Earlier this month (June 7) Dick Morris wrote on the website, TheHill, a proposal to help shape the debate on the Debt limit. As you know the House does not want to increase it and the Senate does (along with the White House.) How will this get solved, who knows but Dick writes a very positive approach the House could take to set the tone for the issue.
Take a look at the proposal and let's discuss it.
tom
STAND FIRM ON DEBT LIMIT
By DICK MORRIS
Published on TheHill.com on June 7, 2011
We all wish Speaker John Boehner (R-Ohio) the best of success in his talks with the Senate and the White House and hope that he is able to negotiate a deal for major spending cuts in return for a debt-limit increase. The concept of a one-for-one ratio between debt-limit increase and spending cuts is particularly attractive, provided that the spending cuts are not overly back-ended.
But we must be alive to the possibility that the talks will not prove fruitful or that the Speaker will have to come back to the House with only half a loaf.
In that event, House Republicans need to fortify their position -- in advance -- so that they are able to battle against the White House even at the price of a government shutdown. To prepare this position, Republicans should pass legislation assuring that government funds continue to flow in two critical areas despite the failure to raise the debt limit:
1. The House should pass a conditional increase in the debt limit of $200 billion, to be used only in the event that the secretary of the Treasury certifies:
a. That all of the borrowed funds would be used to repay creditors and lenders
b. That there is no other source of funds to meet these needs and avoid default on our obligations.
2. The House should prioritize the expenditure of tax revenues in the event the debt limit is not raised so that:
a. Military personnel will continue to be paid
b. Social Security checks will continue to be sent out.
By taking a default, military pay and Social Security off the table, the Republicans will put themselves in a position to sustain and win a battle over the debt limit.
Obviously, the Senate will refuse to pass this legislation. But its passage by the House will make it clear that the Republicans do not want their actions to cause default or any interruption in military pay and Social Security payments.
The Republican members of the House should sign a memorandum indicating their support for this prophylactic legislation to fortify our position in the event of an inadequate outcome to the budget/debt-limit negotiations.
Unless the House Republicans pass this one-house bill, they will never be able to prevail in the propaganda war with the Democrats, which would follow the collapse of budget negotiations. And, unless they prepare their ground in advance by passing such a bill, the fiscal conservatives will have no alternative but to accept whatever the leadership negotiates. Just as they wouldn't challenge the Speaker's continuing resolution deal because of their fear that soldiers would not be paid, so now, fear of default will weaken their courage.
House freshman Republicans must realize that if they back down and accept a bad deal on the debt limit, they will never recover their credibility with their constituents. The Tea Party types will not be happy with half a loaf, and freshmen run a serious risk of primary fights if they try to sell a watered-down compromise.
On the other hand, passage of this one-house bill would strengthen Speaker Boehner's hand in budget talks with President Obama and Senate Majority Leader Harry Reid (D-Nev.). It will a signal to the administration that the House will not be stampeded by fear of default and that only serious cuts in spending will be acceptable in return for a debt-limit increase.
The American people do not want the debt limit increased. They understand the futility of borrowing more and more and continuing big-spending ways. If the administration chooses to battle over this turf, there can be no better fight than this one. The people are with us.
Take a look at the proposal and let's discuss it.
tom
STAND FIRM ON DEBT LIMIT
By DICK MORRIS
Published on TheHill.com on June 7, 2011
We all wish Speaker John Boehner (R-Ohio) the best of success in his talks with the Senate and the White House and hope that he is able to negotiate a deal for major spending cuts in return for a debt-limit increase. The concept of a one-for-one ratio between debt-limit increase and spending cuts is particularly attractive, provided that the spending cuts are not overly back-ended.
But we must be alive to the possibility that the talks will not prove fruitful or that the Speaker will have to come back to the House with only half a loaf.
In that event, House Republicans need to fortify their position -- in advance -- so that they are able to battle against the White House even at the price of a government shutdown. To prepare this position, Republicans should pass legislation assuring that government funds continue to flow in two critical areas despite the failure to raise the debt limit:
1. The House should pass a conditional increase in the debt limit of $200 billion, to be used only in the event that the secretary of the Treasury certifies:
a. That all of the borrowed funds would be used to repay creditors and lenders
b. That there is no other source of funds to meet these needs and avoid default on our obligations.
2. The House should prioritize the expenditure of tax revenues in the event the debt limit is not raised so that:
a. Military personnel will continue to be paid
b. Social Security checks will continue to be sent out.
By taking a default, military pay and Social Security off the table, the Republicans will put themselves in a position to sustain and win a battle over the debt limit.
Obviously, the Senate will refuse to pass this legislation. But its passage by the House will make it clear that the Republicans do not want their actions to cause default or any interruption in military pay and Social Security payments.
The Republican members of the House should sign a memorandum indicating their support for this prophylactic legislation to fortify our position in the event of an inadequate outcome to the budget/debt-limit negotiations.
Unless the House Republicans pass this one-house bill, they will never be able to prevail in the propaganda war with the Democrats, which would follow the collapse of budget negotiations. And, unless they prepare their ground in advance by passing such a bill, the fiscal conservatives will have no alternative but to accept whatever the leadership negotiates. Just as they wouldn't challenge the Speaker's continuing resolution deal because of their fear that soldiers would not be paid, so now, fear of default will weaken their courage.
House freshman Republicans must realize that if they back down and accept a bad deal on the debt limit, they will never recover their credibility with their constituents. The Tea Party types will not be happy with half a loaf, and freshmen run a serious risk of primary fights if they try to sell a watered-down compromise.
On the other hand, passage of this one-house bill would strengthen Speaker Boehner's hand in budget talks with President Obama and Senate Majority Leader Harry Reid (D-Nev.). It will a signal to the administration that the House will not be stampeded by fear of default and that only serious cuts in spending will be acceptable in return for a debt-limit increase.
The American people do not want the debt limit increased. They understand the futility of borrowing more and more and continuing big-spending ways. If the administration chooses to battle over this turf, there can be no better fight than this one. The people are with us.
If the U.S. defaulted on the debt, we don't have to guess about what would happen to interest rates.
ReplyDeleteYou only have to look at Greece, Portugal, Spain, and Ireland even BEFORE any of them have defaulted….
http://www.voanews.com/english/news/economy-and-business/Interest-Rates-Reach-New-Highs-on-Greece-Portugal-and-Ireland-Debt--120392489.html
If the majority of Americans think defaulting on the debt is a good idea, it wouldn't take long for them to change their minds.
With interest rates going though the roof and the dollar crashing through the floor, Morris' $200 billion would barely last long enough for him to finish a cup of coffee.
As far as prioritizing the defaults, the first default should be on the salaries of Congress.
--David
David, I agree with you that should the US default on its debt, interest rates will go through the roof. However, my opinion is that the amount of the actual debt payments that need to be made is significantly less than the total debt and much less than tax revenues. What is being attempted is to stop the INCREASE in the amount of debt. If we do not stop the growth, we will be a Spain or Greece in just a few years. We must stop the debt balloon. We should have done it many years ago but the buck has been passed until now.
ReplyDeletePassing an increase in the debt ceiling is not the answer. What do you suggest?
I do agree that should default occur, the first two cuts should be to Congress and the President. How about grounding ALL of their airplanes, remove all of their perks, and tell them to get their own security. Agree?
There are a number of things that could be done on both the spending side and the revenue side of the deficit, but not much that Congress could agree on.
ReplyDeleteWe need to get our unemployment rate down from 9% to around 6%. Germany is already there, and their output was hit harder than ours by the 2008 recession.
The CPC budget gets to budget surplus by 2021. That is much faster than Obama's budget or Ryan's budget.
The Bottom Line of the CPC budget...
• Deficit reduction of $5.6 trillion
• Primary spending cuts of $869 billion
• Net interest savings of $856 billion
• Total spending cuts of $1.7 trillion
• Revenue increase of $3.9 trillion
• Public investment of $1.7 trillion
• Budget surplus of $30.7 billion in 2021, debt at 64.1% of GDP.
http://grijalva.house.gov/uploads/The%20CPC%20FY2012%20Budget.pdf
Is there ANYTHING in the CPC budget that you would agree to do?
--David
David, I went to the pdf and found a couple of issues that I would discuss:
ReplyDelete1. Bring the troops home from Germany and Kosovo would be a good idea. Why are they there?
2. Reducing military spending, not a good idea as this was the same rationale used after WWI and when WWII came, our troops were using wood rifles to train. Military spending and maintaining military equipment is very important. Cutting Air Force Squadrons, Navy fleets, and Army Divisions will only encourage our enemies. A strong miiltary causes peace and not the other way around.
3. Capital gains taxed as ordinary income might have been ok before the introduction of 401ks but now these instruments hold more stock than individuals. You would be punishing the very people you are trying to help.
4. Corporate income earned overseas is an issue. I would suggest another way of getting that income home, tax it at a lower rate. Other countries have already done this with great success. The problem with taxing the money regardless where it is earned, the firms will move their headquarters to whereever the rates are lowest and we will lose some of our biggest companies. In Michigan, we had Comerica Bank move its headquarters from Michigan to Texas since the taxes were less there.
5. Health care changes that are promoted here are bad. Public Option will run all insurance companies out of business. A government agency with no profit motive will always beat a "for-profit" company since they do not need to make a profit. This is not a even playing field.
The other part of the plan which I find unacceptable is that prescription prices would be negotiated with pharmacetutical companies. If we don't have innovation in medicine, what new products are we going to have?
6. I think that Social Security should be reformed. Instead of increasing the dollars that Social Security has to spread around, why don't we get some of those on the program who have not paid in. Remove illegal immigrants, immigrants who did not pay in, children with health issues who did not pay in and the list goes on.
7. What about reducing foreign aid to those countries who do not support us. A significant number of countries who get this aid vote against us in the UN and have policies which are anti-US. Why are we giving them money?
There are a lot of issues here but I think that we must make changes in the system before the whole system collapses.
Are we about to repeat history?
ReplyDelete"In its latest quarterly assessment of the act, the CBO said the stimulus lowered the unemployment rate by between 0.7 and 1.8 percentage points during the quarter ending in June and increased the number of people employed by between 1.4 million and 3.3 million. The higher figure would come close to making good on Obama's pledge that the act would save or create as many as 3.5 million jobs by the end of this year. The CBO said the act also increased the nation's gross domestic product by between 1.7 percent and 4.5 percent in the second quarter, indicating that the stimulus may have been the primary source of growth in the U.S. economy. The Commerce Department estimates that GDP grew 2.4 percent in the second quarter…The CBO cautioned that the the act's effects are expected to "gradually diminish during the second half of 2010 and beyond," leaving the private sector to pick up the slack in an economy that is already showing signs of deteriorating rapidly."
http://voices.washingtonpost.com/political-economy/2010/08/cbo_says_stimulus_may_have_add.html
The CBO prediction appears to be coming true. With the stimulus ended and private corporations not picking up the slack in the economy, the unemployment rate may be increasing (after dropping from 10.6% in January, 2010 to 8.7% in May, 2011).
So, why do I say we are repeating history? Because the same thing happened in the 1937…
"The official U.S. Business Cycle Dating Committee established that the downturn that began in August 1929 ended in March 1933 with the remarkable economic expansion that started within days of FDR’s bold—if trial and error—New Deal programs. By any normal definition, the Great Depression had ended by late 1936, with all major indicators surpassing their previous peaks.
A second cyclical downturn officially began in May 1937 when FDR, always a fiscal conservative, mistakenly thought the economy had become self-sustaining and slashed public spending programs to balance the budget. These harsh and premature spending cuts caused another severe recession that ended after 13 months in June 1938. Even in this severe downturn, annual GDP did not fall back below its 1929 peak. And although many suffered and most economic measures did fall back below their 1929 levels, not one fell anywhere close to its March 1933 low. For example, although industrial production fell sharply in the 1937-38 recession, at its low point, in April 1938, it remained 49 percent above its level of March 1933.
When the economy again contracted sharply in late 1937 and early 1938, FDR quickly reversed course and rapid growth immediately began again. GDP soared by 10.9 percent in 1939 and industrial production soared by 23 percent."
http://www.ourfuture.org/blog-entry/2009020603/fdr-failed-myth
So now we are going to repeat the mistake by putting the focus on the deficit (drastic spending cuts) at a time when we should still be focused on the economy and job growth. The even larger problem, is that, unlike 1938, our Congress will not correct the mistake.
Please do not deny the facts: When FDR started aggressive stimulus spending, the economy recovered. When he stopped, recession returned. When he restarted, the economy recovered strongly and continued to grow right up to WWII (check the graphs in the link I provided).
Obama is going through the first half of the same cycle. The stimulus ended the recession, adding/saving millions of jobs. Now, we may get the double-dip or very slow growth, which will be made worse by deep spending cuts the fragile economic recovery may not withstand.
--David
Larry Summers just wrote the same thing I did…
ReplyDeletehttp://www.ft.com/cms/s/0/b3c143b6-952d-11e0-a648-00144feab49a.html?ftcamp=rss#axzz1P7qI77nS
Unfortunately, you can bet the "gang of five" (idiots) will go the opposite direction. I hope I am wrong.
--David