As we know, President Obama and his team do not appear to be very effective negotiators when it comes to dealing with the Republicans in Congress. Last December, the Republicans forced the president to renew the Bush tax cuts for the rich. More recently, they got him to make $38 billion in cuts to the 2011 budget even though all his economists know that the economy actually needs more stimulus, which more means spending.
Since the president is having so much trouble dealing with the Republicans the rest of us should lend him a hand. One way we can do this is by etching out what the endgame looks like in the battle over raising the debt ceiling.
As it stands now, we are being told that the Republicans are insisting that there will be no increase in the debt ceiling without large cuts to the budget. Since the Republicans won't go along with any major cuts to the military budget, this means big cuts to the rest of the budget.
These cuts would have to include cuts to Medicare and Medicaid, and possibly Social Security as well, since everything else in the non-military portion of the budget does not amount to much. According to this story, President Obama might be forced to make major cuts to the core social insurance programs in order to prevent the disaster of a debt default that would result from not raising the debt ceiling.
However the actual picture is a bit different. There is no doubt that the failure to raise the debt ceiling would be very bad news for the economy. If the government had to default on its debt, it would shake the financial markets even more than the collapse of Lehman in September of 2008. We would see a freeze-up of lending and companies would be forced to dump millions of workers, as they could no longer meet their payrolls.
But, even in this disaster scenario, there would still be a tomorrow. In other words, after the financial crisis, the economy would still be there. We would still have the same capital stock, infrastructure, skilled work force and state of technical knowledge as we did the day before the crisis. The government and the Federal Reserve Board would have the power to reflate the economy to get it back on its feet just as they did when they engaged in the massive spending needed to fight World War II.
While the country will still be left standing after a debt default, there is one important sector that will not be standing: Wall Street. A debt default would almost certainly make all the major banks insolvent as they would have to mark down the value of U.S. government debt, which had been held as a completely safe asset. The loss of value would also apply to all the assets backed by the government, such as the mortgage backed securities issued by Fannie Mae and Freddie Mac.
Even when the economy revived, the U.S. financial sector would never hold the same place in the world as it does today. Without the ironclad financial backing of the U.S. government standing behind them, the Wall Street gang could never again be the dominant actor in international financial markets.
This fact is essential in understanding the endgame on the debt ceiling. Suppose that we get to the dates in August when the Treasury has reached the limit of its ability to shuffle accounts and literally can no longer pay its bills. Secretary Geithner will at that point make an announcement that in three days there is an X billion payment on Treasury bonds coming due. He will say that the government does not have the money in the bank and will therefore have to miss this payment.
The markets will then go into turmoil. We will see the same sort of plunge in the stock market that we saw when the House voted down the TARP the first time back in September of 2008. At that point, the Wall Street boys will be screaming their heads off at Speaker Boehner and the rest of the Republican leadership. The news media would all be running clips with depression footage, telling us that another Great Depression looms just around the horizon.
In this context the Republicans will do exactly what they did with the TARP. They will cut deals, make the threats and do whatever else is necessary to round up the votes needed to raise the debt ceiling.
When everyone remembers that this is what the endgame looks like, they will realize that there is no need to put essential programs like Social Security, Medicare and Medicaid on the chopping block to get Republican support for raising the debt ceiling. The gun is pointed most directly at Wall Street's head, and this incredibly powerful lobby is not going to let Congress pull the trigger.
This means that at the end of the day, President Obama holds the cards. He could say that he wants a clean debt ceiling bill and no deals on cutting back the country's key social insurance programs. Of course, that may not be President Obama's agenda.
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Raising the debt ceiling is like a shopaholic who has maxed out their credit cards going to the bank and asking for an increase in their credit limit with the promise to the bank that their kids and grandchildren will pay back the debt for them.
What a silly statement. We still have the same infrastructure and workforce that we had in 2007 also. That doesnt mean that the economy wont crash for a long time. Unfortuneately, with a debt default, there will be PERMANENT damage to the US credit rating and the position of the US dollar as the world's reserve currency. The result will be significantly higher interest payments on the national debt.
The actions of the Republicans in this situation almost amount to TREASON as they are threatening to permanently damage the security of the US.
Of course it's not his agenda; you must be dreaming, so:
Throw him under the bus, Gus,
Make some new plans, Sam,
Don't need to be mean, Dean,
Just listen to me.
Your whole plan is a scam, man,
It won't work as you plan, Bam
When 2012 is at hand, damn,
We're gonna set you all free.
Look at what Republicans DO- not what they SAY and its never been more clear what they are about.
That's correct. It isn't. He and the Democrats work for the same corporate interests as the Republicans.
That's where all the campaign money comes from.
They still need us to vote. We get to change the players which gives the illusion of some say so in our governing. But the reality is the system stays intact.
And it's nice work if you can get it.That's why elections are so ruthless. All that power, all that money. If they're not millionaires when they enter public office, they are when they leave.
If they want to increase their porfolios even more, they can go to work as a lobbyist
During the last administration the Republicans dropped the wrecking ball on every part of the American economy they had access to . They did not have access to these two programs and if allowed to destroy (and they will destroy them) these programs they will have destroyed all of the Democratic public protection programs . Opening the last door to public gouging by the corporations .
Perhaps this would be a blessing in disguise by getting Americans to correct dysfunctional behaviors and attitudes. Once credit vanishes, and once Americans realize that our economy is not guided by benevolence, perhaps then uncontrolled consumerism will abate. By separating wants from needs and providing as much for ourselves as we can we can cut the head off the snake (wall street).
I'd rather see the whole thing collapse soon so that we have time to rebuild a society and economy that is in everyone's interest. A society that is practical and sensible, as opposed to one that equates wealth and possessions with happiness. A society that is not content with plundering the Earth's finite resources just because it satisfies us now.
The way we live now is untenable.