Obama speaking on debt crisis.

[aerius]

Question: Default now or default later when things are further down the shitter?

That assumes a default is inevitable.

The math guarantees it. We have a budget which cuts an alleged $2.4 trillion over 10 years, most of which is on the back end, there are very few actual cuts for the first few years. Current deficit is $1.5-1.8 trillion per year, and that's not getting any better unless you believe there's a miraculous economic recovery just around the corner. The debt itself is growing much faster than the ability to service it, that guarantees a default sometime down the line unless you get a handle on it soon, which this budget does not.

By then you'll have a couple trillion of extra debt to deal with, the US may lose its AAA debt rating and have to pay higher interest rates on its debt, and barring a miracle the economy's going to be even worse than it is today. The longer you let it go the harder it becomes to fix the problem, compound interest is a bitch.

Granted, but it seems it isn't really solvable while the GOP holds the House, other than by cutting massively from various programs, which hurts a lot of people anyway.

There is no way, period, to solve the problem without large tax raises and spending cuts. As of right now the government borrows ~40% of every dollar which it spends. That is the minimum gap which must be closed to get the US back onto a sound financial footing. No one has shown any signs of recognizing that fact, or the demonstrated the balls required to make the hard choices. Problem is this year it's ~40%, by the time all elections are done it could be 50% or more, it ain't getting any smaller that's for sure. They've just given themselves a larger problem for the future.

[Mr Bean]

The Line Item Veto option is something that Congress gave to President Clinton back in the 90s, which was promptly ruled unconstitutional by the Supreme Court of the US. There is no line item veto option that the president can currently exercise.

You mis-understand what I meant. If the debt limit is hit, the President gains a de-facto line item veto of all existing government programs. Congress can't object because the Debt Limit is their invention and if a President wanted to say kill the EPA he could under a default situation simply order the Treasury to take the money that would be going to the EPA (Both funding for the department and salaries for the employees) and divert that to paying off the Debt. Without any money for it's employees or funding for it's activities the EPA would simply cease to exist. The Line Item Veto is what it's being called, not to Veto bills but to veto spending. Under a traditional scenario no President can do this, but under a default scenario when the Debt MUST be payed, the President can acting as the head of the government order the Treasury where to take the money from to meet our obligations.

Some might say that's crazy and illegal, but it used to be illegal for the President to order an American citizen killed despite no trial yet taking place. It's only crazy until a President does it and gets away with it. Then it's precedent.

[The Romulan Republic]

Legal or not, the abuse of power you describe is not how we should want our Presidents to behave.

I don't think a further expansion of Executive Power is really what we need now. And keep in mind that once the precedent is set, the other side can do the same thing.

[Mr Bean]

Legal or not, the abuse of power you describe is not how we should want our Presidents to behave.

I don't think a further expansion of Executive Power is really what we need now. And keep in mind that once the precedent is set, the other side can do the same thing.

Only if the debt ceiling is hit again. Until Obama the idea that the debt ceiling would be met and the Congress would not automatically raise it was impossible because until now. As noted by Aerius in the post above mine we are going to run right into the debt ceiling again just in time for election season meaning not only is it going to happen again but it will become a campaign issue.

[Lord Zentei]

So, Obama failed to delay the problems over to the next year. And this "Super Congress" idea sounds ridiculous. They're allowed to reccommend anything in the way of cuts, but are not allowed to recommend increasing revenue by - for instance - increasing taxes. What a joke.

[Lord Zentei]

Addendum: actually, the more I learn about this "super congress" the creepier it sounds.

So twelve hand-picked guys are going to propose a bill to Congress and they only have the power to say "yes" or "no", with no debate? Is that constitutional? Or am I over-reacting here?

Perhaps it's a good thing they can't talk about taxes after all.

[K. A. Pital]

So, Obama failed to delay the problems over to the next year. And this "Super Congress" idea sounds ridiculous. They're allowed to reccommend anything in the way of cuts, but are not allowed to recommend increasing revenue by - for instance - increasing taxes. What a joke.

I'd like to note that this was pretty much inevitable. Many economists know that there's such a thing as debt momentum - when you accumulate debt at a certain rate, it is very hard to reverse the trend. However, not many consider that this is often but a consequence of ideological momentum. Neoliberalism of the "tax cuts, no tax rises!" variety has been dominant in the world for over 20 years. Even "prudent" and "Eurosocialist" institutions such as the ECB have been advocating reckless tax cuts for years and years.

Increasing state revenue is anathema to the neoliberal dogma which ruled for decades entrenching properly everywhere from the minds of the so-called middle class to academic circles where detractors were laughed at and ridiculed for years, leaving all but a few acceptable challengers to the current ideology. Ideological momentum - the self-preservation of ideology - is very hard to challenge.

[Broken]

Addendum: actually, the more I learn about this "super congress" the creepier it sounds.

So twelve hand-picked guys are going to propose a bill to Congress and they only have the power to say "yes" or "no", with no debate? Is that constitutional? Or am I over-reacting here?

Perhaps it's a good thing they can't talk about taxes after all.

From what I understand, the "super-congress" can talk about taxes all they like. Too bad anti-tax zealot Grover Norquist is comfortable

Norquist said he has already been assured by “the right people” that House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) will not choose anyone willing to give ground on raising taxes, and he is confident enough to leave town on Wednesday for August vacation.

So yeah, looks like the "super-congress" will be able to talk taxes all night long. Too bad the Republican members appear to already be locked into a "no taxes, ever, for any reason" mindset.

[Lord Zentei]

I'd like to note that this was pretty much inevitable. Many economists know that there's such a thing as debt momentum - when you accumulate debt at a certain rate, it is very hard to reverse the trend. However, not many consider that this is often but a consequence of ideological momentum. Neoliberalism of the "tax cuts, no tax rises!" variety has been dominant in the world for over 20 years. Even "prudent" and "Eurosocialist" institutions such as the ECB have been advocating reckless tax cuts for years and years.

Increasing state revenue is anathema to the neoliberal dogma which ruled for decades entrenching properly everywhere from the minds of the so-called middle class to academic circles where detractors were laughed at and ridiculed for years, leaving all but a few acceptable challengers to the current ideology. Ideological momentum - the self-preservation of ideology - is very hard to challenge.

Increasing debt is also anathema to neo-liberal models. The model was low taxes AND low spending. Just having one of the two is just as senseless as only having demand OR supply. But like all good bureaucracies, the federal government is all about bloat - for well connected special interests, that is.

From what I understand, the "super-congress" can talk about taxes all they like. Too bad anti-tax zealot Grover Norquist is comfortable

Norquist said he has already been assured by “the right people” that House Speaker John Boehner (R-Ohio) and Senate Minority Leader Mitch McConnell (R-Ky.) will not choose anyone willing to give ground on raising taxes, and he is confident enough to leave town on Wednesday for August vacation.

So yeah, looks like the "super-congress" will be able to talk taxes all night long. Too bad the Republican members appear to already be locked into a "no taxes, ever, for any reason" mindset.

I see. Then we're talking about not only a reduction in Congressional power, but also a something that will probably turn out to be a committee useless for anything but smoke and mirrors.

[K. A. Pital]

Increasing debt is also anathema to neo-liberal models.

Neoliberals - even those who have a dictatorship to enforce their policies - rarely end up with debt decrease or even flat debt.

Foreign debt also grew substantially under Pinochet, rising 300% between 1974 and 1988.

But like all good bureaucracies, the federal government is all about bloat - for well connected special interests, that is.

All governments and private entities of a certan size (read: corporations) accumulate crap debt without "reducing spending". This phenomena is well-noted; private debt led to crises in many nations just as state debt did.

So while neoliberals talk the talk, I've yet to see them walk the walk. Even those who championed some sort of "debt reduction" usually simply transferred either private debts to state debts or transferred state debts to private organizations (reduction of state debt coinciding with the accumulation of equivalent private debt for many years during Russia's debt repayment program is one of the most recent examples I can recall).

[Lord Zentei]

Increasing debt is also anathema to neo-liberal models.

Neoliberals - even those who have a dictatorship to enforce their policies - rarely end up with debt decrease or even flat debt.

Foreign debt also grew substantially under Pinochet, rising 300% between 1974 and 1988.

The same is true of Socialist states. And what is with Pinochet being brought up?

But like all good bureaucracies, the federal government is all about bloat - for well connected special interests, that is.

All governments and private entities of a certan size (read: corporations) accumulate crap debt without "reducing spending". This phenomena is well-noted; private debt led to crises in many nations just as state debt did.

So while neoliberals talk the talk, I've yet to see them walk the walk. Even those who championed some sort of "debt reduction" usually simply transferred either private debts to state debts or transferred state debts to private organizations (reduction of state debt coinciding with the accumulation of equivalent private debt for many years during Russia's debt repayment program is one of the most recent examples I can recall).

It used to be that they were about low taxes and low spending, while the left was about high taxes and high spending. Obviously it's easy enough to just get one part of that equation right in either case.

[K. A. Pital]

The same is true of Socialist states. And what is with Pinochet being brought up?

Pinochet was one of the most violent enforcers of economic neoliberal recipes. Hence, exemplary. Why him, not other fascists? Simple. Others often relied on economic nationalism, protectionism, etc. Pinochet was neoliberal to the core.

It used to be that they were about low taxes and low spending, while the left was about high taxes and high spending. Obviously it's easy enough to just get one part of that equation right in either case.

The left, before all of its teeth fell out, was also about actually creating a new economic order. Right now the left is miserable and pathetic. Dictator-wannabees and elite collaborationists everywhere.

[Lord Zentei]

The same is true of Socialist states. And what is with Pinochet being brought up?

Pinochet was one of the most violent enforcers of economic neoliberal recipes. Hence, exemplary. Why him, not other fascists? Simple. Others often relied on economic nationalism, protectionism, etc. Pinochet was neoliberal to the core.

Yeah.... I raised my objections to Pinochet in other threads. He was more about aggressive privatization than debt control.

It used to be that they were about low taxes and low spending, while the left was about high taxes and high spending. Obviously it's easy enough to just get one part of that equation right in either case.

The left, before all of its teeth fell out, was also about actually creating a new economic order. Right now the left is miserable and pathetic. Dictator-wannabees and elite collaborationists everywhere.

Well, then examples cut both ways, I'd say.

Anyway, is there any serious economic model that doesn't deplore public debt?

[K. A. Pital]

Anyway, is there any serious economic model that doesn't deplore public debt?

Chartalism. And yes, it is serious. It has very smart folks behind it, e.g. Minsky.

[Lord Zentei]

Anyway, is there any serious economic model that doesn't deplore public debt?

Chartalism. And yes, it is serious. It has very smart folks behind it, e.g. Minsky.

Ah, yes. Not sure how mainstream it is, but fair enough.

But if you're talking about Hyman Minsky, then I'm pretty sure he did speak out against debt accumulation.

[K. A. Pital]

Anyway, is there any serious economic model that doesn't deplore public debt?

Chartalism. And yes, it is serious. It has very smart folks behind it, e.g. Minsky.

Ah, yes. Not sure how mainstream it is, but fair enough.

But if you're talking about Hyman Minsky, then I'm pretty sure he did speak out against debt accumulation.

Hyman Minsky obviously. And chartalism speaks out against debt accumulation pretty damn rare occasions... it is even more debt-forgiving than Keynesianism, neo-Keynesianism and Monetarism alltogether.

[Lord Zentei]

Yes, chartalism doesn't exactly have a good policy on that; but my post was more with regards specifically to Minsky's own position. I thought that he was anti-debt.