Lies, lies, and more lies.
If we don't raise the debt ceiling
- we will default
- we will endanger the full faith and credit of the United States ("for the first time" - Barack Obama, July 11, 2011)
- global financial markets will go into chaos
- we need to borrow more to pay our obligations
- "if not now, when?" - the lie is about continuing profligacy, not what a few fiscally responsible people talk about- how if not now, when do we get this debt under control?
- We just need a balanced budget amendment
1.
This is a great article about why there is no chance of a default.
In short, because monthly federal revenues are about 10 times greater than interest payments, there is no reason that the Treasury needs to default. There will even be plenty of revenue to pay back principal, should bond holders chose not to reinvest. In that case, the national debt would go down and the Treasury could issue new bonds up to the debt-ceiling.
2. How exactly does making a statement and holding the line that we will NOT borrow any more endanger our credit rating. Some point out that not passing an increase in the debt ceiling would demonstrate how chaotic and dysfunctional Washington, DC is, and therefore would endanger the credit rating of the US Government. To me, this argument seems as media-manufactured as Tim Pawlenty's Presidential candidacy. Don't get me wrong, Washington, DC is incredibly dysfunctional, and I don't believe that they will come to their senses about cutting military and entitlement spending (the two largest expenditures)- but it is the inability to do this, Not the inability to raise the debt ceiling, that creditors will worry about. Combining the will to maintain a hard cap on the debt and the ability to make timely payments on interest and principal, how can any rational actor conclude that it will be RISKIER to invest in government debt? (I think it is increasingly risky, but for other reasons. These particular reasons above actually put downward pressure on the risk.) The past several Presidents and Congresses have endangered the full faith and credit of the United States government, but not raising the debt ceiling should help to mitigate at least a little bit of the damage that the politicians have caused to the reputation of the national debt.
3. The only way global financial markets can be effected if Congress doesn't raise the debt ceiling is if financial market actors had the expectation that the debt ceiling would be raised. And by shattering this expectation, while maintaining point 1. above, this should actually put DOWNWARD pressure on the interest rate of Treasuries (see point 2. above). I don't see how downward pressure on Treasury returns would put financial markets into a panic. Most mainstream economists would say that this is a positive development because the government could then sell new Treasuries at lower rates (better if we want to shrink the deficit!).
4. We need to borrow to pay our obligations. First, see the article in number 1. There will be more than sufficient funds to pay the interest on the debt, which for better or worse, is obligation number one. Second, there will be plenty of funds left to prioritize. There is a social security trust fund (okay, it's mostly fake, but it's fake because it holds government debt instead of cash- but guess what, that debt is part of the national debt- the very debt that the Treasury can afford to pay "10 times over" according to the article cited in 1. above.
5. There is talk that something must be done about the deficit, from both sides of the isle, from President Obama, and even from Fed Chairman Bernanke. But many claim that we can't do this yet due to the fragile recovery. I'm not getting into an economic rant here, but as evidenced by short-lived but deep depression of 1920-1921, the Great Depression, and the current depression (yes, we are in a depression, contrary to NBER's claim that the "recession" ended in '09), government spending does not help the economy. It might mitigate certain effects on some regular people during a downturn for a while , but it actually increases the duration of the downturn and prevents the recovery (like anti-poverty programs help families cope with poverty, but they don't help them get out of it and can actually perpetuate poverty).
6. Politicians like Senator Rand Paul (who has been surprisingly good on going against the GOP establishment on issues such as foreign aid to all countries and the USA PATRIOT Act) are misguided by agreeing to raise the debt ceiling if the senate agrees to a Balanced Budget Amendment to the US Constitution. First, there is no guarantee that both Houses include it in the bill to raise the debt ceiling. Second, even if they do, there is no guarantee that the powers that be wouldn't remove it during conference committee after the bill to raise the debt ceiling is passed by both Houses. Third, it can take many years for 3/4ths of the states to ratify a Constitutional amendment. In short, Paul and other politicians who cave on raising the debt ceiling will probably get shafted along with the American taxpayer. The debt will go up, tax loopholes will be closed, tax rates might go up, spending will not decrease.
I agree with his father's idea that any "deal" to raise the debt ceiling that promises future spending cuts is a total fraud.
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More of a longer term, worst case scenario (expect some of this to happen, the question is how out of control will this get):
WHEN (not if, but when, yes I believe it will happen) the debt-ceiling is raised, there will be the expectation that the government will borrow more. This should increase increase the risk premium and therefore interest rates on government debt. In turn, the Fed will need to buy up bonds order to hold the federal funds rate between 0 and 25 basis points. This might trigger a substantial growth of the Fed's balance sheet without a formal "stimulus" program (QE3). As inflation expectations increase, so will interest rates, which will trigger more stimulus from the Fed. A perpetual cycle of this would lead to a collapse of the dollar. I don't think that the bankers who have stake in the Federal Reserve System would allow a total collapse as this scenario envisions, but again, this is the worst case scenario.
Tuesday, June 14, 2011
Herman Cain, true Tea Partier?
The modern day TEA Party movement has people with many different views on foreign policy and social issues, however TEA Partiers are generally united in basic principles of fiscal responsibility and government accountability.
Herman Cain is perceived by many members of the TEA Party to support the basic principles of the movement. The movement started as a pro-liberty, ANTI-BAILOUT campaign. Here, I will attempt to provide two strong reasons why all TEA Partiers, both conservatives and libertarians, should be unified in opposing Herman Cain's candidacy for the presidency.
1. Herman Cain's support (past AND present) for the Troubled Asset Relief Program (TARP)
TARP was the bank bailout bill passed in October 2008. Cain says to this day that he supports the original intention of the bill. The bill gave $850B to the Treasury to buy up bad (illiquid (worthless)) assets from banks. This is an atrocious idea in itself- instead of allowing markets on this paper to clear, Congress decided to try to prop up the banks which held this garbage. Instead of making banks take heavy losses on mortgages with which they had profited greatly over the previous 4 years, the taxpayers were forced to take the losses. In the interest of supposed macroeconomic stability, Herman Cain supported exactly this.
Cain's current stance is that TARP was mismanaged. Yes, it is true, that Treasury Secretary Paulson actually used the funds in a different way than was required by the bill passed by President Bush, and in this sense, is statutorily a criminal. Instead of buying up bad assets, Paulson injected liquidity into these banks by buying preferred stock in them. He also forced some banks to take the money, even healthy banks. The stated reason for this was if the government was buying up assets from certain banks, this would put these housing assets and banks into question by the public. By infusing healthy and unhealthy banks with liquidity, Paulson hoped to prevent the public from knowing which banks actually needed it.
However, let's pretend for a moment that the TARP funds were used as called for by the bill passed by Congress and signed by Bush. Every member of Congress who voted for it, and President Bush who signed it, would be criminals as per the Constitution. The Constitution does not give positive grant to Congress to bailout banks or to stabalize the macroeconomy by what ever means necessary. But Herman Cain supported TARP, and he still does.
And while doing brief research for this article, I found out that Cain actually DID support the change that Paulson made to the administration of TARP, at least at the time.
Summary of Cain's position of TARP:
a. Herman Cain supported TARP.
b. Herman Cain supported Paulson's deviation in spending TARP funds from what was statutorily directed by Congress
c. Herman Cain now supports the original intention of TARP, but opposes the way Paulson administered it.
There is no TEA Partier I've ever spoken to who supported the bank bailouts in any form. Again, the modern day movement started as a response to the bank bailouts.
2. Herman Cain's opposition and flip-flopping on the issue of auditing the Federal Reserve
Cain served as the chairman of the board for the Federal Reserve Bank of Kansas City (one of the 12 regional Federal Reserve banks). It's one thing to work for the Fed. I'm sure there are many fine people who work there. I'm even beginning to think that Bernanke isn't corrupt, but that he's just utterly incompetent. And to his credit, Cain has spoken out against QE2 and the Fed's current management. However, Cain claims that based on his time at the Fed, he has no reason to suspect that there's anything bad going on in secret. He also claims that there are "so many internal audits, it's ridiculous" (like that's ever stopped agencies that had the force of government before). He goes on to say that he suspects that people are calling for an audit of the Fed because they don't know how it works. I can tell you, I know how it works, between the 12 regional banks, the FOMC, the NY fed trading desk, the discount window. It's because I DO understand the basics that I want to know the particulars of every single secret transaction.
He completely ignores what the congressional "Audit the Fed" bill actually does. This bill removes previously enacted restrictions on the authority to audit the Federal Reserve Board of Governors and the Federal Open Market Committee. The bill removes the following restrictions of an audit from subsection b of section 714 of title 31 of the US code, and calls for audits of these four areas:
1. transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization
2. deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations
3. transactions made under the direction of the Federal Open Market Committee; or
4. a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.
I would argue that transactions with foreign central banks and governments, discount window loans and FOMC transactions are all extremely important for the American people to know.
I think I have heard audio, since, of Cain changing his mind, that he does support an audit. I could not find it, however, as I was writing this. If I remember correctly, he supports it, but does not suspect that it will turn up anything strange. Right... just like how the information turned up in the FOIA requests by Bloomberg and Fox News for bailout details was all just peachy.
By the way, Freedom Works and Americans for Prosperity (right of center groups, heavily identified with the TEA Party) and Democrats.com and the Green Party (progressive groups) all support the Audit the Fed bill.
Any Tea Partier who knows these two things about Cain should absolutely NOT support him. These issues are huge to TEA Partiers. And given that Cain actually worked at the Federal Reserve, it is hard to believe that his response to auditing the Fed is based on ignorance instead of some sort of deceit or cover (either way it is inexcusable).
Herman Cain is perceived by many members of the TEA Party to support the basic principles of the movement. The movement started as a pro-liberty, ANTI-BAILOUT campaign. Here, I will attempt to provide two strong reasons why all TEA Partiers, both conservatives and libertarians, should be unified in opposing Herman Cain's candidacy for the presidency.
1. Herman Cain's support (past AND present) for the Troubled Asset Relief Program (TARP)
TARP was the bank bailout bill passed in October 2008. Cain says to this day that he supports the original intention of the bill. The bill gave $850B to the Treasury to buy up bad (illiquid (worthless)) assets from banks. This is an atrocious idea in itself- instead of allowing markets on this paper to clear, Congress decided to try to prop up the banks which held this garbage. Instead of making banks take heavy losses on mortgages with which they had profited greatly over the previous 4 years, the taxpayers were forced to take the losses. In the interest of supposed macroeconomic stability, Herman Cain supported exactly this.
Cain's current stance is that TARP was mismanaged. Yes, it is true, that Treasury Secretary Paulson actually used the funds in a different way than was required by the bill passed by President Bush, and in this sense, is statutorily a criminal. Instead of buying up bad assets, Paulson injected liquidity into these banks by buying preferred stock in them. He also forced some banks to take the money, even healthy banks. The stated reason for this was if the government was buying up assets from certain banks, this would put these housing assets and banks into question by the public. By infusing healthy and unhealthy banks with liquidity, Paulson hoped to prevent the public from knowing which banks actually needed it.
However, let's pretend for a moment that the TARP funds were used as called for by the bill passed by Congress and signed by Bush. Every member of Congress who voted for it, and President Bush who signed it, would be criminals as per the Constitution. The Constitution does not give positive grant to Congress to bailout banks or to stabalize the macroeconomy by what ever means necessary. But Herman Cain supported TARP, and he still does.
And while doing brief research for this article, I found out that Cain actually DID support the change that Paulson made to the administration of TARP, at least at the time.
Summary of Cain's position of TARP:
a. Herman Cain supported TARP.
b. Herman Cain supported Paulson's deviation in spending TARP funds from what was statutorily directed by Congress
c. Herman Cain now supports the original intention of TARP, but opposes the way Paulson administered it.
There is no TEA Partier I've ever spoken to who supported the bank bailouts in any form. Again, the modern day movement started as a response to the bank bailouts.
2. Herman Cain's opposition and flip-flopping on the issue of auditing the Federal Reserve
Cain served as the chairman of the board for the Federal Reserve Bank of Kansas City (one of the 12 regional Federal Reserve banks). It's one thing to work for the Fed. I'm sure there are many fine people who work there. I'm even beginning to think that Bernanke isn't corrupt, but that he's just utterly incompetent. And to his credit, Cain has spoken out against QE2 and the Fed's current management. However, Cain claims that based on his time at the Fed, he has no reason to suspect that there's anything bad going on in secret. He also claims that there are "so many internal audits, it's ridiculous" (like that's ever stopped agencies that had the force of government before). He goes on to say that he suspects that people are calling for an audit of the Fed because they don't know how it works. I can tell you, I know how it works, between the 12 regional banks, the FOMC, the NY fed trading desk, the discount window. It's because I DO understand the basics that I want to know the particulars of every single secret transaction.
He completely ignores what the congressional "Audit the Fed" bill actually does. This bill removes previously enacted restrictions on the authority to audit the Federal Reserve Board of Governors and the Federal Open Market Committee. The bill removes the following restrictions of an audit from subsection b of section 714 of title 31 of the US code, and calls for audits of these four areas:
1. transactions for or with a foreign central bank, government of a foreign country, or nonprivate international financing organization
2. deliberations, decisions, or actions on monetary policy matters, including discount window operations, reserves of member banks, securities credit, interest on deposits, and open market operations
3. transactions made under the direction of the Federal Open Market Committee; or
4. a part of a discussion or communication among or between members of the Board and officers and employees of the Federal Reserve System related to clauses (1)–(3) of this subsection.
I would argue that transactions with foreign central banks and governments, discount window loans and FOMC transactions are all extremely important for the American people to know.
I think I have heard audio, since, of Cain changing his mind, that he does support an audit. I could not find it, however, as I was writing this. If I remember correctly, he supports it, but does not suspect that it will turn up anything strange. Right... just like how the information turned up in the FOIA requests by Bloomberg and Fox News for bailout details was all just peachy.
By the way, Freedom Works and Americans for Prosperity (right of center groups, heavily identified with the TEA Party) and Democrats.com and the Green Party (progressive groups) all support the Audit the Fed bill.
Any Tea Partier who knows these two things about Cain should absolutely NOT support him. These issues are huge to TEA Partiers. And given that Cain actually worked at the Federal Reserve, it is hard to believe that his response to auditing the Fed is based on ignorance instead of some sort of deceit or cover (either way it is inexcusable).
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