It Is Debt Ceiling Economic Danger Time….Again

The requirement to raise the debt ceiling is not a negotiable issue.  Setting a precedent that the most extreme members of Congress can hold hostage the financial stability and credibility of the U.S. and even the global economy is not a tactic that can be allowed. Those are two bedrock statements that are to be center stage in the weeks and months to come as one of the most dysfunctional House majorities in our lifetimes takes the reins of power in Washington.

Let us put the facts upfront about this issue. The debt limit caps the total amount of allowable outstanding U.S. federal debt.  As Treasury Secretary Janet Yellen told Congress Friday, “the Treasury Department would begin taking “extraordinary measures” in order to avoid a potentially catastrophic default but urged Congress to take further action to raise or suspend the borrowing limit.” In other words, Congress, and that clearly means House Republicans, need to be adults and either raise or suspend the debt limit or the Federal government will lack the cash to pay all its obligations. That has never happened before.

The bottom line that remains is the Treasury Department issues bonds to fund spending approved by the president and Congress beyond what is covered by federal revenue. But when we reach the debt limit, the Treasury is no longer authorized to issue new bonds. At that point, Treasury must take “extraordinary measures” until the president signs a bill for a new debt limit increase. Why we have every reason to be deeply concerned, and the markets will echo that angst, is that raising the debt limit has no direct impact on the size of the national debt. It has no impact either on more spending or freezing or restricting spending. The only thing that increasing the debt limit does is pay expenses previously authorized by presidents and Congress.

What are front and center is the Republican desire to get something for their vote on the ceiling. Instead of just doing their job, the conservatives want to be bought off for their votes.  In the rhetoric of the weeks to come we need to be mindful of what conservatives are battling, namely, themselves. The facts about the growth in government, the red ink, and who carries more responsibility for its creation must be borne by Republicans, as data and facts prove. Steve Rattner proves the point in another of his powerful graphs.

Republicans like to blame Democrats for all this borrowing. But the facts show otherwise. Five of the six presidents who incurred the most debt relative to the size of the economy in the past 60 years were Republicans. While Donald Trump faced the need to counteract Covid effects, his tax cuts and spending increases also played a major part. And Barack Obama had to deal with the financial crisis. But the fact remains that of the 57 percentage point increase in the debt to GDP ratio since 1960, 52 percentage points – all but five percentage points – were incurred with a Republican in the White House. (Note that Republicans and Democrats held the White House for roughly equivalent periods over these decades.)

The point needs to be made the rhetorical steam from the current crowd of conservatives in the House must be put into context.  The GOP agreed to raise the debt ceiling three times when Donald Trump served his one term in office.  I admit to feeling somewhat guilty for writing this paragraph as it runs counter to my main point in this post. That being a bi-partisan vote of the Congress has no role other than to increase the ceiling.  While the GOP was correct with their votes in the Trump years, however, it is the hypocrisy now that must be understood.

A fanciful and truly dangerous provision is being bounced about by the far right wing in Congress that would split portions of our federal budget into sections that would then be addressed by a debt ceiling increase.  Conservatives would, under such a plan instruct the Treasury Department to prioritize debt service payments, Social Security, Medicare, veterans benefits, and military funding. Everything from meat inspectors to the FAA, federal housing authority, and a very long list of other vital parts of federal programming would not be covered. 

Economists are stunned at the ability of House Republicans to play so close to the edge of the economic cliff.  With as much composure as can be placed on those learned ones, who clearly want to scream at the severely under-educated in Congress, economists press the point that debt prioritization would not sidestep the economic consequences of failing to raise the debt ceiling. While partisans will ramp this effort up ever higher it needs to be noted what true conservatives are saying about the debt ceiling increase.

Raising the debt ceiling should be – and often has been – a routine matter. It does not authorize any new spending. Rather, it gives the executive branch the borrowing capacity it needs to honor existing spending commitments. It is Congress that decides on spending levels and tax rates, and when it sets federal spending higher than federal revenue, it implicitly determines the size of the budget deficit. Raising the debt ceiling merely allows for the borrowing that is needed to meet the obligations that Congress itself has created.

“The Dow would plunge by thousands of points per day, and the credibility of the US — its trustworthiness as a country that pays its debts on time — would be substantially eroded. After a day or two of this chaos, a clean bill to increase the debt ceiling would pass both houses of Congress with overwhelming bipartisan support. Republicans would have accomplished nothing.”

Adding to this chaos that is simmering and soon to grow with intensity is the chasm developing in the GOP House caucus.  As noted this past week, the Wall Street Journal reported the cutting frenzy in the GOP has pitted “Republicans who want to protect military spending against those who see such expenditures as fair game in any negotiations alongside cuts to domestic programs.” Before they start attacking the nation’s creditworthiness they should first decide what they stand for as a political party.

When it comes to the debt limit issue there has never been any doubt as to where I stand. It would still be the soundest move to pursue a deal that would permanently remove the requirement that Congress repeatedly raise the debt ceiling. That would be good news for the nation.

Voters Should Be Aware Of GOP Tax Scheme, Higher Inflation Would Follow

Here is why I have a clear difference with Republicans who desire, should they gain the majority in congress, to make the tax cuts and adjustments enacted in the 2017 overhaul of the tax system permanent in the country. I know these wild-eyed Trumpsters with one car and a mortgage cheer, not knowing the tax scheme under the single term of Donald Trump was never aimed to assist them. FAR from it!

What high school Econ 101 taught us in classrooms is that such a move would further stimulate the economy at the same time the Federal Reserve is trying to rein in demand against 40-year-high inflation. The tax cuts in the 2017 law added $1.9 trillion in government debt through 2028. The method of paying for these cuts will be deficit-financed, and as such those ideas chased on the campaign trail with rabid fervor about tax policy will play into inflation. I thought the GOP voters were asking for inflation to be dealt with by voting for Republican candidates!

Readers of Caffeinated Politics know I have been closely following British pols for much of this year, and from the day Boris Johnson imploded, applauded the words of Rishi Sunak. He comes to mind again as the midterm elections draw near. It was his reasoned tone and views on not committing to tax cuts and playing to the lowest common denominator that caught my attention and respect. He refused to play to the Conservative Party, and while they opted for Liz Truss and her fanciful ideas about fiscal policy, he had the last laugh. I say this as the Brits found out a great deal about what deficit-financed tax cuts can do. In their case, it brought down an entire government!

Measures of such enormity should be discussed with more seriousness by the GOP rather than just playing to the lowest level of the conservative base. They may not care to be serious about issues with the Trump base, (they have proven to fall for anything) but the majority of the nation is aware of the dangers and harm that the GOP can do to the national economy.

First Person Of Color, First Hindu To Be Next British Prime Minister, And A Lesson For U.S. About Real Leadership

Rishi Sunak and his wife Akshata Murty

Former British Chancellor Rishi Sunak won the race to become the Conservative Party leader on Monday. He is now set to become the UK’s next prime minister, the first person of color, and the first Hindu to serve in that high government role. I have supported Sunak since Boris Johnson resigned from 10 Downing Street. I can support a strong conservative when they are intelligent and reasoned. Above and beyond policy is something much more important that has shown itself as being required in Britain; the larger mission is one about credibility in government, and when governing. Sunak meets and exceeds that level of competency.

The lesson about credible leadership is something the Republican Party should note and seriously consider.

What connected for me on this side of the pond was that fact Sunak refused to lower himself and make absurd promises about tax cuts, just so to be elected by the Conservative Party. He had warned in language anyone might understand that economic policies should not be reduced to political chits. He stayed out of the fray over the past weeks as the economy went south, at what can only be best described as careening out of control at a maddening speed.

Long-time readers of this blog know my utter disdain for Brexit, and the outcome that was warned about has materialized.

Even before the 2016 vote, the country had a chronic productivity problem, excessive reliance on the financial sector and a major deficit in training and skills. But as the Covid pandemic effect fades, we can see the Brexit effect more clearly. On many indicators, such as business investment and trade recovery after Covid, the UK economy has done worse than any other in the G7. The number of small companies with cross-channel relationships has fallen by about a third. On official projections, the country will lose about 4% of its GDP as a result of Brexit. The rating agencies Moody’s and S&P have both reduced the UK’s economic outlook from stable to negative. Yes, it’s the Brexit, stupid.

But now we come to the lesson that should be studied.

Why there is hope for sound governing from Sunak is his ability to learn from mistakes (he was once in favor of Brexit) but this year refused to play to the lowest common denominator for the biggest prize in British politics. It was that act of being fact-based and honest with what a leader must contend with that earned him praise aplenty on this page. Instead of playing to the base, he intends to lead them.

As he demonstrated in his Conservative Party leadership contest with Liz Truss this summer, he is a realist, putting solid public finances and market credibility first – as did Margaret Thatcher. And realism demands that, in extraordinarily challenging economic circumstances, you have to lower barriers to doing business with your largest single market (the EU), not further increase them.

Rishi Sunak has the very life story that Tories require if they are to make inroads into the diverse British society. Born to Indian parents who had left East Africa, attended excellent schools, and rose to a high position in the government showcases the fact all are welcome in the nation. And can lead the country.

While I always follow international news I found my interest in the British political mess was much elevated this year due to the character of Sunak. In today’s political climate in the United States where a candidate will make the most vile and absurd statements just to prove fealty to Donald Trump, the next prime minister proved what an honest and forthright conversation with a nation can produce.

Once again, the U.S. can learn a lesson from Europe. If it wishes to learn……

‘Told You So’ Also Used By New York Times As Rishi Sunak About To Be British Prime Minster

This summer and fall have been alive with fascinating political intrigue not only in our mid-term elections but perhaps even more so as the revolving door at 10 Downing Street will soon rotate again.

For the past six weeks, Mr. Sunak has been lying low as his economic predictions have played out at a dizzying speed. Investors balked at Ms. Truss’s widespread tax cuts and increased borrowing; the pound slumped; government borrowing costs soared; the mortgage market was upended; and the central bank had to intervene. After just 44 days as prime minister, Ms. Truss resigned last week with her economic agenda in tatters.

Mr. Sunak’s relatively gloomy attitude over the summer, warnings about inflation and strict adherence to fiscal conservatism may have cost him the opportunity to be named prime minister in September. But less than two months later, these same characteristics and accurate prognosis of the effects of Ms. Truss’s program have eased his pathway to Britain’s top job.

After Boris Johnson, the former prime minister, took himself out of the running on Sunday, Mr. Sunak has cemented his commanding lead in the contest.

Sunday evening The New York Times had their headline go to the same place that I took a Caffeinated Politics post on October 3rd.

Rishi Sunak has the very life story that Tories require if they are to make inroads into the diverse British society. Born to Indian parents who had left East Africa, attended excellent schools, and rose to a high position in the government showcases the fact all are welcome in the nation. And can lead the country.

Conservative leadership need not be grounded in the harsh racism and stale models of the past. The Tories made a colossal error in supporting Johnson and then the ludicrous Liz Truss and now must step high and higher to get past the detritus that resulted from their actions.

I have said it before this year, and do so again. The Tories can do no better at this time than embrace Rishi Sunak.

He is going into Monday’s crucial Tory deadline in a commanding position, hoovering up scores of MP nominations and seemingly the clear choice of the parliamentary party. His new-found supporters include several big Tory figures who might have been expected to back Boris Johnson–who fled the political contest Sunday knowing his bridges are burned. Many conservatives were reported saying about Johnson that he was a “guaranteed disaster.”

I have supported Sunak since Johnson resigned from 10 Downing Street. I can support a strong conservative when they are intelligent and reasoned. I need not agree on policy in all or even many instances, but instead see the larger mission as one about credibility in government, and when governing. Sunak meets and exceeds that level of competency.

“Dead Woman Walking?” Powerful Headline About British PM Liz Truss Makes For That ‘Told You So’ Moment

Politico London Playbook writes the stunning opening for the week ahead, and this continuing story has me wide awake very late at night, or is this now early in the morning? Liz Truss rode a harmful and shady tax cut ploy to 10 Downing Street, a matter I have noted with great dismay from the days when she first started to weave her smarmy attempt at power. She played the Conservative Party with what they wanted to hear, as opposed to what they needed to know. Big difference between the two. On this side of the pond, we are witnessing her downfall as being swift and sweet. Her style of politics stinks no matter from where it comes. The question is what will the backers of Rishi Sunak do in the hours to come? He continues to have my strong support, as he has had from the day Boris Johnson was ejected from power.

DEAD WOMAN WALKING? As Liz Truss wakes up this morning she’ll wonder whether this week in Downing Street could be her last. With her authority shot and her premiership unraveling at a speed that is astonishing even by the standards of modern British politics, many now believe it is a matter of time before she is forced out — as she faces a critical 72 hours.

Mondays don’t get much worse than this: The PM has just marked 40 days in office but faces a degree of unrest that Theresa May and Boris Johnson took years to build, with backbenchers breaking cover to urge her to quit, letters pouring into Graham Brady’s inbox, rivals on maneuvers and a delegation of graybeards preparing to tell her the game is up.

A week? Two weeks? Until Christmas? The papers are full of speculation over just how long Truss has left in office, with some suggestions that if the markets show mercy today that could carry her through until the budget on Halloween. “It’s over, but I’m not sure when. Perhaps this week, perhaps next,” one Cabinet minister tells the FT’s Seb Payne. A Tory MP told Playbook yesterday: “Boris lasted longer than he should have because he still had some electoral appeal, and people weren’t sure who would succeed him. She doesn’t have the former — but the latter may again delay things.”

After the Sunday Times urged Truss to quit, the Telegraph leader says today that “it is debatable whether she any longer has the authority to withstand this assault.”

In the Commons: Labour leader Keir Starmer is calling on Truss to come to the Commons and answer questions about her economic plan, accusing her of being “in office but not in power.” The Labour Party could decide to seek an urgent question if she refuses.

Over in Westminster Hall: This afternoon MPs will be debating a petition for an early election which amassed over half a million signatures.

Prime Minister Liz Truss Getting Just Desserts, Conservative Tax Cuts Prove Loony

I very much disagreed with the scraping and clawing with absurd tax schemes employed by Liz Truss so to have the small array of eligible Conservative Party voters elect her to 10 Downing Street. She cheapened herself and undermined the integrity of the office she sought. The financial markets have already registered their strong disapproval of her antics. Her radical economic agenda has met the resounding rebuke of both the markets and mature pols as the Labor Party is planning its future success. Truss is now not only the laughingstock of Britain but surely even more troubling is even being scorned by the new King.

Her own party members commenting on this week’s meeting, where she attempted to assuage them concerning her lack of political skills and economic reasoning, stated her performance was “painful,’ while other words used to describe the session included ‘awful’, ‘funereal’ and ‘brutal’.

Earlier this year I stood with Rishi Sunak in his bid to become the next prime minister of Britain.  In my post about his credentials for the job, I wrote “Add into the mix this person does not wish to fall into the consequences of a cheap theatrical tax cut pledge knowing such action will further harm the British economy.“

Then came the news of King Charles greeting Truss and how many viewed that interchange across the nation.

Meetings between the monarch and the prime minister remain a closely-guarded secret. This means that anything that is caught on camera when King Charles and Liz Truss meet is watched closely – and the King’s choice of greeting to the PM when he hosted her at Buckingham Palace last night was, err, particularly interesting.

King Charles muttered ‘Dear oh dear’ as he met the PM late last night. In a video clip released by the Palace, taken at the beginning of their weekly audience, the PM is heard to say: ‘Your Majesty, great to see you again.’

Charles, smiling, replies: ‘Back again? Dear oh dear.’

It was so bad that I believe Sheldon would say, “Can I get you a hot beverage?”

Conservatives Forced To Pull Back Tax Cut Ploy, Rishi Sunak Gets To Smile And Say ‘Told You’

Well, well, well…….

Faced with a growing political rebellion after days of economic chaos, Britain’s truly not-ready-for-prime-time-prime minister of less than a month has reversed course and now says she is abandoning a signature plan to cut taxes for the country’s highest earners. You know, the same stew she was pushing during her cheesy campaign for the office when economists were saying her plans were just plain silly.  Her now dramatic reversal comes just hours after this weekend when Liz Truss was slinging rhetoric like hotcakes at breakfast for the hungry conservative hordes.   Her radical economic agenda has met the resounding rebuke of the markets and mature pols. She is a national fool. All in less than 30 days.

Earlier this year I stood with Rishi Sunak in his bid to become the next prime minister of Britain.  In my post about his credentials for the job, I wrote “Add into the mix this person does not wish to fall into the consequences of a cheap theatrical tax cut pledge knowing such action will further harm the British economy. He should know, being a former Chancellor of the Exchequer.’

He is a conservative grounded in reality, which means he speaks candidly to the fire-eaters in his party. He stated his path would be as a frank prime minister—a gentle (or not) reminder that what preceded was a continuous liar—and that he would not be one who offered “comforting fairy tales”.

Conservatives fall, like they often do, like a pack of raccoons for the one who promises things that glitter.  What is playing out across the pond is simply too precious not to watch play out. Who could have guessed at this outcome…..? Hmm…was it Sunak?

I wrote the following in July.

Sunak has the very life story that Tories require if they are to make inroads into the diverse British society.  Born to Indian parents who had left East Africa, attended excellent schools, and rose to a high position in the government showcases the fact all are welcome in the nation.  And can lead the country.

Conservative leadership need not be grounded in the harsh racism and stale models of the past.

We see, again, what happens when they do.

President Biden Keeps Promise About Student Loan Forgiveness

Finally, after years and years of pressing the issue in election after election, action has now been taken on student loan forgiveness. College and university loans now account for more than 40% of outstanding consumer debt in the U.S., outpacing the amounts owed on motor vehicle loans, for example, by more than $477 billion. Ponder that fact for a moment.

I have argued since (what year is this?) that our economy is hampered by the millions of people redirecting income towards student loan payments rather than doing what works best in a consumer-driven economy. The fact is if someone is struggling to pay off their student loans, they are not buying things that workers are making in factories or assembly lines. The tax revenue from such transactions is lost.

We know education is a great investment for the future of the nation, and it should be viewed as a most valued commodity. I very much disagreed with shackling the ones who have the ability to learn and then turn their knowledge into ideas for the betterment of society, with lifetime financial burdens.

So I very much applaud President Biden for directing the Education Department to forgive $10,000 in federal student loan debt for nearly all U.S. borrowers, an unprecedented decision that will affect millions of borrowers with immediate financial relief. This action will now forgive $10,000 for every federal student loan borrower who earns less than $125,000 annually. The administration is also canceling up to $20,000 for those student borrowers who received Pell Grants, applying the same income cap.

Here’s what the plan includes.

$10,000 in debt forgiveness for all federal borrowers…Federal borrowers who earn less than $125,000 and did not receive a Pell Grant will be eligible to have $10,000 of their student loan balances forgiven. This will likely eliminate the balances of at least 15 million borrowers.

$20,000 debt reduction for Pell Grant recipients…Millions of borrowers who received Pell Grants during college and meet the administration’s income requirements will see 20,000 removed from their balances. Data shows around 7 million students receive Pell Grants each year.

Extends pandemic-related pause on student loan payments…The administration is also extending the federal moratorium on student loan payments for a sixth and final time. Payments will resume in January 2023, concluding the pause which has spanned more than two years and two administrations.

While I advocated for the move taken by the Biden White House for a portion of loans to be canceled, I still hold very much to the realization that incentivizing education by having students pay a share of the burden makes sense. When personal effort is required to gain an education a more strict adherence to the books results.

When some voters feel a resume is to be snickered at and expertise is not something to be valued we need to be reminded of what took Americans to the moon. It was not just rocket thrust, but the science and technology that allowed our flag to be placed on the moon. That effort was made possible by students first sitting in a classroom and learning.

In late 2021 a shocking amount of money was spent on our national defense. The House passed an authorization bill costing $768 billion. Certainly then, a person in middle America should feel the federal government can lessen the student loan burden by $10,000. It can be correctly argued that a keen mind and skills learned are as valuable to a democracy as a missile.

Thanks go to President Biden and his administration for this outcome today.