On April 19 I called here for an abolition of the debt ceiling, http://econospeak.blogspot.com/2011/04/abolish-debt-ceiling.html , a call noted on May 23 on a NY Times blog, with my arguments since repeated by former Reagan-Bush Treasury official, Bruce Bartelett (although without citing me), http://www.stlbeacon.org/voices/in-the-news/11523-what-happens-if-we-dont-raise-the-debt-ceiling . The furor has been intensified by major public discussions of the possible unconstitutionality of the debt ceiling based on part d of the 14th Amendment, with even such heavies as Harvard Law Professor Laurence Tribe weighing in that it is unconstitutional. On Wednesday, President Obama was asked about this, but declined to comment. Yesterday, George Madison, Chief Counsel of the Treasury Department wrote to the NY Times saying that it is a legal limit, but that Congress must raise it. However, some are noting that the constitutionality issue has not been directly addressed and that Obama and Geither may be leaving the door open just a crack for a declaration of its unconstitutionaity if it comes down to it, but avoiding doing so now out of fear of weakening the negotiations with Congress, http://m.gawker.com581953/obama-nixes-the-lets-just-call-the-debt-ceiling-unconstitutional .
Well, the rumors of what they are willing to give (cuts in social security?), along with the prospect that this game will be played again in the future (talk about moral hazard), suggests to me that the administration had better be prepared to play the game fully now. Indeed, the debt ceiling has been ignored since its imposition in 1917 precisely because it has always been nearly routinely raised (including ten times since 2001, most recently in Feb. 2010). It is completely incoherent to have budgets passed mandating spending and taxes that breach the debt ceiling and then demand that it be enforced by somebody other than Congress that did the mandating. The administraion should prepare to declare the debt ceiling unconstitutional and do so in order to save the world economy, not to mention Obama's own reelection.
so what does it (all) mean if the ceiling is passed in exchange for cuts, and the constitutionality of the ceiling is never addressed? would team obama have revealed a preference for tight belts, or not?
ReplyDeleteActually it would be better just to declare it unconstitutional and blow it off. There are two reasons, although related. The first is the obvious one: the economy is slowing and the last thing we need now in the short run is some serious fiscal anti-stimulus of a major deficit reduction. We are already seeing that at the state and local levels, with layoffs in that sector being the leading current source of downward drag on the economy. Having the federal level add to it will just make it worse (and part of the problem at the local level has been the removal of the federal level stimulus, much of which involved financial support of the state and local governments).
ReplyDeleteThe other is that it will just be a temporary fix, and if the GOP learns it can get away with making outrageous demands by threatening not to raise the ceiling, something done at a basically once a year rate during the past decade, we will simply see more of this nonsense. The ceiling needs to blown away, frankly, abolished as I called for on April 19 here.
The Administration can safely ignore the debt limit law or call on the FED to shred some of its pixie dust assets. The real problem is the 2012 budget. The president is now and has for the last several weeks been using the debt limit law to push the Republican party as far to the right as can be done. The Republicans are actually in a very bad position here. They have to break their oaths to the teahadists or accept responsibility for a depression. This is s because Obama has put everything on the table and the Repugnicons have offered NOTHING. The leaders of the party are not as nutty as they would have their constituents believe. And they are going to have to "give it up" and try an impeachment attempt when Obama tells the Treasury Secretary to ignore the current debt limit law. IMHO Obama is hoping that the congress will not pass a debt limit increase. He is on record as saying he will not accept a "kick the can down the road" increase. He will not accept an increase designed to allow more hostage taking prior to the 2012 elections. It may be that he will veto any new debt limit law as he should. I don't think the Republicans want him to have that opportunity. They would rather see him deal with the current limit.
ReplyDeleteRaising the debt limit for the Federal Government shouldn't be a problem for America if this nation finances its own debt by printint its own money. That is what appears to be occuring.
ReplyDeleteOn the other hand, worldwide faith in the US dollar is diminishing at a steady pace. And this, in a nation dominated by 'consumption' (and big military) rather than 'production' is understandable.
A new global currency reserve unit could be created and Americans (like Australians) can be put to work again producing things directly for themselves. Albeit this requires brand new sustainable energy infrastructure.
In the financial sector, the 'red queen's race' needs to be urgently dealt with:
"This is a “Red Queen’s race”: the system is running to stand still with governments racing to make finance safer and bankers creating more risk. ...The combination of state insurance (which protects creditors) with limited liability (which protects shareholders) creates a financial doomsday machine. What happens is best thought of as “rational carelessness”. Its most dangerous effect comes via the extremes of the credit cycle. Most perilous of all is the compulsion upon the authorities to blow another set of credit bubbles, to forestall the devastating impact of the implosion of the last ones. In the end, what happens to finance is not what matters most but what finance does to the wider economy.
….A large part of the activity of the financial sector seems to be a machine to transfer income and wealth from outsiders to insiders, while increasing the fragility of the economy as a whole."
The challenge of halting the financial doomsday machine
By Martin Wolf. Published: April 20 2010 19:42 | Last updated: April 20 2010 19:42
http://www.ft.com/cms/s/0/f2e4dbb0-4caa-11df-9977-00144feab49a.html
An obvious possible alternative would be the IMF's SDR, although it is only currently used by the Lybians.
ReplyDeleteSince QE2 there appear to have been a run up in global commodity prices. Is the US Government monitoring the flow of funds into these markets and their sources?
ReplyDeletePrinting money in an unregulated 'economy' can be a very dangerous thing to do. More careless drilling for oil in large fisheries, more fracking and destruction of fresh ground water, more derivatives, more woodchipping of native forest? More aerial spraying?