. Senate Democratic Leader Harry Reid, D-Nev., and House leader Nancy Pelosi, D-Calif., were heading to the White House late Saturday. Obama, in his weekly radio and Internet address, warned that “there is very little time” and pleaded with both Republicans and Democrats to stop political gamesmanship. “The time for compromise on behalf of the American people is now,” Obama said. Pelosi, for her part, told the House it was “time to end this theater of the absurd. It’s time for us to get real.” Resolution remained elusive. Some 43 Senate Republicans said they opposed the Democratic bill by Reid. His alternative measure would raise the debt limit by $2.4 trillion while cutting spending by $2.2 trillion. In a letter to Reid, they wrote that the bill “fails to address our current fiscal imbalance and lacks any serious effort to ensure that any subsequent spending cuts are enacted.” The 43 are enough to block passage of Reid’s bill. Setting the stage for the high-stakes weekend, Senate Democrats late Friday killed a House-passed debt-limit increase and budget-cutting bill less than two hours after it squeaked through the House. Reid set up a test vote for the wee hours of Sunday morning to break a GOP filibuster on his own legislation. Saturday’s debate in the House was heated and sometimes nasty, with occasional efforts to shout down speakers. Rep. Sander Levin, D-Mich., railed against the “pernicious nonsense” from Republican Rep. David Dreier of California. Freshman Rep. Alan Nunnelee, R-Miss., said, “This Harry Reid plan offers no real solutions to the out-of-control spending problems.” Countered Rep. Jim Clyburn, D-S.C.: “The clock is ticking and Republicans are continuing to play political games.” Rep. Jerry Lewis, R-Calif., read a statement that then-Sen. Barack Obama had delivered years ago against raising the debt limit. House Democrats said they would put aside their resistance to legislation that makes deep spending cuts and back the measure in a show of strength that could improve Reid’s leverage in negotiations. “There are some misgivings, but it’s the only game in town,” said Rep. Gerald Connolly, D-Va., as he emerged from an hour-long closed door meeting. Democrats, Republicans and the White House, meanwhile, were expected to be deep in conversation in hopes of a potential compromise. Senate GOP leader Mitch McConnell of Kentucky was likely to play a pivotal role. The outcome of the weekend endgame was anything but clear as Democrats and Republicans remained at odds over how to force lawmakers to come up with additional budget savings later this year beyond the almost $1 trillion in agency budget cuts over the coming decade that they basically agree on. At the start of the Senate’s session Saturday, Reid appealed to Republicans to work with him on his proposal, particularly McConnell. “We’re willing to listen to Republican ideas to make this proposal better, but time is running short,” Reid said. McConnell said the Reid plan wasn’t “going anywhere. Senate Republicans refuse to go along with this transparently political and deeply irresponsible ploy to give the president cover to make our debt crisis even worse than it already is.” After a brutal week on Wall Street – investors lost hundreds of billions of dollars as the markets lost ground every day – pressure is intense to produce an accord before the Asian markets open on Sunday afternoon. The House measure squeaked through on a 218-210 vote, with 22 Republicans joining united Democrats in opposing the GOP measure, which pairs an immediate $900 billion increase in U.S. borrowing authority along with $917 billion in spending cuts spread over the coming decade. Friday’s roll call came after Boehner had been forced to call off a vote slated for Thursday in the face of tea party opposition to the measure. He added a provision requiring that a second, up to $1.6 trillion debt increase be conditioned on House and Senate passage of a balanced-budget amendment to the Constitution, which would require an unrealistic two-thirds vote by each chamber to send it to the states for ratification. Boehner’s move only cemented Democratic opposition to the measure and complicated prospects for a weekend compromise that could clear both houses and win Obama’s signature by next Tuesday’s deadline. And by appeasing the tea party by adding the balanced-budget amendment poison pill, Boehner seemed to hand endgame leverage to Reid and Obama. Boehner said the House bill – before the addition of the balanced-budget amendment – mirrored an agreement worked out with Reid last weekend. Still, as soon as the measure reached the Senate side of the Capitol, Senate Democrats scuttled it. The vote was 59-41, with all Democrats, two independents and six Republicans joining in opposition. Reid’s alternative measure would raise the debt limit by up to $2.4 trillion, enough to meet a demand by Obama that the increase be sufficient so that Congress doesn’t have to wrestle with it again until 2013. Administration officials say that without legislation in place by the end of Tuesday, the Treasury will no longer be able to pay all its bills. The result could inflict significant damage on the economy, they add, causing interest rates to rise and financial markets to sink. Executives from the country’s biggest banks met with U.S. Treasury officials to discuss how debt auctions will be handled if Congress fails to raise the borrowing limit before Tuesday’s deadline. ___ Associated Press writers Donna Cassata and David Espo contributed to this story.

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America’s Troubled Economy, Debt Ceiling Stalemate Worry Allies

July 30, 2011

BEIJING — America’s debt crisis and economic malaise are shaking confidence in its global leadership. Many governments see Washington’s paralysis as political theater ahead of a presidential election and wonder how American hardliners can be allowed to hold up a deal and bring a globalized economy to the brink. International bankers are concerned that a U.S. default would cause a crash of the dollar, the world’s reserve currency, battering economies from Asia to Africa and possibly sparking political unrest. Already, U.S. trade partners are worried about depending too heavily on one country and looking to diversify, just as China is expanding into Latin America and other markets historically dominated by the U.S. Across the globe, allies fear that the drama between Republicans and Democrats has eroded U.S. credibility, further weakening the superpower’s ability to exercise influence in the Middle East and other trouble spots. Officials interviewed around the world said the United States at the moment is failing to lead by word, deed and example. “You can’t put your house in order being the global economic power?” Ishrat Husain, former governor of the State Bank of Pakistan, asked rhetorically. “How can you expect others to do that?” Most officials and economic analysts who were interviewed expressed guarded optimism that American leaders would reach a last-minute agreement to raise Washington’s debt limit and avoid a government default by an Aug. 2 deadline. Most took for granted that the sheer size of the world’s biggest economy, together with U.S. military might and the fact that no other government is poised to take Washington’s place, means it will remain a leading power for the forseeable future. “I think nothing will shake the basis of our alliance,” said a South Korean deputy defense minister, Lim Kwan-bin, when asked whether Washington’s problems might weaken its 60-year military partnership with Seoul. This week, Secretary of State Hillary Rodham Clinton tried to reassure Asian governments during a trip to the region. In Hong Kong, she said the debt debate was “messy” but was the way a democracy reaches “the right solution.” Maybe so. But still few doubted that the debt crisis is taking its toll on U.S. prestige and influence. The showdown is playing out in a world that began to change in earnest with the U.S. financial crisis in 2008, when emerging economies such as China, Brazil and South Africa began to challenge Washington’s status as the lone superpower and to assume a greater voice in global affairs. Central banks around the world have been moving out of dollars and into other currencies, a trend that would likely accelerate if a U.S. debt crisis diminishes the status of Treasury debt, traditionally one of the lowest-risk investments. “The turmoil we’re seeing will pose the question of the (role of the) U.S. dollar in the international monetary system in a much more acute form than we’ve seen before,” said Said Nasser Saidi, a former Lebanese trade minister and chief economist for Dubai’s government-run Dubai International Financial Center. China, the largest foreign holder of U.S. Treasury debt, has appealed for Washington to act responsibly and protect investors. The Chinese government has stayed silent on the strategic implications of the U.S. financial struggles, perhaps because it is torn between its ambitions and economic necessity. Beijing wants Washington to reduce its military presence in Asia and has called for a global currency to replace the dollar. But China also depends on Americans to buy Chinese exports, and owns $1.1 trillion in Treasury debt, or about 8 percent of the total U.S. debt. “China has not made any linkage (between debt and other issues) to exert pressure against the United States,” said Shi Yinhong, director of the American Studies Institute at Beijing’s Tsinghua University. Nissan Motor Corp., meanwhile, unveiled an $8 billion plan this week to double annual sales in China and reduce reliance on the sluggish American market, just one of many companies shifting emphasis to fast-growing developing markets. Mexican Treasury Secretary Ernesto Cordero said that while the United States will always be one of his country’s primary economic partners, it is “simply a matter of economic common sense” that Mexico must continue diversifying its export markets. A delay in the U.S. economic recovery, he said in response to written questions, “would obviously imply that this process of diversification of Mexican exports would take place even more quickly.” Allies say it is not in anyone’s interest for the U.S. economy to tumble. Anti-terror partners in Pakistan worry about the loss of badly needed aid. Protagonists of the Arab Spring foresee political paralysis. Israelis and South Koreans fear that a weakened United States will relieve pressure on North Korea and Iran to rein in their nuclear ambitions. “It threatens the position the U.S. holds in the world,” said Israeli lawmaker Danny Danon, a member of Prime Minister Benjamin Netanyahu’s Likud party. If the United States “shows weakness, then it can cause other countries to take action. This can be a major issue with Iran and the terror organizations that it sponsors.” In Europe, whose financial markets are fragile after bailing out Greece, economic analysts warned that a U.S. debt default could lead to a broader crisis. “The risk is a very big increase in the rate of interest, and to destroy parts of the banking system,” said Charles de Courson, deputy chairman of the finance committee in the French National Assembly, its lower house of parliament. This could provoke “an economic crisis, and then a social crisis, and then a political crisis.” Historically, more debt means less influence in the world, de Courson added. “The country that has been dominant begins to be less dominant, then not dominant….It was true of Great Britain after the First World War. It was the case for France after the Second World War,” he said. The United States is a major market for European companies, and cooperation with Washington on security has been a pillar of European politics since the Cold War. Following the costly U.S. wars in Iraq and Afghanistan, Europeans already are shouldering more of the expense of global policing and security, such as enforcing a no-fly zone against Libyan leader Moammar Gadhafi and carrying out air strikes against his forces. Germany’s former finance minister, Hans Eichel, says the United States “owes itself and the world” a long-term, sustainable solution to its debt problems. “The irreconciliability of the political camps, the struggle with every means against an internationally respected president, increasingly endangers the position and influence of America in every area.” Eichel served in the left-of-center government of Social Democratic Chancellor Gerhard Schroeder at a time of strained relations with Washington over the 2003 Iraq invasion. He supports U.S. efforts to control its debt, but criticized Obama’s Republican opponents for opposing tax increases as too risky. A debt default “would mean that the USA is no longer seens as a reliable economic power – fatal for the global economy, since it concerns the biggest economy on Earth,” Eichel said. “And there’s nothing we need more in these times of crisis more than reliability and stability.” ___ Associated Press writers Adam Schreck in Dubai, Nahal Toosi in Islamabad, Kristen Gelineau in Sydney, Eric Talmadge and Yuri Kageyama in Tokyo, Ian Deitch and Aron Heller in Jerusalem, Hyung-jin Kim in Seoul, Teresa Cerojano and Jim Gomez in Manila, Yinka Ibukun in Lagos, Nirmala George in New Delhi, Sameer N. Yacoub in Baghdad, David McHugh in Frankfurt and Katherine Corcoran in Mexico City contributed.

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Joint Chiefs Chairman: ‘I Don’t Know’ Whether Troops Will Get Paid

July 30, 2011

CAMP LEATHERNECK, Afghanistan — A half a world away from the Capitol Hill deadlock, the economy and debt crisis are weighing heavily on U.S. troops in Afghanistan. And the top question on their minds Saturday even as bombings rocked the city around them, was one the top U.S. military officer couldn’t answer. Will we get paid? “I actually don’t know the answer to that question,” Adm. Mike Mullen, chairman of the Joint Chiefs of Staff, told a group of troops, while at the same time telling them they will continue to go to work each day. But he offered a bit more optimism than defense officials have acknowledged when those questions have come up in recent weeks. “I have confidence that at some point in time, whatever compensation you are owed, you will be given,” said Mullen, who is making his 15th trip to Afghanistan, just two months before he retires. But, he noted, “There are plenty of you living paycheck to paycheck so if paychecks were stopped it would have a devastating impact very quickly.” Questions on military spending and how the ongoing budget struggles will impact them dominated the morning meeting at the Kandahar base, and it was the first one Marines asked when he moved on to Camp Leatherneck later.. Troops pressed Mullen on how much the Pentagon is spending on contractors, when many tasks could be done by military members. They questioned whether the budget pressures will focus on pay or equipment and other acquisition. They bemoaned what it could cost to implement the new policy repealing the ban on openly gay men and women serving in the military. And they wondered if their retirement pay was safe. For his part, Mullen said the cost of repealing the gay ban was very limited. And he said there were no immediate plans to affect retirement benefits. Mullen was visiting troops across southern Afghanistan on Saturday, a region that has been pummeled by violence and suicide attacks in recent weeks. But there were only a smattering of questions on the military strategy or the planned withdrawal of U.S. troops from Afghanistan, which is beginning with a 10,000 drawdown by the end of this year. Instead, it was all about money and job. Mullen warned the troops that as time goes on, budget restrictions will pare down the size of the military, and he told them to keep that in mind as they pursue their education and try to further their careers so they will have a better chance of re-enlisting. But in the end, he punted the questions back to Capitol Hill. Asked whether Congress members would cut their own benefits if they acted to cut military pay, Mullen triggered chuckles when he recommended the troops e-mail their representatives with that query. “They’re the ones that can answer that particular question,” he said at a town hall-style gathering of soldiers in Kandahar.

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‘Sen. Tea Party’ Drives Debt Ceiling Fight

July 30, 2011

WASHINGTON — He calls himself Sen. Tea Party. That almost says it all about Sen. Jim DeMint’s role on the nation’s political scene in these nervous days of debt limit warfare and pre-election posturing. But unlike the fractious movement as a whole, DeMint is specific and focused on what change, exactly, he wants: passage – not just a vote – of a balanced-budget amendment to the Constitution. Without it, he says, no consideration should be given to raising the nation’s borrowing limit. Even, he says, if the country runs out of money for paying all its bills after Aug. 2. The larger problem for DeMint is the government’s $14.3 trillion debt, the equivalent of $46,580 for every man, woman and child in the U.S. “That is the threat, not a debt ceiling, but the debt,” the South Carolina senator told a tea party audience this week at a Capitol Hill rally. DeMint’s preference for conservative principles over compromise – and his success last year getting tea partyers nominated over some GOP party favorites in last year’s elections – have vexed Republican leaders. Some in the GOP complained that while DeMint’s activities may have won like-minded conservatives several seats in Congress, they also enabled Democrats to keep some vulnerable seats and maintain their majority. His insistence on a balanced-budget amendment as part of any debt deal was the inspiration for several House Republicans – some of them also from South Carolina – to force Speaker John Boehner to pull his own debt-ceiling proposal and amend it to their liking so it could win passage in the House Friday evening. Within two hours, the Senate rejected it. Six Republicans joined all of the majority Democrats in doing it. Earlier in the week, Arizona Republican Sen. John McCain, the Republicans’ presidential nominee in 2008 and one of the party’s biggest maverick, disparaged the tea party by name and DeMint implicitly for acting is if a balanced-budget amendment could be passed as part of a debt-ceiling increase under such a tight deadline. “Maybe some people (who) have only been in this body for six or seven months or so really believe that,” said McCain, a balanced-budget amendment supporter himself. “Others know better.” DeMint’s support for like-minded candidates in GOP primaries has boosted his influence in the party since his election to the Senate in 2004. Earlier this month, moderate Republican Sen. Olympia Snowe of Maine co-authored an opinion piece in The Wall Street Journal with DeMint, giving her re-election campaign some conservative credibility in the face of a challenge from the right. Sen. Orrin Hatch, who watched his fellow Utah Sen. Robert Bennett fall to a tea party challenge in 2010, is actively courting the populist movement more than a year out from Election Day. And Senate Minority Leader Mitch McConnell, long an unapologetic defender of the special spending “earmarks” that DeMint deplores, switched and embraced the earmark ban now in effect. The man behind the revolutionizing is a 59-year-old grandfather who used to play drums in a band called Salt and Pepper but now sticks to the guitar. His mother once ran a school of dance and decorum out of his boyhood home in Greenville, S.C. He has little use, however, for many Washington rituals – backslapping, small talk, Sunday shows or fancy dinners with other political players. The former marketing executive, educated at the University of Tennessee and Clemson University, has been in Washington since 1999 but says he dislikes politics and will not run for a third Senate term. Washington’s titans have not embraced DeMint, either. In his new book, “The Great American Awakening,” DeMint writes of feeling unwelcome for years after his arrival in the Senate, including at a 2009 GOP caucus meeting in which he urged his colleagues to shake up the institution’s cherished seniority rules. More-senior senators got better shots at inserting federal dollars for home state projects into spending bills. DeMint was opposed to earmarks. Many of his GOP colleagues shunned him. “‘You can’t change the Senate,’” a colleague told DeMint. Frustrated, DeMint formed a fundraising committee for supporting candidates he considers true conservatives – and outing those he considers weak-kneed Republicans. His Senate Conservatives Fund ranks his colleagues on their positions. He considers the years of George W. Bush’s presidency an embarrassment because, even with a Republican in the White House and the GOP in control of both houses, the government drove up spending and debt. “I decided my work could no longer be with other senators,” DeMint wrote. “I would have to work with the American people to elect a new class of senators who would help me to stop the spending, debt and the expansion of the federal government.” He began building up GOP primary candidates who embraced his view of true conservative values: free trade; opposition to earmarks; a commitment to cut spending. The result was that these tea party (Taxed Enough Already) candidates took out some veterans in the primaries. Sen. Robert Bennett in Utah was defeated in a party convention by now-Sen. Mike Lee; Rep. Mike Castle of Delaware, a former governor, was defeated by Christine O’Donnell. McConnell’s preferred candidate for Senate in Kentucky, Trey Grayson, was defeated for the GOP nomination by DeMint’s pick, now-Sen. Rand Paul. Not all of the candidates backed by DeMint won Senate seats. O’Donnell lost to Democrat Chris Coons in Delaware. Underdog tea party candidate Joe Miller upset incumbent Sen. Lisa Murkowski in Alaska’s Republican primary, but Murkowski came back as an independent candidate and kept her seat in the November general election. DeMint said he didn’t care that some candidates he helped catapult to primary victories lost the general election, or that perhaps, as his Senate colleagues bitterly noted later, that those losses cost Republicans a Senate majority. He says he’d rather be in the minority than an unprincipled majority. So when the House on Friday passed Boehner’s debt limit bill with changes that would require Congress to pass a balanced-budget amendment before the next time Congress has to raise the debt limit, DeMint still voted against it in the Senate. The change also wasn’t good enough for four of South Carolina’s five Republican House members, who, like DeMint, insisted that Congress first pass the constitutional amendment as a condition for any debt-ceiling increase. “Principled conservatives may disagree on this matter, and I respect their opinion,” DeMint wrote, “But I believe America cannot wait any longer before we get serious about balancing the budget.”

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John Arensmeyer: Failure to Raise the Debt Ceiling is Bad for Business

July 30, 2011

Headlines have dubbed it “unthinkable,” and businesses small and large have urged lawmakers for months to agree soon to ensure the country doesn’t default on its debt. But next week’s August 2 deadline to raise the federal debt ceiling looms, and a recent deal that could have resolved the issue fell through because some lawmakers couldn’t abide elimination of special tax breaks used mostly by the most affluent. It’s alarming that lawmakers have taken the debate so close to the wire, considering the havoc a default would wreak on small businesses and the economy as a whole. With each passing day that politicians fail to make a deal, economic uncertainty grows, shaking the environment for small and large businesses alike. Unfortunately, the clock is still ticking and that last minute is fast approaching. There are myriad reasons why we must not default on the debt: skyrocketing interest rates, an across-the-board credit freeze–essentially total financial collapse. While much of the debate has focused on big businesses and Wall Street in particular, which have plenty on the line, small businesses will suffer even more from a default. Small businesses don’t have the means to weather an economic crisis in which many big businesses can thrive, as the aftermath of the recession has made abundantly clear. Many small businesses that already are scraping by in our sluggish economy are financed with variable-interest-rate loans – unlike the largest businesses, which can sell their own fixed-rate long-term bonds in the market. If the nation defaults and interest rates spike, those small businesses will be the first in the line of fire. While there were signs of progress last week talks fell through over the weekend. This is incredibly discouraging, considering lawmakers have a mere five days to reach agreement. Some of the proposals reduce the deficit through significant cuts and revenue-raising measures. Now that there is more than raising the debt ceiling on the table, lawmakers must realize the long reach of their decisions as they negotiate a deal. The choices they make now may have a large impact on our fragile economy’s fledging recovery. Key decisions must be pragmatic and carefully considered. If a deal doesn’t spread the burden fairly and evenly, the consequences could be almost as bad as missing the deadline and defaulting on our debt. Compromises that extend the debt limit for the long-term must be as balanced as possible. A final deal must include a mechanism that allows for revenue-raising measures to be included down the road. A plan offered by a bipartisan group of senators known as the “Gang of Six” provides a good framework to do this. They close inefficient corporate tax loopholes to raise revenue. That approach eases the burden on firms that now pay relatively more, especially small businesses. By doing this, business tax rates could be lowered to allow now-heavily taxed firms, including small businesses, to keep more of their profits in their pockets, helping them to expand, grow and thrive. Other measures being considered, such as curbing waste, fraud and abuse in Medicare and reforming the physician payment system, known as the “doc fix,” will also help stabilize the deficit without harming small businesses or depressing consumer spending–a key concern for entrepreneurs. Small business revenues, especially, were greatly reduced during the recession and have barely recovered. It’s crucial that any budget cuts included in a final compromise not slow small businesses’ sales. Doing so would stifle job growth and halt our economic recovery. Watching sound proposals fail because of today’s hyper-politicized environment in Washington is beyond frustrating. Some lawmakers are using small business as cover to protect tax breaks for the most affluent by claiming small business owners are included this group. In fact, the vast majority of entrepreneurs and even many highly taxed large businesses will not be affected if these breaks expire. Lawmakers are simply putting special interests above the success of our nation’s job creators. This situation must change. In the waning days before the August 2 deadline, lawmakers must put the nation’s economic solvency before partisan politics and remember the needs of the economy, dynamic businesses, and consumers as they negotiate. Many business owners simply won’t survive if they don’t. John Arensmeyer is the founder and CEO of Small Business Majority (SBM). SBM is a national nonpartisan organization, founded and run by small business owners, that brings the voices of America’s 28 million small businesses to the public policy table. Charles Kolb is the president of the Committee for Economic Development (CED). CED is a non-profit, non-partisan organization of more than 200 business leaders and university presidents. CED promotes policies to produce increased productivity and living standards, greater and more equal opportunity for every citizen, and an improved quality of life for all.

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Obama: Republicans Wasted ‘Precious Days’ On Boehner Debt Ceiling Plan

July 30, 2011

WASHINGTON (AP/The Huffington Post) — Claiming that the two parties aren’t that far apart, President Barack Obama is urging Democratic and Republican lawmakers to reach a deal quickly to keep the government from defaulting on payments to veterans, Social Security recipients and others. “Republicans in the House of Representatives just spent precious days trying to pass a plan that a majority of Republicans and Democrats in the Senate had already said they wouldnât vote for,” he said Saturday in his weekly radio and Internet address. Now, he said, “there is very little time” The Republican-controlled House on Friday passed a bill aimed at avoiding a debt default, voting 218-210 almost entirely along party lines. It pairs an immediate $900 billion increase in U.S. borrowing authority, needed for the government to keep paying all its bills, with $917 billion in federal spending cuts. But Democrats strongly oppose a provision that says Congress must approve a balanced-budget amendment to the Constitution and send it to the states for ratification before any additional increases in borrowing authority are granted. In the Republican radio address, Arizona Sen. Jon Kyl said it’s important for the country to avoid debt default, but said Democrats need to work more closely with Republicans. “Republicans have tried to work with Democrats to avoid this result and put our country on a better path, but we need them to work with us,” Kyl said. “Unfortunately, after weeks of negotiations, it became clear that Democrats in Washington did not view this crisis as an opportunity to rein in spending,” he said. “Instead, they saw it as an opportunity to impose huge tax increases on American families and small businesses.” Obama insists that borrowing authority extend through 2013, beyond next year’s presidential campaign. The Democratic-controlled Senate, with help from some Republicans, quickly rejected the House bill on Friday. Majority Leader Harry Reid, D-Nev., had an alternative measure to cut spending by $2.4 trillion and raise the debt limit by an equal amount, enough to meet Obama’s demand that there not be another vote on government borrowing next year. That defeat could set the stage for weekend negotiations on a compromise measure suitable to both houses of Congress. Obama said that compromise is needed by a Tuesday deadline â or else the government will begin running out of money. “Look, the parties are not that far apart here,” Obama said Saturday, claiming “rough agreement” between them on spending cuts and a process for overhauling the tax code and costly federal benefit programs. “There are plenty ways out of this mess. But there is very little time.” “We need to reach a compromise by Tuesday so that our country will have the ability to pay its bills on time, bills like Social Security checks, veterans’ benefits and contracts we’ve signed with thousands of American businesses,” Obama said. The president also offered praise for congressional Democrats and some Senate Republicans who “have been listening and have shown themselves willing to make compromises to solve this crisis.” He singled out House Republicans in calling on all lawmakers to show “the same kind of responsibility that the American people show every day” by paying their bills and keeping their houses in order. “The time for putting party first is over,” Obama said. “The time for compromise on behalf of the American people is now.

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LIVE UPDATES: Debt Ceiling Deadline Looms, Default At Stake

July 30, 2011

The Senate has killed an effort by the House to raise the government’s borrowing cap. Democrats and several Republicans killed the measure put forth by House Speaker John Boehner by a 59-41 vote Friday night, just minutes after it arrived from the House. Democrats opposed the measure because it would require another painful debt-limit debate early next year. The move continues a standoff over the debt limit but could set the table for negotiations this weekend on compromise legislation that could pass the Democratic Senate and the GOP-controlled House before an Aug. 2 deadline to prevent a potentially disastrous default on U.S. obligations like interest payments and Social Security checks. Check back here for the latest developments. What happens if the U.S. defaults? See the slideshow below.

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Moody’s: U.S. Should Retain Top Credit Rating If Bondholders Get Paid

July 29, 2011

WASHINGTON — Moody’s Investors Service said late Friday that the United States should be able to keep its triple-A credit rating as long as Washington works out a deal that lets it continue to pay bondholders. The credit rating agency said it thinks that even if the nation’s $14.3 trillion borrowing limit isn’t raised by Tuesday’s deadline, the government would give priority to making interest payments on its debt and thereby avoid a default. Moody’s had warned July 13 that the country’s credit rating was in danger of being downgraded because of the stalemate in Congress over raising the debt limit. In its statement Friday, however, Moody’s said that based on its current review it would likely rate the U.S. debt as triple-A but with a negative outlook. That would mean that there is a possibility of a downgrade in the future. “If there were a default on a Treasury debt obligation, a downgrade would likely follow, even if the default were swiftly cured and investors suffered no permanent losses,” Moody’s said in its new report. Credit rating agencies assess the riskiness of debt issued by companies and governments. The three major agencies – Moody’s, Standard & Poor’s and Fitch Ratings – have all raised warnings in recent months that they might downgrade the U.S. government’s triple-A rating. Such a downgrade would send shockwaves through the financial system. The government has had the highest credit rating for nearly a century. That rating has allowed the United States to pay the lowest interest rates possible to finance Treasury debt. Sherry Cooper, chief economist at BMO Financial Group, said the decision by Moody’s to back away from its threatened downgrade was “great news” and would probably make a potential downgrade by S&P less of a threat as well. “What is really important is that the likelihood of a Treasury default has fallen sharply as the prospects of a debt-ceiling hike in the next few days has increased,” Cooper said. “The U.S. is now more likely to retain its Moody’s triple-A rating as long as it does not default.” In its new report, Moody’s said that it would consider the government in default only if it missed an interest or principal payment on its debt, not if the government had to delay payments in such areas as federal employee salaries, Social Security or bills from vendors. “If the debt limit is not raised before Aug. 2, we believe that the Treasury would give priority to debt service payments and could thus postpone a potential default for a number of days,” Moody’s said. “Revenues would be more than adequate for some period of time to meet those payments, although other outlays would be severely reduced as a result.” Some private economists have estimated that the government could keep operating without defaulting on its debt payments perhaps as long as Aug. 15. The announcement by Moody’s on Friday followed favorable comments Wednesday by Deven Sharma, the president of Standard & Poor’s. He told a congressional committee that some of the deficit-cutting plans Congress is considering would lower the U.S. debt burden enough to allow the country to retain its triple-A rating. However, Sharma said that S&P would not make a final determination until it had a much clearer view of what package of deficit-cutting proposals Congress would be adopting as part of a deal to raise the debt limit. However, he said that previous reports indicating that Congress would need to make $4 trillion in deficit cuts over 10 years to retain a triple-A rating were not accurate. He declined during his testimony to be specific about the threshold, although he said the plan would have to make a credible attack on the U.S. deficit problems.

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Stock Market Ends Worst Week In A Year

July 29, 2011

(Caroline Valetkevitch) – Stocks ended the worst week in a year as time runs out on Washington to reach agreement before the government loses its ability to borrow money. The S&P 500 fell every day this week and was down 3.9 percent for the week as legislators failed to work out an agreement to raise the federal borrowing limit, which expires on Tuesday. Investors also worry about the likelihood of a U.S. credit downgrade. The CBOE Market Volatility Index .VIX, a gauge of investor fear, jumped as much as 9 percent to its highest level since mid-March before paring its rise. Natalie Trunow, chief investment officer of equities at Calvert Investment Management in Bethesda, Maryland, said investors are taking a more defensive stance, possibly moving more into cash. “It’s frustrating for investors and for U.S. citizens to see this unfold in the way it has been,” she said. “From an overall asset allocation standpoint, in an environment like this, you get bigger moves into cash and safe havens.” The Dow Jones industrial average .DJI was down 96.87 points, or 0.79 percent, at 12,143.24. The Standard & Poor’s 500 Index .SPX was down 8.39 points, or 0.65 percent, at 1,292.28. The Nasdaq Composite Index .IXIC was down 9.87 points, or 0.36 percent, at 2,756.38. President Barack Obama told Republicans and Democrats to find a way “out of this mess.” The United States will be unable to borrow money to pay its bills if Congress does not raise the debt limit by August 2. A second attempt for a vote in the House of Representatives is expected after the close of trading on Friday after a bill was modified to try to win over more conservative lawmakers. The measure has little chance of passing in the Senate, however. At least one credit rating agency has said it is likely to lower the United States’ prized tripe-A rating if the cuts in Washington don’t go far enough. “Will the deal be enough to satisfy the credit rating agencies is really what’s at stake here,” Trunow said, whose firm manages about $14.8 billion. The S&P utility index .GSPU is down 2.1 percent for the week, while the Dow is down 4.2 percent and the Nasdaq is down 3.6 percent for the week. The S&P 500 briefly fell below its 200-day moving average, seen as key support, and bounced back from its worst levels of the day. Weak economic data also weighed on equities. The U.S. economy stumbled badly in the first half of this year and came dangerously close to contracting in the January-March period. Among declining stocks, Chevron Corp (CVX.N), the second-largest U.S. oil company, fell 1 percent to $104.02 despite reporting a 43 percent jump in quarterly profit that beat estimates. (Reporting by Caroline Valetkevitch; Editing by Kenneth Barry) Copyright 2011 Thomson Reuters. Click for Restrictions .

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Despite Criticism, Tea Party Finds Moment Of Triumph In Contentious Debate

July 29, 2011

By Tom Brown MIAMI (Reuters) – They have been accused of holding Washington hostage by pushing the United States to the brink of a damaging debt default. The world is watching anxiously as the debt impasse drags on. But it is a moment of triumph for many activists of the Tea Party movement, a grass-roots group devoted to cutting the debt and shrinking government which has gained a powerful bridgehead in the U.S. House of Representatives. Many were claiming victory this week, as their refusal to compromise on spending threatened to trigger a historic default that could shake the global financial system and tip the fragile U.S. economy back into recession. Some adherents of the movement, named after the historic Boston tax rebellion against the British in 1773, are indicating it may be time to compromise to avert financial catastrophe. But most remain defiant. “We finally have an active grass-roots army and voting constituency demanding bold cuts to the budget and rewarding politicians who stand on principle, not politics,” said Dick Armey, an unofficial leader of the movement. Tea Party darling Sarah Palin, the former Alaska governor and unsuccessful U.S. vice presidential candidate in 2008, has led a chorus of calls to stand firm. “We cannot rob from our children and grandchildren’s tomorrow to pay for our unchecked spending today,” she said. Critics complain she and other activists are misleading the public by likening the complex task of running the federal government to keeping households on a budget. Congresswoman Michele Bachmann, a leader of the Tea Party caucus in the U.S. House of Representatives and contender for the 2012 Republican presidential nomination, has also flaunted her opposition to raising the debt ceiling. “I won’t raise taxes. I will reduce spending, and I won’t vote to raise the debt ceiling,” Bachmann said on Thursday. ”And I have the titanium spine to see it through.” ANTI-OBAMA RHETORIC Armey, a former leader of Republicans in the House heads FreedomWorks, a group that funds and coordinates conservative activists across the country. “If we go ahead and raise the debt ceiling without big spending cuts, spending caps or a balanced budget amendment to the Constitution, it does nothing for the long-term. I’m for the long-term solutions,” he said. The Tea Party grabbed the national political spotlight after President Barack Obama took office in early 2009 and much of its ire is directed at the Democratic president. It has managed to push Republican candidates to the right in many electoral races and its demands are carrying weight in Congress. The movement played a big role in gaining 63 extra seats for the Republicans when they took control of the House in the 2010 midterm elections. The current debt ceiling is $14.3 trillion and a failure to increase it by next Tuesday has triggered warnings from the Obama administration and others of global financial chaos. Both FreedomWorks and Americans for Prosperity, a group started by billionaire David Koch that has worked with Tea Party groups, fiercely oppose raising the debt cap without major concessions. The drive to drastically cut and cap spending levels and amend the U.S. constitution to bar federal government deficits is dominating rank-and-file meetings across the country. It dovetails with the interests of some wealthy Americans like Koch, who want low taxes, limited oversight of business and industry and minimal government services for the needy. The movement is not officially linked to the Republican Party, although its biggest impact legislatively so far has been through the influence of a block of conservative Republicans in the House. It bridles at suggestions from some critics that it is a so-called “Astro-Turf”, or fake grass-roots, organization led from the top down. Activists say the movement is broad-based, and born out of anger over corporate bailouts and a surge in government spending to counter the recent recession, although a CNN/ORC poll found only 1 percent of Americans are “active members.” “MAD HATTER” OF THE MOVEMENT Glenn Beck, the arch-conservative U.S. television host who has an almost cult-like following among many Tea Partiers, was mockingly depicted on the cover of The Economist news weekly as the “Mad Hatter” of the movement after the character in Lewis Carroll’s “Alice’s Adventures in Wonderland. At a meeting the Bayshore Tea Party in New Jersey this week, Neil O’Connor, 67, a retired small business owner from Middletown, New Jersey, spoke with Beck-like patriotic fervor as he held forth on the great debt crisis debate. “Default or be damned,” said O’Connor, speaking against the backdrop of a huge American flag and a bookshelf prominently displaying one of Beck’s best-sellers. “We are now engaged in a struggle for the survival of the Republic,” he said. “We can default and force Obama to relent and go back to the original principles of sound fiscal government.” On Thursday in Alvin, Texas, where about 35 people filled the wooden benches of a small courthouse, Tea Party members touted the movement’s ability to sway the debt debate. “We wouldn’t have had this debate if it wasn’t for the Tea Party,” said Dale Huls, a member of the Clear Lake Tea Party. In Cedar Falls, Iowa, Judd Saul, head of a Tea Party chapter, said: “If it takes going into default and losing our triple-A credit rating – our inflated triple-A credit rating – in order for the government to learn its lesson, so be it.” That contrasts sharply with warnings from the likes of Christine Lagarde, the new head of the International Monetary Fund, that a U.S. default or significant downgrade would be a ”very, very serious event” with international consequences. The state news agency in China, America’s biggest foreign creditor, took a similar view of the dysfunction in Washington on Friday. The United States has been “kidnapped” by ”dangerously irresponsible” politics, the agency said. TALK OF DEFAULT But talk of default is anathema to some Tea Party activists and even some of the movement’s staunchest allies in Congress have begun talking about the need to compromise to protect America’s top and jealously-guarded debt rating. Republican U.S. Representative Allen West, a freshman from Florida, has championed the Tea Party agenda. But he told Reuters on Wednesday he supported a compromise budget deficit plan drafted by House Speaker John Boehner but opposed by other Tea Party-backed fiscal conservatives. “We can sit around and we can try to have the 100 percent perfect plan and then we end up losing,” West said. “I have done the reasonable man thing,” he said. West did not elaborate on his willingness to make a deal. But he said the Tea Party would emerge stronger from the debt crisis talks as the movement and its backers set their sights on the state and national elections of 2012. “Everyone said that we wanted to start having a conversation that was based upon cutting spending and not increasing spending. And I think in seven months you’ve seen that occur up here in Washington D.C.,” said West. Fred O’Neal, founder and former chairman of the Florida Tea Party, said the brinkmanship may already have gone too far in Washington. “There are some people who want to burn down the house and they claim they’re the Tea Party,” said O’Neal. “That makes the rest of us look bad … Burning down the house to kill the cockroaches isn’t going to help,” he said. (Additional reporting by Barbara Liston in Orlando, Kristina Cooke and Edith Honan in New Jersey, James B. Kelleher in Chicago, Chris Baltimore in Alvin, Texas and Donna Smith in Washington; Editing by David Storey)

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Richard Barrington: Ask the Expert: Does the Debt Ceiling Debate Threaten Deposit Insurance?

July 29, 2011

Q: Of all the things said to be threatened by the debt ceiling debate — bond payments, social security checks, etc. — one thing I haven’t heard mentioned is FDIC deposit insurance. Since this is a federal program, couldn’t our deposit insurance be at risk if the government runs out of money? After all, owners of savings accounts, money market accounts, and CDs have gotten the short end of the stick from government policies so far. A: Even though FDIC deposit insurance is a federal program, it is not likely to be an immediate victim of a possible federal government default. In the long run though, anything is possible if things reach such a dire outcome. The reason why deposit insurance wouldn’t be immediately affected by a federal government default is that deposit insurance is funded by an assessment on banks, and not directly by the federal government. Although the FDIC is a federal agency, it does not receive any Congressional appropriations for its operations. However, that does not mean that deposit insurance would be completely immune if the federal government fails to live up to its responsibility to find a budget solution. For one thing, while the vast majority of FDIC funding comes from bank assessments, the agency does receive a minute portion of its revenues from interest on U.S. Treasury securities. A bigger worry might be that if the U.S. government actually defaults on some securities, it is possible that the financial chaos that would follow could cause a spike in bank failures that would overwhelm the insurance fund. After all, this fund is just over 1 percent of insured deposits. It is predicated upon failures being rare exceptions, not a widespread epidemic. In short, savings accounts , CDs and money market accounts don’t seem especially vulnerable to a federal default, but like a surprising number of things we count on every day, deposit insurance could be subject to disruptions if the government cannot pay its bills. Got a financial question about saving, investing, or banking? MoneyRates .com invites you to submit your questions to the “Ask the Expert” feature. Just go to the MoneyRates .com home page and look for the “Ask the Expert” box on the lower left. The original article can be found at Money-Rates.com: ” Ask the expert: Does the debt ceiling debate threaten deposit insurance? ”

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The Rapture Profiteers

July 28, 2011

For nearly a year, nonagenarian preacher and radio personality Harold Camping predicted the world would end on May 21. Locusts would blanket the earth and millions would die while Camping and his flock would rise up to the sky, rendezvous with Jesus, and ascend to the Kingdom of Heaven. Instead, May 22 happened, Camping postponed the end of the world by five months, and then suffered a debilitating stroke — leaving a huge vacuum in the Rapture market. The meltdown came at a propitious moment for apocalypse followers. A proliferation of earthquakes, a plague that may or may not be sweeping Brazil, the Greeks, and Kim Kardashian, among other things, may be conspiring to create a Rapture bubble. In addition to Camping’s revised forecast — the world is definitely going to end on Oct. 21 — many Rapture-seekers now believe the Aug. 2 debt-ceiling deadline signals that the end may be very, very near.

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John Boehner Yanks Debt Ceiling Bill, House Vote Postponed

July 28, 2011

WASHINGTON — House GOP leadership announced abruptly on Thursday evening that they were suspending a vote on Speaker John Boehner’s (R-Ohio) debt ceiling proposal, signaling in the process that the GOP lacked the votes to pass the package. The news came just minutes before party leadership was set to hold a 5:30 p.m. vote on the proposal, which would cut roughly $915 billion in spending over the next ten years but only raise the debt ceiling through the end of the calendar year. Congressional aides were scrambling to figure out just when the vote would be rescheduled for — the House for now will consider eight smaller measures first — but a spokesman for House Majority Leader Eric Cantor (R-Va.) said that a vote on Boehner’s proposal would still take place on Thursday night. Whether that is enough time for the Speaker to convince a few more Republicans to support him is unclear. Informal whip counts had 25 Republicans and the full Democratic caucus opposing the measure, which would put it short of the 216 votes needed for passage. The bill’s delay, and the continued unlikelihood of its passage, gave Democrats yet another hook to argue that the entire enterprise was fruitless. As one aide emailed, with respect to Boehner’s bill: “we’re wasting precious time so he can twist more arms for a bill that is dead [in the Senate].”

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Jeff Gitterman: Financial Advisors and the Recession

July 28, 2011

In the wake of the recession, people are finding financial advisors, especially good ones who have really deep relationships with their clients, more necessary than ever. Many advisors are greatly weighed down by their own internal panic about what happened and therefore have very little capacity to deal with their clients’ fears and concerns. This crisis has called on all of us to re-evaluate our lives. I think it’s starting to become clearer to all of us that the endless accumulation of material wealth is not a sustainable way to live. We need to refocus our values and beliefs on things that are ultimately much more satisfying and attainable. We need to focus on what we can do and give to the world rather than what we can just take from it. My own understanding of the power of giving came about many years ago, when I was going through a personal “recession” of my own. Back in 1997, I was just starting out as a financial advisor, trying to support a wife and two kids on less than $20,000 a year, falling months behind with the mortgage payments, scared and unsure of my future. I hid my car every night in a different part of the neighborhood because the finance company told me they were coming to repossess it. The debt collectors were calling every day. I had credit card debt, mortgage debt, car loans. Things looked pretty bleak. One day, I was getting out of my car and about to walk into a prospect’s house to try and sell a term life policy. I was way behind on my bills, and my mind was going on and on about how much I needed the sale. Desperation poured out of me as I caught my reflection in the car window. I stopped, looked hard at that reflection and said to myself, “Who would want to buy anything from you? Look at how desperate you look!” I decided in that moment that I needed to drop my desperate, needy attitude and walk into this prospect’s house with the confidence of someone who didn’t want anything. I took one last look at my reflection and saw that I had taken on an air of serenity, and that’s when I began to realize that I really didn’t need anything, that deep down there was nothing for me to get. I dropped my need to make a sale. I became still and quiet. I soon began to approach more of my clients this way, putting all my attention on them, without any desire or expectation for myself personally. And to my amazement, my meetings really started to transform and my success as a financial advisor grew exponentially. Although it sounds like a bit of a clichÃ©, I was able to see firsthand as I was going through my own crisis around wealth and success that the more I gave to others; the more I received in return. In turn, I quickly began accomplishing more in the world and my income grew substantially. In the wake of this most recent recession, it’s going to be very difficult for advisors who do not have the complete trust of their clients to continue to make smart decisions, and many have and will continue to lose business. My number one piece of advice is this: under any and all circumstances, be honest. It’s critical that we maintain a very open and honest relationship with our clients, as the worst thing any of us could do would be to mislead them right now. I believe that now is the time for extra special service. We need to be calling our clients before they call us. We need to be out there in front. We need to show our clients that we’re confident in the direction we’re moving. Any lack of confidence in our own ability to navigate the current investment climate is going to make it really difficult for them to follow us. Too many of us spend our lives waiting to get something from the world so that we can show up as the person we always knew we could be. Deep in our hearts we think there’s something missing. But when we flip that mindset, we can discover that by becoming a giver rather than a taker, we can become agents for change in the world. In the end, it was only through giving to others that I was able to find the kind of happiness that I was really looking for. Partly adapted from Beyond Success: Redefining the Meaning of Prosperity Â© 2009 Jeffrey L. Gitterman. All rights reserved. Published by AMACOM Books www.amacombooks.org. A Division of the American Management Association for The Business Leaders Book Club, Lessons Learned from The Recession www.thebusinessleadersbookclub.com

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American Children Receiving Less Money From Tooth Fairy: Report

July 28, 2011

It looks like American businesses aren’t the only ones hoarding cash these days. According to a survey recently released by Visa , so is the fabled Tooth Fairy. Last year, children who left teeth under their pillow received an average of $3 per tooth, according to the report. This year, in comparison, that amount plunged to $2.60. The total number of kids getting swindled by the winged home invader has also drastically increased. This year, 5 in 50 received no compensation for their missing teeth. Compare that to last year, when only 2 in 50 were passed over. The Tooth Fairy also seems to handing out varying amounts according to region. The further west one goes, the higher the rate of return kids are receiving for their dentures, with Northeast kids getting, on average, $2.10 a tooth, while their West and Midwestern counterparts are receiving $2.80. Melissa Hourigan of Denver didn’t know what to do for her 9-year-old when the Tooth Fairy failed to show, the Denver Post reports . Instead, she and her husband purchased a target card for their daughter “because we felt bad and wanted to do something,” Hourigan said. The below video shows how some parents justify ripping off their kids:

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David Isenberg: Trust But, Incompetently, Verify

July 28, 2011

In August 2009, the Pentagon awarded five Theater-wide Internal Security Services (TWISS) contracts for site security in Iraq. These contracts, awarded to EOD Technology, Inc.; Torres Advanced Enterprise Solutions, LLC; Special Operations Consulting-Security Management Group; Triple Canopy, Inc.; and Protection Strategies Inc., have a combined value of $485 million. U.S base commanders nominate contracting officer’s representatives (CORs), who are responsible for verifying the U.S. government receives what it pays for. The Defense Contract Management Agency (DCMA) appoints and trains CORs and manages their activities. DCMA uses Quality Assurance Representatives (QARs) to monitor the CORs’ and contractors’ performance. Yet although COR duties are critical to the U.S. government’s oversight of the TWISS contracts, almost 40% of the CORs it surveyed said the training they received did not prepare them for their duties and 25% said they lack sufficient time to conduct effective oversight, according to an audit report ” Control Weaknesses Remain in Oversight of Theater-wide Internal Security Services Contracts ,” released today by the Office of the Special Inspector General For Iraq Reconstruction (SIGIR). Why is this important? Without adequate training, CORs may not be conducting sufficient oversight of the TWISS contractors’ services and invoice payments. This training is particularly important since 24 of 28 CORs we surveyed stated they had no previous COR experience. Considering that as of June 9, 2011, more than half the total value of these TWISS contacts, about $258 million had been disbursed under the contracts this is, to put it mildly, not good news. This is similar to what SIGIR found the last time it looked at the TWISS contracts in 2009. After that report, DCMA increased training requirements but recognized in an April 2011 internal review that not all training was being conducted and documented. To get a sense of how nothing has changed note that in April 2009, SIGIR reported that 11 of 27 CORs surveyed stated their COR training did not fully prepare them to oversee the TWISS contractors. In the new audit 11 of 28 CORs SIGIR surveyed stated their training did not prepare them to perform COR duties on the TWISS contracts. SIGIR also found that CORs are not completing, or DCMA is not maintaining, all monthly review checklists, which DCMA developed to help CORs review contractor compliance with task order requirements. Even when completed, SIGIR noted most reviews appeared to be of questionable value or provided little assurance that CORs’ oversight was adequate, a fact DCMA officials acknowledge. As irony goes, this is hard to beat. In plain English it means DCMA, the agency which is charged with providing proper oversight on military contracts, is itself guilty of not providing proper guidance to its own employees, thus impeding them from doing an effective job. Furthermore, even if DCMA did provide proper guidance some of the CORs are not particularly good at their jobs. According to DCMA officials, some TWISS CORs provide excellent oversight and others provide weak oversight. To verify this statement, SIGIR examined the 81 COR Performance Work Statement reviews available from February through April 2011. SIGIR’s examination noted that five appeared comprehensive in nature, 21 appeared adequate, and the remaining 55 appeared of questionable value.12 In the auditors’ judgment, reviews of “questionable value” provided no reasonable assurance the COR’s oversight was sufficient to guarantee the U.S. government received all services for which it paid.

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Robert Reich: Don’t Fall for the GOP Lie: There Is No Budget Crisis — There’s a Job and Growth Crisis

July 28, 2011

A friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?” It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth. The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government. In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money. Nor is there any economic imperative economic to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway. Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II — when it reached 120 percent of the economy’s total output. If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery — the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate. Get it? We’re really in a “jobs and growth” crisis – not a budget crisis. And the best way to get jobs and growth back is for the federal government to spend more right now, not less — for example, by exempting the first $20,000 of income from payroll taxes this year and next, recreating a WPA and Civilian Conservation Corps, creating an infrastructure bank, providing tax incentives for small businesses to hire, expanding the Earned Income Tax Credit, and so on. But what happens next week if Congress can’t or won’t deliver the president a bill to raise the debt ceiling? Remember: This is all politics, mixed in with legal technicalities. Economics has nothing to do with it. One possibility, therefore, is for the Treasury to keep paying the nation’s bills regardless. It would continue to issue Treasury bills, which are our nation’s IOUs. When those IOUs are cashed at the Federal Reserve Board, the Fed would do what it has always done: It honors them. How long could this go on without the debt ceiling being lifted? That’s a legal question. Republicans in Congress could mount a legal challenge, but no court in its right mind would stop the Fed from honoring the full faith and credit of the United States. The wild card is what the three big credit-rating agencies will do. As long as the Fed keeps honoring the nation’s IOUs, America’s credit should be deemed sound. We’re not Greece or Portugal, after all. We’ll still be the richest nation in the world, whose currency is the basis for most business transactions in the world. Standard & Poor’s has warned it will downgrade the nation’s debt from a triple-A to a double-A rating if we don’t tend to the long-term deficit. But, as I’ve noted, S&P has no business meddling in American politics — especially since its own non-feasance was partly responsible for the current size of the federal debt (had it done its job the debt and housing bubbles wouldn’t have precipitated the terrible recession, and the federal outlays it required). As long as we pay our debts on time, our global creditors should be satisfied. And if they’re satisfied, S&P, Moody’s, and Fitch should be, too. Repeat after me: The federal deficit is not the nation’s biggest problem. The anemic recovery, huge unemployment, falling wages, and declining home prices are bigger problems. We don’t have a budget crisis. We have a jobs and growth crisis. The GOP has manufactured a budget crisis out of the Republicans’ extortionate demands over raising the debt limit. They have succeeded in hoodwinking the public, including my friend. Robert Reich is the author of Aftershock: The Next Economy and America’s Future , now in bookstores. This post originally appeared at RobertReich.org .

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Rep. Hansen Clarke: Congress Is Obsessed With the Wrong Kind of Debt

July 28, 2011

Congress is now completely focused on reducing debt. This would be a positive development, if not for one detail: it’s focused on the wrong kind of debt. With over a quarter of all American homeowners “underwater” — owing more on their homes than their homes are worth — and total student loans slated to exceed $1 trillion this year, it is household debt, not government debt, that is constraining spending, undermining confidence, and precluding sustainable long-term growth. For all the hysteria about government debt, one simple fact remains: the cost of government borrowing remains extremely low. The federal government can raise funds in the short term at interest rates of almost zero; the benchmark 10 year U.S. Treasury bond yields is just three percent, an extremely low long-term rate. This is a powerful statement that international markets have confidence in the US government’s finances. In stark contrast, a hardworking American who lost his or her job in the recession and fell behind on a credit card payment might be subjected to usury-level interest rates of up to 30 percent. Something is wrong with this picture. Such high interest rates — and high levels of household debt more generally — have more of an impact on most Americans’ real disposable income than higher European-style levels of taxation. They reduce Americans’ purchasing power, which means they reduce demand for American goods and services and, in turn, worsen our employment situation. The situation is similar with mortgages and student loans. In 2009, average mortgage payments surpassed $1,000 per month . This year, the average borrower graduating from a four-year college left school with roughly $24,000 of student debt, despite the grim statistic that — according to a Rutgers University study — only 56% of 2010 graduates were able to find work following completion of their studies. It stands to reason: reducing consumer debt is necessary for stimulating the economy. But, there’s a further reason why Congress should focus on cutting the crippling burden of consumer debt. Congress is deeply responsible for creating the problem. I believe that the legislative branch played both a passive and active role in creating the consumer debt crisis by deregulating dangerous lending and securitization practices, creating incentives for banks to offer risky loan products, and rigging bankruptcy laws against everyday Americans. Consider the 2005 bankruptcy law , which made it harder for consumers to discharge credit card debt through bankruptcy proceedings. By eliminating the risk associated with targeting borrowers with questionable ability to pay, this legislation enabled many banks to have a field day preying on people with limited financial literacy, making as many loans as possible to maximize fees. Similarly, an opaque system of securitization — facilitated by Congress through the Commodity Futures Modernization Act and other legislation — empowered mortgage lenders to profit from processing fees regardless of whether or not the mortgages were sound. This further incentivized predatory lending. This deregulation also helped give rise to the mother of all bubbles, an $8 trillion bubble in the housing market. When this burst, millions of innocent people lost their jobs. Because of recklessness in Washington and gambling in the Wall Street casino, untold numbers of hardworking Americans were thrust into a situation in which they could no longer afford to make their payments and therefore faced massive fees, usury interest rates, and/or eviction. These people never received a bailout. But, then again, most are not asking for one. They are simply asking for a system that is not rigged against them. And Congress has a moral obligation to deliver that. Right now, Congress could take several important steps with minimal budgetary impacts. It could, for instance: Create the right incentives for banks to come to the table and negotiate with distressed lenders. This might mean applying “carrots and sticks” in the tax code to favor lenders that seek to avoid evictions. It could also mean legislation such as “Right to Rent,” which would enable foreclosed homeowners to stay in their homes by paying an independently-assessed monthly fair market rent. Provide tax credits for education expenses and for student loan debt Make private student loans — particularly those written under unfair terms — eligible for discharge in bankruptcy proceedings Swiftly confirm the new director of the Consumer Financial Protection Bureau so it can get to work restricting unfair and deceptive lending practices It’s time to change the national conversation. While relieving government debt should be a medium and long term priority, addressing consumer debt is a short-term imperative. Let’s get to work.

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Debt Ceiling Vote: Boehner’s Plan Faces Key Test

July 28, 2011

WASHINGTON — The endgame at hand, House Republicans lined up Thursday to pass legislation to prevent looming government default while slicing nearly $1 trillion from federal spending. Senate Democrats pledged to scuttle the bill swiftly in hopes of forcing a final compromise. “Let’s pass this bill and end the crisis,” said House Speaker John Boehner, the president’s principal Republican antagonist in a new and contentious era of divided government. “It raises the debt limit and cuts government spending by a larger amount.” President Barack Obama has threatened to veto the measure, and in debate on the House floor, Rep. Debbie Wasserman Schultz of Florida savaged it as a “Republican plan for default.” She said the GOP hoped to “hold our economy hostage while forcing an ideological agenda” on the country. Despite the sharp rhetoric, there were signs that gridlock might be giving way. “Around here you’ve got to have deadlock before you have breakthrough,” said Sen. Kent Conrad, D-N.D. “We’re at that stage now.” Wall Street suffered fresh losses as Congress struggled to break its long gridlock. The Dow Jones industrial average was down for a fifth straight session. The Treasury Department moved ahead with plans to hold its regular weekly auction of three-month and six-month securities on Monday. Yet officials offered no information on what steps would be taken if Congress failed to raise the nation’s $14.3 trillion debt limit by the following day. Without signed legislation by Aug. 2, the Treasury will not have enough funds to pay all the nation’s bills. Administration officials have warned of potentially calamitous effects on the economy if that happens – a spike in interest rates, a plunge in stock markets and a tightening in the job market in a nation already struggling with unemployment over 9 percent. White House press secretary Jay Carney outlined White House compromise terms: “significant deficit reduction, a mechanism by which Congress would take on the tough issues of tax reform and entitlement reform and a lifting of the debt ceiling beyond … into 2013.” The last point loomed as the biggest obstacle. The House bill cuts spending by $917 billion over a decade, principally by holding down costs for hundreds of government programs ranging from the Park Service to the Agriculture Department and foreign aid. It also provides an immediate debt limit increase of $900 billion, which is less than half of the total needed to meet Obama’s insistence that there be no replay of the current crisis in the heat of the 2012 election campaigns. An additional $1.6 trillion in borrowing authority would be conditioned on passage of at least $1.8 trillion in further savings to be recommended by a newly created committee of lawmakers. Those deficit reductions would presumably come from cuts to benefit programs such as Social Security and Medicare, as well as an overhaul of the tax code generating additional government revenue. The GOP bill’s $917 billion in upfront spending cuts was trillions less than many tea party-backed rank-and-file Republican lawmakers wanted, but a total that seemed nearly unimaginable when they took power in the House last winter with an agenda of reining in government. Numerous Republicans grumbled that the legislation didn’t cut more deeply, and Boehner and the rest of the GOP leadership have spent their week cajoling reluctant conservatives to provide the votes needed to pass it. By most accounts, they were succeeding. “It gives us a little bit of heartburn because it doesn’t go big enough,” said Rep. Sean Duffy, R-Wis., a first-term lawmaker who said he would vote for the bill as the best one available. Another first-term Republican, Rep. Martha Roby of Alabama, said the bill was “far from perfect. But I don’t have the luxury of writing the plan by myself, and neither does Speaker Boehner.” While the White House and Democrats objected to the House bill, they readied an alternative that contained similarities. Drafted by Senate Majority Leader Harry Reid, it provides for $2.7 trillion in additional borrowing authority for the Treasury. It also calls for cuts of $2.2 trillion, including about $1 trillion in Pentagon savings that assume the end of the wars in Iraq and Afghanistan. Even before the House voted, Reid served notice he would stage a vote to kill the legislation almost instantly. “No Democrat will vote for a short-term Band-Aid that would put our economy at risk and put the nation back in this untenable situation a few short months from now,” he said. With the House and Senate focused on debt-limit legislation at opposite ends of the Capitol, eleven religious leaders protesting budget cuts were arrested in the Rotunda midway between the two chambers. Democratic Rep. Chellie Pingree of Maine said on the House floor that they were praying for those who will be “hurt the hardest” by the bill being considered. Rep. David Dreier, R-Calif., countered that he, too was praying – to avoid a default. The day’s events marked the climax of a struggle that began last winter, when the Treasury Department notified Congress it would need additional borrowing authority, and Boehner said any increase would have to include steps to reduce future spending. At first the White House balked at the terms, then relented. That gradually morphed into a series of bipartisan negotiations, one led by Vice President Joe Biden, then another by Obama, and finally, a round of golf that led to stab at a “grand bargain” between the president and Boehner. Boehner announced last Friday he was calling off the talks, setting in motion a frantic week of maneuvering as the default deadline grew near. ___ Associated Press writers Andrew Taylor, Donna Cassata, Stephen Ohlemacher, Larry Margasak, Martin Crutsinger, Charles Babington, Darlene Superville and Jim Kuhnhenn contributed to this report.

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Andrew Pyle: AAA Debt Rating: What Would Life Be Like Without it?

July 28, 2011

We are mere days away from the August 2 deadline for the U.S. Congress to pass legislation providing the federal government with an increase in the debt ceiling. At the time of writing, the political jousting between Republicans and Democrats has continued with the latest round coming from back-to-back televised pleas from President Obama and House Speaker John Boehner. For a number of reasons this was always going to play right down to the 11th hour, which is why we don’t look out of the window and see financial markets in an absolute panic. Many Congressional representatives are new to politics and are seeing this more as a perfect ideological battle versus a pragmatic exercise in balancing fiscal and economic objectives. Republicans have also seen this as an opportunity to force a bad result in the hopes that it tars the Democrats going into the 2012 presidential election. The risk, of course, is that opposing a White House-backed compromise package would be viewed as reckless, especially if the economy turns sour as a result. Sure enough, the latest polls indicate that close to half of Americans support a compromise fiscal package and do not believe politicians would let this situation unravel to the point where a government shut-down occurs, and the U.S. defaults on its debt obligations. Since the popular press has done a good job in linking the Aug. 2 deadline with the future of the U.S. credit rating, many Americans believe that getting a debt authorization increase by this date will protect the coveted AAA rating that the U.S. has enjoyed for many years. That would be naÃ¯ve. At the end of the day there is nothing sacred about that AAA stamp on Washington IOUs. The U.S. has the enviable position of being a reserve currency nation and the bond market of choice for so-called ‘risk-free’ assets. As such, there has always been the notion that there was almost zero risk of default on debt servicing or redemption on maturing issues given that the U.S. had a virtual monopoly on demand for its bonds and could ramp up the cash printing presses to help pay its interest and maturities. When the debt ceiling was well below $10 trillion, this notion was an easy one to count on. Now, with the ceiling poised to increase beyond $16 trillion, the wonders of compounding are kicking in. It’s not just that ratings agencies are concerned about debt payments not being made after Aug. 2, if a new ceiling is not approved; it’s that failure to put the U.S. on a positive trajectory in reducing its deficit will make yet further ceiling increases necessary — and sooner. What Americans and global investors need to keep in mind is that failure to turn these trillion dollar-plus deficits around in a reasonable amount of time will establish a structural component to the deficit that cannot be escaped without drastic measures. Using the UK and Greece as examples, drastic measures will be significant hikes in taxes and draconian spending cuts — both of which will work against the economy. Let’s assume that a new debt ceiling is approved by Aug. 2, but that ratings agencies are still not happy with the progress on the U.S. deficit. In other words, let’s pretend that the AAA rating disappears. There are two effects that investors are focused on — a sell-off in the bond market and continued rout of the U.S. dollar. Of these, I would suggest spending more time worrying about the latter and less timing getting worked up over higher rates. True, any time a country or company gets its rating chopped, the cost of borrowing in the market usually goes up; however, estimates suggest that the back-up in U.S. bond yields would be in the order of about a percent or less. In the case of the 10-year Treasury note, this would imply a move back up to about four per cent or maybe even 4.5 per cent. Under those scenarios, bond holders would experience an eight or 11 per cent capital loss, respectively. Not a pretty development, but not the end of the world either. Mortgage rates would move higher, which would slow the U.S. housing market down, although it is unclear whether this would be sufficient to actually tank home sales and prices. Case in point, the 10-year yield rose from 2.4 per cent to 3.6 per cent from October to February and all we got was a reversal of less than half of the 2010 advance in U.S. existing home sales. No, if you’re Canadian the dollar risk is greater. Even the prospect of a modest correction in U.S. bond prices could influence foreign debt holders to unload paper, causing not only bond prices to dip but the U.S. dollar to fall as well. This could snap the greenback out of its recent consolidation pattern and cause a resumed slide to new record lows against many developed currencies, including the Loonie. If one wants a scenario where the Canadian dollar extends above US$1.10 and stays there, a U.S. rating downgrade could easily be the ticket. Opinions vary as to where the real threshold of pain is for Canadian manufacturers and exporters, given that many companies have adjusted to the new ‘parity’ environment. Suffice to say the threshold isn’t that far above US$1.10.

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Boehner Debt Ceiling Bill Faces House Vote

July 28, 2011

WASHINGTON — House Republicans are pressing ahead with a vote on a newly modified plan to stave off an unprecedented government default next week even though the legislation faces a White House veto threat and unanimous opposition among Senate Democrats. As the House prepared to vote Thursday, investor worries that a dysfunctional Congress might remain gridlocked sent stocks plunging. The Dow Jones industrial average dropped almost 200 points Wednesday, on top of a 92-point drop the day before. House Speaker John Boehner, R-Ohio, made headway with balky conservatives unhappy that the measure contains smaller spending cuts than a more stringent debt measure that passed the House last week. The new measure depends on caps on agency budgets to cut more than $900 billion from the deficit over the coming decade while permitting a commensurate increase in the nation’s borrowing to allow the government to pay its bills. Boehner acknowledged that the measure was hardly perfect but represented “the best opportunity we have to hold the president’s feet to the fire. He wants a $2.4 trillion blank check that lets him continue his spending binge through the next election. This is the time to say no.” Boehner made the comments Wednesday to conservative radio host Laura Ingraham. The White House threatened a veto, saying the bill did not meet President Barack Obama’s demand for an increase in the debt limit large enough to prevent a rerun of the current crisis next year, in the heat of the 2012 election campaign. Instead, Obama supports an alternative drafted by Senate Majority Leader Harry Reid, D-Nev., that contains comparable cuts to agency operating budgets but also claims savings from lowball estimates of war costs. Reid’s plan would provide a record-breaking $2.7 trillion in additional borrowing authority, enough to tide the government over through 2012. Reid, however, is plainly short of the votes needed to overcome a GOP filibuster. While Boehner holds out hope that the Senate will pass his measure, a more likely outcome is a last-ditch effort to find a compromise. In fact, Boehner’s plan has enough in common with Reid’s – including the establishment of a special congressional panel to recommend additional spending cuts this fall – that Reid hinted a compromise could be easy to snap together. “Magic things can happen here in Congress in a very short period of time under the right circumstances,” Reid told reporters. Unless Congress acts by Tuesday, administration officials say, the government will not be able to pay all its bills. They include $23 billion in Social Security benefits due Aug. 3, an $87 billion payment to investors to redeem maturing Treasury securities and more than $30 billion in interest payments that come due Aug. 15. Treasury Secretary Timothy Geithner and other officials warn that a default could prove catastrophic for an economy still recovering from the worst recession in decades. But some skeptics, including conservative Republicans like Sen. Pat Toomey of Pennsylvania, say Geithner can manage Treasury’s cash flow to avoid a catastrophe if Congress fails to act. House Republicans tweaked their measure Wednesday to enhance its prospects of passage after a worse-than expected cost estimate from congressional budget analysts on Tuesday. The changes were modest, but under arcane budget conventions, they brought projected savings for 2012 to $22 billion, part of a 10-year cut of $917 billion. That would trigger a $900 billion increase in the debt limit. While the Boehner and Reid measures differed in key details, they also shared similarities that underscored the concessions made by the two sides in recent days. Reid’s bill does not envision a tax increase to reduce deficits, a bow to Republicans. But neither does the House measure require passage of a constitutional balanced budget amendment for state ratification, a step in the direction of Obama and the Democrats. For Boehner, the vote shaped up as a critical test of his ability to lead a fractious majority that includes 87 first-term lawmakers, many of them elected with tea party support. Passage also was imperative to maximize Boehner’s leverage with Obama and Reid in a fast-approaching endgame. Boehner showed fire in a meeting Wednesday with the Republican caucus. “Get your ass in line,” Boehner told the rank and file. “I can’t do this job unless you’re behind me.” But one such first-term Republican said again Thursday he likely would oppose the measure. “Right now, I can’t” vote for it, Rep. Joe Walsh of Illinois told CBS’s “The Early Show.” He did give Boehner credit for working hard on the problem and called the speaker’s proposal “a step in the right direction.” Walsh said that Congress is “too obsessed” with the Aug. 2 default deadline, saying chances of getting more meaningful deficit-reduction right would be better if lawmakers weren’t wedded to that drop-dead date. “We’ve got plenty of revenues in August to service our debt,” he said. If House conservatives torpedo the bill, any follow-up probably would require Democratic votes to pass. That, in turn, would mean smaller spending cuts than Republicans are seeking in exchange for raising the nation’s $14.3 trillion debt limit.

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Soren Petersen: What Is Good Design?

July 28, 2011

Why must a car body have these curving lines? Such questions plagued me while I was busily transitioning from a Danish mechanical engineer to an American transportation designer. While this was not a particularly easy transition, it greatly expanded my outlook concerning design. I learned that sensual curves can be controlled to evoke emotions and meaning, fueling creativity and enriching life beyond mundane functionality. Designers fabricate design philosophies that express beliefs and then visualize these beliefs into objects to which people can relate and experience. When enough people identify with and vote by means of purchasing power on a design philosophy, a design trend is created and a strong trend becomes the prevailing taste. When asking designers to evaluate products that had either received design awards or failed to receive one, it was discovered that only half of their judgments agreed with the nomination. The designer’s evaluation of a product’s quality was shown to be quite random without an explicitly agreed upon criteria. When the same study was carried out using specific criteria, the designers now agreed on design performance 95 percent of the time versus 50 percent of the time. The criteria used were the same used by the judges in the Industrial Design Excellence Award (IDEA), which is organized by the Industrial Design Association of America. This award is the most prestigious design award in the United States and represents the design profession’s commonly agreed upon gold standard for “good design”. If designers can tell good design from bad design can the average consumer do so as well? The answer is yes! People vote with their money and studies show that they overwhelmingly give their hard earned cash to award winning products. Also, it is noteworthy that good design does not just create trends, the corporations whose products consistently win IDEA Awards reward their stockholders with 4 percent more return on their investment than the firms who ignore design in their products. In short, the business leaders and their shareholders who pay attention to the creative economy are handsomely rewarded.

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GOP Sen. Bob Corker Disses Boehner, Praises Reid On Debt

July 28, 2011

WASHINGTON — Conservative Sen. Bob Corker (R-Tenn.) sounded Wednesday like he prefers the looks of the Democratic budget-cutting plan better than House Speaker John Boehner’s â- and sounded awfully close to embracing the Obama administrationâs desire for grand bargain to hike the debt ceiling. Taking to the Senate floor, Corker argued that Senate Majority Leader Harry Reidâs (D-Nev.) $2.2 trillion cut plan was a good effort, except that it needs to be more like $4 trillion — as thatâs the magnitude Corker thinks it will take to convince ratings agencies not to downgrade the United States’ prized AAA score. âI may catch some grief back home for saying this, but I think Sen. Reid has actually tried to put something forth to help solve this problem,â Corker said, while noting that House Speaker John Boehnerâs (R-Ohio) short-term plan to cut $850 billion had ” issues .â In particular, Corker warned that extending the debt ceiling for only six months, as Boehner has proposed, would still risk the nationâs credit rating, and leave lawmakers facing another ugly half a year. âI know the president has been concerned, candidly, about a short-term extension,â Corker said. âIn fairness, I think the business community around our country would be concerned about a long short-term extension.â Other Republicans, including Senate Minority Leader Mitch McConnell (R-Ky.), have accused Obama of seeking a longer deal because it was convenient for his reelection campaign. While Reidâs proposal is short of the $4 trillion Corker wants, at least it lasts until 2013. âTo even set up a process that’s short of that doesn’t make any sense to me,â Corker said, referring to the size and duration of a deal. âIt’s kind of like you’ve got to be kidding me. We’ve got to go through the aggravation of the next six months working towards an aspirational goal that we all know doesn’t solve the credit rating issue.â Boehnerâs longer-term proposal — which includes a second vote after six months — is similar in overall size to Reidâs, although it also adds a balanced budget amendment. Corker was not alone in suggesting his party wasn’t pursuing the best course. Sen. John McCain (R-Ariz.) blasted some on his side for trying to insist on the constitutional amendment, which he called “bizarro.” He also slammed right-wing conservatives for “deceiving many of our constituents.” Corkerâs reasoning sounds remarkably like the position of Obama, who has been seeking a deal that cuts $4 trillion or more, and lasts into 2013. Where they would part ways is over the issue of taxes, because Obama has insisted that some revenue needs to be brought in to hit the target. But in the broad outlines, the Tennessean may actually be closer to the White House than to his colleagues in Congress. Corker made clear later that his $4 trillion worth of deficit cutting was not necessarily the same as Obama’s, and that he picked the number because that’s what bankers have been telling him it will take to preserve the U.S. credit rating. “It’s just become part of the mantra. It’s not the president,” he said. “We never knew what the details of that were. All we have are sort of talking points on each side. Who knows? I don’t know what that was.” Corker spokesman Chuck Harper said that Corker’s words were not a pan of Boehner’s plan, and noted that Corker praised the speaker for moving the debate in the right direction, which Corker felt was an optimistic sign. This piece has been updated to include later comments from Sen. Corker.

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Breakup Of Mega-Banks May Now Be A Feasible Option

July 27, 2011

What was made can be unmade. JPMorgan Chase and Wells Fargo may have venerable names, but they and the pseudo-venerable Citigroup and Bank of America are all products of countless mergers and agglomerations. There is no rule of markets that requires a financial system dominated by four cobbled-together, lumbering behemoths.

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Jason Alderman: With Budgeting, Slow and Steady Wins the Race

July 27, 2011

Budgets are a lot like diets: No single approach works for everyone; overly complicated plans rarely work for long; and sometimes it takes a few tries before you get it right. One stumbling block for many people is thinking of a budget as a form of punishment rather than as a means to achieve their goals in life. Say you dream of buying a house: A budget shouldn’t serve as a constant reminder that you can’t afford a down payment; but rather, as a tool to help identify where the money goes each month so you can adjust your spending — and saving — accordingly. Getting started . If you’re new to budgeting or you haven’t been successful in the past, start slowly. First, for a few months write down every cent you spend: mortgage/rent, utilities, food (including snacks and coffees), gas, medical copayments, birthday presents, credit card interest, children’s allowances — the works. Also, divide annual expenses like insurance and income tax into monthly amounts and add them to the list. To help track what you spend, review your checkbook and credit card statements and hold onto all cash transaction receipts. Don’t feel compelled to categorize expenses at first; just total them up each month. It sounds tedious, but I guarantee you’ll be amazed by the bottom line. Eventually, you can start grouping expenses into categories, which will help identify items to trim. At the same time, track your income. If your pay varies from month to month, average it out for purposes of this exercise. Comparing money coming in versus money going out can be quite enlightening. Breaking even or losing money each month may mean you need to find additional income sources and/or aggressively alter your spending habits. You’ll probably ask yourself, “Do I really want to spend $60 a month on coffee?” and “How can I reduce my utilities bills?” Budgeting tools. Many tools are available to help track income and expenses. You can go the pencil-and-paper route by downloading a budget spreadsheet template (Google “Budget Worksheet” to find one you like). Interactive, online budgeting calculators that can help you plan for a variety of expenses also are widely available. For example, Practical Money Skills for Life , a free personal financial management program run by my employer, Visa Inc., includes budgeting calculators for everything from back-to-school costs to holiday expenses to retirement. Once you’re ready to go to the next level of managing your finances, many software packages and online account management services are available — some are free, while others charge a one-time or monthly fee. Among the more popular products are Quicken , Mint.com , Yodlee , Mvlopes and YNAB (You Need a Budget). Some, like Mint and Yodlee, can be accessed online, including by smart phone; others, like Quicken, must be accessed from a dedicated computer. Commonly available features include: Account aggregation, where you can import transaction information and balances from bank, credit card and investment and other accounts into one common database — this avoids having to go to multiple websites. Transfer money between accounts; some also allow online bill payment. Track, categorize and annotate transactions — also helpful when calculating income taxes. Some offer interactive charts and graphs to help visualize changes in spending and savings habits. Budgeting tools and tips. Setting goals and changing behavior . Start jotting down your short- and long-term financial goals. These might include buying a new car or house, saving for retirement and vacations, paying off debt, financing college and building an emergency fund for expenses like car repairs, broken appliances, unexpected medical bills, etc. Eventually you’ll need to figure out what those things will cost so you’ll know how much to save — and by when. It’s at this “behavioral change” point, when the compilation of so many long-term goals seems overwhelming, that many people give up on budgeting. Think about the tortoise and the hare: Slow and steady wins the race. You won’t solve all your financial challenges at once, but you can start whittling away at them. Over time, you’ll notice gradual improvements and be encouraged to up the ante — it’s like losing weight gradually and keeping it off versus drastic weight reduction. Here are a few suggestions: Once you’ve started categorizing expenses, look for items that stand out as extravagances you can trim or eliminate, at least temporarily (meals out, unused gym memberships or magazine subscriptions, unneeded shopping sprees, etc.) Ask insurance companies how much you can reduce premiums by raising deductibles. Always pay at least the minimum balance on loans and credit cards to avoid late charges. List accounts by interest rate and pay off those with the highest rates first. Create separate savings accounts for different long-term goals and have contributions automatically deducted from your paycheck or checking account — even if it’s only a small amount each month. Online banks and credit unions often will allow multiple accounts with no minimum balance requirements or service charges. Try not to borrow from one “account” to pay expenses in another. Especially don’t raid your retirement accounts — the tax implications alone are daunting. For more budgeting tips, visit MyMoney.gov , the National Foundation for Credit Counseling , Practical Money Skills for Life , or read my previous blog, Go on a Spending Diet . This article is intended to provide general information and should not be considered legal, tax or financial advice. It’s always a good idea to consult a legal, tax or financial advisor for specific information on how certain laws apply to you and about your individual financial situation. Follow Jason Alderman on Twitter: http://twitter.com/PracticalMoney

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Did Republicans Really Watch This Ben Affleck Scene Behind Closed Doors?

July 27, 2011

Amid contentious negotiations taking place in Washington on the issue of raising the debt ceiling, the Washington Post offers a glimpse of what went on behind the scenes during a closed-door meeting among House Republican lawmakers on Tuesday. The gathering took place as some conservative members of the chamber remain at odds with their GOP colleagues on a plan put forth by House Speaker John Boehner to lift the nation’s deficit limit. Rep. Jim Jordan (R-Ohio) said on Tuesday morning that at the time he was confident the proposal did not have sufficient GOP votes to pass. According to the Post , House Majority Whip Kevin McCarthy (R-Calif.) sought to foster a sense of unity among House Republicans at their meeting by playing a clip from The Town , a 2010 crime thriller starring Ben Affleck and Jeremy Renner. In the segment of footage reportedly shown, Doug MacRay, a bank robber played by Affleck, says to his friend Jem Coughlin, played by Renner, âI need your help. I canât tell you what it is. You can never ask me about it later. And we’re going to hurt some people.â Jem then responds, “Whose car are we gonna take?” Republican aides tell the Post that Rep. Allen West (R-Fla.), a Tea Party-backed lawmaker with a penchant for making eyebrow-raising remarks , told his colleagues after the clip was shown, “Iâm ready to drive the car.” (The Chicago Tribune recently reported that the film appeared to inspire a real-life bank robbery.) During a recent appearance on Fox News, West was asked if he would consider supporting a short-term proposal to raise the debt ceiling. âI am a reasonable fellow and I do not want to see the U.S. default on any of its obligations,” he said. “I would be willing to listen to something that makes sure we get past the August 2nd deadline. But long term we have to continue with spending control measures and any type of tax hikes are off the table for me.” McCarthy has played a critical role in facilitating a sense of unity among a House GOP caucus that includes a significant number of staunchly conservative freshman lawmakers. Robert Draper wrote in a New York Times Magazine profile published earlier this month: McCarthy informally polled them when they first came to town in November for orientation. All but four of them said they would vote against raising the ceiling, under any circumstances. Then McCarthy (along with Ryan and the House Ways and Means chairman, Dave Camp) began conducting more listening sessions. The whip recognized that it would be counterproductive to lecture the freshmen about the economic hazards of not raising the debt ceiling. He also realized that itâs one thing to pass a budget â which in the end is a nonbinding political document â and another thing to throw America into default. And so McCarthy has urged them to consider raising the ceiling under certain conditions and thus to view this moment as a golden opportunity to force significant changes from the White House. âWe all ran for a reason,â he tells them. âWhatâs most of concern to you? What is it that we think will change America?â As a result, the freshmen have begun to move away from a hard ânoâ on raising the debt ceiling to a âyes, if.â In the conference room, several freshmen have said theyâll vote to raise the ceiling only if the president agrees to repeal his health care legislation. Or if Obama signs into law a constitutional amendment to balance the budget, after all 50 states have ratified it… HuffPost’s Sam Stein reports on the proposal introduced by Boehner: The debt ceiling deal introduced by Speaker John Boehner (R-Ohio) would save, by one measure, roughly $850 billion over the course of ten years and just $1 billion in 2012 — two metrics unlikely to satisfy the most conservative members of his conference. The Congressional Budget Office, which is the official scorekeeper of legislation, released its analysis of the Budget Control Act of 2011 on Tuesday afternoon. The findings were damaging enough that an hour later, Boehner’s office told reporters it would rewrite the bill to achieve a more favorable scoring. Hours after that, GOP leadership announced it was delaying a vote on the plan until Thursday. Click here for the latest developments to unfold in ongoing negotiations to raise the debt ceiling. Below, video of the clip reportedly shown to House Republicans by McCarthy. WATCH:

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Senate Debt Timeline Leaves Razor-Thin Margin For Error

July 27, 2011

WASHINGTON — Unless Republicans in the Senate drop opposition to Majority Leader Harry Reid’s (D-Nev.) plan to raise the nation’s debt limit, the soonest the Senate can pass a bill to stave off default will be Sunday — just two days before time is set to run out. That’s because of Senate rules, a senate aide familiar with the planing explained. In order to vote to end debate on a measure, a senator must file for cloture, and the rules require an “intervening day” for the request to “ripen.” In this case, the Senate is planning to use an existing measure already on the floor as a vehicle and attach the debt bill as an amendment. Reid is expected to file for cloture on that motion to proceed to the “substitute amendment” Wednesday, a plan he’s expected to detail at a press conference Wednesday. With an intervening day on Thursday, the Senate could have its first cloture vote — with a 60-vote threshold to end debate on the motion to proceed — on Friday. Senate rules also require 30 hours between each step in the voting process, unless senators unanimously agree to waive the time. That delay would set up an up or down, majority vote on the amendment for Saturday. If the debt amendment passes, the underlying vehicle would then also have to be passed 30 hours later, also by a simple majority, putting that vote somewhere later on Sunday. All the intervening time can be dispensed with if senators agree unanimously to waive it, but several Republicans have declared they oppose raising the debt ceiling at all, making such agreements less likely. While the Treasury Department has warned that its ability to borrow to pay its bills will expire at the end of the day on Aug. 2, some reports suggest that thanks to unexpectedly robust revenue, the government won’t begin defaulting until several days later.

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Tea Party-Backed Congressman Fights His Own Party Over Debt Ceiling Deal

July 27, 2011

WASHINGTON — When President Barack Obama complains about House Republicans unwilling to compromise on a deficit reduction package, he’s talking about Rep. Jim Jordan, a former wrestling champion from Ohio who is becoming a driving force in the debt debate on Capitol Hill. Jordan’s district is right next to Speaker John Boehner’s in the western part of Ohio, but ideologically, he is miles apart from the Republican leader. As Boehner and his lieutenants scrambled Tuesday for votes for the speaker’s latest debt bill, Jordan announced at a news conference that he opposed the package, and he boldly predicted the speaker didn’t have enough Republican votes to pass it. Tuesday night, GOP leaders postponed a vote planned for Wednesday as they worked to rewrite the package. “If you look at this, it’s about a $7 billion reduction in spending from what we’re currently at,” Jordan said. “We advocated something much more than that.” Boehner’s plan promised spending cuts in excess of $1 trillion over the next decade in exchange for raising the debt ceiling by a slightly smaller amount. It also would establish a committee of lawmakers to recommend additional budget savings next year in exchange for extending the government’s borrowing authority through 2012. “We also have real concerns about the commission, the idea that on a 12-member commission, six Democrats and one Republican decide they want to raise taxes, you can’t keep that off the floor,” Jordan said. “It comes to the floor, and then there’s a potential tax increase.” A member of the House for only four years, Jordan, 47, won the chairmanship of the Republican Study Committee, the conservative voice of the GOP caucus, after the party wrested control of the House from Democrats in last November’s election. With more than 175 members, the group includes a majority of House Republicans. Jordan has never been shy about pushing his party to the right. He gets high marks from conservative groups for his strong record of opposing abortion and higher taxes, stretching to his days in the Ohio Legislature. “It’s what Ronald Reagan is all about, it’s what our party’s all about: a strong defense, lower taxes, less spending, traditional values,” Jordan said in an interview. “That’s what we fight for every day.” He sees his role as helping Boehner and the entire House GOP stay true to conservative values. “I want to help the speaker,” Jordan said. “I think he’s got a tough job, and like a lot of Americans, we’re praying for him.” House Majority Leader Eric Cantor, R-Va., is often cited as the leader of the conservative wing of the House Republican caucus. His power, however, is bolstered by members like Jordan, who work daily to rally other conservatives, including an 87-member freshman class that is eager to make its mark. Jordan and his compatriots were a driving force behind the bill that the House passed last week that would slice federal spending by $6 trillion and require a constitutional balanced budget amendment to be sent to the states in exchange for averting a threatened government default after Aug. 2. The Democratic-controlled Senate quickly killed the measure with a procedural vote. Jordan’s unwillingness to compromise, however, rubs some fellow Republicans the wrong way. “My experience with things that don’t bend is that they break,” said Rep. Steven LaTourette, a fellow Republican from Ohio, who represents the northeastern corner of the state. LaTourette, who supports Boehner’s debt plan, said he admires Jordan for standing up for what he believes in. But, he added, “I think it’s harmful to the country and it’s certainly harmful to the speaker’s attempt to move legislation.” Jordan grew up in western Ohio and was a four-time state wrestling champion in high school, losing only a single match in four years. He went on to wrestle at the University of Wisconsin, where he won two NCAA titles. He’s not a big man – Jordan wrestled in the 134-pound weight class in college and doesn’t look like he weighs much more than that now. He’s outwardly friendly and quick with a smile, but he doesn’t back down from a political fight. “The reason I got into politics was to affect the things I care about, the things I think the families I get the privilege to represent care about,” Jordan said. “I’m going to fight for those things. I’m going to do it with a smile on my face, I’m going to do it in way that helps our party, but most importantly, I’m going to do it because I think it helps the country.” Obama says Republicans like Jordan are why the government is in danger of defaulting on its obligations next week. “History is scattered with the stories of those who held fast to rigid ideologies and refused to listen to those who disagreed,” Obama said in a national address Monday night. “But those are not the Americans we remember. We remember the Americans who put country above self and set personal grievances aside for the greater good.” Jordan shrugs off Obama’s attempts to vilify House conservatives. “I would look at it this way: If standing firm for a common-sense plan, if the president’s got a problem with that, we’ll, I don’t know how I’m going to help him,” Jordan said.

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Boehner’s Debt Ceiling Plan Falls Short, CBO Finds

July 27, 2011

WASHINGTON — The debt ceiling deal introduced by Speaker John Boehner (R-Ohio) would save, by one measure, roughly $850 billion over the course of ten years and just $1 billion in 2012 — two metrics unlikely to satisfy the most conservative members of his conference. The Congressional Budget Office, which is the official scorekeeper of legislation, released its analysis of the Budget Control Act of 2011 on Tuesday afternoon. The findings were damaging enough that an hour later, Boehner’s office told reporters it would rewrite the bill to achieve a more favorable scoring. Measured against March 2011 government expenditure levels, the proposal, as currently written, would reduce the deficit by $850 billion during the next decade, according to the CBO. Measured against January 2011 government spending levels, the bill would reduce budget deficits by roughly $1.1 trillion during that same time period. The findings are a setback of sorts for the speaker, who was hoping to present a package of steep cuts to a skeptical GOP. In the end, however, he is a victim of his own success. The reason that the CBO adjusted its baseline is, in part, because of the spending cuts that Boehner was able to secure during the government shut down debate during the spring. Potentially more problematic for Boehner is the finding that his debt ceiling package will only reduce federal spending by $1 billion in 2012, and $16 billion in 2013. House Republicans have demanded that deep cuts be felt immediately as a condition for their support. “Americans deserve immediate spending cuts that demonstrate that we are charting a swift path toward a balanced budget. We must implement discretionary and mandatory spending reductions that would cut the deficit in half next year,” read a May 2011 letter from the conservative Republican Study Committee. “[A]ny move to raise the debt limit must be accompanied by immediate spending cuts and binding reforms so that we donât continue to push our country down the road to bankruptcy,” House Majority Leader Eric Cantor (R-Va.) said in early May . Boehner himself has repeatedly echoed those statements. Earlier this month, he specifically pushed back against a suggestion by Democrats that the majority of spending cuts could be concentrated in future years, rather than begin immediately. Yet the Budget Control Act of 2011 appears to falls short of that bar. âWeâre here to change Washington â no more smoke-and-mirrors, no more âphantom cuts.â We promised that we will cut spending more than we increase the debt limit â with no tax hikes â and we will keep that promise,” Boehner spokesperson Michael Steel said in a statement after the CBO analysis was released. “As we speak, Congressional staff are looking at options to re-write the legislation to meet our pledge. This is what can happen when you have an actual plan and submit it for independent review â which the Democrats who run Washington have refused to do.â While actual budgeting makes it nearly impossible to achieve immediate cuts in programs already up and running, another problem Boehner’s legislation runs into is that it actually spends money in two areas. According to the CBO, $17 billion is spent on Pell Grants from 2012 to 2015 â- an unexpected addition to a deficit-reduction measure. The bill makes other changes to the Federal Student Loan Program to bring that expenditure closer to being deficit neutral. But between 2012 to 2016, the government will still be spending $7.4 billion more on this subsection of the budget. Boehner’s bill also devotes $1 billion to “program integrity activities,” which are, more or less, enforcement mechanisms to snuff out abuse and waste in government programs. That expenditure will presumably save Congress in the long term. But for the purposes of budgeting, it counts as an expenditure in the short term. The vast majority of savings in Boehner’s bill, which would require the creation of a committee to find an additional $1.8 trillion in cuts in exchange for a future raising of the debt ceiling, comes from discretionary spending caps that will take tens of billions of dollars out of the budget on a yearly basis starting in 2013. But that might not be enough to satisfy the party’s most conservative members who will note, rightly, that $1 billion in cuts in 2012 represents 0.03 percent of current spending. boehnerCBO

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State Borrowing Billions To Stave Off Debt Crisis

July 26, 2011

SACRAMENTO, Calif. — California borrowed $5.4 billion from private investors Tuesday as a hedge against a possible default by the federal government. State Treasurer Bill Lockyer secured the package of short-term loans from a group of banks, credit unions and investment funds so the state can avoid a potential cash shortage if the federal government fails to extend its debt ceiling. If that happens, the government could shortchange states on health care and education funding. The treasurer said he took the step as a precaution if the federal government can’t meet all its obligations. “California had to obtain this interim financing to protect the state from the immediate, drastic consequences of a failure by Washington to resolve the debt ceiling impasse by the Aug. 2 deadline,” Lockyer, a Democrat, said in a statement. “I’m hopeful Congress and the president will do the responsible thing, solve the problem before it’s too late, and not risk pushing the country into a financial and economic abyss.” California typically borrows money in the late summer to pay operating expenses until most income tax receipts arrive in the spring. Lockyer secured the so-called bridge loan because it’s unclear whether California would be able to borrow that much money if the credit markets are thrown into turmoil. Democrats and Republicans in Washington are clashing over plans to slash spending and raise the debt ceiling ahead of the Aug. 2 deadline – the day the White House said the federal government will exhaust its ability to borrow and meet all its obligations. That could force the federal government to default on loan obligations or prioritize payments to conserve cash and avoid a default. Payments could be halted to states for Medicare, Medicaid and some public school programs. Medicaid, the federal-state health program for low-income families, is known in California as Medi-Cal. Medicare is the health insurance program for seniors and the disabled. California received loans from eight banks and private investment firms. Goldman Sachs and Wells Fargo & Co. provided the largest amounts, at more than $1.4 billion each. The state, which currently has the lowest credit rating among the 50 states at A-, plans to repay the loans later this summer through routine borrowing notes to be issued in late August. Lockyer appeared to obtain a good interest rate based on the state changing the way it calculates how much money it has in reserve this year. The treasurer’s office said the yield on the notes is 0.237 percent, compared with 1.4 percent the state paid for short-term borrowing in 2010. The latest notes mature on Nov. 22, but the state could pay them off ahead of time. The treasurer also warned that a default would trigger a downgrade of the federal government’s triple-A bond rating. It would not only raise interest rates but negatively affect state and local government borrowing costs because some states’ rates are linked to Treasury rates. “The ripple effects on state and local finance for the whole country are very substantial,” Lockyer said earlier this month.

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Rodrigo ValdÃ©s: Between a Rock and a Hard Place: U.S. Fiscal Policy

July 26, 2011

The United States faces two pressing challenges to fiscal policy: raise the debt ceiling, and begin the arduous process of reducing deficits and debt. And, right now, this leaves U.S. fiscal policy between a rock and a hard place. How much savings should be found and in what form are crucial questions. So is when to put those savings in effect. Simply unsustainable By the end of this year, federal debt held by the public will represent 70 percent of the U.S. economy, almost double the 36 percent it was in 2007. The federal fiscal deficit will be 9.3 percent of GDP this year. That, quite simply, is not sustainable. If left on automatic pilot, debt would continue to increase faster than the economy, until financial markets say “no more.” Credit rating agencies have issued their warnings and, as part of the debt ceiling discussions, the political system has been trying to decide where to find the savings. Unemployment worries At the same time, too much fiscal retrenchment in the short run could unduly weaken an economy that was recovering very gradually and has lately lost momentum. In the first half of 2011, output appears to have grown at an average annual rate of less than 2 percent. That pace is just not enough to significantly reduce today’s very high unemployment. Persistently weak conditions in the labor market can threaten the long run prospects of the economy. A person who is unemployed for too long can gradually lose his or her work skills and find it increasingly difficult to find a job. Another headwind to economic activity is certainly not welcome at this juncture. Difficult balancing acts The fiscal problem was center stage in the IMF’s 2011 annual assessment — or Article IV consultation — of the United States’ economy. Discussions centered on the need to balance long-term adjustment and short-term support for the recovery. A loss of fiscal credibility in the United States is too dangerous a scenario to be tested. So, the top priority is reaching political agreement on a comprehensive adjustment plan that begins the consolidation process in FY 2012. The plan should be an appropriate size. Ideally, the consolidation should be spread over several years to avoid overly tight policies in 2012-13. The plan has to be balanced to include cuts in discretionary spending, higher revenues — for example by closing tax loopholes — and entitlement reforms. The latter should focus on containing the rate of growth entitlements — namely, social security and health care — and the changes may kick in later, but they have to be agreed and legislated now. Curbing non-defense discretionary spending alone is not sufficient because this type of spending is simply not large enough to achieve the required deficit reduction. No crash dieting, but the diet has to start now A somewhat crude analogy is dieting and losing weight. An overweight person who urgently needs to shed pounds must start to diet immediately. A simple announcement that he or she will start soon is not credible. By the same token, slashing the calorie intake too quickly is dangerous, risking the proverbial yo-yo dieting or, worse still, long term damage to your health. A gradual and enduring process is better. And the appropriate balance also requires relying on more than one lever: the dieter should not only eat less, but exercise too. Putting public debt on a sustainable path — say, stabilizing its ratio to the size of the economy by mid-decade and then lowering it gradually — requires a fiscal adjustment whose size and scope depends on two key variables: the pace at which the economy grows, and interest rates in the next several years. If the economy expands, the benefits multiply. Not only do revenues grow more rapidly, but debt also represents a smaller part of the economy, which reduces the need for savings. On the other hand, higher interest rates increase the amount of adjustment required because the interest bill will eat more of the available revenue. And complicating matters, higher debt tends to lift interest rates, raising the interest bill, and so on. So, where does all of that leave us? Active polices to lower the fiscal deficit of the order of 5 percent of GDP in the next several years would do the trick based on official U.S. projections. That amount is broadly equivalent to the $4 trillion savings over 10 years publicly discussed by policymakers during debt ceiling negotiations. Under our more conservative economic projections, the United States needs to find savings of approximately $6 trillion. That $4 trillion would be a very good first step. If you want to crawl out from between a rock and a hard place, you have to start now. From iMFdirect blog.

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Obama To Address Nation About Debt Ceiling Crisis

July 25, 2011

WASHINGTON — The White House says President Barack Obama will address the nation at 9 p.m. Monday to discuss the approaching debt limit deadline and an apparent political stalemate over deficit reduction proposals. White House spokesman Jay Carney announced the address after House Republican and Senate Democratic leaders unveiled competing plans to meet an Aug. 2 deadline to raise the government’s borrowing authority. Obama is supporting a proposal by Senate Majority Leader Harry Reid that would trim $2.7 trillion of government spending over 10 years. Reid’s plan does not include new tax revenue, as Obama has demanded. But unlike the GOP plan, it would extend the debt ceiling into 2013 – an Obama ultimatum. The House plan trims about $1.2 tillion but would only extend the debt ceiling for less than a year. THIS IS A BREAKING NEWS UPDATE. Check back soon for further information. AP’s earlier story is below. President Barack Obama is reiterating his call for a deficit-cutting plan that cuts spending and that also increases tax revenue by making the wealthy and corporations pay more to help stabilize the long-term debt. The president made his comments to the National Council of La Raza on Monday as congressional leaders struggled against time to come up with a plan to meet an Aug. 2 deadline to raise the nation’s debt ceiling. Obama said the wealthy and big corporations have to “pay their fair share, too.” And he alluded to the difficulty of cutting a deal, saying “compromise is becoming a dirty word.”

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