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Tuesday, July 19, 2011

Gang of Six plan sends debt ceiling crisis in new direction



We were close to having a resolution of the debt ceiling crisis with the McConnell-Reid plan, then the Gang of Six unexpectedly showed up and now everything is up in the air once again. The president, as is his habit, is snatching defeat out of the jaws of victory by praising the Gang's plan. There's not too much info on it, but I found this on the Firedoglake website. CNBC is praising the news as a "breakthrough" and "possible deal." (They know nothing.)

Set aside whether or not there will be the required 60 votes in the Senate to pass this (although some Republican senators are saying it will "easily" pass), or enough support in the House, let's just assume it passes.

Here are some of the early details of the plan:

Immediately implement aggressive deficit reduction down payment of $500 bln. (Not sure if all of this happens right away.)

Strictly tighten the government’s budget processes
Impose spending caps that can only be exceeded by a 2/3 majority vote
Restrict the use of emergency designations that circumvent caps

There's a lot more, but it basically looks like a gold standard in sheep's clothing. It's a recipe for economic depression or at best, long-term high unemployment and stagnation.

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10 comments:

  1. CrakeJuly 19, 2011 at 4:03 PM

    Have to cross fingers this is well thought out in its political calculus. For example, a grand plan, championed by President Obama, that all the mainstream pundits love. Everyone reads and hears pundits praising it and see Obama as the one to finally curb all our “evil” debt. Senate approves it but because it raises taxes, the House defeats it (this is the calculus part – already know this will happen by the degrees of the numbers.) Then Obama can agree to some minor thing the House will do, spending stays the same and the House is seen as being the ones to blame that we did not get this plan that everyone thinks is great.

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  2. Matt FrankoJuly 19, 2011 at 4:27 PM

    "They know nothing" LOL!.....

    "Immediately implement aggressive deficit reduction down payment of $500 bln."

    How they would accomplish this would be key, and what they mean by "immediate"... I cant see the House going for anything that includes any type of tax increase... no way... that may leave spending cuts only.

    And if the Senate cant come up with anything that excludes tax increases, even with the President on board, the House may throw the US into "default"...

    Still "not over 'til it's over".... Resp,

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  3. wh10July 19, 2011 at 9:03 PM

    Guys this is TOO funny!!!

    http://balkin.blogspot.com/2011/07/obamas-top-secret-plan-to-solve-debt.html

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  4. wh10July 19, 2011 at 9:27 PM

    I'm new to the blogosphere, but wow, that article above is written by a constitutional law prof at Yale it seems. Again- congrats MMTers on the legit recognition.

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  5. Matt FrankoJuly 19, 2011 at 10:43 PM

    Tom,

    Bill Clinton must have read your take-down of Laurence Tribe's drivel:

    http://blogs.abcnews.com/politicalpunch/2011/07/bill-clinton-i-would-use-14th-amendment-to-raise-the-debt-ceiling.html

    “I think the Constitution is clear and I think this idea that the Congress gets to vote twice on whether to pay for [expenditures] it has appropriated is crazy,” Clinton said.

    The Obama White House, however, has adamantly denied that the 14th amendment is an option."

    big difference between Obama and Clinton

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  6. GLHJuly 20, 2011 at 4:41 AM

    Republicans should be very careful about making new limits on the debt ceiling. If their restrictions help lead us into the next leg down and they take office, they could be setting themselves up to take the blame for the next depression.

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  7. GLHJuly 20, 2011 at 5:06 AM

    I have a question. The other day while Bernake was being questioned Ron Paul asked about the gold in Ft. Knox. That caused me to wonder if there is no debt limit increase, couldn't the Treasury begin selling off that gold to cover the expenses above the ceiling?
    Just think, the government would be selling into a bubble, and the gold bugs may go into retreat.
    What is the law on the Tresury selling gold?

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  8. Matt FrankoJuly 20, 2011 at 8:10 AM

    GLH,

    Yes, i believe govt/Treasury can sell govt assets to get increases in the TGA account at the Fed to be able to spend out of that account... gold/ports/national parks, space shuttles, etc...

    Greece has done this to an extent...

    Tom has referred to this as "privatization of the commons"

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  9. Tom HickeyJuly 20, 2011 at 2:41 PM

    GLH, I am not sure on the parameters of this, but the central bank (Fed) is the one that buys and sells gold, not the Treasury and it does not figure in the national accounts. It's just a change in the composition of the Fed's assets. How the Fed would get the reserve to the Treasury account without the Treasury supply an asset to the Fed is the question. The Fed cannot just credit the Treasury account.

    Maybe someone else is more up on this than I am.

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  10. CrakeJuly 22, 2011 at 7:51 PM

    House Speaker quits talks. The framewalk that I threw out (see first post) is playing out?

    ReplyDelete