That
Was Close
by
Sinclair Noe
DOW
+ 205 = 15,373
SPX + 23 = 1721
NAS + 45 = 3839
10 YR YLD - .05 = 2.67%
OIL + .87 = 102.08
GOLD + 1.70 = 1283.70
SILV + .12 = 21.52
SPX + 23 = 1721
NAS + 45 = 3839
10 YR YLD - .05 = 2.67%
OIL + .87 = 102.08
GOLD + 1.70 = 1283.70
SILV + .12 = 21.52
Wait,
wait. Stop the countdown. There will be no debt-pocalypse. Not
tonight. The politicians have worked out a deal. Whew, that was
close. Under
the agreement, the government would be funded through Jan. 15, and
the debt ceiling would be raised until Feb. 7. So, if you stocked up
on canned goods and cigarettes, well, they'll keep a few months and
we can do this again to start the new year.
The
government will re-open tomorrow. The government debt will be paid as
usual. Life goes on.
Even
as the shutdown of the United States government and the threat of a
default appear to be coming to an end, the cost of Congress’s
gridlock has already run well into the billions. Retail sales that
weren't made, canceled vacations to national parks and other
destinations, import inspections, export financing, and oil and gas
permitting stalled; and the total will continue to grow after the
shutdown ends. A full accounting will take months but this will
likely have some adverse effect on 4th
quarter GDP.
Plus,
tack on higher interest payments on short term debt, which have
tripled from just a few weeks ago. The World Bank has estimated
that a similar standoff in 2011 raised borrowing costs in poor
countries by about 0.75 percentage point, and that those costs
remained elevated for months.
The
Senate will take up a separate motion to instruct House and Senate
negotiators to reach accord by Dec. 13 on a long-term blueprint for
tax and spending policies over the next decade. So, at a time when
fiscal dysfunction has done significant damage to the economy, the
solution is to develop fiscal policy that will further put the brakes
on the economy.
So,
when you hear more news on this, you'll undoubtedly hear someone talk
about the winners and losers in this political battle, and while
there were certainly losers, and they are easy to spot; I still can't
spot the winners.
So,
it's back to business; we'll have a not quite so dramatic repeat in a
few months, although the big losers in the battle will not be so
reckless. It would be better to just end this game of debt ceiling.
The
following article explains the debt ceiling; here's the link:
Congress
Shouldn't Raise the 'Debt Limit' -- It Should Repeal It by Scott
Lilly.
The
problem, however, is that the "debt-limit" resolution
purports to be something that it clearly is not -- a tool for shaping
and redefining the nation's fiscal policy -- and, in reality, plays a
totally nonsensical role. It can't be explained to people in simple
terms because it doesn't make any sense.
Back
in 1917, President Woodrow Wilson needed a way to finance America's
entry into World War I. The government's budgeting process was in
shambles. Individual agencies went
directly to Congress to
seek appropriations without direction or even coordination from the
White House. The War Department would put together their request and
send it up to the Hill. The Department of the Navy and other
departments would do the same.
But
in many instances, Congress also had limited control over what the
various pieces of the bureaucracy were up to, how they spent their
money, or how much they spent. Despite an 1870 law that attempted to
prohibit the creation of deficiencies -- obligations to pay tax
dollars to individuals or businesses that have not been appropriated
-- there was little real restraint on a department secretary who
wanted to expand his budget by simply signing a contract to spend
that money and then telling Congress that the United States owed the
money and the good faith and credit of the American people would be
damaged if Congress didn't appropriate the money and pay the bill.
So
when President Wilson asked Congress for the authority to
issue Liberty
bonds --
the forerunner of modern-day Treasury bonds that were used to finance
World War I -- many in Congress rightly wondered where the issuance
of such debt could lead the country given the lack of any real budget
process to make budgetary decisions. The debt limit was probably a
useless tool for forcing budget choices even in those primitive days
of developing the nation's fiscal policy. It had only one thing going
for it -- a name that was hard to vote against.
But
just four years later, President Warren G. Harding signed the Budget
and Accounting Act of 1921 and
instituted the beginning of modern federal budgeting. The act was
largely based on the recommendations of a commission established by
President William H. Taft a decade earlier, and did a number of
important things.
First,
the act established the Bureau of the Budget, which reviewed and
could revise the budget requests of all departments and agencies of
the federal government. The Bureau was obliged to add all of the
spending up into one total and propose changes in revenue to ensure
that deficits were kept to a minimum.
Second,
the act created the General Accounting Office to have professional
auditors go over the agencies' books and examine whether expenditures
were made in conformance with the laws under which they were
authorized. Congress also reorganized itself so that all spending
requests were under the jurisdiction of a single
committee.
Finally,
the legislation established strict procedures by which any employee
of the government could sign a contract obligating the federal
government to make any kind of payment. Any employee who did so
without appropriated dollars to pay the cost of that contract
was guilty
of a felony and
subject to criminal prosecution.
The
increased control and accountability provided by the 1921 act went a
long way toward addressing the concerns that had sparked the Liberty
bond amendment, but Congress continued the process of passing
legislation to increase the debt limit as it was needed. However,
Congress finally dealt directly and comprehensively with establishing
a process to determine all of the issues related to the growth of the
public debt in 1974 with the adoption of the Congressional Budget and
Impoundment Control Act.
This
act, among other things, required each house of Congress to adopt a
resolution each year setting forth a blueprint for future spending
decisions as well as changes in the level of revenues collected, and
expressly requiring a vote on the level of the deficit that would
result from the decisions about spending and revenues. This not only
gave Congress the opportunity to vote on deficits before they were
created, but it also made the "debt ceiling" completely
irrelevant except for one purpose: whether or not we should default
on paying the bills on purchases we had previously decided to make.
But
the House did not move to suspend the legislative charade of deciding
whether or not to pay the bills they had already voted to ring up for
several years after the congressional budget process was implemented
in 1977. There were probably several reasons for that. One was that
some members of Congress never seem to tire of hearing themselves
drone on about the evils of rising debt. All too often, those members
are only covering their tracks for supporting more spending and big
tax giveaways. Another group saw the regular process of bargaining
with the White House over whether or not to push the country into
default as a useful opportunity to get concessions of various types.
This was more popular in the House than in the Senate, because the
Senate already had a wealth of executive branch appointments on which
to bargain over, and what could be demanded and obtained was usually
small enough that the White House and congressional leaders were
willing to play the game.
But
in 1979, former House Speaker Tip O'Neill (D-MA) assigned a rapidly
rising young member of the House Democratic caucus -- then-Rep. Dick
Gephardt (D-MO) -- to head up the effort of passing the debt limit.
Gephardt
figured out how to translate the obvious solution for dealing with
the debt ceiling from the standpoint of logic into a change in the
House rules. Under the Gephardt rule, as the change became known,
when a budget resolution conference report was adopted, a House Joint
Resolution was automatically deemed as passed by the House and sent
to the Senate. Put in place in 1979, the new rule was first used in
1980 and remained in place until House Speaker Newt Gingrich (R-GA)
jettisoned the procedure in 1995. While Speakers O'Neill, Jim Wright
(D-TX), and Tom Foley (D-WA) were willing to let the will of the
House on the annual budget resolution represent the will of the House
on the debt limit with no further demands on either President Ronald
Reagan or George H.W. Bush, Speaker Gingrich saw it as a potential
pressure point in his dealings with President Bill Clinton.
On
a number of occasions, the House had to act on legislation to prevent
default despite the Gephardt rule. This was either the result of
amendments added in the Senate, or because the budget resolution
anticipated growth in the public debt that was slower than the
demands on the Treasury turned out to be because the economy grew at
a slower pace than the Congressional Budget Office had forecast. But
most of the time, the budget resolution provided the basis for House
action on the debt limit.
So
we are again at the 11th hour with continued uncertainty as to
whether the Congress will force the country into default. Consumer
confidence has dropped 12
points in the past week, the most since the collapse of the Lehman
Brothers investment bank five years ago. House Republican leaders
insist that their disagreement over raising the debt limit is a
matter of deep philosophical differences with the president over how
much the federal government should be borrowing. But if you look at
their position in terms of the legislation they have passed -- the
so-called Ryan budget resolution, H.
Con. Res. 15 --
you find in section 101 on page 6, line 6: "DEBT SUBJECT TO
LIMIT.--The appropriate levels of the public debt are as follows:
Fiscal year 2014: $17,776,278,000,000." That is exactly $1.077
trillion above the current debt limit that House leaders refuse to
raise. It is also $184 billion above the level of debt that the
Congressional Budget Office projects the
country will have at the end of this fiscal year in October 2014. All
but four House Republican leaders who were in the chamber at the time
of passage voted for that resolution.
The
reason the public debt is rising under the House-passed budget is
that the $2.82 trillion in spending contained in the budget
resolution passed this spring greatly exceeds the $2.27 trillion in
revenues contained in that proposal. Very simply, they have voted to
spend the money, but they don't want to pay the bill.
