Sunday, July 24, 2011

Nine days before a possible collision with a debt ceiling

Fox News (I,II) presents a sensible update about the new developments 9 days before a conceivable conflict between the U.S. government and the U.S. debt ceiling.

While there exists no clear glimpse of an agreement between the different groups of lawmakers and politicians at this moment, Obama et al. want to decide about a dozen of future trillions of dollars in 9 days, convince hundreds of lawmakers in two chambers to approve this currently non-existent bill about the debt ceiling as well as details about the future limits on budget imbalances, sign it, and bring it to force. After all, he likes to say
Yes, we can.
But John Boehner, the House Speaker, says it's not physically possible. Well, this is a physics blog so I surely think that Obama should sometimes replace his likable slogan by the less catchy but not less important observation:
Yes, we should always ask whether something is physically possible.
One of the details that separates the Democrats and the Republicans is that the Democrats want to approve the law - well, a law that doesn't exist now - in nine days so that it would instantly tell you all the answers about trillions of dollars at least until 2013. The Republicans defend a two-step approach - in the very limited period of time, they would approve a smaller package and they would have to return to this business in 6 months or a year again.

Obviously, I am closer to the Republican viewpoint. Politicians showing the taxpayers that 3 trillion dollars are just a detail that may be stamped within 9 days - while many of these taxpayers have to deal with their 100-dollar IRS correspondence for months - is just a symptom of a lack of wisdom and humility.

Needless to say, the current hassles could have been predicted - or should have been predicted. If I use the most general argument, Obama must have known that his de facto socialist revolution - including his universal healthcare - would lead to a massive reaction. So unless he would abolish democracy, like many other big-government leaders from the history textbooks, the free elections following his inauguration were guaranteed to demonstrate the validity of the third Newton's law - about the action and the reaction.

We call this reaction the Tea Party which was a creative name but everything else had to be clear from the very beginning.

For this reason, Obama must have known that it wouldn't be just a formality to raise the debt ceiling. Nevertheless, he proposed a budget that completely ignored the debt ceiling - and he's surely responsible for the complications that resulted from such a budget. After all, a debt ceiling is a law which has a certain purpose - to regulate the overall debt of the U.S. government - and someone's assuming that it is a formality is just a sign of arrogance, a proof that the politician has no real respect for the laws of his country.

Indeed, in the past, the debt ceiling has been a formality and it's been raised dozens of times. However, you shouldn't extrapolate such a "tradition". The Tea Party that became powerful after the 2010 elections realizes very well that the debt ceiling is one of a small number of efficient weapons - one of the last efficient weapons - that may stop the uncontrollable expansion of the big government in the U.S. So a sensible and realistic politician just can't expect and shouldn't expect that they will hand this weapon in for free. It would be very unwise and suicidal for the Tea Party lawmakers to do so.

The idea that the U.S. government will suddenly be forced to slash 40 percent of its expenses from August 2011 on sounds radical, indeed. But many of the Tea Party lawmakers surely prefer this shock therapy over the ever more unstoppable, exponential expansion of the government. And despite the widespread propaganda, the decision not to raise the debt ceiling does not imply a default. Of course that the U.S. government will have enough money to pay the due interest etc. Those payments should be a top priority. They will have to slash other things and if they're at least a little bit responsible, they're already preparing clear plans what they will pay and what they won't pay.

Shockingly enough, around 9:30, Tim Geithner made it pretty clear that he is not responsible in this respect at all and he's proud to be irresponsible.

There's a lot of genuine disagreement in these political debates - where nothing less than trillions of dollars is at stake. Many people want to promote their political opinions to moral values. Larry Summers thinks that it would be immoral for an adult person not to raise the debt ceiling. Well, there also exist legitimate politicians who think it's immoral to systematically run 2-trillion-dollar deficits caused by insane plans to build a communist utopia on the U.S. territory in which the socialist healthcare could have been just one of the first steps.

One may talk about morality but in democracy, people may still prefer different moral values and different priorities and the Parliament is meant to reconcile these different attitudes held by different people. For the Democrats, to deny that the House - an important part of the U.S. government - is controlled by people who fundamentally disagree with them is both a denial of democracy as well as a denial of reality.

It's obvious that if no agreement is reached about the change of the law about the debt ceiling, there won't be any change of the law. It's that simple.

Also, it's totally obvious that despite the proclamations of most politicians that they ultimately want to raise the debt ceiling under some "acceptable" conditions, it is the Democrats who find it more important for the debt ceiling to be raised. Just get used to it. That's exactly the reason why the debt ceiling is a Republicans' weapon and there is nothing illegitimate about it. The Republicans may want to raise it but they won't pay any price for it. So the Democrats have to decide whether they want to adopt the conditions outlined by the Republicans - which may sound extreme to a typical Democrat - or whether they want to abruptly shrink the government by 40 percent from August 2011.

This is a simple dilemma they should try to answer. None of the answers will lead to an immediate "end of the world". Both possibilities may just cause some complications for the Democratic Party - which may be an advantage for the United States of America, at least in one case. If the Democrats try to fool themselves into thinking that the Republicans are just redressed Democrats who ultimately want the government to super-exponentially expand, and they're just trying to give the open Democrats a hard time, then these open Democrats will be inevitably led to unwise decisions. The Republican House won't raise the debt ceiling regardless of the costs.

Once it has been realized that the debt ceiling is de facto an important tool that the House should use to regulate the government, the Tea Party won't give it up. Of course, everyone knows that the growing debt is unsustainable but no party really cares about this issue too emotionally. What divides the parties are the algorithms to reduce the gap: the Republicans want to reduce the spending while the Democrats want to increase the taxes, especially those for the "rich".

From my European perspective, I can totally imagine that it would be legitimate to say that the deficits are so large that an increase of taxes should naturally be a part of the solution. However, I also realize that higher taxes reduce the employment rate and the GDP growth and they're just un-American in character. While the level of taxation in the U.S. is not terribly high these days, it's no longer low and to approve an increase of taxes means to codify a possibly dangerous precedent, too.

The Democrats should stop playing the silly game according to which the Republicans are "morally obliged" to agree with any proposal of the Democrats at the very end. They're not "morally obliged" to agree with any proposal. A collision with the debt ceiling is not a cataclysm - and a lowered rating is not a cataclysm, either. The real question for the Democrats is whether they want to adopt something like the "Cut, Cap, and Balance". The name is the closest one to "Cap and Trade" that the Republican House has a chance of approving so it should make the superficial Democrats happy. ;-)

If the rating is lowered because of the failure to raise - or because of the wise decision not to raise - the debt ceiling, well, such an event would occur earlier than it could have occurred if people wanted to co-operate with Obama. The Tea Party would surely be responsible for the "acceleration" of the rating downgrade. However, with Obama-like policies in place, a downgrade of the rating is or would be inevitable for the U.S., anyway. This kind of management of the government is simply unsustainable and a responsible rating agency can't ignore it.

Not everything can be predicted and the rating agencies have failed to predict the problems behind various assets that led to the recent recession. But despite those failures, they must still try to do as good a job as possible, and not predicting that the U.S. may easily run into serious fiscal problems assuming that the trends set by Obama will continue would simply be a significant error of their evaluation of the economy. For all those reasons, I find it painful when Obama is trying to control the decisions of the rating agencies. It's the whole point of the rating agencies that they are not controlled by the institutions for which they publish the ratings. By his anger and interference, Obama is compromising the impartiality of private institutions whose importance is based on this impartiality. And that's not nice, Barack.

It's still conceivable that there is some secret solution that a significant part of the lawmakers had already agreed upon - a solution that will be activated a few days or a few hours before the expected collision with the debt ceiling. But I am not sure about this conspiracy theory. I find it plausible that the fundamental disagreements may continue or escalate for 9 more days.

Barack Obama is responsible for the day-to-day management of the public affairs in the United States of America while the Congress has the task to define the laws that should constrain the life in America for years. So a failure in a looming 9-day crisis would clearly be a responsibility of the president. He must simply try to do whatever he thinks is the best for America, according to his distorted left-wing opinions, given the existing conditions - and the Tea Party dominating the House is a part of the conditions. Obama has apparently failed to notice that the Tea Party is present in the House - at least for a year - but it's OK.

He should have admitted that he hasn't been watching the U.S. politics too closely but now, assuming that he has already seen the light, he should try to improve his score. But the denial of the composition of the House - and the reduced will of the House to help Obama to build a big government - can't be a part of the solution. Obama could dream about the Congress controlled by big-government Democrats but believe me or not, this dream differs from the reality.


  1. 1) Which part of government is responsible for originating financial legistation?
    2) How long have we known that this problem was going to come up?
    3) Have you looked at a graph of US debt vs. administration?

    The answers:
    1) The house of representatives.
    2) At least 6 months
    3) A graph will show that our deficit has risen more during republican administrations than during democratic ones.

    Given the answers above, I cannot understand why our President is getting all of the attention for this issue.
    Our deficit has grown under both republican and democratic administrations. It will take both parties to reduce it

  2. Don't be silly, Jim.

    1) As every person who has an idea about the difference between executive and legislative branches of the government knows and as the first sentence of every encyclopedia about the U.S. budget clearly explains, the U.S. budget is invented and proposed by the U.S. president.

    Indeed, things like the debt ceiling define the limits within which the White House is allowed to move, and these limits are defined by the lawmakers.

    2) It depends what certainty you want to have. I was convinced that the U.S. has been on an unsustainable path at least since 2003 - when I saw that the country didn't want to return to business-as-usual outside recession although the recession had been clearly over. I was sure that much big problems would come as soon as Obama was elected and every half-a-year that followed just confirmed my expectations.

    3) Yes, I have looked at it. It may have been a tie in the past but this tie has been vastly broken during Obama. Bush Jr wasn't too fiscally responsible but Obama is a Bush on steroids in this respect and there's absolutely no comparison that would have to be made. So Obama has changed the near-tie of the past to a huge "victory" for the Democrats.

    These days, it takes two parties to reduce the gap but their roles are not symmetric: the Democrat Party mostly creates it and the Republican Party mostly tries to stop the insane spending. You're insane if you don't see it. This goes to pretty much every political dispute in recent years - insane stimuli, socialist healthcare that America can't afford, and so on and so on. The Democrats would always be the side that would mostly support these pernicious policies while the Republicans would be trying to stop it. So don't try to impose an equality where none exists.

  3. Somtimes I wonder if Obama isn't systematically pushing the enveloppe precisely in order to get rid of thoses old and cumbersome rules which make it impossible for him to just do what he wants and in the most expeditive of ways.
    Indeed, the repeated attacks against the constitution, the disdain shown for the respect of rules (in particular towards Congress) and now this totally undemocratic idea of a "super Congress" to supersede the elected representatives and bypass completely the people's votes seem to indicate a purposeful and determined agenda in these matters. Rather unsettling and foreboding.