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Forum Post: All of the Possible Outcomes of the Debt Ceiling Fight Explained

Posted 10 years ago on Oct. 12, 2013, 3:49 p.m. EST by LeoYo (5909)
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All of the Possible Outcomes of the Debt Ceiling Fight Explained

Saturday, 12 October 2013 02:08 By Jeff Fecke, Care2 | News Analysis


With the government shutdown continuing and less than a week to avert default on U.S. debt, we stand at a critical juncture. It’s conceivable that by Oct. 17 we could be facing the biggest financial meltdown since the Great Depression. Or, just maybe, reason will triumph, and Republicans in the House will accede to a hike of the debt ceiling, putting an end to the shutdown, averting a financial crisis and allowing the slow-but-steady recovery to continue. It’s easy to overstate the consequences of political fights — heck, Republicans have been putting on a clinic of late with regard to Obamacare — but the outcome of this one could well determine the economy for the next five years or so. Here’s a look at the possible scenarios we’re facing:

Best-Case Scenario: A Punt

Let’s face it: Republicans are probably not going to do the smart thing at this point and just pass a clean Continuing Resolution and debt ceiling hike. The GOP went out on a limb in a very big way by triggering the shutdown, and now thanks to the sunk cost fallacy, they are unwilling to back away and cut their losses. Rep. Marlin Stutzman, R-Ind., framed the GOP position neatly when he said: “We have to get something out of this. And I don’t know what that even is.” The problem is that the Obama Administration has been absolutely unwilling to give the GOP an inch, and it’s easy to see why. If every debt ceiling and budget fight becomes a hostage situation, America loses. Republicans may scoff, but this could be just as bad for them as the Democrats; Four years from now, Ted Cruz could be president and facing a recalcitrant Democratic Senate, which is demanding an assault weapons ban in exchange for simply passing a budget.

Moreover, Democrats are frankly unwilling to compromise further than they already have. As Speaker John Boehner, R-Ohio, has essentially admitted, there was a deal in place for Republicans to pass a clean Continuing Resolution at sequester funding levels, significantly lower than Democrats would have preferred. Republicans then walked away from this compromise in order to try to stop the Affordable Care Act. Needless to say, Democrats are not very interested in helping Republicans walk away from a mess of their own creation with even a hint of a fig leaf.

So how does this get resolved? Well, the best-case scenario is probably that Republicans agree to pass a very short-term Continuing Resolution and debt ceiling hike. Democrats have signaled that they would vote for a two-month debt ceiling hike in order to avert the present crisis, and then agree to discuss the budget with Republicans.

This would give the Republicans a potential out, and the tiniest of victories; That is, they could win the concession that Democrats would talk with them about the budget and entitlements. They probably would even be able to win a repeal of the medical device tax, which a number of Democrats oppose due to parochial interests. Then, in December, when nobody is looking, Republicans could quietly pass a longer debt ceiling hike and continuing resolution. This is dysfunctional and requires a lot of kabuki and winks and nods, but it’s probably the best-case scenario right now. It would avert the immediate crisis, get the government opened back up, allow the Republicans to withdraw with a shred of dignity and allow Democrats to stand firm. The problem is that a significant number of conservatives won’t go for it.

Middle-Ground Scenario: Continued Chaos, but No Disaster

A number of House Republicans and a handful of Senate Republicans are dead-set against dealing with the Democrats, unless Democrats essentially cede control of government to them. These Republicans, egged on by the rightest of the right wing, continue to call on Republicans to refuse to compromise and threaten a fight against any who dare to stray.

That said, the potential consequences of failing to hike the debt ceiling are catastrophic, and for the most part, Republicans know it. Oh, sure, there’s the occasional fool like Rep. Ted Yoho, R-Fla., who thinks the U.S. unilaterally defaulting on its debt would somehow stabilize world markets — a move akin to stabilizing your finances by refusing to pay your mortgage — but for the most part, grown-ups in the GOP recognize that failure to pass a debt ceiling hike would be disastrous.

While it may not be ideal, it’s possible that Republicans will decide to pass a clean debt ceiling hike whether or not an agreement is reached on the government shutdown. Of course, this would still leave all the attendant problems of the government shutdown in place, but at the very least, the economy would not completely melt down before Halloween.

Of course, if Republicans weren’t a bunch of Yohos, they probably would have done this already, which means our worst-case scenario is frighteningly likely.

Worst-Case Scenario: The Second Great Depression

The absolute worst-case scenario would be for Republicans to fall prey to their intra-party squabbling and fail to raise the debt ceiling. What would the consequences of this be? Well, nobody really knows. The U.S. debt is 16 trillion dollars, about 20 percent of the world’s annual GDP. Granted, failure to increase the debt ceiling wouldn’t bring all $16 trillion due all at once, but it would call into question the value of all of it. If the U.S. isn’t going to pay off Bond A, why would they pay off Bond B?

In short, anyone who holds U.S. bonds would have to worry that those bonds might not be worth anything. We’re already seeing the market react to this possibility: The rates on short-term treasury bills have almost tripled in the last week, a sign that investors are backing out of the debt market.

This doesn’t just affect rich people with money in T-bills. In a very real sense, everyone in the U.S. has money in treasury bills. The Social Security Trust Fund, for example, holds $2.7 trillion in U.S. bonds. Default could result in delayed or simply missed payments for Social Security recipients, Medicare and Medicaid recipients, and U.S. troops. Moreover, simply paying interest out of revenues — something the Treasury Department would have no choice but to do — would immediately cut government expenditures by as much as 40 percent.

This would be a complete disaster, obviously. Which is why even in the absence of a debt ceiling hike, the Obama Administration would probably be forced to act. Of course, that brings its own problems.

Alternate Scenario: The 14th Amendment Gambit

In the event that Congress chooses not to raise the debt ceiling, President Obama would have three choices. The first would be to let the American and global economies melt down. This obviously is not going to be his first choice. The second option is to give in to Republican demands and delay the Affordable Care Act, which he has repeatedly said he will not do. So what’s left?

Well, Obama could simply order the Treasury Department to ignore the debt ceiling. He could take the almost whimsical step of minting the quadrillion-dollar platinum coin, or he could rely on the 14th Amendment to the Constitution, which includes a clause saying, “The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned.” That would be a rather tortured reading of the amendment; The language was meant to indicate that the U.S. government would pay its debts, but not those incurred by the Confederate States of America. For that reason, Obama has shied away from saying he would invoke it.

Still, given a choice between true default and a legally dodgy workaround, Obama might have no choice but to choose the latter, and that would leave him in a precarious situation. Republicans have been itching to impeach Obama since roughly January 21, 2009. If Obama invoked the 14th Amendment to stave off destruction, Republicans could accuse him of breaking the law and finally get their chance to impeach him.

Of course, Obama wouldn’t be convicted by the Senate, nor the public at large. Republicans would be impeaching the President for the crime of trying to save the country from the destruction they caused. But of course, if Republicans had any political sense, we wouldn’t be in this situation.

This piece was reprinted by Truthout with permission or license.



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[-] 1 points by LeoYo (5909) 10 years ago

What GOP-Tea Party Risks With Block of New New Deal

Sunday, 13 October 2013 00:00 By Richard D Wolff, Truthout | Op-Ed


The Republican-Tea Party alliance operates a weapon of mass deflection, protecting capitalism from criticism. Sadly, the Democrats neither expose nor attack the Republican project, says Wolff.

Many Germans in the years before 1933 dismissed the little man with the mustache: He could never take power, let alone keep it. Tzarist Russia's elites thought the small social democratic party posed little threat. Batista's minions ridiculed the lawyer and his friends when they first dashed into Cuba's mountains. Greece's established Socialist Party feared nothing from the tiny Syriza Party forming to its left. Such speedy dismissals of these groups underappreciated their social roles and especially the conditions that supported them.

What might these examples suggest about the Republican Party and Tea Party activists? The latter sometimes seem to have peaked and begun to fade and splinter. Yet other times they seem revived, as in Republican opposition to Obamacare and threats to shut the government down. What conditions support them?

Analysis of Republicans' actions begins with the economic crash of 2007-2008 and the depressed economy that persists. It is undermining the finances and living standards of middle- and lower-income people. They cannot carry much more debt nor raise their real wages. Rising prices mean the cost of the American Dream slips ever further beyond their reach. Promises of rising living standards for workers and students preparing for work are mostly being broken. Long and deeply held hopes that hard times will pass are increasingly questioned or abandoned.

In such conditions, major big business interests and the corporate rich are determined to prevent replays of left-wing criticisms and what those achieved in the 1930s Great Depression. Then, Communist and Socialist Parties, in coalition with the CIO union drives, had worked a New Deal with Roosevelt's government. Taxes were raised on corporations and the rich to pay for creating the Social Security and unemployment compensation systems and for a huge federal jobs program (not to mention allying with Stalin's USSR in World War II). Having worked for decades to roll back that New Deal, the right now fears and sets itself totally against anything like that happening again.

Fear, instinct and habit drove the right, after the 2007-2008 crash and bailouts, to build intense opposition to virtually everything the government did or might do. The government was vilified as the cause of the crisis and its effects. The crisis was the government's excuse to add taxes to peoples' already unsupportable burdens. The government would waste revenues on unwanted social interventions: depriving citizens of rights to buy and own guns, imposing health-insurance mandates and "death panels" while increasing that "47 percent" of the population who abuse entitlements to food stamps and other supports at the expense of taxpaying workers.

Republicans effectively silenced any talk about, let alone action for, a federal jobs program. They kept debates over Social Security and food stamps focused on the size of cuts to them, and so on. Republicans mostly welcomed the traditional far right groups, newly invigorated as the Tea Party. These would help promote and strengthen the alliance against government intervention no matter how bad economic conditions became.

The Republicans' remarkable successes to date, notwithstanding Obama, do not flow primarily from their Tea Party alliance or its lavish funding. They are more the result of the right's major project in the preceding decades: destroying the New Deal coalition. First, immediately after 1945, the right demonized the Communist Party as committed to violent treason. It followed by equating communism with socialism. With those parties destroyed, it concentrated on undermining organized labor, starting with the 1947 Taft-Hartley Act. The destruction of the New Deal coalition was so systematic that it left a legacy of organizational anxiety and political isolation among many Americans. Any political or labor organization on the left had become suspect or dangerous unless it carefully expunged from its programs any criticisms of capitalism.

Viable left organizations and alliances with histories of developing critiques of capitalism and corresponding economic demands have thus been largely absent from recent US history. No trusted networks evolved among activists that could have mobilized a contemporary version of the New Deal coalition. When Republicans directed popular dissatisfaction after 2007 against the government, no comparable push-back came from the left. It took years until Occupy Wall Street (OWS) flashed onto the public consciousness. OWS was powerful, but not for long. The organizational foundation for sustained activity was lacking. OWS had to build organization from scratch and against great anxiety and skepticism. It made headway, was hurt by governmental repression, and now simmers over what to do next. The conditions for its resurgence are in place - waiting for OWS or successors to respond and build on them.

Republican theatrics around shutting down Washington, opposing Obamacare and so on repeatedly emphasize and reinforce antigovernment feelings. Tea Partiers mobilize their stalwarts around extreme dramatizations while more moderate Republicans mobilize the less extreme. The point is to keep popular anger focused away from business or capitalism and on the government (as if it were independent of business and capitalism). The conditions to support all that are in place.

The Republican-Tea Party alliance operates a weapon of mass deflection, protecting capitalism from criticism. Sadly, the Democrats neither expose nor attack the Republican project. Many endorse it, while others - the party's center and left - mollify the victims of crisis with promises, some palliatives and much pretense. While agreeing with Republicans that saving capitalism is the task at hand, Democrats will make it slightly less profitable for business and the rich and so slightly less painful for the 99%. For securing capitalism, the parties have evolved an effective division of labor - for now. The diffuse Tea Party survives, like other too-quickly dismissed movements with tactics that seem "bizarre," because it serves key functions (and thus secures key funding) in today's society.

Ironically, if the New Deal actually saved capitalism from what might otherwise have happened - e.g., fascism as in Germany, Japan, or Italy - a haunting question arises. Does the right's blockage of another New Deal now risk contributing to what was avoided in the 1930s?

Copyright, Truthout.

[-] 1 points by LeoYo (5909) 10 years ago

JPMorgan's Dimon on US default: 'You don't want to know'


1 hour ago

Washington (AFP) - Top US banker Jamie Dimon of JPMorgan Chase warned Saturday that the United States needs to avoid defaulting on its debt, saying the possible repercussions are unfathomable.

"You don't want to know," Dimon said when asked what would happen if the US is forced into default because Congress did not raise the country's borrowing limit.

"It would ripple through the world economy in a way that you couldn't possibly understand," he said at a discussion held by the Institute of International Finance, a leading forum for the world's banks.

He said it would shock the money market, where trillions of dollars in cash are invested in ostensibly top-quality securities like US debt based on expectations that the borrowers will not default.

"You don't know the ripple effect of that through money-market funds," stressed Dimon, head of the largest US bank by assets.

"The money markets are the most fickle markets in the world, they're like a rabbit."

Dimon was speaking as the White House and congressional Republicans remained deeply at odds over passing a budget and raising the US debt ceiling, a move needed to ensure the government can continue to pay its bills.

The US Treasury has repeatedly warned that as soon as October 17 it will be short of cash and forced to default on its obligations, though not saying whether it would skip debt payments or others, like social security payments to retired Americans.

With no compromise apparent, and the government partially shut down now for 12 days due to lack of a budget, Dimon warned that the deadline was looming.

"As you get closer to it, the panic will set in," he said.

On the other hand, he emphasized: "The US cannot default. I think every responsible person knows that."

[-] 1 points by LeoYo (5909) 10 years ago

Why Republicans should be very, very afraid


By Walter ShapiroOctober 11, 2013 3:29 PM

Washington runs on hype. We live amid an almost daily onslaught of defining moments, game changers and never-before-in-human-history blather. No one has ever been banned from cable TV talk shows for overreacting to political stimuli. Skeptics are often right in the end, but, boy, are they treated like tedious killjoys along the way.

That’s why it’s tempting to play contrarian, as everyone in politics — aside from tea party true believers — is agog over polls showing support for the Republicans melting like a snowman in the Sahara.

A Thursday NBC News/Wall Street Journal national poll found the GOP’s approval rating down to (gulp) 24 percent. This came on the heels of an Associated Press/GfK poll that revealed the thumbs-up verdict on Congress (5 percent) is only slightly higher than the survey’s margin of error (3.4 percentage points). Small wonder that the liberal New Republic headlined a Friday article, “The Last Days of the GOP.”

Irrational exuberance can be as misleading in political soothsaying as it is on Wall Street. Polling analyst Nate Silver may have had a valid point when he wrote, “The media is probably overstating the magnitude of the [government] shutdown’s political impact.” It is also worth remembering that after two of the biggest presidential defeats in modern history (Barry Goldwater for the Republicans in 1964 and Democrat George McGovern in 1972), the loser’s political party rebounded to win the White House four years later.

But despite all those cautionary notes, there is a strong justification for a cry of, “This time it’s different.”

With the government shutdown and the dancing-on-the-edge-of-a-volcano gamesmanship over the debt ceiling, Americans rightly believe that things have become unmoored in Washington. A Gallup Poll, released on Friday, found that 60 percent of those surveyed believe a third party is needed. More ominously for both Democrats and Republicans, only 26 percent of those surveyed believe the two main parties are doing “an adequate job of representing the American people.”

Imagining a vibrant third party is a political fantasy that ranks right up there with a deadlocked national convention going to a ninth ballot. But two decades ago, there was the out-of-nowhere emergence of Ross Perot. Before Perot became known for his paranoid claims and his bizarre (and temporary) withdrawal during the 1992 Democratic Convention, he touched off an outsider populist movement with a centrist cut-the-national-debt ideology.

Indeed, the NBC News/WSJ poll asked whether voters would be willing to check a box on the ballot that would defeat everyone in Congress, including their own representatives. Sixty percent of those surveyed were willing to play 52-card pickup and start all over again with 535 new members of Congress.

For all the built-in advantages that should favor the Republicans in 2014 (from gerrrymandered one-party House districts to a daunting Senate map for the Democrats), I have yet to find a GOP strategist totally convinced that the party will hold its House majority. In similar fashion, Democratic consultants talk nervously about “the funky atmosphere” among the voters who soundly re-elected President Barack Obama less than a year ago.

Two factors could acerbate voter frustration with two-party politics as usual.

A strain of self-righteousness and stubbornness could prompt the president to overplay his hand during the government shutdown by refusing to accept the GOP’s eventual terms of capitulation. Just because the voters are rapidly losing patience with the Republicans does not automatically make Obama a winner. Sometimes politics can be a lose-lose game.

But the more likely outcome is that, even in defeat, the tea party wing of the Republican Party will draw the wrong lessons from its repudiation by a lopsided majority of voters. Instead of recognizing that House Republicans went too far in their implacable and implausible demands to defund Obamacare, the right wing of the GOP may perversely conclude that its congressional leaders hoisted the white flag too soon. The NBC News/WSJ poll picks up this split: 72 percent of tea party backers approve the scorched-earth tactics of the congressional GOP, while only 42 percent of non-tea-party Republicans hold similar views.

Not too long ago it would have been easy to predict that the 2014 elections would be a referendum on the rollout of Obamacare. Today, a better guess would be that the health care law will prove to be one of those partisan issues in which supporters and critics cancel each other out. There will be the inevitable clash of testimonial ads: Democrats will favor weepy spots featuring Americans getting health insurance for the first time, while Republicans will go with small-business owners wailing about how Obamacare forced them to cut jobs. And most voters will wisely hit the mute button.

What this suggests is that the after-effects from the government shutdown and the debt ceiling dance of doom are apt to become the dominant voting issues of 2014. That is why, despite the down-with-all-incumbents mood among the voters, Republicans are disproportionately at risk. Voters are accurately blaming the Republicans for the government shutdown — and that stigma will be hard to escape.

It is telling, in the NBC/WSJ poll, that 65 percent of voters think the government shutdown is hurting the economy and 63 percent describe a failure to approve a debt ceiling bill as “a serious problem.” These are memories that are not going to be erased with a handshake deal at the White House and the reopening of the national parks.

What has been happening, in effect, is that the Republicans have been re-enacting the centennial of World War I a year early.

In 1914, cheering throngs all over Europe sent their boys off to war confident that victory could be achieved in a few months with limited casualties. Instead, for the next four years, armies on both sides endured horrible death tolls in the trenches of France. And, increasingly, soldiers found it impossible to recall what they were fighting for.

So it was when the House Republicans shut down the government confident that they could win major concessions from the White House in a few days. Now they are hunkered down in the trenches, with public opinion turning against them, desperate for any rationale to abandon the battlefield. But they cannot simply surrender because … well … that would mean that they have been bleeding in the polls for nothing. Rarely has a political party lost so much so rapidly from a series of strategic blunders. So, for a change, I believe the hype. Republicans will need a long time to recover from their biggest Capitol Hill debacle in memory.