Tuesday, July 26, 2011

What the GOP debt limit strategy should be

We've been hearing about the negotiations, and witnessing the antics and political posturing over the debt limit for quite some time now and last night's speeches by President Barack Obama and House Speaker John Boehner didn't contain any new information.

The President, as Tom Blumer at BizzyBlog explains, "...changed his mind — again. Calling the President’s performance in the debt-ceiling matter during the past several weeks “Jello-like” would appear to be an insult to the referenced food product."

He also points out that Wall Street seems to be getting used to the impasse, saying, "Yeah, the media/White House “the markets will tank if there isn’t an agreement this weekend” scare tactic of the past two days didn’t work out too well, did it?"

The President's position is that raising the debt ceiling doesn't give the government any more money to spend - it just allows them to pay the bills that are due. What a maroon (as Bugs Bunny would say).

Of course it allows them to spend more money - it gives them the ability to borrow more (there's that word again) money which they plan to immediately spend on a host of worthless projects like tea pot museums, 'slow food' initiatives, shrimp and oyster research, youth soccer gang prevention, bike paths and window replacements in municipal buildings - all critical national priorities.

Additionally, had the Democrats bothered to pass an actual budget in the last 3 years (a statutory mandate that they - and the national media - seem to ignore), they'd realize that they've got more bills than money and would have had to admit that the President's line of 'no additional money to spend' was nothing more than political posturing.

Republicans, led by Speaker Boehner, have at least seen the light - belatedly, but finally - and, despite having contributed mightily to our precarious financial condition, are standing firm on cutting spending and not raising taxes. I can only hope that they've learned their lesson and have truly changed their ways, but I'm not holding my breath.

In fact, Rep. Boehner's 'two-step' plan (sounds sort of shifty, doesn't it) that he introduced yesterday afternoon didn't seem to sit well with some in the GOP, including Rep. Jim Jordan (Ohio) who chairs the Republican Study Committee. His statement in reaction to the two-step plan:

“While I thank the Speaker for fighting for Republican principles, I cannot support the plan that was presented to House Republicans this afternoon.”

“The credit rating agencies have been clear that no matter what happens with the debt limit, the U.S. will lose its AAA credit rating unless we produce a credible plan to reduce the debt by trillions of dollars. Cut, Cap, and Balance is the only plan on the table that meets this standard. Only a Balanced Budget Amendment will actually solve our debt problems.”

So it seems the GOP is, thankfully, holding the line and the President is 'taking it to the people,' though not very effectively. But what should the next step be?

Currently, everyone in Washington is focusing on how to get a debt limit increase approved by all sides. The scare tactic is that failing to do so means we default on our loans. Everyone is rushing around talking about the dire consequences of a debt default and pushing their own position as the solution.

While common sense tells you that default doesn't have to happen, since the nation collects much more in revenue than is due on the debt limit, if we remove that component of the argument, the real discussion - the proper size and scope of the federal government and the funding for it - can begin. But that also means that the tool (scary world-ending scenarios on default) being used by the President goes away - certainly a good political strategy as well.

The fact is that the nation defaults when it fails to pay the interest/principle on its loans/bonds. As the chart in this article shows, there is plenty of revenue to pay the interest due. In fact, with $172 billion in income for August, the Treasury Department would have enough money to pay (in rounded numbers):

* $ 30 billion interest on debt,
* $ 50 billion in Social Security payments,
* $ 3 billion active duty military pay,
* $ 29 billion in Medicare expenses,
* $ 21 billion in Medicaid expenses,
* $ 14 billion in federal salaries and benefits,
* $ 7 billion in food stamp payments,
* $ 2 billion in TANF (welfare) payments, and
* $ 3 billion in Veterans Affairs payments.

And that would still leave us with $15 billion or so for miscellaneous items.

The problem is in prioritizing. My list above means that other entities go unpaid (like defense contractors and various departments -energy, EPA, etc...), but the vital issue of debt payments and the full faith and credit of the U.S. Government is not only addressed - it's removed as both a scare tactic and a political weapon.

After all, even Pres. Obama in his speech last night, said:

"...defaulting on our obligations is a reckless and irresponsible outcome to this debate."

How do we not default? The answer is simple: the Prioritize Spending Act of 2011. It's a very short bill that says:


This Act may be cited as the `Prioritize Spending Act of 2011'.


In the event that the debt of the United States Government, as defined in section 3101 of title 31, United States Code, reaches the statutory limit, amounts necessary for obligations incurred by the Government of the United States shall be made available to the following obligations before all other obligations and shall be made available as prioritized in the following order (with items listed in descending order of prioritization):

(1) Amounts necessary to carry out the authority of the Department of the Treasury provided in section 3123 of title 31, United States Code, to pay with legal tender the principal and interest on debt held by the public.

(2) Such amounts as the Secretary of Defense (and the Secretary of Homeland Security in the case of the Coast Guard) determines to be necessary to continue to provide pay and allowances (without interruption) to members of the Army, Navy, Air Force, Marine Corps, and Coast Guard, including reserve components thereof, who perform active service.

(3) Such amounts as the President certifies to the Congress are necessary to carry out vital national security priorities.

(4) Amounts necessary to carry out the authority of the Commissioner of Social Security to pay monthly old-age, survivors', and disability insurance benefits under title II of the Social Security Act.

(5) Amounts necessary to make payments under the Medicare program under title XVIII of the Social Security Act.

Passing this bill has several positive outcomes for the nation's economy as it ensures the threat of default will no longer exist. It also removes uncertainty and reassures creditors that the nation will meet its obligations, no matter what political posturing goes on.

When the House passes it, it goes to the Senate, forcing them to be accountable for the consequences of their actions. The Senate has failed to approve a budget of their own and unanimously defeated the budget submitted by the President.

Since they don't want to do their job of budgeting, force them to take a position on prioritizing. They'll either

* table it, sending a message to all Americans that they'd rather try to scare you and use the credit of the nation as a political ploy for their own means;

* defeat it, sending the same message while also saying they WANT to default if it accomplishes their personal political goals;

* or pass it, because it's necessary for their future re-election efforts.

If they pass it, it forces the same position on Pres. Obama.

If Obama really doesn't want to default or not get granny her Social Security check, he'll sign it. The President said:

This is no way to run the greatest country on Earth. It’s a dangerous game that we’ve never played before, and we can’t afford to play it now. Not when the jobs and livelihoods of so many families are at stake. We can’t allow the American people to become collateral damage to Washington’s political warfare.

If he really means that, he'll support the Prioritize Spending Act.

But my guess is that he'd veto it. And then he'd prove to the entire world that he really doesn't care about the nation - only about getting his way so he can spend even more money that he doesn't have.

A veto and a subsequent decision on behalf of the President to not make the debt payments would be devastating to the nation and its citizens. And make no mistake - if the nation defaults, it will be because Pres. Obama made the conscious decision to do so, despite his ability to avoid default.

Either way - veto or passage - it's a win-win scenario for Republicans.

So what are they waiting for?

No comments:

Google Analytics Alternative