Reuters blog archive
from The Great Debate:
There are glimmers of light in our battle to put America’s finances in order. New hope for a long-term budget deal has come in the form of two ideas, both from outside Congress, that many of our elected officials have embraced:“No Budget, No Pay” and “No Deal, No Break.”
The critical matter now is whether these two initiatives will lead to serious negotiations, or just be rhetorical weapons in Washington’s political warfare.
Both these campaigns speak to substantive needs we have as a nation. “No Budget, No Pay” is a signature campaign of No Labels, a national coalition of Republicans, Democrats and independents advocating that Washington should focus on progress not partisanship. I am a co-founder of this group.
“No Deal, No Break” is a nonpartisan effort supported by my organization, the Comeback American Initiative, and others. It is pushing for Congress to stay in session until a deal is reached.
from The Great Debate:
President Barack Obama pledged to cut the deficit in half by the end of his first term. But because he focused on political gimmicks, rather than real reform, we’ve seen trillion-dollar deficits and nearly $6 trillion added to the debt instead. Based on what we heard from the president at a news conference Tuesday, his unserious attitude is likely to continue.
That’s worrying. Unless we can get a handle on Washington’s overspending, and quickly, it will continue to undermine our economy and jeopardize our children’s futures.
"Have a drink out there, folks, and just know that your kids and grandkids will be out there picking grit with the chickens," says former U.S. Senator Alan Simpson in the video above. Simpson's quip is the best summary I've ever heard of the public's lack of understanding of the severity of the nation's fiscal crisis. The federal government is currently borrowing 42 cents of every dollar that it spends. Thanks to the Federal Reserve's quantitative easing and the strong global demand for U.S. Treasury debt, the nation has been able to borrow heavily at low interest rates to cover its budget shortfalls.
But the debt is piling up so high that the country might face a borrowing shock if there were a black swan event or if bond vigilantes forced higher interest rates. It's not a question of whether rates will rise – they certainly will. What we don't know is when it will happen. The same politicians who created this fiscal quagmire have now tasked themselves with fixing it. Despite numerous proposals on how to get our debt under control, the political dynamics of the issue make it likely that nothing will be resolved in Congress until after November's election. The Washington Post reports:
ZeroHedge points out that the amount of U.S. debt outstanding has just surpassed the latest reading of our gross domestic product:
There is nothing quite like a $70 billion debt auction settlement at the last day of a month to bring total US debt to a record $15.692 trillion, which happens to be just $600 billion shy of the $16.394 trillion debt ceiling ... And now that we know what Q1 GDP was at the end of Q1, or namely $15.462 trillion, it is simply math to divine that today alone total US/debt to GDP rose by 50 bps to a mindboggling 101.5%.
By Martin Langfield
The author is a Reuters Breakingviews columnist. The opinions expressed are his own.
Without trust, society splits into warring tribes and parasites prosper. The financial crisis of 2008 is a powerful example of what can happen when individuals or small groups set their own gain above the common good. Meanwhile, the U.S. debt debate shows how political polarization can lead to potentially crippling paralysis.
from The Great Debate UK:
By Kathleen Brooks. The opinions expressed are her own.
The markets have had to – grudgingly - get used to pricing in political risk in recent months. Instead of being moved by economic data and fundamental or technical factors, a large amount of recent price action has been driven by politicians, and that always spells bad news.
Firstly, we have had to listen to the machinations of Europe’s various branches of power as they try to muddle through to a solution to the euro zone debt crisis. This has done very little apart from cause excess amounts of volatility in the markets as politicians talk at odds to each other. The results are pathetic: more than 18 months since the Greek crisis first flared up not only is Athens still deep in its own sovereign crisis but contagion has spread to Italy and Spain and even threatens to engulf some of the core member states like France.
from Gregg Easterbrook:
Action by the debt-reduction 'super committee' is due in less than a week. You will not be surprised to learn the super committee may only announce grandiose goals, while “deferring” specifics to some unspecified future point.
from Gregg Easterbrook:
Maybe Washington can start paying invoices with $3 bills -- because the “dramatic” agreement to “reduce the national debt” is as phony as a three dollar bill.
Weeks of nearly round-the-clock negotiations among the White House, House and Senate have led to an “historic” debt deal that consists almost entirely of fluff, doublespeak and empty promises.
The theatrics in Congress concerning the debt ceiling, now in their seventh month, have sent increasingly strong shock waves throughout the U.S. and global financial systems. The debt ceiling is the legislatively-imposed limit for the nation to issue debt to fund its activities. It's been stalled at the same level of $14.3 trillion since May 16. The U.S. Treasury has been scrambling to find extra monies, including borrowing internally from the federal government workers' pension plans, so that they can continue to pay the nation's obligations. They say the cash drawer is near empty.
The United States borrows or issues debt for 40 cents of every dollar that it spends -- that is a lot to borrow. The federal government turns around and distributes this borrowed money, along with taxes collected, to Social Security and Medicare beneficiaries, states and local governments and defense contractors. It also returns some of it to bond holders as interest payments. The federal government is so massive that this flow of payments equals about 24% of the gross national product. If this flow stops, substantial parts of the economy will stop.
from Gregg Easterbrook:
Over the past three generations, America’s leaders have faced down the Depression, won World War II, won the Cold War, created Social Security and Medicare, passed the Civil Rights Act and dramatically expanded environmental protection. The record is one of boldness and triumph.
Today, America’s leaders face the challenge of reducing giveaways to special-interest groups. That is what the national debt issue boils down to -- do Congress and the White House have what it takes to say "no" to interest groups that want to be showered with borrowed money?