What We Just Avoided With the Debt Deal

This article was written by me, but originally featured on www.policymic.com.

Our leaders in Washington finally came together and did what was right for the country. Even though there will still be some political posturing about who won the debate, the fact is, they finally listened to all the reports of what would happen if a deal were not made. MyPolicyMic colleague, Jordan Wolf, has alreadylaid out what the deal means going forward. Even with our credit rating still at risk, let’s look at what we are avoiding, and whether or not the darkest days truly would have been ahead.

The cost on consumers would have been far reaching. We were warned about what would happenwith our credit rating with no deal, but even the news media around the world still recognize this as a possibility. The impact on world markets could still be felt, making interest rates on mortgages, car loans, and credit cards still rise and impact consumers’ pockets. Access to credit, which was slowly starting to open up, could once again tighten. The housing market could crash again as people qualify for less homes with rates going up, and sellers sit on homes and drop the prices even more. The markets could have crashed, making people’s investment and retirement accounts bottom out. This would have been just the beginning, but some of these could still be felt.

We already know we don’t raise enough revenue to cover our expenses, which is why we are in this position in the first place. The question was about to become, how do we use the money we do have to pay bills that are due? And let’s be clear, this was not just about paying bills, but also about having a functioning government. The Treasury Department could not pick and choose what bills they would pay. They have said they would pay them as they come with what is available. This means, if your paycheck or benefit check were further down the list, you wouldn’t get paid on time or even at all. This was an even worse proposition for the poor and minorities, as welfare and housing assistance were certainly going to take some hits.

The big issue we avoided was the grey area that would have occurred when people’s paychecks didn’t come. Would guards at federal prisons have shown up for work, would our mail have been delivered, would our military readiness have been impacted, and would judges and federal prosecutors have been available? If not, how would this have impacted security and the ability of our nation to function?

The good thing is that we don’t have to answer any of these questions, unless of course we find ourselves in this same position in 2012. Congress finally acted in the best overall interest of the country and made a deal.  Even if you think it is a flawed deal, it allows our country to move forward and deal with our issues like job creation, debt reduction, and tax reform without the threat of default looming over our heads. We avoided what would have been a dark period of uncertainty and that should be a good thing for everyone.

Devil’s Advocate

This post was originally written by Kevin Rogers of NCSJP and Action NC.  It was originally posted on www.actionnc.org.

 

It appears this morning that Congress finally found their collective sanity and averted the financial calamity they themselves created.

Truly, this is democracy at its finest.

While the political pundits analyze the political winners and losers to this debt-ceiling debacle, one thing is clear: they won, and we lost. This should not be surprising.

But more than that, I couldn’t help thinking that perhaps the Tea Party folks were onto something here – would it really have been so bad if we didn’t raise the debt ceiling? More to the point, who would a government default hurt more – the rich or the poor?

Let’s break it down:

If the government defaults, there isn’t enough money to pay all the bills – someone gets an IOU. And while I would rather get an IOU from Uncle Sam than my Uncle Al, I probably won’t be able to use an IOU to pay my rent, buy groceries, or pay for bus fare, which is exactly what many would have to do if Social Security payments weren’t made on-time. Or so the argument goes.

Just to play Devil’s Advocate for a moment, what if, instead of paying our bond creditors first, we paid domestic obligations first (like Social Security and Medicaid) and gave bondholders an IOU for the dividend? I know I’m going out on a limb here, but isn’t an a Treasury Bond essentially a government IOU anyway? Will these investors really run for the hills because they have to wait an extra week or two for their payments? Yes, China and others could reduce their long-term investment in T-bills, but where the heck else would they be guaranteed a safer investment – even with our maxed-out government credit card?

I know it is more complicated than that, and there are many possible (though I would argue improbable) long-term negative consequences of a default, including a credit downgrade (by the same folks who told us junk mortgages were AAA, so why anyone listens to them anymore is yet another baffling question) and increased costs for consumer borrowing.  But are those costs really worse than the long-term cuts to entitlement programs such as Medicaid and Social Security that are possible under this deal?

For your average low-income worker or retiree, I would argue not. These folks already pay adisproportionally high amount to access credit, when it’s even available, so it is doubtful that higher rates would really have much effect on them since, in many cases, they are already paying the highest APR allowed by law. Low income Americans are also far less likely to have significant retirement investments that would be negatively impacted by a down-turn in the stock market, and are therefore, ironically, far better protected from short-term swings in financial market conditions.

Don’t get me wrong – I’m glad Congress was able to come to an agreement that averted a default, because I think we would have paid our creditors before our citizens, and that would have been a double loss for people at the bottom of this financial food-chain. But I can’t help but wonder “what if.”

Rob Emanuel, former Chief of Staff to President Obama and current Chicago mayor, was famously quoted as saying “You never want a serious crisis to go to waste. And what I mean by that is an opportunity to do things you think you could not do before.” Indeed, what if we changed this crisis into an opportunity to actually value our most important responsibilities, rather than cheapening them, and in the process redefine what it means to honor obligations, rather than merely satisfy them.

Leave it to Congress to waste an opportunity.

Were the NFL Lockout Negotiations a Guide for Debt Ceiling Talks?

Alright, so I know the NFL lockout lasted for months and we now have a short window for a debt ceiling deal.  However, there are some lessons that can be learned.  The main lesson is to keep the focus on what is important.  The owners and players realized that the most important thing was to not miss any games.  They realized that missing any games would put them at odds with their fans who make them the billion dollar industry that they are.  They also realized that everyone cannot be happy with every aspect of a deal.  There has to be give and take from both sides.  They focused on what they could agree on as the framework of the deal and built the tougher issues around that.  This gave them a basic structure for what an agreement should look like.

It took a few months, but now they have a deal that brings peace for 10 years.  Neither side is completely happy with every aspect, but it works because each side both won and loss in the deal.  They met their main objective as well. No regular season game is going to be missed, and while there will be some backlash from fans angry about the lockout.  Football is back and it won’t take much to win fans back.

Transition that to these debt ceiling talks.  Even in the condensed time frame they have left to make a deal the premise still works.  Both sides can agree that the ceiling needs to be raised, to protect our credit rating and financial markets. That is the most important piece of these discussions and should always be at the forefront.  Even though they could just raise the ceiling without tying it to anything else, that is they choice they made so let’s run with it.  Both sides also agree that there does need to be spending cuts on some level.  We know have two things we agree on that like the NFL, should become the frame-work for any deal.

Now that the agreed upon points are the basic structure of the deal, that leaves some room to negotiate on the disagreements to work them into the deal.  What both sides have to remember here is that no one is going to be completely happy with any deal that is struck, which is why there has to be give and take from both sides.  Even with the tough points find places for agreement. Instead of going after both tax increases and closing loopholes, why not settle in the middle and agree to close tax loopholes.  Instead of severe cuts to entitlement programs, why not meet in the middle and agree to eliminate the waste that does exist in them?  Seems me those are the two big holdup in all of this.  Everything else can be left out to deal with later and now we have a deal that everyone can support (except the tea party folks who can’t see why we should raise it at all).

Like the NFL, everyone will not like every aspect of this deal, but the main objective would be solved. Our credit rating would be saved, the financial markets would not decline again, and people could get back to focusing on creating jobs ad getting our country back to work.  Also like the NFL, the fans or taxpayers in this case, will have some backlash because they won’t like every aspect.  But, they would be able to appreciate that the larger goal was met, and that there was give and take on both sides.  Just like football is back, our nation can continue to go forward.

Raise the Debt Ceiling Already!

It seems like everyday the debt ceiling negotiations get more and more out of hand.  It seems like we have a bunch of children walking the halls of Congress these days.  Neither side is innocent either.  Both republicans and democrats have drawn hard lines in the sand about what they will and will not support. Republicans do not want to increase taxes on the rich and want to just cut, cut, cut in order to agree to raise the ceiling.  Democrats want to increase taxes while protecting their legacy entitlement programs.  Enough already!

At some point our politicians need to do what is right for the country.  Polls have already shown people want them to take a balanced approach and are angry at both sides for how they are handling this.  No one is happy, and yet our good politicians in Washington cannot get past pandering to their caucuses.  We all know that our debt is a problem.  We all know that we need to make spending cuts somewhere to help control how much we have to borrow.  We all know that our tax system needs to be revamped, and we all know the debt ceiling needs to be raised to protect the world markets.  That is three things that we can all agree on and should be the basis for all talks.

If we know we need to raise the ceiling, then by all means raise it and stop playing political games. It is not the time to use a potential national crisis to try to score political points.  Raise the ceiling and stop tying it to spending cuts or tax increases.  Deal with the debt ceiling first, and then go back to the drawing board on the other topics. If we focus on what we agree on progress can be made.

Debt Ceiling: Is anyone in D.C. listening?

As the deadline to raise the debt ceiling draws closer it seems like the partisan lines are becoming stronger.  Everyday it seems like compromise will get harder, even though that is what is needed.  Tea Party house members who campaigned on not raising the debt ceiling are digging in trying to attach a balanced budget amendment to any deal that is done.  They all campaigned on not raising the ceiling and are refusing to go down without a fight.  If they are going to raise the ceiling, they want to deliver another campaign promise which is to cut spending and balance the budget.

One thing that they aren’t willing to do is raise taxes.  This is where they are missing the point.  You cannot have a balanced budget without also raising new revenues.  Simply cutting spending is not enough and certainly is not a balanced approach.  In order to obtain balance equal weight must be added to both sides of the scale.  When only discussing cuts, all the weight is on one site.  Closing loopholes and raising new revenues, must be added to the scale to even things out.

What is interesting is that everyone is claiming that their position is based on what they hear from their constituents.  Are they really listening though, or just saying what they want their constituents to say?  Recent polls suggest the latter.  A CBS News Poll shows that now 46% of Americans want the ceiling to be raised.  This is up 22% from June.  49% still oppose the raise but that is a 20% drop in the last month.  The real kicker is when asked what should a deal include.  66% of all people thought it should include both cuts and tax increases.  66% is a lot and more surprising when you dig into the numbers.  55% of those who identified themselves as republicans agreed with this along with 53% of those identifying with the tea party.

It seems like the American people are understanding what a balanced approach is, but people in Washington aren’t listening.  Maybe they should start since the poll also shows that 49% of Americans blame the republicans for the standoff and 71% disapprove of how they are handling the negotiations.  It is time to start listening to the people of this country, or they will remember when it is to vote.

Can the Tea Party hold its line in the sand on the Debt Ceiling?

Unless you have chosen to not watch the news over the last several months you know that there is some fierce debate happening in Washington about the debt ceiling.  In a nutshell, if we don’t raise the debt ceiling we run the risk of not being able to pay our bills as a country, ruin our credit rating, and a myriad of other bad things depending on who you ask.  This USA Today article does a good job of explaining the various points of view.

During the midterm election season, the tea party slot of candidates  all drew a hard-line when it came to the debt ceiling. They would not vote to raise the debt ceiling at all, no questions asked.  Once they got in office the line was softened a bit, once they realized that there pretty much would be no option other than to raise it.  The new line became they would not vote to raise it unless it came it was partnered with serious spending cuts that would begin to reduce our national debt over the next 10 years.  That sounds great and all, but why risk hurting our credit rating and the country’s ability to do business over spending cuts.  To me it makes more sense to ensure our rating is protected, and the world markets are stable, and then engage in some serious talks about getting our debt under control.

Simply cutting our way out of debt is not the simple solution to the problem. Any tax cuts also have to be paired with new revenues.  It doesn’t matter how much we cut if we aren’t also raising new money.  Without raising new money, we will always have a need to borrow no matter how much gets cut.  The problem is that no one on the republican or tea party side is willing talk about new revenues, a cuts only approach is all they are willing to talk about.  We recently had this same battle here in NC and the resulting budget is going to be devastating to this state.  Why can’t republicans and tea party politicians see this?  Is it really about holding the line on a political struggle?

Some tea party members are still holding the original line.  They want a budget that is limited by the current debt ceiling or nothing else.  A prime example of this is freshman Senator Ron Johnson from Wisconsin.  He has clearly laid out his position here, and is sticking with it.  So much so that is he holding up Senate business.  He has pledged to hold up business by blocking all unanimous consent calls.  A lot of what the Senate does is based on these unanimous consent calls to bring something up for a vote.  In a moment of protecting the line in the sand, he wants to hold up all Senate business until he gets what he wants.

My take on the issue is that adding more debt is a bad thing, but protecting our countries credibility is more important.  No matter how you feel about debt or spending, protecting the country should come first.  Then we can have serious conversations about what is needed to get the debt under control.  But once these conversations get started both sides need to negotiate in good faith, understanding that it will take both cuts and new revenues to solve the problem.  The problem isn’t just about the eliminating debt, it is also about reducing the need to borrow.  Once politicians figure that out maybe we can make some progress and stop holding party lines for the sake of winning a power struggle.  They need to remember this isn’t about them, but rather the people they have been voted in by to serve.