While waiting to go on Larry Kudlow’s show last night, I heard Sen Mitch McConnell say:
“What we have done, Larry, also is set a new template. In the future, any president, this one or another one, when they request us to raise the debt ceiling it will not be clean anymore. This is just the first step. This, we anticipate, will take us into 2013. Whoever the new president is, is probably going to be asking us to raise the debt ceiling again. Then we will go through the process again and see what we can continue to achieve in connection with these debt ceiling requests of presidents to get our financial house in order.”
This morning, on Squawk on the Street (CNBC) I debated former Sen Judd Gregg who wholeheartedly endorsed this process, calling it the best way to impose budget discipline.
Predictable, I guess, but let’s think about this for a sec. These politicians are essentially saying the following:
“We in Congress cannot be counted upon to come up with budgets that pay for the spending we authorize. Therefore, we will have to borrow to make up the difference. But if that borrowing hits the cap, we will not raise the cap to cover the appropriations on which we already signed off, unless we get the spending cuts we want.”
To understand how nonsensical Sens McConnell’s and Gregg’s position is, you have to appreciate that Congress knows when they pass their budget whether it will breach the debt ceiling or not, just like you know when you order your lunch whether you’ll be able to pay for it. They’re saying, I’m going to keep ordering lunches I can’t pay for and when the cashier hands me the check, I’ll hand it right back and tell her it’s her problem.
The budget process is when you square the ledger. Or not—there will be budgets, especially in recession, that add to the deficit and breach the ceiling. In such cases, Congress must borrow to make up the difference, and sometimes that will mean raising the ceiling, as we’ve done without incident since 1917.
But Sens McConnell and Gregg would rather pass budgets they knowingly refuse to pay for, and then threaten default. You can call that budget discipline if you want. But I’m telling you, this is not the way of great nations.
On the plus side, while I was waiting to go on Lawrence O’Donnell’s show, I heard Barney Frank, who, while even more disheveled than usual, made a whole ton of sense on the debt ceiling debate (he was a ‘no’ vote in the House).
Anyone know how cuts would be distributed if the congressional committee can’t agree – how much in each year? Same percentages as first $900 billion (front-end loaded), pro rata, something else?
McConnell’s statement is absurd, as you note. If congress wants to cut, do it in the budget. Don’t appropriate and then refuse to pay.
Same dollar amount each year.
So that’s $150 billion/year or 1% of $15 trillion GDP (declining slightly over time due to inflation). Per our prior discussion, that increases unemployment by about 0.7% or about 1 million jobs starting in 2013. Earlier if people and businesses adjust in anticipation.
Add in the fiscal drag from expiration of payroll tax cuts, unemployment benefits,etc. (around 1.5% of GDP) and things get really bad. See http://www.epi.org/analysis_and_opinion/entry/whats_missing_from_the_debt_ceiling_debate_jobs/ or https://mm.jpmorgan.com/stp/t/c.do?i=19642-7A9&u=a_p*d_645537.html*h_-1ni8eo3
The more I think about this stuff the more depressed I get.
By the way, from EPI:
Specifically, we assume a 1% reduction in gross domestic product corresponds with 1.2 million full-time nonfarm payroll job losses. This is consistent with CBO estimates of the impact of the 2009 Recovery Act and private sector forecasts.
http://epi.3cdn.net/9e6c6335a383a8d031_38m6bnlo4.pdf fn. 6
That’s 1% GDP => 0.8% (1.2/150) job loss, a bit higher than we discussed. Not that this approaches an exact science.
June labor force was 153.4 mm
From all the reading I did concerning the rating agencies and the potential downgrading of the US credit worthiness rating it would seem the prime reason for downgrading the AAA rating is due to political actions. The US can financially pay off it’s debt and there’s no question about that. The major concern all along is that US politicians are no longer mature enough to handle the responsibility. Senator McConnell’s statement that you write about here would seem to support such a notion. So why should the rating agencies not downgrade the US rating?
The US is like a credit card holder who pays the minimum balance and only when it suits him. Credit card companies conclude such a person is high risk and adjust their interest rate accordingly. Now I don’t believe the bond market will push up interest rates. We just don’t see that kind of activity even during the high borrowing years never mind now. But the lack of upward pressure in the bond market has nothing to do with the ability of US politicians to responsibly manage debt.
Good point. I wonder if S&P and Moody’s did downgrade the US, and explained that it was because of Mitch McConnell and the extremism of the Republican party, if that might sober Mitch up a bit.
Like Rep. Frank, what I find most distressing is that what contributes to the debt tremendously — the wars in Afghanistan and Iraq, are exempt from these mandatory spending cuts. These people aren’t serious. A terrorist is a terrorist – foreign or domestic.
Oh, and one other thing. McConnell’s comment clearly shows why you don’t negotiate with terrorists. It just encourages them to take more hostages.
I’m still stunned the Washington folks didn’t see this coming. Absolutely stunned. And the Washington folks are still incredulous that’s it’s going to continue just because it’s ridiculous. Ridiculous, absurd, it’s just doesn’t matter. It’s power. Pure power. These people are out for blood. They’re out to kill it. This really needs to be understood. The Washington guys really need to get out and really “feel” how crazy and ignorant the useful idiots that are making this possible for Republicans are.
Earlier you said the Democrats, including the president, didn’t have a strategy for dealing with Republican extremism. Sounds to me like they’d better find one – pronto!
Jared wrote ‘To understand how nonsensical Sens McConnell’s and Gregg’s position is, you have to appreciate that Congress knows when they pass their budget whether it will breach the debt ceiling or not, just like you know when you order your lunch whether you’ll be able to pay for it. They’re saying, I’m going to keep ordering lunches I can’t pay for and when the cashier hands me the check, I’ll hand it right back and tell her it’s her problem.’
One of the many problems at this time is that people don’t understand this. When I explain it I get blank stares.
There is a lesson to be learned from McConnell’s assertion, which he repeated on the Senate floor today (Tuesday). The lesson is that future Congresses will not pay the bills they or earlier Congresses incurred and that certain members of Congress (generally, of the party who is not in the White House) may hold the country hostage to effect legislation that suits them.
So if I were president of either party (and the country is lucky I’m not), I would not sign a budget into law that did not come with an appropriate debt ceiling hike (one with plenty of allowance for unanticipated contingencies) attached. Period. Such a veto threat now appears to me to be a necessary duty of the president if s/he is to fulfill her Constitutional duty to protect, preserve & defend the nation & to honor the Fourteen Amendment obligation to ensure that “The validity of the public debt … shall not be questioned.”
As for the Congress, were its members responsible (ha!), they would resciend the debt limit law.
“Whoever the new president is, is probably going to be asking us to raise the debt ceiling again.”
Given the current landscape, but with a republican president, I imagine the process would go a lot smoother. The cons are not doing this because they care about how much they spend. They’re doing this to make Obama look like a big spender.
If the democrats had any sense at all, someone would commandeer obama’s bully pulpit since he’s not using it and get the message out that it’s congress who spends the money while the president just writes the checks. Everyone is so fond of cozy domestic metaphors today so… It’s like a good and prosperous conservative household where the little woman does the shopping and spends the money and the man of the house writes the checks to pay her bills.
It’s easy – once the budget is in balance (expenditures reduced to equal expenditures) there is no need to increase the debt ceiling. Problem solved.
duh – I mean expenditures reduced to equal revenues.
Isn’t the reason that the debt limit has assumed so much importance simply that the leadership has given up on trying to pass actual budgets? Obama’s last one got laughed out of town 97-0 and there was not even an attempt at a replacement. Without that the debt ceiling is the only game in town…
Note that spending in both Iraq and Afghanistan is on the decline as a result of decreasing troop levels. I think this last deal counts that reduction as a “cut”. It’s sad they have to redefine perfectly good English words to survive in Washington.
Let’s drop “terrorism” from budget discussions. Another unnecessary redefinition of a well understood word. Or should we start calling Reid and Obama terrorists for never having voted for a debt ceiling increase during a Republican Presidency?
The last budget authorizing the spenind that the Republicans decided they did not want to pay for was passed on 4/15/11 and carries us through October
More attempts to redefine words. That wasn’t a budget. That was a CR, which they passed because they had no budget to offer.
“They’re saying, I’m going to keep ordering lunches I can’t pay for and when the cashier hands me the check, I’ll hand it right back and tell her it’s her problem.”
No, it’s really worse than that. They can negotiate and compromise during the normal budget legislation process, then clawback all compromise items by taking the hostage. That’s what they’ve done here. The cuts they could never get through civil debate are what they’ve won now.
They’re gonna tell the server “Before I pay the check, I’ll take those onion rings, Caesar Salad, and roast beef club I wish I’d ordered instead of the ham&cheese with fries I ate. Oh and gimme back that tip!”
[…] Senate Minority Leader Mitch McConnell. After last week’s shenanigans, he made it clear that the Republican Party thought last-minute debt-ceiling brinkmanship was peachy […]