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Senator Lee gets it right on debt ceiling.

By: Paul Seale (Diary)  |  January 27th, 2011 at 02:27 PM  | 

RESIZE: AAA

Back on January 5th I posted an idea regarding raising the debt ceiling. Some might have thought it to be radical, but in my mind it is necessary given the grave situation we are with regards to the federal budget.

I proposed then that we should, in fact, compromise with Democrats who want to raise the debt ceiling. The catch: it must be attached to a balanced budget amendment (or law).

Senator Mike Lee is poised to present such a proposal; taking it a step further and threatening to filibuster any other piece of legislation which does not contain the language.

I always believed the fight over earmarks was frivilous when given the 800 pound gorilla in the room, and that the budget as a whole is what we should as a nation fight to the end over. Senator Lee exemplifies this.

Washington must understand that we, the people, are demanding accountability with what is spent.

To that end I believe since Washington cannot be trusted to use common sense in one of the most basic functions of government, that we excercise our rights as the governed and demand spending limitations.

That is why Senator Lee is correct in taking what will be an unpopular, but necessary risk. He understands the consequence for raising the deficit limit and the importances of throwing government spending in shackles.

It is also why we must support him.

COMMENTS

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  • http://www.mi7.co/ angelocracy

    Raising the debt ceiling is not on the table. Well. it is on the table but should not be.

    It is not an option, not worth talking about, Very bad idea

  • Death_of_the_Donkey

    a spending limit set through more economic means (ie targeted to some assumed revenue level based on current tax rates and say a 7% level of unemployment, then adjusted through growth) rather than some arbitrary strict balanced budgets reliant only upon actual revenues that come in. Had a true balanced budget been in place during 09, we would have definitely seen a depression as government would have had to cut so drastically that virtually everything would have been shut down. Also, we cannot have a real balanced budget law unless we are willing to make defense subject to cuts as well.

    • Flagstaff

      We must all remember, however, that that means RIF of hundreds of thousands of government workers, with an accompanying upsurge in unemployment.

      A gradual process is probably called for, starting with a cancellation of any further government payments into government pension plans. Individuals could continue to add, if they can do it now.

  • http://theminorityreportblog.com Repair_Man_Jack

    at least at first to force bargaining. Let the spenders see a consequence ahead. Let Wall Street crap its pants for a few days. I’m still convinced that at least 75% of the US Senate holds no belief that overspending by the USG leads to any tangible consequence. They need to see a few cracks form in that facade. They need a few hundred phone calls each from nervous pensioners with baskets of T-Bills. Fear would be educational.

  • Paul Seale

    @angel and repairman jack

    While I agree with you in sentiment that I do not want to raise the limit, to be honest, unless we can find a way to cut over half a trillion dollars in three months we will default.

    If we default, the dollar will become worthless (worse than it is now) and it will destroy the economy and our standard of living.

    You two may be fine messing with other people’s money and putting the nation at peril to make a point, I am not.

    That said, I would not vote to blindly increasing the ceiling. Ever.

    @death – I think you make an interesting point I never thought of. Maybe such a limit should be tied to some sort of marker or indicator. It certainly should not be random.

  • http://theminorityreportblog.com Repair_Man_Jack

    We keep getting coerced into poor policy because “the sky would fall” if we did otherwise. It’s not about “messing w/ other people’s money” or “putting the nation at peril” to make a point. We are frogs getting boiled here. The nation is already at peril. Who cares if we blindly increase the debt ceiling. Kepp increasing it, and the nation will eventually have to default anyhow. At some point investors really will spurn an offering of USG. What will our options be in the era of the junk T-Bill?

  • Flagstaff

    elimination of future borrowing doesn’t mean default is unavoidable. Default on debt obligations is simply not an option.

    It WILL mean that a lot of OTHER hard decisions must be made.

  • Death_of_the_Donkey

    its pants because of either an actual denial of increase or the specter of one, the R’s may be done and gone come 2012. People are not going to like to see their 401ks assaulted again or interest rate/inflation spikes in reaction to a fear of default/weakness.

  • http://theminorityreportblog.com Repair_Man_Jack

    Political expediency must always trump decency, and electability must be preserved at all costs. We either stop DC from spending or they will spend. The inertia is working against limited government, Either someone steps on the breaks good and hard, or that particular streetcar never stops running until it runs out of track.

    What is the GOP platform for a scenario where the US of A has such a large debt obligation that foreign investors are too intelligent to continue large purchases of Treasury Securities? Apparantly, we need to consider that contingency, given the unwillingness of our political leadership to prevent this actual outcome.

  • Death_of_the_Donkey

    and the solution isn’t going to happen overnight either. What we are talking about is using the increase of the debt ceiling to force in an actual plan that begins cutting at a reasonable and structured pace that will allow us to both get our debt under control without killing the economy in the process. Remember, the current crisis is just as much a revenue problem as it is a spending one, as revenues fell about 4% of GDP (and are still low) at the same time that expenditures increased (ie widening the gap), couple that with the fact that a good deal of the increase in spending has come as a result of the effects of the recession and the picture isn’t nearly so bad as to risk killing a nascent economic recovery in order to either a) prove a ideological point or b) stick it to Obama. While spending does have to come down (it was absurd to run 4% deficits during the Bush expansion years for instance), an economic recovery will solve many of our immediate problems all by itself.

  • Common_Cents

    “Aww, why go now, you have the REST of your life to repent and change!” -Devil

    How many times are we gonna fall for Lucy pulling the football away?

    What good is a ceiling if it can be moved whenever you want?

    Did the DEMS even stick to paygo once?

    Would we actually default automatically if ceiling not raised?

    When in the future will things turn? What needs to happen in the future for those things to turn? the longer we wait the WORSE it gets! Interest accrues over time, more govt spending increases over time. Solutions are non existent over time until action is taken.

    Time cannot solve this, action now can.

    We have kicked this can down the road for decades. The stakes and the timing are now just higher and faster.

    They depend on us being scared of mutually assured financial destruction if we don’t go along.

    Ever see the movie The Village? Kids brainwashed and told there are boogeymen in the woods that will get them if they venture past the fence.

    No different with TARP and the other trillions of bailouts. Had we let the free market settle it there would have been short term panic, but strong hands would have stepped in and the gross risk takers would have been punished. Instead of trillions of bailouts to the politically connected, we could have used that to backstop all deposits to prevent total system problems.

    Read this: A great summary of what is really going on.

    http://www.oftwominds.com/blogjan11/Zeus-one01-11.html

  • Paul Seale

    No one said to blindly increase the debt ceiling. In fact I said just the opposite.

    At the same time, by defaulting on the debt you create a worse situation.

    There must be cuts (which is why I support the BBA). There absolutely must be action taken.

    At the same time we must be smart about it.

  • Death_of_the_Donkey

    We are not at a point where the brakes have to be slammed on (ie Ireland/Greece), but we are at a point where we can see the stop sign in the distance and have to begin by laying off the gas and then gently braking to a stop. This can be done while extending the debt ceiling, so long as it is coupled with some real spending/tax reform* in order to slow and then reverse the accumulation of debt. Risking the nascent recovery at this point is not only stupid, but counterproductive, as a slip back into recession would further compound our debt problems.

    *We must get rid of tax expenditures/subsidies on both the corporate as well as individual side, as these expenditures greatly skew the economy by picking winners/loser, complicate the tax code, and create unpredictability.

  • http://theminorityreportblog.com Repair_Man_Jack

    We min at 14.5% after WWII. we max at 20.5%, but the modal value is 18%. You get bad years in 2008 and 2009, and then, ceteris paribus, the out-years go back to 18%. Revenue doesn’t really change that much with tax code because of the elasticity of consumer behavior in the face of tax code changes.

    Nobody cares enough about Obama to stick it to him. The question really becomes who owns your paycheck? And who controls your means to a livelihood? Obama goes bye-bye in 2016 at the latest. This problem either gets solved somewhere, or gets passed on like a genetic defect in an inbred family to the next generation. And eventually, the rest of the world hits a saturation point with so-called American Exceptionalism. Every other country in the world is having to enact at least token austerity measures. Nobody will feel any sympathy for us if we fail to show the same willpower and our currency and debt securites are worthless at some future date.

  • http://theminorityreportblog.com Repair_Man_Jack

    1) Reform philosophy, don’t just tinker on rates. Whether we like it or not, taxation policy will influence behavior heavily, as you mentioned above. Do we want to reward work and investment or should we “pump-prime” by rewarding consumption instead? In other words, if you’re talking about totally scrapping the current income taxation and replacing it with a hybrid that taxes some combination of consumption and net worth instead, I’d (seriously) be an interested listener.

    2) If we do a tinkering, let’s extend credit A and Nuke Credit B sort of litigeous exercise, count me out. This sort of tinkering really does devovle into a exercise of rearding this sessions “cool kids” and adds volatility to the system that discourages private capital from ever getting out of commodity/precious metal hoarding mode.

    I guess its a question of whether we actually junk a failed paradigm or prop it up. Propping will get us something on the order of 18% GDP in revenue and a mass-disincentivization of hard work and private investment. Just like it has for the past 65 years.

  • Death_of_the_Donkey

    that we are against cutting spending, only that we are not at a point where you have to hit the economy with a sledgehammer to change the tide. A debt ceiling increase coupled with real spending reform would be plenty to fix our current mess over the long haul.

  • Death_of_the_Donkey

    I would scrap the entire tax expenditure system (on both the corporate and individual side) and use the savings to lower rates across the board (so now everyone at a given income would pay the same in taxes). Obviously some stuff would have to be phased out (mortgage interest).

    Getting rid of all of the special tax treatments would then make adding new ones later much more difficult as there would be no precedent and it would be very obvious of who was trying to get what.

  • http://theminorityreportblog.com Repair_Man_Jack

    I think two things.

    1) You believe things are better off than they truly are. Just tweak it a tad, and it all goes back into gear. I used to argue the same garbage when Democrats told me the E-Vil Bush Satan State would send us to H_E_L_L! When Neopaloitard got control of DHS, it seems the Dems were closer to right than I was. The TSA is using the USA Partiot Act (I should have known that one would suck just from its name!) to violate our rights on a daily basis without improving our safety.

    Now you as a good, loyal Leftist are forced to defend your President and are having the same happy-happy joy-joy feelings I used to have in 2003/2004. You are underestimating the extent to which things are bad and when you can’t you quickly find a good Bush=SA-TAN! analogy to go tar a Republican. I’ve been there. I protected my boy. It leads to inaccurate perception of reality. So I empathize while we disagree.

    2) I think we had more a cushion w/ which to be dumb several decades ago. That cushion is rapidly going bye-bye. Our indebtedness to other countries is becoming a source of leverage against us (see China, PRC), or we can destabalize them everytime we stumble which in turns leads to negative feedback to our economy. (see the PIIGS). And whether we got there doing keg-stands overnight or whether we got there drinking an entire case of tequila over a three-week binge is a hoddypeak. We are screwed. Whether Bush I, Bush II, Clinton, Oblama, Ray-gun or LBJ’s iniquitous, gook-hunting poltergeist held the dildo is an utter non-sequitor.

    The question remains – if we don’t reverse the process of our coming annihilation now, when, and appropos to what signal?

  • Paul Seale

    You will by any other definition, default on debt.

    I agree with a lot of what you wrote. However I do not believe that we should destroy our economy and any future we have by simply saying no and defaulting.

    This is why I believe that if we are to increase the debt ceiling, it should come at a high price. That price would mean the end of of deficits in the future.

    So what would you rather walk away with? A balanced budget amendment and a future secured or a nation who defaulted on a loan and a destroyed currency.

  • http://theminorityreportblog.com Repair_Man_Jack

    1) At what *is* the debt ceiling too high?

    2) What signal would give an appropriate warning to stop raising it?

    And in case people mistake me for the Idiot Tea Partier provoking an ostensibly right-of-center blog to make them look poorly educated, I’m one of the Menchoviks.

    Please hear from one of the Bolsheviks…There are an incresingly large number of American voters who have much less patience and ratiocination about the deficit than even I do. An example of one follows below.

    My generation is coming into its own and we don?t buy the bull shit of our parents? generation. We don?t believe in Democrat or Republican. We don?t believe in the system itself. We will be the ones making the decisions going forward. We will default on the astronomic promises our parents made to themselves. We will create an entirely new monetary and financial system. Real free-market capitalism will flourish, not this socialism for the rich garbage Obama loves so much. We will focus on doing good while doing well. Not because the government forces us to, rather because we are witness to and victims of this sick, twisted creation of our parents generation that celebrates total greed without the slightest concern of the consequences to others.

    – Mike Krieger (HT:Zerohedge.com)

  • powertothepeople

    but I have seen writings by Moe, Neil, Erik, Labor, Aaron, Acat, Aesthete, and others who I respect and trust in their opinion and knowledge and so far I have seen no viable reason as to why to raise the ceiling. Raising the ceiling does not “pay off the debt” nor does keeping it set as it is cause us “not to pay off the debt.” We do no need to compromise with the left and give them more room to spend, we need to buckle down, cut the spending, and do what is right. Giving into this will simply make the next fight even harder.

  • Common_Cents

    our choices are, pull the russian roulette trigger now, or put it off while one more round gets loaded for next time.

  • Paul Seale

    1) The ceiling is already too high. I believe maybe the question you meant to ask is how much more debt do we add before the BBA would take effect? I honestly dont know.

    What I do know is that the debt is too high, but we cannot allow our country to default.

    Ive read your pieces enough to know you are intellegent to know this as well. Defaulting on our debt and ending all govt services (including out military) is not the answer.

    2) We are already at the appropriate warning to stop raising the ceiling. Again, however, there is more at stake then just cutting a welfare check. We are talking about a collapse of our economy and defense.

    When you say no increase in debt ceiling it isnt saying “no more deficit spending” it is saying no more government.

    I would add that I am with the quote that you list below in that I believe many of us are fed up of deficit spending as a way to buy votes and cement political positions.

    That said, the notion of allowing the nation to collapse on its self and create something new is beyond the pale.

    Again, I ask, what would you rather walk away with? A solution cemented in law or a broken nation?

  • Paul Seale

    I believe some of it is political jocking for space. I dont play that game, to be honest, because im terrible at it.

    What I do know is that defaulting on our debt would hurt is terribly more than what people think.

    With that said, however, we should not raise the ceiling without some sort of a major concession. Passing the BBA would be it (and would a way to legally lock in balanced budgets in the future).

    I agree with you that we need to buckled down and cut spending.

    The question is, as I have stated before, what do you want to come away with in the process? A law which addresses the core of the problem, or a nation with a destroyed monetary system?

  • Paul Seale

    Pass a law which removes the bullet from the chamber. Permently.

  • Death_of_the_Donkey

    I am a proud conservative and have been one my entire life. Just because i am more pragmatic and willing to look at economic realities over ideology doesn’t make me a leftist of any sort.

    And no I don’t think we are better off than we are, but neither are we as bad as you indicate. If things were as bad as you and others make them out to be with regard to our debt we would be seeing Greekesque spikes in interest rates (we are not). And i am not saying drastic spending cuts are not needed, just that a booming economy will take care of more of the deficit than you like to believe and that holding firm on the current debt ceiling will not equal a booming economy.

  • aesthete

    but our trajectory is unsustainable. Investors will not jump ship until we get closer to approaching that point, but to be sure, they will jump ship if we stay the course. Do I know when that day will be? No — and neither do investors, which is why they haven’t bailed. Moody’s is talking about downgrading our ratings, and there is a general lack of confidence in the US government’s future ability to do for its investors what it was able to do in the past. This is avertable, but will not be easy to fix. At any rate, I’d rather fix it now (and get the added benefit of less government!) than wait until we can’t do anything.

    (I would prefer cuts on transfer programs to upper-income people, like Medicare and SS, rather cuts to low-income persons or than tax hikes on business and low-income spenders in the immediate future, for the sake of the economy. That said, my ideology absolutely trumps my pragmatism on this issue, so if a cut to government requires a cut to any of those things in the near future, I’m down with it.)

  • http://theminorityreportblog.com Repair_Man_Jack

    If things were as bad as you and others make them out to be with regard to our debt we would be seeing Greekesque spikes in interest rates (we are not).

    So why has Greece gotten away with waiting until their rates spiked? They were back-stopped. Who is big enough to back-stop Sam’s Economy? No one.