PDA

View Full Version : Economics The next debt ceiling debate will derail the economy.


Direckshun
05-29-2012, 03:29 PM
If only there were some way to avoid this trainwreck.

We all know better, though. Don't we.

http://www.bloomberg.com/news/2012-05-28/debt-ceiling-deja-vu-could-sink-economy.html

Debt-Ceiling Deja Vu Could Sink Economy
By Betsey Stevenson and Justin Wolfers
May 28, 2012 6:00 PM CT

Europe is crumbling. China is slowing. The Federal Reserve is dithering. Yet the biggest threat to the emerging U.S. economic recovery may be Congress.

John Boehner, the leader of the House Republicans, has promised yet another fight with the White House over the debt ceiling -- the limit Congress has placed on the amount the federal government can borrow.

If this sounds familiar, it’s because we suffered through an identical performance last summer. Our analysis of that episode leads to a troubling conclusion: It almost derailed the recovery, and this time could be a lot worse.

Sometime around the end of this year, the federal government will bump up against its $16.4 trillion borrowing limit, as a direct result of spending and tax laws enacted by Congress. To raise the limit, legislators must pass a separate law. In principle, the extra level of approval can serve as a useful mechanism, forcing Congress to debate its priorities. But refusing to raise the limit wouldn’t free the government of its existing spending obligations. Rather, it would leave the government with no choice but to default on its debts.

In other words, congressional Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling. Politically advantageous as this may be, it is terrible economics. To understand why, let us consider the economic effects of last year’s debt-ceiling debate. If we know our history, perhaps we will not be doomed to repeat it.

Confidence Drop

High-frequency data on consumer confidence from the research company Gallup, based on surveys of 500 Americans daily, provide a good picture of the debt-ceiling debate’s impact (see chart). Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July. Over the entire episode, confidence declined more than it did following the collapse of Lehman Brothers Holdings Inc. in 2008. After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later. (Disclosure: We have a consulting relationship with Gallup.)

Businesses were also hurt by uncertainty, which rose to record levels as measured by the number of newspaper articles mentioning the subject. This proved far more damaging than the regulatory uncertainty on which Republican criticisms of Barack Obama’s administration have focused (more on that subject in a Bloomberg View editorial today). Employers held back on hiring, sapping momentum from a recovery that remains far too fragile.

Growth in nonfarm payrolls decelerated to an average 88,000 a month during the three months of the debt-ceiling impasse, compared with an average of 176,000 in the first five months of 2011 (see chart). Payroll growth subsequently recovered and has averaged 187,000 jobs a month since. Despite the rebound in job growth, employment is likely still below where it would otherwise have been.

There are also more visible permanent scars. The sense that the U.S. political system could no longer credibly commit to paying its debts led the credit-rating company Standard & Poor’s to remove the U.S. government from its list of risk-free borrowers with gold-standard AAA ratings. Just as a poor credit score raises the interest rate you pay in the long run, so a worse credit rating will probably raise the interest rate on our national debt.

Economic Sabotage

All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage. The only way to avoid this conclusion is to argue that consumers and employers were reacting to some other economic factors. But the debt ceiling was the dominant economic story at the time. No other news fits the data as well. Although the European debt crisis was a rising concern throughout 2011, the real trouble in Europe arose in the period when consumer confidence and employment were recovering.

The next debt-ceiling battle could be worse, because the stakes are even higher. In addition to the threat of default, the U.S. is facing the so-called fiscal cliff: a raft of spending cuts and tax increases that will happen at the end of this year unless Congress acts to postpone them. Another stalemate would almost certainly plunge the economy into a deep recession. Our best alternative -- in fact, our only hope -- is for Congress to set aside partisan politics and work together with a common goal of helping our country out of the Great Recession.

Direckshun
05-29-2012, 03:30 PM
Oof.

http://www.bloomberg.com/image/ifa79pUOOXUo.jpg

http://www.bloomberg.com/image/iaS7KbKvhphw.jpg

HonestChieffan
05-29-2012, 03:36 PM
I expect another downgrade. The mess is still there, no effort to fix it, Harry still won't do a budget vote. We deserve a downgrade.


But it won't be the end of the world. May be the end of Obama. And that would trigger an reevaluation and a likely upgrade.

Saul Good
05-29-2012, 04:07 PM
Oof.

http://www.bloomberg.com/image/ifa79pUOOXUo.jpg

http://www.bloomberg.com/image/iaS7KbKvhphw.jpg

I lie how your charts assign the debt ceiling debate as the culprit. Very honest assessment.

chiefqueen
05-29-2012, 04:37 PM
I lie how your charts assign the debt ceiling debate as the culprit. Very honest assessment.

But the April 2012 job growth is only slight better than last summer. It will be interesting to see what the May numbers are when they come out this week.

Radar Chief
05-29-2012, 05:28 PM
I lie how your charts assign the debt ceiling debate as the culprit. Very honest assessment.

Tip of the iceberg.
By October jAZ will be getting limited to no more than five, "vote for Obama or WE'RE ALL DOOMED" topics per day.

vailpass
05-29-2012, 05:36 PM
Yep, a debate over the debt ceiling is surely the problem.
That, and the fact that our currency standard is Iscariot silver.

HonestChieffan
05-29-2012, 07:21 PM
If we didn't over spend this issue would go away.......

Direckshun
05-29-2012, 07:54 PM
I lie how your charts assign the debt ceiling debate as the culprit. Very honest assessment.

Well, it's Bloomberg's, but whatever. The correlation's definitely there.

Aries Walker
05-29-2012, 08:16 PM
I have zero faith in politicians of either side to resolve the debt ceiling issue the next time it comes up. Both sides are so busy trying to seem electable and right that they'll never get anything done unless there's a big change in the way they do it.

My proposal: Lock Obama and Boehner in a room by themselves; don't let in Harry Reid or Eric Cantor or any of the other gadflies. Give them a pizza and some drinks and yellow legal pads with sources in and expenditures out, and don't let them out of the room until the two categories even up, just like we all do with our home budgets every month.

And then if either side tries to renege on any of the increases and cuts they made, impeach them.

Saul Good
05-29-2012, 08:23 PM
Well, it's Bloomberg's, but whatever. The correlation's definitely there.

There's also a correlation between calling mayday and plane crashes.

Direckshun
05-29-2012, 09:17 PM
There's also a correlation between calling mayday and plane crashes.

So you're claiming that the debt ceiling standoffs are not disasterous, economically.

HonestChieffan
05-29-2012, 09:20 PM
So you're claiming that the debt ceiling standoffs are not disasterous, economically.

If disasters are bad we should avoid them not run wildly into them. Cut spending to be in line with the debt ceiling. The disaster is the spending itself.

Ace Gunner
05-30-2012, 07:16 AM
If disasters are bad we should avoid them not run wildly into them. Cut spending to be in line with the debt ceiling. The disaster is the spending itself.

no, that's only half of the equation for failure. the other half is income.

HonestChieffan
05-30-2012, 07:33 AM
no, that's only half of the equation for failure. the other half is income.

And you can only control one...

Saul Good
05-30-2012, 07:39 AM
So you're claiming that the debt ceiling standoffs are not disasterous, economically.

I don't think the standoffs are the problem, no. Do they tend to spook people who are worried that they might end up holding the bag when we finally stop kicking this down the road? Sure. The standoffs are symptoms, though. They are not the problem.

Amnorix
05-30-2012, 07:48 AM
If disasters are bad we should avoid them not run wildly into them. Cut spending to be in line with the debt ceiling. The disaster is the spending itself.


Europe is starting to wonder if austerity isn't causing more problems than it's fixing. Since it doesn't seem to be fixing much of anything, that isn't hard to understand.

I'm a deficit hawk, but now really isn't the time to put in dramatic changes to fix the deficit and cripple the economy.

I wonder if you or any other Republicans will continue to talk deficit, or just go back to the way things were under Bush regarding the deficit (nothing to see here, move along, move along), even though the economy was fairly strong at times.

Amnorix
05-30-2012, 07:50 AM
If disasters are bad we should avoid them not run wildly into them. Cut spending to be in line with the debt ceiling. The disaster is the spending itself.


One more point -- cut spending by over a trillion dollars per year, NOW. That's your advice?

HonestChieffan
05-30-2012, 07:52 AM
One more point -- cut spending by over a trillion dollars per year, NOW. That's your advice?


Did I say any such thing

Chiefshrink
05-30-2012, 08:10 AM
The sad part is that as HCF has alluded to we should be able to control 'both'. Spending and allowing our economy to flourish (lower taxes and less regs).

But I assure one party will make damn sure this will be political first and the water pipes of spending 'stay broken' as our house 'still' continues to flood in debt while they continue to 'handcuff' the plumbers(We The People/The Private Sector) who can actually fix these pipes.

Direckshun
05-30-2012, 08:31 AM
I don't think the standoffs are the problem, no. Do they tend to spook people who are worried that they might end up holding the bag when we finally stop kicking this down the road? Sure.

Well seeing how one of the charts was of consumer confidence...

Ace Gunner
05-30-2012, 09:03 AM
And you can only control one...

you are living in the past.

HonestChieffan
05-30-2012, 09:09 AM
you are living in the past.


and in the present and in the future, you will still only have control over one...spending.

FD
05-30-2012, 09:11 AM
If disasters are bad we should avoid them not run wildly into them. Cut spending to be in line with the debt ceiling. The disaster is the spending itself.

A trillion dollar spending cut done overnight would cause a massive, crippling depression. You've got it completely backwards. Our real spending problem is with the entitlement programs and is a medium and long term problem.

Ace Gunner
05-30-2012, 09:13 AM
and in the present and in the future, you will still only have control over one...spending.

you are very naive. and wrong on this.

HonestChieffan
05-30-2012, 09:16 AM
A trillion dollar spending cut done overnight would cause a massive, crippling depression. You've got it completely backwards. Our real spending problem is with the entitlement programs and is a medium and long term problem.


Keep buying that. Its a one way ticket to nowhere.

Ace Gunner
05-30-2012, 09:16 AM
A trillion dollar spending cut done overnight would cause a massive, crippling depression. You've got it completely backwards. Our real spending problem is with the entitlement programs and is a medium and long term problem.

this is part of the problem. only part.

FD
05-30-2012, 09:27 AM
Keep buying that. Its a one way ticket to nowhere.

What do you think would happen if a $trillion of spending went away overnight? Tens of thousands of workers and contractors would be out of work, massive amounts of goods orders would be cancelled, construction projects shut down, bases closed, SS benefits cut, hospital payments cut. I know you tend to live in a fantasy world, but there is just no way to eliminate a trillion dollars out of our economy overnight like you suggested without causing a massive recession.

The real spending problem we have is SS and Medicare. Those benefits will need to be severely curtailed, and we cant wait 20 years in order to protect current beneficiaries. They need to feel the pain too.

But the fantasy that we can or should end the deficit overnight is just ridiculous and makes you look like an idiot who doesn't know what he is saying. It would do nothing but cause massive unemployment and hardship at a time when our economy needs to recover.

Saul Good
05-30-2012, 09:29 AM
Well seeing how one of the charts was of consumer confidence...

Yep. People don't tend to focus on the problem when it isn't right in front of their faces. I suppose you're more of an "ignorance is bliss, so let's keep everyone ignorant" guy.

Direckshun
05-30-2012, 09:34 AM
Yep. People don't tend to focus on the problem when it isn't right in front of their faces. I suppose you're more of an "ignorance is bliss, so let's keep everyone ignorant" guy.

I'm more of an "it's important not to tank consumer confidence to avoid a severe economic backlash" guy.

HonestChieffan
05-30-2012, 09:39 AM
I'm more of an "it's important not to tank consumer confidence to avoid a severe economic backlash" guy.


Consumer confidence took a "surprise" tumble in May, as home prices hit 10-year lows. Tell us again why economists keep calling bad economic news about Obama's so-called recovery "unexpected"?.....link:http://news.investors.com/article/612950/201205291845/consumer-confidence-flatlines-under-obama.htm

Amnorix
05-30-2012, 09:42 AM
One more point -- cut spending by over a trillion dollars per year, NOW. That's your advice?

Did I say any such thing


Yes, actually, you did, though you may not have understood that that was what you were saying...


Cut spending to be in line with the debt ceiling.

If you cut spending to stay within the debt ceiling, then you need to cut spending by over a trillion per year. NOW.

Want to change that comment. Or explain that that's not what you really meant. What you REALLY meant was XYZ...

HonestChieffan
05-30-2012, 09:49 AM
The spending should have had controls far before now. Be realistic and stop taking every possible scenario to its extreme. The debt ceiling when it was raised should have had with it program cuts and spending cuts that would have at least attempted to hold spending below the line. Nothing of the sort was done and all attempts to do so are sitting in the Senate Leaders office and will never be passed or voted on.

Of course at this point we cannot slam on the brakes and make a 180. But the effort and plan has to be there or this will never be fixed.

That however is exactly what the Dems hope to have happen with the Republicans wanting to have fiscal sanity and the Obots wanting uncontrolled spending so they can try to sell the ignorant masses that the right is anti people. If there is a crisis, it will be a crisis created by the White House in time with election efforts.

tredadda
05-30-2012, 05:05 PM
When is enough enough? I mean how many times are we going to have the same debt ceiling debate? If we need to continue to raise the debt ceiling without actually doing anything to curb spending, why not just eliminate the debt ceiling all together and continue to spend like the money it grew on trees. At least if we did that we would not have to deal with this issue every couple of years and scare the public as spending less does not appear to be a priority for either side, except when they are pandering to the masses.

Chocolate Hog
05-30-2012, 05:39 PM
There used to be a time for Democrats when raising the debt ceiling = lack of leadership.

Saul Good
05-30-2012, 07:35 PM
I'm more of an "it's important not to tank consumer confidence to avoid a severe economic backlash" guy.

What should we be confident about?

HonestChieffan
05-30-2012, 08:51 PM
What should we be confident about?

Come November Obama may gone

Chiefshrink
05-31-2012, 08:08 AM
A trillion dollar spending cut done overnight would cause a massive, crippling depression. You've got it completely backwards. Our real spending problem is with the entitlement programs and is a medium and long term problem.

No it wouldn't. Cripple who? The parasites? I'm all for that:thumb:

Direckshun
05-31-2012, 09:04 AM
What should we be confident about?

As always, you reduce everything to black-and-white.

Confidence is not a binary state. It's not "you're either confident or you're not confident."

Confidence registers anywhere on a spectrum. Higher points on the spectrum are better for the economy than lower points.

And guess what another debt ceiling will reportedly do.

donkhater
05-31-2012, 10:21 AM
IMO the debate on the debt ceiling is the only leverage by which either side can get other engaged in any sort of solution that can be acted on.

Yes, our representatives should act like grownups and be responsible, but what was given anyone any indication that they will? It's unfortunate, but at least there is a mechanism like this to force some tough decisions to be addressed.

donkhater
05-31-2012, 10:23 AM
I'll say it again. If the debt ceiling is so important, why wouldn't we do everything in our power to stay under it? If it doesn't matter, why is there one? Why not increase it to $100 billion gazillion for all these 'debates' accomplish?

go bowe
06-02-2012, 10:07 AM
I don't think the standoffs are the problem, no. Do they tend to spook people who are worried that they might end up holding the bag when we finally stop kicking this down the road? Sure. The standoffs are symptoms, though. They are not the problem.

ahhh, yes...

symptoms..

symptoms can kill you too...

go bowe
06-02-2012, 10:10 AM
and in the present and in the future, you will still only have control over one...spending.

ummm, what about taxes being controlled by congress?

surely they can agree on spending cuts AND tax revenues, can't they? :rolleyes:

oh wait, the pubs in the house and harry reid make that pretty much impossible don't they?

go bowe
06-02-2012, 10:19 AM
The spending should have had controls far before now. Be realistic and stop taking every possible scenario to its extreme. The debt ceiling when it was raised should have had with it program cuts and spending cuts that would have at least attempted to hold spending below the line. Nothing of the sort was done and all attempts to do so are sitting in the Senate Leaders office and will never be passed or voted on.

Of course at this point we cannot slam on the brakes and make a 180. But the effort and plan has to be there or this will never be fixed.

That however is exactly what the Dems hope to have happen with the Republicans wanting to have fiscal sanity and the Obots wanting uncontrolled spending so they can try to sell the ignorant masses that the right is anti people. If there is a crisis, it will be a crisis created by the White House in time with election efforts. the left consists of ignorant masses?

interesting idea...

i believe you believe the things you say, but sometimes it's hard to believe what you say...

RedNeckRaider
06-02-2012, 02:29 PM
i believe you believe the things you say, but sometimes it's hard to believe what you say...

Well said, I have used a similar line when talking with religious people I have met~

HonestChieffan
06-02-2012, 02:32 PM
ummm, what about taxes being controlled by congress?

surely they can agree on spending cuts AND tax revenues, can't they? :rolleyes:

oh wait, the pubs in the house and harry reid make that pretty much impossible don't they?


They can establish a tax rate but they cannot control revenues.

go bowe
06-02-2012, 02:36 PM
They can establish a tax rate but they cannot control revenues.

sure they can, just adopt an expansionist government policy and as jobs come back, revenue goes up...

or follow republican policy positions and as jobs come back revenue will increase...

or increase the rates and revenue will increase, but not nearly as much...

HonestChieffan
06-02-2012, 02:40 PM
expansionist government policy

What is that

go bowe
06-03-2012, 12:10 PM
expansionist government policy

What is that

efforts to expand the economy by deficit spending and things like the payroll tax holiday putting spending power in the hands of ordinary consumers...

i'm not referring to expansion of the government which is big enough already...

btw, i read an interesting article the other day about how obama has actually reduced the size of the federal work force substantially...

HonestChieffan
06-04-2012, 06:04 AM
efforts to expand the economy by deficit spending and things like the payroll tax holiday putting spending power in the hands of ordinary consumers...

i'm not referring to expansion of the government which is big enough already...

btw, i read an interesting article the other day about how obama has actually reduced the size of the federal work force substantially...


I read an interesting article about Bigfoot and Bigfoot habitat differences in Florida vs. West Virginia