[C38] America Held Hostage

Steve Smolinske SSmolinske at rainierrubber.com
Mon May 16 16:39:26 EDT 2011


Can we please limit political discussion on the board to only those that
are favorable to the Republican view point?

 

From: listserve-bounces at catalina38.org
[mailto:listserve-bounces at catalina38.org] On Behalf Of Bill Haynes
Sent: Monday, May 16, 2011 1:32 PM
To: Catalina 38 Listserve
Subject: Re: [C38] America Held Hostage

 

Paul, you need to read this column for what Paul Krugman says here is
the honest to God truth.

 

Bill

 

 

May 15, 2011

New York Times

America Held Hostage

By PAUL KRUGMAN

Six months ago President Obama faced a hostage situation. Republicans
threatened to block an extension of middle-class tax cuts unless Mr.
Obama gave in and extended tax cuts for the rich too. And the president
essentially folded, giving the G.O.P. everything it wanted.

Now, predictably, the hostage-takers are back: blackmail worked well
last December, so why not try it again? This time House Republicans say
they will refuse to raise the debt ceiling - a step that could inflict
major economic damage - unless Mr. Obama agrees to large spending cuts,
even as they rule out any tax increase whatsoever. And the question
becomes what, if anything, will get the president to say no.

The debt ceiling itself is a strange feature of U.S. law: since Congress
must vote to authorize spending and choose tax rates, why have a second
vote on whether to allow the borrowing that these spending and taxation
policies imply? In practice, however, legislators have historically been
willing to raise the debt ceiling as necessary, so this quirk in our
system hasn't mattered very much - until now.

What has changed? The answer is the radicalization of the Republican
Party. Normally, a party controlling neither the White House nor the
Senate would acknowledge that it isn't in a position to impose its
agenda on the nation. But the modern G.O.P. doesn't believe in following
normal rules.

So what will happen if the ceiling isn't raised? It has become
fashionable on the right to assert that it would be no big deal. On
Saturday the editorial page of The Wall Street Journal ridiculed those
worried about the consequences of hitting the ceiling as the "Armageddon
lobby."

It's hard to know whether the "what, us worry?" types believe what
they're saying, or whether they're just staking out a bargaining
position. But in any case, they're almost surely wrong: seriously bad
consequences will follow if the debt ceiling isn't raised.

For if we hit the debt ceiling, the government will be forced to stop
paying roughly a third of its bills, because that's the share of
spending currently financed by borrowing. So will it stop sending out
Social Security checks? Will it stop paying doctors and hospitals that
treat Medicare patients? Will it stop paying the contractors supplying
fuel and munitions to our military? Or will it stop paying interest on
the debt?

Don't say "none of the above." As I've written before, the federal
government is basically an insurance company with an army, so I've just
described all the major components of federal spending. At least one,
and probably several, of these components will face payment stoppages if
federal borrowing is cut off.

And what would such payment stops do to the economy? Nothing good.
Consumer spending would probably crash, as nervous seniors started
wondering how to pay for rent and food. Businesses that depend on
government purchases would slash payrolls and cancel investments.

Furthermore, markets might well panic, especially if interest payments
are missed. And the consequences of undermining faith in U.S. debt might
be especially severe because that debt plays a crucial role in many
financial transactions.

So hitting the debt ceiling would be a very bad thing. Unfortunately, it
may be unavoidable.

Why? Because this is a hostage situation. If the president and his
allies operate on the principle that failure to raise the debt ceiling
is an unthinkable outcome, to be avoided at all cost, then they have
ceded all power to those willing to bring that outcome about. In effect,
they will have ripped up the Constitution and given control over
America's government to a party that only controls one house of
Congress, but claims to be willing to bring down the economy unless it
gets what it wants.

Now, there are good reasons to believe that the G.O.P. isn't nearly as
willing to burn the house down as it claims. Business interests have
made it clear that they're horrified at the prospect of hitting the debt
ceiling. Even the virulently anti-Obama U.S. Chamber of Commerce has
urged Congress to raise the ceiling "as expeditiously as possible." And
a confrontation over spending would only highlight the fact that
Republicans won big last year largely by promising to protect Medicare,
then promptly voted to dismantle the program.

But the president can't call the extortionists' bluff unless he's
willing to confront them, and accept the associated risks.

According to Harry Reid, the Senate majority leader, Mr. Obama has told
Democrats not to draw any "line in the sand" in debt negotiations. Well,
count me among those who find this strategy completely baffling. At some
point - and sooner rather than later - the president has to draw a line.
Otherwise, he might as well move out of the White House, and hand the
keys over to the Tea Party.

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