The Battle over Raising the Debt Ceiling – What might be going on? |

The Battle over Raising the Debt Ceiling – What might be going on?

By Mitch Gurney

July 28, 2011

Is the crisis atmosphere over rising of the debt ceiling providing an opportunity for political and perhaps corporate strategist to attempt achieving some alternative objective?

It’s no secret that many Republicans have wanted to kill Social Security and Medicare since their inception and while ending them in one grand move seems rather remote attempting to gradually chip away at them however seems more likely. I suggested in Endless Wars and Debts and taxes to pay for them that conservatives hate these programs because they believe they create freeloaders plus believe people should fend for themselves:

Many of today’s staunch conservatives, regardless of their own personal financial status …have the mindset that everything can be earned but nothing is owed and anything can be achieved but nothing should be given. This mindset often materializes through their tax policies…and…allows most conservatives to oppose welfare and government funds for the needy fearing this encourages freeloaders but see no contradiction in supporting government funding via tax breaks, tax shelters, and subsidies for corporations and the wealthy. [Somehow the notion that these elite groups are less susceptible to becoming freeloaders escapes them] In their view this is how the free markets are supposed to function. In fulfilling this time honored principle that those who are the most successful should be rewarded the GOP’s budget plan as proposed by Senator Ryan in order to continue the tax breaks for the wealthy calls for more cuts to programs that support seniors and the needy. 

Obviously there are huge polarizing ideological differences that define this issue and today’s economic situation provides one hell of an opportunity for political and corporate strategist to strike while the iron is hot. Former Republican insider and Former Assistant Secretary of the Treasury during President Reagan’s first term, Paul Craig Roberts suggest in Are we being Had?, that such a scenario could be at hand:

…What might be going on?

One possibility is that the political theater is operating to bring about otherwise politically impossible cuts in the social safety net. If the drama continues to the absolute deadline without a deal, Obama, who perhaps favors cutting the safety net as much as do the Republicans, would have to accept the Republican package in order that the troops are not cut off from supplies, Social Security checks can continue to go out, and the dollar be saved. Having opposed the Republicans to the last minute, Obama can say that he had no other recourse.

It would be a perfectly orchestrated scenario for getting rid of the New Deal and the Great Society that use up money that could be spent on wars and bailouts and tax cuts for the rich.

While the current crisis could present an opportunity for some political strategists it may for some corporate strategists as well. I had suggested in Social Security & Medicare – ‘Earned’ Entitlements:

With corporate funded elections and lobbied sponsored legislation…opportunities…of this nature have fostered corporate-serving agendas. If, for example, there were a corporate sponsored agenda to transition Medicare from a government run program to one that is privately run by insurance companies or Social Security to Wall Street investment firms this certainly would be a hefty boon…for them if successful. This may sound farfetched to some but it’s not beyond the realm of possibility. Currently we have the Republicans via Ryan’s budget proposal attempting to change Medicare from a government run health insurance program to what would eventually become an underfunded voucher program forcing seniors to buy insurance with private companies.

That many Republicans have long been eager to kill Social Security and Medicare is substantiated by Mr Roberts’ in another recent article, The Unintended Consequences of Debt Ceiling Intransigence:

Many Republicans believe that the “New Deal” was the undoing of the Republic. I know this both because I have spent my life among Republicans and because I am a scholar.

For Republicans, or many of them, everything started going wrong with the New Deal, which created “leechdom,” expanded by President Johnson’s “Great Society” three decades later.

Republicans have been trying to rescue the Republic ever since.

It was during the Reagan years, in order to garner enough Republican support for tax cuts the administration had proposed that the idea of reducing taxes as a means of “starving the Fed of revenue and forcing the shrinkage of government” plus eventually kill unwanted social programs. Mr Roberts continues in The Unintended Consequences of Debt Ceiling Intransigence:

In the early 1980s when I, as Assistant Secretary of the US Treasury, was tasked with getting the Reagan tax rate reduction out of his administration and into law, I encountered more opposition from some Republicans than from Democrats. The Democrats could see that something had to be done about stagflation and that they had no solution, so they, or a number of influential ones, got on board. The Republicans, however, or too many of them, opposed the Reagan tax rate reduction on the grounds that it would enlarge the deficit and the national debt.

To bring a number of Republicans onboard, the Reagan administration resorted to a non-economic argument that the tax cuts would starve the government of revenues and force the desired Republican shrinkage of government. I opposed this tactic. I argued that it would confirm the claim that Republicans wanted to take the tax burden off the rich and place it on the poor by curtailing the services from government.

I pointed out that House Speaker Tip O’Neil and the Senate Democrats were prepared to pass the Reagan tax rate reduction and that there were enough House and Senate Republicans and Democrats to carry the vote. But the White House Chief-of-Staff would have none of it. He wanted a Republican “victory” over the Democrats. Thus, a necessary economic policy was misrepresented as a crusade against “big government.”

To summarize, the Reagan tax rate reductions were designed to cure stagflation, and they succeeded. However, in order to garner enough Republican support, Reaganomics was sold to congressional Republicans as a way to shrink the government by denying it revenue. This was not the purpose, and denying the government revenue has nothing whatsoever to do with supply-side economics. Our purpose was to enable the economy to grow without having to pay for the growth with a rising rate of inflation.

Sometimes an obsession to achieve a goal can blind one of rational thoughts and impair ones judgments. With today’s current debt crisis and economic ills the need for rational thought and balanced judgments could not be higher. Mr Roberts writes:

Having illustrated the folly to which Republicans can be driven by their obsession with debt and “leechdom,” let us now consider possible unintended consequences of the debt ceiling impasse. This brings us to the most important aspect of the debt ceiling “crisis” that the Republicans are ignoring.

If Republicans become obsessed with their agenda and refuse a reasonable deal, and the Democrats do not cave, the executive branch will be faced with an inability to continue its operations. This could mean, for example, that the troops in the various wars could not be supplied or paid, that air traffic controllers could not be paid, that the US government could not roll over the debt that comes due or issue the new debt that pays for 43% of federal budget expenditures. A shutdown today would be different in its reach from the Newt Gingrich government shutdown in the 1990s. Then the federal government got by with shutting down “nonessential government.” A shutdown today would require halting 43% of federal expenditures. If we were to include the wars, nonessential spending might actually total 43% of expenditures. But, of course, Republicans don’t want to include the wars with nonessential spending.

The US dollar could plummet in exchange value and lose its role as world reserve currency. The US would no longer be able to pay its oil bill in its own currency, and as its balance of payments is heavily in the red, the US has no foreign currencies with which to pay its oil import bill. Or its manufactured goods import bill, or any other bill.

We are talking about a crisis beyond anything the world has ever seen. Does anyone think that President Obama is going to just sit there while the power of the US collapses? He doesn’t have to do so. There are presidential directives and executive orders in place, put there by George W. Bush himself, that President Obama can invoke to declare a national emergency, suspend the debt ceiling limit, and continue to issue Treasury debt. This is exactly what would happen.

The consequences would be that the power of the purse would transfer from Congress to the President.

Republicans need to decide whether the advantage of delivering a blow against “leechdom” is worth such extreme risks.

Mr Roberts’ warns that the possible “power of the purse transferring from Congress to the President” should be taken seriously:

Some readers will say “this could never happen.” But Congress is already emasculating itself as a result of the Republicans’ intransigence over the debt ceiling increase. Republican Mitch McConnell and Democrat Harry Reid have come up with a proposal for a committee of Congress, called a Super Congress, that could fast-track legislation by prohibiting amendments.

In other words, the few members of the Super Congress could bypass any citizen opposition that might still be represented in the ordinary old Congress. The more likely outcomes would be an end to the mortgage interest deduction and the deductions for retirement savings. Legislation to gut the social safety net could not be amended.

A Congress that is willing to destroy its remaining power over a debt ceiling increase that is less than a Federal Reserve loan to one US bank is a Congress moved to folly by Republican intransigence.

In raising these concerns Mr Roberts brings to mind issues I wrote about in Social Security & Medicare – ‘Earned’ Entitlements. To summarize:

In most years SS collected more than it paid out but 2010 was the first time it paid out more than it collected. These “reserves” were intended to cover for such a situation. These “reserves” were “invested” in non-marketable U.S Treasury issued debt “securities.” Well, so much for securities; with no hard assets to sell and raise unencumbered cash the Treasury must now issue more debt “securities” to cover its original obligations plus cover the short fall. (See: Trustees Report, revenue table, and investment table).
A CBO report projects the shortfall will continue through to 2021 estimating a $630 billion shortfall. It the “reserve” funds had not been spent by the Fed on other ‘programs’ and if the Trust actually had the cash on hand it could draw from that $2.6 trillion reserve. Let’s do the math; $2.6 trillion is $2600 billion. If the CBO projections are proven accurate of a shortfall of $630 billion by 2021 and we deduct the $630 billion from the current reserves that leaves a balance of about $1970 billion, or $1.9 trillion.

These conditions are the result of long-term fiscal mismanagement by Congress that will burden tax payers with double taxation: when we paid our Social Security taxes initially and eventually a second time when it comes time to pay off with interest the new loans the Fed generates to pay of its old debts to the Trust Fund.

Under the current debt crisis these conditions reek of opportunity to me and share similar concerns as those expressed by Mr Roberts in his closing statement in Are we being Had?:

Whatever emerges from the debt ceiling impasse, it will not be in the interest of the American people.

Mitch Gurney

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  • William Cormier

    This “Super Congress” that is being proposed should be vehemently opposed by the American people because it will usher in authoritarian rule and hand the country over, lock, stock and barrel to the fascists that have been attempting to overthrow our government since the days of Prescott Bush. 

    It’s time to choose sides; support fascism and risk the consequences of an entire nation rising-up to overthrow those who dare to usurp our constitution –  or support democracy and once again begin a revolution to fight Taxation without Representation.  History is indeed repeating itself.

    • Mitch Gurney

      Amen Bill…I only add that the handing over, lock, stock and barrel the rule to the fascist has already occurred…we are in the twilight phase now…   

    • Kevin Schmidt

      I still don’t understand how six Senators can tell 54 more Senators how they can vote. Do they each simultaneously hold nine guns to nine different heads? Did the FBI give the 6, pictures of the 54, in a 69? Is it huge amounts of irresistible legit lobbyist money?

      I also don’t understand how they think the people are going to let their fraudulent and illegitimate government continue in power for much longer.

      Tar and Feather Futures went up another buck today.

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