Friday, September 18, 2020
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How to Avoid a Credit Downgrade

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No matter what Congress does now, the probability is that at least one credit rating agency is going to downgrade the credit rating of the USA, according to a majority of economists. The shameless spectacle of political wrangling has already done the damage. The cuts being proposed, says Zero Hedges would likely result in at least $100 billion in higher interest costs, which would offset any of the proposed spending cuts in the budget---- making it all an exercise in futility.

We are now at the point where various professionals say the only way we could avoid a wholesale disaster is to:  

President Obama on Debt Ceiling: “If Not Now, When?”

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A full transcript of President Obama's press conference on the debt ceiling is here, and an excerpt is below. The bottom line, though, is that Republicans are completely incapable of reaching an even semi-serious compromise, one in which both sides give something, because they are terrified of/controlled by the extremists in their party. That's why John Boehner, who had wanted to cut a big deal with President Obama, was forced to back down. It's also why the ambitious, cutthroat, unprincipled Eric Cantor is happy right now, as he sees a path to move up in rank. Meanwhile, the country's solvency, economy, prosperity, future all hang in the balance, while Republicans like Eric Cantor stick to their rigid, taxes-are-evil, my-way-or-the-highway approach. Wonderful, eh?
I will not sign a 30-day or a 60-day or a 90-day extension.  That is just not an acceptable approach.  And if we think it's going to be hard -- if we think it's hard now, imagine how these guys are going to be thinking six months from now in the middle of election season where they're all up.  It's not going to get easier.  It's going to get harder.  So we might as well do it now -- pull off the Band-Aid; eat our peas.  (Laughter.)  Now is the time to do it.  If not now, when?

We keep on talking about this stuff and we have these high-minded pronouncements about how we've got to get control of the deficit and how we owe it to our children and our grandchildren. Well, let's step up.  Let's do it.  I'm prepared to do it.  I'm prepared to take on significant heat from my party to get something done.  And I expect the other side should be willing to do the same thing -- if they mean what they say that this is important.

I believe that's known as "calling their bluff." So, now what happens?

Why Not Try Something Besides Austerity?

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Both Democratic and Republican Governors---- and, in fact, both parties at the national level---- are in hysteria mode when it comes to tackling the designated Big Problem du jour: budget shortfall, deficit. Note: job-creation is now playing second fiddle; you occasionally hear a tip-of-the-hat to job creation, as in "we must get our financial house in order first, in order to create jobs"---- a new sort of political double entendre. This has created the remarkable spectacle of states slashing public sector jobs in the name of austerity, which only adds to unemployment, instead of reducing it (when the BLS provides the latest stats on unemployment, I wish they'd tell us just how many of those new first-time unemployment applications were the result of governors' firing state employees). Does this make sense? Two economists say "no," and offer some sensible, pragmatic alternatives to austerity in the interview below. Instead of simply cut, cut, cut, and thereby destroying our society in the process, why not try a few other policies as well?

The Invisible Millions vs Deficit Terrorism

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Not so long ago I distinctly recall hearing that President Obama's most trusted advisors, left behind at the White House while he made an overseas tour, reached the conclusion that the Democrats received a shellacking (not my word) in the mid-terms because they had wasted time and political capital on passing health care reform when what the country really wanted was an economic fix to create jobs. Therefore, the administration announced that jobs and the economy would be the focus in 2011.  Also, was not Virginia's Governor, a Republican, elected with the slogan "Bob for Jobs!"?  In fact, jobs was the theme pushed in most states in 2010, too, regardless of party.... wasn't it?

I confess, I must have dis-remembered (not my word, either). It seems that as soon as the polls closed, the cry of "jobs!" disappeared as if it had never been uttered; not even an echo remained. Within a nanosecond, deficit hysteria became The Immensely Serious Crisis which demanded immediate action in almost every statehouse, and most especially in Washington, D. C.  Even the Oval Office suddenly had amnesia, and began agreeing with the Republican victors flooding into Congress. When the new Republicans in Congress clamored for immediate budget cuts, even under Continuing Resolutions (CRs normally simply extend federal spending as-is until the new budget kicks in), the White House response was not "no, let's talk job creation," but "cuts? yes, yes, how much?"  

It turns out that the one-sixth of America's workers, those who either cannot find any kind of a job or who have had to accept part-time employment when they really want to work full-time, are in the same predicament as the severely wounded warrior with PTSD (Post-Traumatic Stress Syndrome): they are ignored.  Used as an election slogan, or ostentatiously lionized for their patriotism, but then discarded once they had served the political purposes of the political class, the veterans and the permanently unemployed (sometimes actually one and the same) have become invisible. As Paul Krugman says in today's New York Times: "Washington has lost interest." Boy, was that quick---- but one has to ask Why? Why now?

LET’S BE FAIR: Unions, Jobs, Deficits, and Debt

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"I work for a private company, I had to take a pay cut, it's only fair that public workers do, too." Well, isn't that true?  Isn't that fair?  The concept of "fairness" does not occur in Nature. Fairness is an entirely human invention. Anyone who has watched tiny children in action knows that even the youngest has an innate idea of what's fair, especially when it applies to themselves individually, and their toys.  As we grow older, our sense of "fairness" grows more subtle, and tends to expand, sometimes to the sophisticated level of rationalization to excuse personal greed (when one is on the receiving end of more toys), and perpetual victim-hood (when one is not on the receiving end of more toys). What does fairness have to do with unions in Wisconsin, or jobs, or the current fad of concern for budget deficits/debt ("it isn't fair to saddle our grandkids with paying off our huge debt")? Answer: a lot.

What's considered fair by a human being is completely determined by what is included in the description of the situation; in other words, what is within the framework. The one who draws the frame, deciding what to include and what to leave out, is the one who will determine what is "fair." In the current discussion of the deficit, the budget, and so-called entitlements, the corporatists and the Republican Party have completely dominated the discussion.  Why? Because they have created the issues, defined the terms, and decided what is to be included in the discussion.... the mass media and the Democrats, including President Obama, seem to have completely accepted their terms of debate.

Let's look at how the fairness frame of each topic has been designed, and what happens if you change the frame to include other factors, or exclude a factor or two currently included.

The Real Budget “Third Rail”

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The Republicans in the House of Representatives are busy blowing smoke about how they are going to cut discretionary spending (12% of the budget) and solve the budget deficit problem we have. What nonsense, but at least they haven't yet attacked Social Security. Exempting Social Security, the supposed "third rail" of politics, from budget cuts doesn't affect the deficit one way or the other. Social Security is not now, nor has it ever been, part of the deficit problem. I know that GOP ideologues don't want to bother with facts, but the facts show that the small deficit Social Security has at present is caused by high unemployment, unemployment they want to increase by forcing the layoff of thousands of federal workers.

Social Security is solvent and able to pay full benefits through 2037. After that, it still would bring in enough funding through its own dedicated revenue source to fund payments at 80% or more, according to experts who have studied the system. There is a long-term problem out there because of the declining number of future workers paying into the fund and the rising number of retirees. That will require fixes. The good thing is that if we don't fix it, the next generation has time to  do it. The second good thing is that no matter what we might do, a future Congress can change it any way it wishes.

The real "third rail" of the budget isn't any social program. It's military spending, which accounts for more than 50% of the federal budget. The United States spends almost twice what the rest of the world spends on its military, six times more than China, the nation in 2nd place. Unlike the other parts of the federal government, the defense department can't even produce an audit of its programs, tell us exactly where all that money goes.

As I've watched Sen. Mark Warner on television lately discussing the work of the so-called "Gang of Six," a bipartisan group of senators discussing how to bring the growing structural budget deficit under control, I have waited in vain to hear from them how Pentagon spending can also be brought under control.

But Is the Obama-GOP Tax Deal Good For the Country?

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We have had a couple of days to digest the details of the compromise tax agreement reached between the White House and the Republican leadership from the other end of Pennsylvania Avenue. Most of the discussion has sought to parse the agreement politically, in true Inside-the-Beltway fashion: did President Obama "get the best deal" possible; will it help his re-election campaign in 2012, especially among the (crucial yet fungible) independents; has he moved enough to the (mythical, movable) Center; has his leftist base completely lost faith in him; will the Republican members on the Hill vote for the deal, but so-called liberal Democrats not, and so on? What I want to know, however, is this: is the Obama-GOP Tax Deal good for the country?  I am not so sure, and that question has received remarkably little attention

Mitch McConnell Demonstrates the Utter Bankruptcy of the Republican Party

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Bottom line: Mitch McConnell and the Republican Party have no answer to the simple question, "how will you make up the lost revenue from cutting taxes?" The fact is, these people are in complete denial, and will drive our country into utter bankruptcy with their fanatic belief in "supply side" ideology. Now, just to be clear, this isn't about the merits (or lack thereof) of cutting taxes, this is about doing so without making up the lost revenues, thereby exploding the deficit. And to that, the Republicans have absolutely no answer. Just keep that mind when you go the polls this November.

Cooch Admits GOP Ran Up Huge Deficits

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It's always fun to watch Ken Kook-inelli expostulate on his view of the world. In this video, Cooch explains how Republicans elected Barack Obama by abandoning their (supposed) "fiscally conservative" principles.  Hmmm...let's see, Reagan ran up a huge budget deficit, Bush ran up a huge budget deficit, Clinton ran up a budget SURPLUS. But Republicans are the "fiscally conservative" party, and we should put them back in control of Congress this November so they can get the budget deficit under control?  Got that, everyone?

Obsessing About the Deficit vs. Opportunity Costs

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UPDATE:The mania for budget-cutting is already adversely impacting the economy in the UK, where the new prime minister's threats of austerity have caused business confidence to plummet: reported here

President Obama has appointed a commission to examine the deficit, signaling that he has accepted the conservative view that the government's spending is out of control and threatening to force the United States into bankruptcy. The composition of the commission,  is such that progressives believe, probably correctly, that it will recommend slashing "entitlements" like social security, and killing any idea of spurring economic recovery through government spending like the New Deal under FDR.

In other words, the change Obama promised in the campaign has mutated into something conservative, not progressive, in a total triumph of the anti-Keynesianism of the Free Marketeers and Wall Street---- Goodbye to promises made to Main Street, Hello to the so-called fiscal discipline, anti-labor, pro-big business philosophy of Friedmanism and an only partially-understood version of the Austrian school of economics.

Not everyone agrees that now is the time to cut federal government spending, or that the deficit is utterly out of control or, that, to protect our grandchildren from crushing federal debt payments, this is the moment to take up the cheese-paring ways of the No-Tax crowd. In fact, this may well be the exact time when applying stringent fiscal discipline is precisely the wrong thing to do.