StanCollender'sCapitalGainsandGames Washington, Wall Street and Everything in Between



Deficit Hawks Heard Calls For Action

15 Jun 2011
Posted by Pete Davis
Yesterday afternoon, an overflow audience at the Center for a Responsible Federal Budget conference heard:
 
Ben Bernanke say "...maintaining the status quo is not an option...I fully understand the desire to use the debt limit deadline to force some necessary and difficult fiscal policy adjustments, but the debt limit is the wrong tool for that important job. Failing to raise the debt ceiling in a timely way would be self-defeating if the objective is to chart a course toward a better fiscal situation for our nation." His full remarks are here. He didn't take any questions.
 
Rep. Paul Ryan (R-OH) call for $6.2 trillion of spending cuts over the next 10 years versus the President's FY12 Budget ($5 trillion from the CBO baseline). He would "repair the rips in the social safety net" by moving Medicare to a premium support system for those under 55 today -- "It saves Medicare." His plan would bring the public debt down from a peak of 74.5% in 2015.
 
Senator Michael Bennet (D-CO) said "I'm mystified by the conversation that's going on in Washington... No constituent of mine at the local level would ever tolerate the conversation that we're having in Washington. When it came to the government shutdown question, at least by my math, the bid and the asked spread between the two sides in the last couple of weeks represented roughly 4 cents of the $20 meal at Applebee's that you might have for dinner."
 
Former Fed Governor and Bush economist Larry Lindsey say three "cost elements are underestimated by official estimates...If we normalized interest rates in 2013 [at the 5.7% historical average of the last 20 years], which I would say if we don't do it, the markets may force us to, would add around $400 billion in extra interest costs. Now, the Congress just struggled to find $37 billion in cuts in March. And here we're talking about a normalization of rates costing ten times that...I can tell you how we're going to fix it. The Fed is not going to let interest rates normalize. Now, that raises a whole host of other questions, meaning we're going to be printing a lot more money than we expect. I think when markets realize that's the option, we're in trouble. Official Washington is underestimating the size of the problem because we're living off of low interest rates...The total additional cost [over 10 years] is $5.4 trillion." "We are misestimating economic growth. We are far too optimistic." "The 10-year cost of one point less growth is $755 billion"...If we grow at 2.5% instead of the 4% plus assumed by President Obama in his budget, the Administration has underestimated the deficit by $2 trillion over the next 10 years. The reality of ObamaCare is that, according to a recent McKinsey study, employers would drop their plans covering about 30% of Americans, dumping about 40 million Americans onto the federal plan. "If McKinsey is right about this, the underscoring of ObamaCare is roughly equal to the cost of [the] Iraq and Afghanistan [wars]."
 
PIMCO's Neel Kashkari said "We don't [lend money to Treasury] [Laughter.]. The fundamentals are clear. Short term, Europe has it's own mess. We're just the strongest weakling today...Our political system responds to a crisis...The concern that I have is that if we wait until there is an acute crisis out there in the Treasury market, we may permanently undermine the gold standard that Treasury occupies today and permanently increase out nation's borrowing costs. Remember, in every finance textbook around the world, U.S. Treasury bonds are defined as the risk-free financial instrument. If we undermine that belief," we may look back on that as quaint just the way we do now on AAA subprime housing debt.
 
Barclay's Michael Pond said "If there's no deal, 9% of GDP goes away. That's a double-dip [recession] scenario...What we're particularly concerned about ... is the potential for a fall in the dollar, which then causes rating agency action, which then causes yields and interest rate costs to rise significantly."
 
Dozens of other speakers made excellent points, so the entire three hour 12 minute video is well worth watching, even if it is a downer. When I moved to the rooftop reception and talked with a friend, who repeated what a downer the session had been, I quipped, "That's why they put the bar near the shallow end of the pool." Then OMB Director Jack Lew arrived fresh from Biden group budget talks to say those negotiators were serious and respectful and working during this "critical time" to reach a deal. He concluded with a useful Washington insider observation, "No one has leaked anything yet, so it's going well."
 
 

 

There's no such thing as a Republican "deficit hawk"

Why was Paul Ryan there? He voted for Medicare Part D, for the Bush tax policies, and for the invasion and occupation of Iraq. His "Roadmap" from last year would have added to the deficit until 2063, and his "destroy Medicare in order to save it" plan that the GOP has embraced would increase the deficit over the current path for the next ten years.

We know that Paul Ryan doesn't care about the deficit. Why was he invited to a conference that was ostensibly about the deficit?


My Question

My questions about the 'Biden Group' discussions (or any other discussions in Washington)is 'Who is representing the middle class in this crucial debate over the future?' My guess is no one and that is why they think they are going well.


It is Heard or Herd?

Interesting set of comments, but I can't seem to get my head around the title. Are those Deficit Hawks calling for action or have they heard the call for action?


McKinsey study is odd

I've found it very odd that anti-HCR people keep citing the (dubious) McKinsey study: interpreted at face value, what it says is that the *employers* of 30% of the country are just itching to slash wages. Why exactly is that HCR's fault? What's to stop them from throwing their employees to the wolves to goose quarterly results, HCR or not? Perhaps most critically, why is the fact that 30% of Americans are apparently employed by ruthless douchebags somehow justification for the agenda of *other*, equally ruthless, douchebags?


Bernanke is being

Bernanke is being intellectually dishonest - he has been quoted before on camera and on record (60 Minutes, etc.) saying that absolutely the US Government cannot run out of money - all it takes is a keystroke on the fed's computer and money is created. Paying interest on money you have already created doesn't make the operation any different. All money is/was created out of thin air.

The U.S Govt. does not have to borrow money - when it does it is a choice and it either exchanges existing Treasuries for new ones, transfers money from Fed checking accounts to Fed savings accounts or creates money(reserves)/then borrows it back at the same time so it can pay more interest to the already wealthy.

A meaningless Balance-Sheet transaction that costs nothing.

If banks can create money out of thin air (by making loans) which automatically creates bank reserves from the Fed then why can't the Government spend directly to create demand since the banks aren't lending (the private sector is de-leveraging)?

Of course there is always the seigniorage option…but it will never be used because the banks demand their share (skimming) and our leaders are in the tank for the bankers.

If our so-called "leaders" all think that the National Debt/Deficit is a problem then the working class/middle class is totally screwed, let alone the poor.

Idiots.


Do you mean the Mystery Study?

"If McKinsey is right about this, the underscoring of ObamaCare is roughly equal to the cost of [the] Iraq and Afghanistan [wars]."

Do you mean the Mystery Study?

"Another keyed-in source says McKinsey is unlikely to release the survey materials because 'it would be damaging to them.'”

http://krugman.blogs.nytimes.com/2011/06/10/the-case-of-the-mystery-study/

I just conducted my own study. It shows 100% of Republicans are bat guano insane. But like McKinsey I'm not releasing my survey materials either.

P.S. Vouchercare is not Medicare. It makes the healthcare cost crisis worse, not better.


Indeed

It does appear that the McKinsey study was "not intended to be a factual statement."


Let's be honest

He would "repair the rips in the social safety net" by moving Medicare to a premium support system for those under 55 today

If I replaced the US Army with a ham sandwich and called it the Army, that wouldn't make the ham sandwich the Army. Likewise, replacing the health insurance system called Medicare with a voucher for a certain amount of private health insurance wouldn't make the voucher system what is currently called Medicare. It's just false to say otherwise.


Seems rather silly to have an

Seems rather silly to have an oxymoronic conference (Center for a Responsible Federal Budget???) in a town that has refused to pass an actual budget since 2009. Instead, the town prattles on about "deficits", "revenues", "spending" in a whole series of useless conferences.

All to avoid their legal obligation to actually pass a freaking budget. So that they can instead have a continual partisan political argument based around a series of short-term "continuing resolutions" that avoids all difficult decisions entirely. Oh - and attend conferences to talk about "responsible".

What a den of thieves DC is. Hope the conference at least had some good taxpayer-paid donuts.


Hearing things

Deficit Hawks Heard Calls For Action

Son of Sam heard his neighbor's dog telling him to kill people.

Why is that a fair comparison? The dog didn't talk, and people like Paul Ryan aren't proposing deficit reduction.

What they are proposing is to take lots of money away from poor and old people, use the savings to finance tax cuts for corporations and the wealthy, and keep the deficit more or less at baseline levels.

I mean, really, if you think you hear a "Bush economist" talking seriously about deficit reduction, it is a pretty short step from there to hearing your neighbor's dog giving you orders.




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