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Subscribe to RSSVeteran budget experts said Tuesday that it may require a U.S. sovereign debt crisis to finally force President Barack Obama -- or some future president -- and Congress to agree on truly fundamental changes in fiscal policy.
Last week’s overwhelming bipartisan agreement between Obama and Congress enacted modest income tax increases for most workers (an average tax hike of about $364 in 2013, according to the Tax Policy Center), a return to the full 6.2 percent Social Security payroll tax, and a two-month postponement of the “sequester,” the mandatory spending cuts required by the Budget Control Act. The deal made no changes in long-term spending or in the design of the entitlement programs such as Medicare.
Back in 2011, Obama signed the BCA into law in return for Congress agreeing to a higher federal borrowing limit. The law’s automatic spending cuts were designed to be the ultimate “action-forcing event” that would nudge Obama and Congress into clinching a historic bargain: entitlement reform and spending curbs combined with tax increases.
But three former Congressional Budget Office directors who assembled at a panel discussion Tuesday at the Urban Institute agreed that Congress’s attempt to design an action-forcing mechanism had failed. “I’m really at a loss for what kind of thing might cause the Congress to act in a sensible way,” said former CBO director Rudolph Penner. “We’ve reduced the credibility of something like a sequester. It’s just hard to come up with artificial crises of that sort.”
The BCA itself was supposed to be the action-forcing device – and it resulted only in postponing significant deficit reduction, not forcing it. According to the Congressional Budget Office, the deal Obama signed last week will increase spending and reduce tax revenues by nearly $4 trillion between now and 2022, compared to what would have happened if he and Congress had done nothing.
Another deadline – or another occasion for postponing action -- comes when the Treasury hits the government’s borrowing limit in late February or early March. Then at the end of March, an interim spending resolution expires. If Congress takes no action before that happens, parts of the government may shut down and federal employees could be furloughed for one day a month.
Penner said Tuesday that “those old warriors” – Vice President Joe Biden and Senate Republican Leader Sen. Mitch McConnell – might once again devise a stopgap, perhaps again postponing spending cuts and raising the borrowing limit.
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Penner said he saw no reason to change the forecast he has been making for a long time: “It’s going to take a sovereign debt crisis to get our leaders to act responsibly. If that does happen, I think groups like the AARP -- who have adamantly opposed even the tiniest of reforms of entitlement spending – will see that they have been very short-sighted. Their constituents will be hurt mightily” in a U.S. sovereign debt crisis by seeing their retirement savings evaporate amid a market crash.
A sovereign debt crisis would arrive if bond market investors concluded that the ratio of federal debt to U.S. national income was so high that it created doubts about full and timely repayment of money lent to the Treasury. Investors would force interest rates sharply higher to compensate for the perceived increase in risk.
Sovereign debt crises, or near-approaches to them, in Greece and other countries have resulted in dramatic cuts in government benefits without much advance warning, Penner said.
He said he was puzzled that financial markets didn’t show a bigger reaction to the fiscal uncertainty in the run-up to last week’s accord, but he cautioned “markets tend to remain very, very calm as the budget situation deteriorates – until one day they don’t (remain calm). It’s not a gradual process…. These things are essentially impossible to predict, they can be set off by a bit of bad budget news on an otherwise slow news day.”
But former CBO acting director Donald Marron said his view was that “the hypothetical fiscal crisis for the United States is still many years in the future.”
Former CBO director Robert Reischauer warned that the Federal Reserve’s policy of keeping short term rates ultra-low “has eliminated one of the signals that the public and markets and (political) leaders look to in forcing action” on budgets. With such low interest rates, the federal government’s borrowing costs are not painful.
Related: Despite fiscal cliff setback, GOP remains dogged in resistance to Obama
The CBO reported Tuesday that there were signs of modest improvement in the budget picture in the short term: total tax receipts increased by 11 percent in the first quarter of fiscal year 2013 – and that came even before the tax increase that Obama signed into law last week. The 2013 fiscal year began on Oct. 1, 2012.
Spending was about the same in the first quarter of 2013 as it was during that period in 2012, when adjusted for shifts in the timing of certain payments due to weekends and holidays. Defense outlays were $9 billion (or 5 percent) less than in the same period last year.
But the bad news was that interest payments are already edging up, even without a sovereign debt crisis or a spike in interest rates. The CBO said outlays for interest on the public debt were 7 percent greater than in the same period a year earlier, reflecting in part the growing debt held by the public.
For some Democrats, a lingering regret from last week’s deal is that Obama did not extract higher tax revenues; they worry that having agreed to income tax increases that largely fall on the top one percent of earners, the president won’t be able to persuade Congress to enact more tax increases this year or in 2014.
Larry Downing / Reuters
The Capitol Dome is seen on Capitol Hill, Nov. 9, 2012. To the left is the House of Representatives.
“The amount of revenue that was generated by the deal was far lower than the president and the Democrats had hoped for, and even lower than the amount the Republicans seemed willing at various times to put on the table,” noted Reischauer.
He added that last week’s deal will create the impression that higher income tax rates “are off the table in the future” – which he said was “very damaging” since higher federal revenues will be needed over the next few decades. He added that in order to provide the services and benefits Americans expect and to keep deficits and debt at sustainable levels, “we’re going to have to increase taxes on not (only) the (top) 1 percent, not the 2 percent, probably not the 20 percent, but the 30 or 40 percent of Americans. The sooner we face up to that, the sooner we can get on to other important issues that the government should be addressing.”
Noting that Obama had campaigned on sparing the middle class from having to pay any tax increases, Penner noted that that left the very high earners as the only source of more revenue. But, he said, “The arithmetic clearly shows that you can’t solve this long-run budget problem without the middle class making a contribution. The problem with rich people is that there just aren’t enough of them.”
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Here we go again. Those mean Republicans do not want to raise taxes and will get blamed for this spending insanity. What I find SO unbelievable is just how stupid the electorate is. Nancy Pelosi says, "You cannot cut your way to reduce the deficit" and the lemmings listen to her. Our despicable media echoes her, never questions a liberal. How is it that we are supposed to always do with less, but our government cannot EVER do with less. I had two pay cuts in 5 years, (7% and 6.5%) and can still make it. Remember when the Democrats said that old people and children will die if we make any cuts to programs back in the 90's? Never mind the fact that there were NO actual cuts, just smaller increases than they wanted. But THAT is how Clinton and Newt reached a balanced budget. It will NOT happen again until these crack heads are weaned off of the public's money.
It is going to take many things. First of which is a meltdown. There are serious issues that need to be addressed and until they are bandaids are only being applied. Active participation needs to come from EVERYONE in Washington.
Republicans had ample opportuninty to reduce the deficit, under Reagan, Bush I and Bush II...guess what they did? Guess who spends wrecklessly on wars and give-aways to farmers, millionaires and oil companies? Guess who always spends more than they make (will for this one there are two right answers)? If Republicans ever actually did even one thing they preach, or used facts and evidence, I might give them a second look....
Raise taxes. Cut spending. Keep taxes low. Our problem is a lack of "Full Employment" which heads "Consumer spending". Seldom hear these addressed. Until these are attained, there's no balance.
"reduced tax revenues" Does anyone find it interesting that no politican, republican or democrate, has talked about the huge job loss thanks to a congress that bows down to every big business that wants to take jobs to countries like China, who control their workers to the limits. China has a VAT, Value Added Tax, on anything and everything sent from this country to theirs..a tax of aboput 14%....yet...our "smart" politicans say it is better not to have that tax here to protect this countries workers...of course that means that those companies that go to China can ship whatever back here with no added cost....cheap labor and all. I have to assume that all of big business and our elected would have no problem with cheap labor here...much more profit for them...just nothing for the what used to be middle class..and if you can not afford insurance..then you die.
Meanwhile they're rubbing their hands over gun control. While I agree it is needed the biggest issue should be The Budget (we don't have one), out of control spending, and the DEBT. We cannot spend our way to prosperity yet the same idiots get elected. It's disgusting and making me wonder about the narcissitic society we have -- it's all about me mentality and they're teaching the same to their children.
Don't be a victim,
Right on.
Congress should tie an increase in the borrowing limit to a budget passed by the Senate and approved by the President that meets budget cutting goals as set out in the last debate and mandated in that agreement.
Actually, what Rep. Pelossi said was that you can't cut your way to prosperity.
It sounds like the Republicans are all mad because their first attempt at blackmail did not work. The trouble is, they don't want to kill their favorite capitalist goose for real. In the end, they made a deal because they feared some sort of crash. Democrats and Obama need not cringe and cave the next time they do their blackmail (debt ceiling most likely). Call their bluff. They wouldn't do it. They love capitalism too much. They can't kill it.
This problem can be easily solved by going back to 1950's and 60's tax rates. In fact, the whole world problem could be solved by treaty. I am sure the capitalists are being cheapskates in other countries too. Have an international treaty saying that the minimum top tax rate is 75% for incomes over $450,000 per year and perhaps 40% for incomes over $200,000. Leave those below that amount as is. Hey, people that rich can afford it and won't even feel it. If all countries did this, government and programs would be funded. End of problem, and the capitalists can't run off to other countries because all civilized countries will have signed the treaty. Make it so they can't run and can't hide their money. Balance will then be restored, even for the system of capitalism itself, insuring that enough money circulates to the bottom so that people can buy the products produced, thereby continuing capitalism.
We must save the capitalists from themselves!
Dottie's Girl said:
Of course! When you are about to slash entitlements and impose austerity, you fear those guns in your face. Granny might go get an assault rifle when you cut her medicare!
Empress-409341,
And what is the incentive of those same business owners to grow their businesses? Not much, especially since those same businesses are also taxed on top of their income...
When people came here to escape tyranny, we weren't a civilized country. Money walks and BS talks. If the money leaves, the civilized countries wont be civilized
Based on the comments I see on these boards, I think the quotes in the article are correct - we are not going to voluntarily take the steps needed to get our deficits under control, so it will take a sovereign debt crisis driven by our creditors to finally force us to make changes. The sad part is, when the creditors force the changes it will be much more painful for all of us than it would be if we just acted responsible now. The deficits could be solved today with relatively modest changes, but nobody seems to be willing to take the necessary steps.
And before everyone blames the politicians - the real problem is us...we keep voting for whatever politician says we can have everything for free. Until the voters change their attitude and say they want the benefits they use cut and their taxes raised (not just someone else's), I don't expect the politicians to change.
Obama could have embraced Simpson Bowles but didn't. Everything that has been done by the Obama administration is smoke and mirrors. No real spending cuts, no entitlement reforms, and certainly no tax reform. We have an administration that seems content to finance the government, spending a 1.84 for every 1.00 it takes in. For those who feel I am picking on Obama, well guess what he is the president. What happened in the past means nothing at this point, we need measures to correct the problem and so far Obama has done nothing. I think as long as Obama feels he can kick the can far enough down the road to be out of office before the real fiscal cliff arrives, then that is exactly what he intends to do. Washington is all about talking a good game, swaying public perception, but reality is fast approaching and it will not be the politicians that failed us that get hurt.
Armurray,
If they were taxed the same way everywhere, they would be all competing on equal footing. There have been times when tax rates were higher, and they did just fine.
The problem has been that they say they cannot compete with competitors that are taxed at a lower rate (undercut). International treaty could solve this problem of one undercutting the other.
@Empress-409341#1.8: Your last line in this post is indeed quite profound. The investment culture of the US has created the messes both here and specifically most of the EU problems. You're correct. We must bring about global balance, or recede to a self sustaining national balance. Either way, it is relatively easy to affect correction. That is, if anyone will finally address the efforts. Borrowing from you; we must save ourselves and our capitalistic system from the destruction of greedy, and foolish capitalists, lest we throw it all away. Thank you, and best regards.
Dean Baker
Economist Dean Baker:
"...The deficit chicken hawks that dominate Washington policy debates are warning us that financial markets will panic if we don’t soon get our debt under control, with investors fleeing the dollar and interest rates soaring. Japan’s ratio of debt to GDP of 240 percent is more than twice that of the United States, yet the interest rate on long-term government bonds is hovering near 1.0 percent and the government’s main concern is that the yen is over-valued..."
http://www.counterpunch.org/2013/01/08/japan-and-the-fiscal-cliff/
Once again, the Obama administration, led by Jack Lew comes up with a line in the sand (sequestration). Either Obama controls his spending or the unimaginable will happen. And then they just move the goal posts. The only thing Republicans need is a real spokesman and some PR. Go on TV everyday and explain how we got into this mess... who came up with sequestration... and why we must shut down government programs rather than borrow more money from China.
All you need to do is look at Europe to see where we are going. The average unemployment in the EU is over 11%. It isn't that Republicans want to ignore "unfortunate" people, it is that liberals consider 50+% of our nation to be "unfortunate". Fortune favors the bold. Not the lazy and complacent. The Obama administration is a drug dealer that deals dependency in the form of "assistance" in order to control their victims. It is time to use good old-fashioned encouragement and empowerment so people start utilizing the opportunities that this nation offers to achieve prosperity. Not have it handed to them as an allowance.
Ron-1861300
Exactly,
I watched Meet The Press 2 Sundays ago and Tom Brokaw made a very interesting point. He said:
The professional politicians are afraid of having to go back home and get real jobs so they will do nothing that cuts off the "milk supply" to Alan Simpson's "310 Million teats". Instead they will try to find some painless way to get around the cut ("more taxes on the people that didn't vote for us", or accounting games that postpone the cuts until they aren't in office any longer).
But the real problem is, as you said, us. We continue to re-elect Senator Jack S. Phogbound even tho we know he is so crooked that he has to screw his socks on in the morning because, as they say in Dogpatch:
He promises us the moon and the stars and that it is all free even tho he know that all he can deliver is Newark, NJ. The hell of it is that we believe him. Pogo possum said it best:
ArchStanton
Economist Dean Baker:
And how, exactly are you going to pay for these things that you want? You do know that right now, the entitlement programs amount to 70% of the total tax revenue of the US, or did you miss that? The CBO has said that, if we don't change the rate of growth being experienced by these entitlement programs, by 2025 the entire revenue stream will be swallowed by Medicare, Medicaid, and Social Security. What then?
Alan Simpson, in an interview with Jon Stewart said it best:
Next,the problem that I have with the way congress did the last deal for the fiscal cliff is that they just took more, spent more, continue to give more tax breaks and kick the spending can down the road. Maybe you have missed it, but for the past 60+ Years, Washington and congress in particular have spent like drunken sailors in a whorehouse. They have squandered everything that has been given to them on paper butt holes for wooden horses (or some other totally useless item), borrowed $16 Trillion from the future, and now they want people to give them even more so that they can throw it around? When will they stop (or will the ever stop)? Hell, in another 4 years we should be well on our way to $25 Trillion in debt and looking exactly like Greece. Doesn't anyone realize that one of these days the FED will hold a debt auction and no one will come? What are we going to do when the dollar is on par with the yen and they have to start distributing $1 bills on a roll in a 12 pack? What will a gallon of gas cost or a pound of ground beef? Will salaries keep up with this hyperinflation? I dare say that will not happen.
Can you and your crystal ball say with any certainty what the magic tipping point of debt to GDP is where the lenders start charging credit card interest on sovereign debt? Is it 180% like Greece, 140% like Spain and Portugal, or around 110% like the US? Erskine Bowles said it best in an interview a few weeks ago:
When will the lenders just say "This is too risky; I'm out'ta here" about American Debt just like they are starting to with the PIIGS? It has happened before; just like in Zimbabwe. Another occurrence in recent history was called the Weimar Republic and the outcome of the ensuing little bar fight that followed didn't turn out too well for about 50 Million people. I don't they understand this is what really took Greece down (besides spending like a drunken sailor). It wasn't that Greece couldn't borrow money, but that the lenders were charging loan shark rates because of the risk. The cost of long and short term borrowing went through the roof (30%) and it pushed Greece over the edge as it is now doing to Portugal, Italy, and Spain. Since you mentioned Japan and there debt situation, the following are a couple of links to some real eye openers. The first is an interview with Michael Lewis (the man who wrote "The Blind Side" and "Boomerang:Travels in the New Third World".
http://www.advisorperspectives.com/newsletters12/pdfs/Michael_Lewis_on_the_True_Depth_of_the_Crisis_in_Europe.pdf
The second is a link to Kyle Bass' blog. He is one of the people that Michael Lewis refers to regularly. He is predicting that Japan will soon detonate a "Debt Bomb" that will not be fun for anyone.
http://kylebassblog.blogspot.com/search?updated-min=2012-11-01T00:00:00-07:00&updated-max=2012-12-01T00:00:00-08:00&max-results=6
Perhaps you and our leadership have also missed it, but for the past 50 or 60 years, we have raised generations of people that think corn and peas grow in a "Green Giant" can. In the 20's and 30's we were a mostly agrarian society; it ain't that way anymore. We have created a large portion of society that is dependent on the government's stipend in order to just survive. Don't believe me? Just go to any major city . What do you think will happen when the stipend goes away or inflation is so high that it won't buy anything? Do you really think these people will just sit on the curb and cry or will they turn into an angry Athens style rioting mob complete with torches, pitch forks, and a 1911-A1 .45 Automatic for everyone? I wonder what the riots in Athens would have looked like if the rioters had been better armed than the police like the gangs in Chicago or LA are today. My money is 10 to 1 on the mob if the stipends tank like happened in Greece.
It has been my experience that civilization is a very thin veneer that we CHOOSE to wear and the fabric of society is the set of suspenders and belt that holds the veneer onto us. If you place people into the wrong situations and apply enough pressure, most of us will both quickly and cheerfully strip off that veneer faster than the dancer on stage at the nudie bar. Necessity, Hunger, and Survival are the most ruthless of our natural instincts and it won't take much for us to revert to the animals from whence we came. We humans will do whatever it takes to survive at the expense of anyone or anything else. We are not a very kind or attractive species when the going gets tough.
When people can't feed their kids and it takes a wheelbarrow full of money to buy a loaf of bread, normally sane and rational people will start doing some really friggin' crazy things. I have several very good friends from Germany. My friends are an intelligent, kind, thoughtful, and generous group of people, but about 80 years ago they, as a collective, followed a really crazy little bastard (literally) straight into the pit of hell for just that reason.
I served with the 3rd Marines in Quang Tri and Thua Thien provinces of Vietnam and have seen with my own eyes just what my fellow human creature is capable of doing when the going gets tough or the pressure too great. Do you really want to see what it looks like too, or are our elected officials (from both spendthrift parties) just too damned stupid to see this train coming down the tracks? If they continue spending like those Drunken Sailors i with no responsibility and accountability and printing money with both hands, they (and you) will probably get a chance to see it for yourselves. I can guarantee you from experience that it won't be too damned much fun.
If we added up what the monetary and social cost from what republican obstruction IS costing this country in JUST the last 4 years alone (not even counting the wars), we would fall over backwards.
WITHOUT A DOUBT, republican political dysfunction is our countries, and our children's futures, biggest threat.
If we were to go to a truly fair system where all of our people were treated with true equality and not in the way that has always been, then it might be possible to deal with our problems,but as humans have never,in recorded history behaved that way we shall always have dissension and hatred.We have never been able to find truly fair representation for all of us. The power structures always create an oligarchy,which naturally causes dissension among all of us.We are at another period in human history when the economic levels are widening between the different class structures at an obvious, to all rate.Until this is dealt with we can't persuade our populations to work together to make the necessary sacrifices.For the super-rich,in effect ,the oligarchs ,to pay their minions to convince the rest of us that their way is the fair way is futile. virtual all of us know that that can't fly. At the present time we can't even have accord on the way to solve our problems even when it is the only way that they can be solved. We are at the cross way for humans but my personal opinion is that the power structure will not make fair enough choices and that we will continue to kick the can down the road until it is flattened and all will see that we need a new can.
You are right about one thing people getting 10 -20 milliom and more a day and end up only paying 15 % in taxes. is our biggest problem we face today. congress needs to cut loop holes and do it now before its to late. Stop trying to take S.S. and Medicare from the people that vote you in office. cut our real problem taxes
Can you rationally explain how those are the problems? Just how would everything be solved if we taxed people making more than $1 million a day at 30%, 50%, 90%? How does that solve anything?
We need to tax everyone more, go back to the 70s and look at what taxes were. a lot more than today the only ones that pay taxes now are the middle class compare to what they make.
We didn't get out of the Great Depression by cutting spending or with the "free-market".
We got out by spending more than we ever had and the government completely taking over the private economy (Command economy).
First we spent on the New Deal (deficit spending) then on WWII (Way more spending, we spent without regard for the deficit).
That's when the Depression finally ended.
And their children didn't pay for it either. They (me for instance) had a lot of jobs to choose from and many of them were good paying jobs. Living standards rose more than they ever had during the first two post war decades.
After the war spending stayed hight, too, with the Cold War and Space Race, National Highway Bill, etc.
On the other hand...
In response to the crash in 2008 Europe has been cutting budgets radically and imposing austerity on the countries in the Eurozone and their economies have plunged into recession and in some cases, depression.
You'd think people would learn from history wouldn't you?
Most don't even know history, they spend all their time looking at this kind of stuff: Courteney Cox: I will 'show my boobs' on 'Cougar Town'
That' what the corporate media is there for: To distract you.
Yes tax everyone more, because the problem in this country can't possibly have anything to do with spending. What people don't seem to comprehend is that we could tax at 100% and not solve our debt and deficit problems. We have a bloated federal government and an outdated tax code. The perfect combination for failure. We have liberals that feel we can just finance the government with more borrowing and that includes the current administration. This country's ability to borrow will come to an end, and we will not have to wait very long. So long as those in Washington feel smoke and mirrors and talking a good game can keep public perception on their side, then they are going to continue to kick the can down the road until the country hits a brick wall. Don't expect that when our nation really does reach the fiscal cliff, that it will hurt any of the politicians that caused it or could have prevented it from happening.
I guess our only hope is to elect a Republican after Obama so that 'deficits don't matter' again. Maybe we can even get another war out of it!
4 years later and Obama is no better than Bush/Cheney at reducing the deficit. Obama will have had 8 years to get his campaign promises done - lets hope he can do it.
If he's a real Republican, he'll do a war, cut taxes and give something to the AARP crowd.
Its not them - its us. We say "tell me lies or I wont elect you". And they we're surprised they lie to us?
The honest politician will tell you, your taxes will go way up, your government benefits will go way down, your children will be worse off then you are, we will stop funding your life support beyond a certain age. Once you have taken out more than you put into the system, your benefits will be limited. If your government pension is way over market - it will be cut to market.
Can you vote for that guy? He is the one telling the truth. But you don't want truth. You want pretty lies. You want size 42 jeans that say 36 on the label.
Now, If you can vote for that guy, then we have a chance of surviving this outside court mandated solutions. If the courts mandate these things - at the State level more than the Feds. the solutions will be unfortunately be far more draconian then.
unconventional,
Sad, but very true.
My wife and I vote for whoever says they will spend the least (including on programs we use), but I think we are a pretty small minority...
Nothing like the stupidity of comparison. You did it so we get to do it. I think you should go on believing debt and deficits don't matter right up to the time the country collapses. Then take a look to see if the collapse hurts any of the politicians that caused the problem or could have prevented it from happening. The stupidity of tit for tat that perpetuates the problems and solves nothing is working so well for the country. You should all keep it up, as one thing for sure the politicians love it and they really won't care who gets hurt in the end so long as it isn't them.
@Rick 'You did it so we get to do it.' - I assume by that comment that you are a Republican, and I just hope to God you honestly never believe a Republican when he (and it pretty much always is a he) says he is going to lower the deficit. And if you publicly support/campaign for him, be honest, say 'Even though I know he is going to cause the deficit to skyrocket, I still support him because he, say, will take away individual choice and state's rights by making it a federal law that gays can't marry, or whatever reason you use to vote Republican'. A little honesty would be refreshing!
One of the key phrases "the just are not enough rich people" Bingo! 1- 2 % of the population cannot solve the long term debt issues of this country. Eventually 20-30% ARE going to be taxed more, then we will see the outcry. Revenues are increasing, that is good, but spending across the board has got to come down, we are all in this together (like it or not) and everyone has to pull together, that includes the AARP. Good piece.
That same 1 - 2 % whose taxes were supposed to be raised, yet have loopholes to bypass the very reason WHY their taxes went up. *laughs* Why is there no screaming about that?
Close 'em Man- fine by me
Celtic... I agree completely. They should never have been a part of the bill. I was more referring to the folks that continually commented on the need to tax the 1 to 2%. They got taxed yet were given an option out. That should have caused more outrage but alas... *inserts the cricket chirp*
Economist, Dean Baker
It is also worth noting one other way in which Japan is already a model. The deficit chicken hawks that dominate Washington policy debates are warning us that financial markets will panic if we don’t soon get our debt under control, with investors fleeing the dollar and interest rates soaring. Japan’s ratio of debt to GDP of 240 percent is more than twice that of the United States, yet the interest rate on long-term government bonds is hovering near 1.0 percent and the government’s main concern is that the yen is over-valued.
http://www.counterpunch.org/2013/01/08/japan-and-the-fiscal-cliff/
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR).
JANUARY 4-6, 2013
It's Irrelevant to the Deficit
Take Your Hands Off Social Security
by DEAN BAKER
Millions of people are rightly outraged to hear that Social Security is in the gun-sights of both Speaker Boehner and President Obama in their budget negotiations. There is no reason that our political leaders should be discussing cuts to the country's most successful social program.
While the promotion of budget hysteria is one of the largest industries in Washington, the most important and widely ignored fact about the budget situation is that we have large deficits today because the collapse of the housing bubble sank the economy. This is not a debatable point.
The budget deficit was just 1.2 percent of gross domestic product in 2007. Before the collapse of the housing bubble the deficit was projected to remain low for the next decade and the debt-to-GDP ratio was actually falling. This would have been the case even if the Bush tax cuts were allowed to continue.
When the bubble burst and the economy plummeted, tax collections fell. We also spent more on unemployment insurance and other benefits for unemployed workers. And we had further tax cuts and stimulus spending to try to boost the economy. The automatic and deliberate steps taken to counter the downturn fully explain the large deficits we have seen the last five years.
Record low interest rates on government bonds demonstrate that the current deficits are not a real problem. But even if they were, it is difficult to see how cutting Social Security could to be part of the solution. Under the law Social Security is not supposed to be part of the budget. It is an entirely separate program financed on its own.
This is not just a rhetorical point. We can talk about Social Security facing a financing shortfall in the future precisely because it is solely financed by its own revenue stream. One of the most widely discussed proposals to avert that shortfall is a revision in the cost-of-living calculation that would be the equivalent of a 3 percent cut in benefits over a typical retiree's lifetime. (Perversely, the impact will be largest for the oldest and poorest retirees, since people who live the longest will accumulate the largest reduction in benefits.)
An overwhelming majority of the country strongly supports Social Security and does not want to see any benefit cuts. But because of the nature of this budget negotiation process, Americans are supposed to accept the cuts with no revenue increase whatsoever to shore up the program's long-term financial position.
It is understandable that people who want to cut back or dismantle Social Security would argue for this position. It is difficult to see why anyone else would.
http://www.counterpunch.org/2013/01/04/take-your-hands-off-social-security/
Vote 'No' to the Debt Deal and Call in the Constitution
AUG 2, 2011
James K. Galbraith
Why the debt deal is a disaster. It's time to call in the Constitution.
The debt deal is bad economics, dishonest government, and surrender to blackmail. The alternative is not default, but government under the Constitution.
On the economics: by slowly choking off public services, public investment and regulation, the deal sets the economy on a path to strangulation. Every dollar cut from the budget, now or later, is a dollar less of private income. Less private income means less consumption, less private business investment, fewer jobs. Tax revenues will fall, and the deficits and debt will in the end not be reduced. The so-called "cloud of debt" will not lift. Contrary to the foolish claim made by the White House today, there is no magic by which "lifting a cloud of uncertainty" produces growth. There is no confidence fairy.
On dishonesty: the proposed cuts would reduce discretionary public spending as a share of GDP to what it was before the government had any major role in transportation, housing, education, safety, health, medical research or environmental protection. To where it was before the NIH or the CDC, before HUD, before the EPA, before OSHA, before the Department of Education. This is a false promise: those cuts cannot and will not be found. To promise them is to play to the gallery of the ignorant. To pretend that to make them would be good policy is to repudiate the entire past half-century. To make them would bring on a disaster, in many small and large ways, as the physical structures and legal and institutional protections built up over decades crumbled and fell apart.
On blackmail: This deal validates the making of real policy under the appearance of extreme threats. That process will not end here. And while Social Security, Medicare and Medicaid escaped in the first round, they are set up to fall in the second. The deal creates a new junta to force those cuts before the end of this year. The process is repellent, cruel, undemocratic, and designed to leave blood on the ground but not on anyone's hands.
And the alternative? Is it economic disaster? No.
The alternative is not default. No crisis need ensue. The Constitution forbids default -- not only on debt but also on pensions and on every public obligation of the United States. The Constitution is not a last resort; the 14th amendment is not obscure. It is the fundamental law, written in plain English. Debts, pensions and other obligations must be paid.
The true alternative is that the President will have to assert the authority he has so far ducked: his duty as President to defend the Constitution. He has that duty. He has that authority. He has the legal means to exercise that authority. If pushed to the last resort, he will have to do what the Constitution demands, and what he should have done from the beginning.
If the President cannot find the Constitution and the laws, then let the Democrats in the Senate show him where they are.
James K. Galbraith is the author of 'The Predator State: How Conservatives Abandoned the Free Market and Why Liberals Should Too'. He teaches at The University of Texas at Austin.
http://www.nextnewdeal.net/vote-no-debt-deal-and-call-constitution
It's easy to entice the support of ignorant American's with Obama's 'free lunch' ploys. There will be a day of reckoning, but Obama is planning to be gone before that happens.
Then of course, he can continue to blame Bush, or optionally his successor for the financial disaster.
Your right, Obama should have kept his free lunch off the books, like W did with the Iraq war...we would probably have a surplus right now if he did that...
This is not a republican/democrat,conservative/liberal thing. We can increase taxes or fix medicare and all health delivery systems where it works as well as the systems in other modern countries. If the argument is that the good doctors will move to Venezuela then they can look at it as an adventure. The wealthy can go there to see them anyway. We can deal with the other problems too. The real problems are that real wages have not gone up in this country in 30 years, conservatives have sold many on the idea that our tax rates are too high even though that flies in the face of history. Both parties have been in control for the last 30 years and neither has found a solution to the wage problem because there probably isn't one. Even so we have the worst representation in my lifetime. My congressman could not sell me on clipping my fingernails. I have noticed that while he tells others they need to bear some pain he isn't doing without anything. Politics is the only thing you can do for a living where you are very well paid for complaining about other people in the same line of work you are.
Ron Brock,
The problem with your argument is that there isn't another system anywhere in the world that offers the same level of health care available as in the United States. I have worked in many of those countries in Europe, South America and Asia. While some may have "free" care, don't confuse that with availability of care.
@armurray#6.1: I'm sorry, but you're wrong. The US health care system is a tangled mess and becoming worse each year. Fact, there's a story appearing on another link right now that says the US health care system ranks #16th among the industrialized nations, yet is twice as expensive as the next closest nation in expense. My own experience tells me Canada has a much better system, resulting in much better care, and at far less cost. This tangled mess of redundancy and mismanagement is a major contributor to the runaway costs.
As anyone knew who had looked at the numbers taxing the top 1-2% of earners more could not do anything about the deficit. Apparently many people believed the rich being taxed more could turn the deficit because Obama said so. Even the President knew that he was only speaking symbolically but the naive masses believed him literally. So the one obvious conclusion is this: the people who reelected our current President were not only naive but stupid. Because it was republicans that pointed out that the increased revenue from the rich was only a drop in the bucket their revelations were dismissed because they are the "party of the rich". I find it hard to feel any empathy for the people who were surprised at the retirement of the payroll tax holiday (lower paychecks) they got this week because they thought that only the "rich people" were going to be taxed more. We deserve who we elect and if we are too stupid or uneducated to know when we're being fed a line of bull then we deserve that too.
At least the "balanced approach" was achieved.
...yet the media portray the Republicans as the party in disarray and as losers in the end-of-year cliff negotiations. This despite the fact that the Bush tax cuts were in significant part made permanent and taxes are arguably off the table for the upcoming sequestration and debt limit discussions. Interesting times.
Government doing what it does best, nothing. Funny how people actually believed the crap coming from both sides.
There is a VERY easy way to force them to do their jobs. Threaten to stop all payroll receipts to Congress members should gridlock ever threaten the operation of the country again. Force pass legislation that cannot be overruled by Congress, maybe add it to the 14th (I think) amendment, or whichever one it was that said that Congress must pay debts.
Next time a gridlock scenario comes up Congress members will be personally motivated to find a solution since all they seem to care about is money.
Entitlement math: ...1) The government was 'entitled' to force workers into giving them part of each workers paycheck. 2.) Then they were 'entitled' to hold onto these monies until workers got to old to earn paychecks (which the gov. earned interest on for 1/2 a century) Total: Gov. robs - US lose
AMURRAY- Thank you for observation. You obviously have more practical experience in health care than I have. I have only been a patient. I was just quoting the information I have read. I don't believe, however, that I am confused about anything
Obama is sure to guarantee that there wont be any left by the time he is finished.
Todays WHite House spam email, and once again, not correct at all.
Hello --
I'll tell you what keeps driving me every day: the knowledge that people like you have our backs.
When President Obama asked you to make your voices heard to keep taxes from going up on the middle class, people from all over the country, folks in every state spoke out. More than 130,000 of you sent in stories to the White House website. There were times these past few weeks when our Twitter feeds were positively overwhelmed by people joining the debate using the #My2k hashtag.
So we put your stories on the front page of the White House website. We asked you to stand behind the President when he laid out his position on this debate at the White House. The President went and met with one family who had shared their story. The Vice President sat down with another for lunch.
And people took notice. Reporters wrote stories about the way that you were adding your voices to this debate, and it became impossible to ignore your perspective.
That's how we got this thing done.
So what's next? We know some people might be asking you questions about this agreement and what it includes, so we asked Brian Deese -- from the National Economic Council -- to explain what the deal means for the economy and how President Obama kept his word on his key economic priorities.
Check it out and share it with folks in your community:
white-board-taxpayer-relief
Thanks,
David
David Plouffe
Senior Advisor
White House
Any housewife or head of a household knows that i f you want to balance a budget you have to conciliate the check book , you can not spend more of the income in other words cut expenditures taxes only are good for a month period, and it will increase the buying goods,and buying power will go down. The country have a 13 trillion in debt, and is not Bush is this Administration who does not know how to stop the addiction in spending,
This is a common mistake that people make concerning this issue, equating family budgets with national budgets, and one on which the corporate depends to push their agenda.
National Budgets are not like family budgets.
For a nation, your debts are demarcated in your own currency and you can carry large deficits with no ill effects to your economy for long periods of time. As a matter of fact sometimes deficit spending is good (especially if you spent on the right things, like they did during the New Deal) like when your economy is weak and you need stimulus to create jobs etc.
If you're a family you are stuck in the same situation as Greece, who gave up their own currency and the right to print more of it, when they became part of the Eurozone.
Likewise, states can't print their own currency so have much less freedom when it comes to their budgets.
And likewise, having a balanced budget or a surplus sometimes is bad.
I think this article was written in 1998:
Think big deficits cause recessions?
Think again!
BY
FREDERICK C. THAYER
The chairman of the Republican National Committee predicts that a recession is on the way, blaming the usual suspects - deficits, regulations and taxes. His prediction is probably correct, but his reasoning is not. The culprit is very probably the recent reductions in the federal deficit as a percentage of Gross Domestic Product. The record of history is totally at odds with economic principles and textbooks.
The annual deficit (spending minus revenues) has dropped from 4.9 to 2.3 percent of GDP since 1992.
This is the same pattern that immediately preceded the recession of 1990-91 that became a campaign issue in 1992.
The "recovery" that had begun in 1991 was not all that evident by mid-1992. Indeed, the beginning and end of "official" recessions can only be identified long after the fact.
Technically, recession occurs when the economy experiences negative economic growth for two quarters (six months). It then takes some time for the National Bureau of Economic Research to collect data and announce the beginning or end, a process that can take a year or more. If recession begins this year, we will know for sure only well into 1997, but the immediate effects will be quite visible.
I am not an economic forecaster, but I have uncovered unusual relationships that connect reductions in the national debt with major economic depressions, rising annual deficits with economic growth, and reduced annual deficits with economic contraction and recessions.
The record of history is clear and wholly consistent. Increases in the national debt and annual deficits never have harmed the economy, always have helped it. Significant reductions in the debt and the deficits never have helped, always have hurt. The record divides itself into two periods.
From the origins to World War II
In its first 150 years, the government periodically undertook systematic multi-year reductions in the national debt by taking in more revenues than it spent.
Each of six such sustained periods led to one of the six major depressions in our history. The last three of these crashes were the truly significant depressions of the industrial era.
This is the record:
1. 1817-21: In five years, the national debt was reduced by 29 percent, to $90 million. A depression began in 1819.
2. 1823-36: In 14 years, the debt was reduced by 99.7 percent, to $38,000. A depression began in 1837.
3. 1852-57: In six years, the debt was reduced by 59 percent, to $28.7 million. A depression began in 1857..
4. 1867-73: In seven years, the debt was reduced by 27 percent, to $2.2 billion. A depression began in 1873.
5. 1880-93: In 14 years, the debt was reduced by 57 percent, to $1 billion. A depression began in 1893.
6. 1920-30: In 11 years, the debt was reduced by 36 percent, to $16.2 billion. A depression began in 1929.
There have been no such multiyear budget surpluses and debt reductions since World War II and, significantly, no major new depression. The record suggests that reducing the debt never sustained prosperity, even when the debt was virtually wiped out by 1836. The highest deficits were those of world War II, ranging from 20 to 31 percent of Gross National Product. For a few years following the war, the debt was greater than GNP, the only such case in history. The wartime borrowing and spending actually ended the Great Depression.
Post-World War II
Both political parties pledge to balance the budget by 2002, and all budget-balancers hope ultimately to reduce the national debt. In the meantime, the nine recessions of the depression-free postwar decades have each followed reductions in the annual deficits relative to GDP.
Using data developed by Warren B. Mosler, economic analyst for a Florida investment firm, I suggest how some of the recent recessions have been politically significant:
· Deficit reductions, 1971-74, led to the recession that began at the end of 1973; a slow recovery did not help Gerald Ford in 1976.
· Deficit reductions, 1977-80, gave way to a recession in 1980 that damaged Jimmy Carter’s re-election hopes.
· Deficit reductions, 1987-89, were followed by the 1990-91 recession that harmed George Bush.
Meanwhile, the longest period without a recession was from November, 1982 to July, 1990.
The Republicans who now praise that "Reagan boom" never refer to the deficits or blame the Democratic Congress, while Democrats repeatedly attack "Reagan deficits." Neither side seems aware that a steep rise in deficits began in 1981, preceding the "boom" by almost two years.
When deficit reductions finally began in 1987, they paved the way for the next recession. Political irony is everywhere.
When the economy slides downhill, the incumbent president is badly damaged, and it does him little good to proclaim "success" in reducing deficits.
Ronald Reagan suffered no political harm because of the deficits of the 1980s and, even at his advanced age, might have been elected again in 1988 if he had been permitted to run. Whatever citizens say to pollsters, they vote against recessions, not budget deficits.
Driven by what appears to be wholly fallacious economic principles, politicians have put together such monstrosities as the Gramm-Rudman-Hollins deficit-reduction policy and the more recent "zero-sum budgeting" (all new programs must be financed by cuts in existing programs), along with the Clinton administration’s "reinvention of government" ("downsizing") to virtually guarantee a new economic disaster, perhaps more serious than any in recent decades.
Extreme danger ahead?
Europe as a whole has been in deep economic trouble for some time, and even Germany now has 11 percent unemployment.
Following the Maastricht criteria the prerequisites for monetary union, European countries are attempting to reduce their annual deficits to the less than 3 percent levels required by the treaty.
There is reason to believe that this effort is hurting European economies which, along with Japan and this country, cannot sell as many consumer goods and services as they need and wish to sell. A spreading recession virus could be very dangerous indeed.
The relationships outlined above deserve serious study, even if they are wholly foreign to widely accepted economic principle that blind even sophisticated analysts to such possibilities. It may be time to question what has been considered unquestionable principle.
http://www.epicoalition.org/docs/thayer.htm
Nothing matters but the deficit. Can't leave this bill for our children to pay. What about a livable planet? What about creating more jobs so more can help pay this debt? Who sets the priorities? Recent anouncement from the IMF "austerity budgets need to be spread over long periods". Congressional Research Sevice finds that cutting taxes does not corelate with improving the economy. Histrory tells us that curbing gov't spending in 1937 prolonged the Great Depression. The Repubs have no leverage with the debt limit. Put us in default on our loans and suffer the consequences. The party of No......No Nothings.
It seems it's better to lie to the people and get elected than act responsibly. The biggest liar ("we can get you everything you want and have someone else pay") gets the highest office.
Gotta go - there's a free lunch waiting for me!
Economist, Dean Baker
It is also worth noting one other way in which Japan is already a model. The deficit chicken hawks that dominate Washington policy debates are warning us that financial markets will panic if we don't soon get our debt under control, with investors fleeing the dollar and interest rates soaring. Japan's ratio of debt to GDP of 240 percent is more than twice that of the United States, yet the interest rate on long-term government bonds is hovering near 1.0 percent and the government's main concern is that the yen is over-valued.
http://www.counterpunch.org/2013/01/08/japan-and-the-fiscal-cliff/
Dean Baker is the co-director of the Center for Economic and Policy Research (CEPR).
JANUARY 4-6, 2013
It's Irrelevant to the Deficit
Take Your Hands Off Social Security
by DEAN BAKER
Millions of people are rightly outraged to hear that Social Security is in the gun-sights of both Speaker Boehner and President Obama in their budget negotiations. There is no reason that our political leaders should be discussing cuts to the country's most successful social program.
While the promotion of budget hysteria is one of the largest industries in Washington, the most important and widely ignored fact about the budget situation is that we have large deficits today because the collapse of the housing bubble sank the economy. This is not a debatable point.
The budget deficit was just 1.2 percent of gross domestic product in 2007. Before the collapse of the housing bubble the deficit was projected to remain low for the next decade and the debt-to-GDP ratio was actually falling. This would have been the case even if the Bush tax cuts were allowed to continue.
When the bubble burst and the economy plummeted, tax collections fell. We also spent more on unemployment insurance and other benefits for unemployed workers. And we had further tax cuts and stimulus spending to try to boost the economy. The automatic and deliberate steps taken to counter the downturn fully explain the large deficits we have seen the last five years.
Record low interest rates on government bonds demonstrate that the current deficits are not a real problem. But even if they were, it is difficult to see how cutting Social Security could to be part of the solution. Under the law Social Security is not supposed to be part of the budget. It is an entirely separate program financed on its own.
This is not just a rhetorical point. We can talk about Social Security facing a financing shortfall in the future precisely because it is solely financed by its own revenue stream. One of the most widely discussed proposals to avert that shortfall is a revision in the cost-of-living calculation that would be the equivalent of a 3 percent cut in benefits over a typical retiree's lifetime. (Perversely, the impact will be largest for the oldest and poorest retirees, since people who live the longest will accumulate the largest reduction in benefits.)
An overwhelming majority of the country strongly supports Social Security and does not want to see any benefit cuts. But because of the nature of this budget negotiation process, Americans are supposed to accept the cuts with no revenue increase whatsoever to shore up the program's long-term financial position.
It is understandable that people who want to cut back or dismantle Social Security would argue for this position. It is difficult to see why anyone else would.
http://www.counterpunch.org/2013/01/04/take-your-hands-off-social-security/
Are you going to keep posting this liberal tripe over and over? I stopped reading as soon as I figured our that your 'source' is so biased to the left that it is utter nonsense.
By the way, spamming is against the CoH.
Dems look at the fiscal condition as an overweight person looks at desserts:
"If I consume more candy, ice cream and cake, the excercise I get from clicking the remote will reduce my weight problem."
Just thought I'd take a look at what the liberal sheep are saying about their last paychecks. Not surprised that most are in hiding. Must be a sick feeling in their stomachs as the realization of what fools they were to not just vote for obama once, but twice starts to sink in. Bad things on the horizon people. Keep an eye out for those with obama stickers still on their cars, and make sure to thank them.
Both parties and lobby groups like the AARP are to blame.
However, even if there is a crises, no one will own it, it will be the "other guys" fault.
Politicians screw up the economy, create a mountain of debt, and then blame someone else.
Until voters stop believing their nonsense, and send competent people to Washington, it will only get worse.
People get the government they deserve.
You drink the cool-aid my friend. You say its never "anybody's" fault, but "everybody's" fault. That's lazy ridiculousness. Do some homework on this administration the last four years, watch what it does during the next four years and try and not see where the accountability lies.
Just the first two years of Obama reign. Almost all these numbers are higher now, but I guess it will always be "Bush's fault"
January 2009
TODAY
% chg
Avg.. Retail price/gallon gas in U.S.
$1.83
$3.44
84%
Crude oil, European Brent (barrel)
$43..48
$99..02
127.7%
Crude oil, West TX Inter. (barrel)
$38..74
$91..38
135.9%
Gold: London (per troy oz.)
$853.25
$1,369.50
60.5%
Corn, No.2 yellow, Central IL
$3.56
$6.33
78.1%
Soybeans, No. 1 yellow, IL
$9.66
$13..75
42.3%
Sugar, cane, raw, world, lb.Fob
$13..37
$35..39
164.7%
Unemployment rate, non-farm, overall
7.6%
9.4%
23.7%
Unemployment rate, blacks
12.6%
15.8%
25.4%
Number of unemployed
11,616,000
14,485,000
24.7%
Number of fed. Employees
2,779,000
2,840,000
2.2%
Real median household income
$50,112
$49,777
-0.7%
Number of food stamp recipients
31,983,716
43,200,878
35.1%
Number of unemployment benefit recipients
7,526,598
9,193,838
22.2%
Number of long-term unemployed
2,600,000
6,400,000
146.2%
Poverty rate, individuals
13.2%
14.3%
8.3%
People in poverty in U.S.
39,800,000
43,600,000
9.5%
U.S.. Rank in Economic Freedom World Rankings
5
9
n/a
Present Situation Index
29.9
23.5
-21.4%
Failed banks
140
164
17.1%
U.S.. Dollar versus Japanese yen exchange rate
89.76
82.03
-8.6%
U.S.. Money supply, M1, in billions
1,575.1
1,865.7
18.4%
U.S.. Money supply, M2, in billions
8,310.9
8,852.3
6.5%
National debt, in trillions
$10..627
$14..052
32.2%
Didn't post well. Sorry. First line 2009, second 2011, third %Change
Great quotes in this article, the best being, "The problem with rich people is there just aren't enough of them". Let me translate this for you: We are going to redefine "rich" to mean anyone who has a job, assets, or access to savings. This "Cash-Party-Experiment" we've been having is going to end in more ways than one.
If Romney had won the election deficits would have become unimportant the next day. Deficits only matter to the teabagger hypocrites when a democrat is in office.
Nancy Pelosi Jan. 2007.
"NO NEW DEFICIT SPENDING!"
What happened to that statement? Did she lie?
Oh, I get it. First it was Bush's fault because he was the previous president. Now its Romney's fault just because he was the previous candidate. How weak.
It's all they've got as they are too cowardly to admit that Obama is a very bad error for this country.