Andy Sullivan — Tea Party Republicans Backed By Big Corporate Players Following Shutdown

Snake pit.

The Huffington Post
Tea Party Republicans Backed By Big Corporate Players Following Shutdown
Andy Sullivan | Reuters

David Henry and Lauren Tara LaCapra — Big Banks Prepared For U.S. Default

Behind the scenes there was no complacency.

The Huffington Post
Big Banks Prepared For U.S. Default
David Henry and Lauren Tara LaCapra | Reuters

Brian Romanchuk — Some Further Comments On My “Debt Ceiling” Model (Wonkish)

I just want to make some additional comments on the Stock-Flow Consistent (SFC) model for a hard debt ceiling I introduced in this recent article. (To be clear, the model dynamics are based on the models in the text "Monetary Economics" by Wynne Godley and Marc Lavoie. But since I am using the "beta version" of my own modelling framework, any modelling errors are my responsibility.)

As was pointed out in the comment by Ralph Musgrave, there are negative connotations associated with the word “debt”; hence the political appeal of reducing government debt. But one of the basic principles of Stock-Flow Consistent modelling (and hence Modern Monetary Theory (MMT)) is that financial instruments end up on two entities’ balance sheets. Government debt is the flip side to the “net financial assets” of the non-government sector; and so attempts to reduce government debt if the private sector is attempting to increase savings is likely to end badly.

Bond Economics
Some Further Comments On My “Debt Ceiling” Model (Wonkish)
Brian Romanchuk

AFP —China downgrades U.S. credit rating and accuses lawmakers of holding world hostage

A Chinese ratings agency downgraded its U.S. sovereign credit rating Thursday despite Washington’s resolution of the debt ceiling deadlock, warning that fundamentals for a potential default remained “unchanged.”

Dagong lowered its ratings for U.S. local and foreign currency credit from A to A-, maintaining a negative outlook, the agency said in a statement.

The announcement came after the U.S. Congress passed and President Barack Obama signed a bill that extends the nation’s borrowing authority and ends a two-week government shutdown.

“The fundamental situation that the debt growth rate significantly outpaces that of fiscal income and gross domestic product remains unchanged,” Dagong said in the statement, adding Washington’s solvency was vulnerable as old debts were still repaid through raising new debts.

“Hence the government is still approaching the verge of default crisis, a situation that cannot be substantially alleviated in the foreseeable future,” it said. 

Dagong made headlines in August 2011 when it lowered its main rating for US sovereign debt after Congress passed an earlier bill to raise Washington’s debt ceiling.

The agency, which is far less prominent than long-established Western competitors including Moody’s, Fitch and Standard and Poor’s, has been working to further raise its profile.

China’s official news agency Xinhua said Thursday in a bylined commentary that U.S. politicians had held the rest of the world hostage in the crisis.

The Raw Story
China downgrades U.S. credit rating and accuses lawmakers of holding world hostage

Agence France-Presse

— Exclusive: S&P Says U.S. Was Minutes From Falling To Rock-Bottom Rating By Leah McGrath Goodman

Key to making such decisions is John Chambers, the global head of S&P’s sovereign ratings committee and a member of the team, led by colleague Nikola Swann, that marked down America’s debt rating in 2011, from AAA to AA+. This time, if the House Republicans had not blinked, Chambers noted that S&P would have been forced to cut the debt rating again.

“If the government does discontinue debt-servicing, unless it is cured immediately, it goes into ‘selective default’,”said Chambers, citing S&P sources close to the heated talks in Washington. “Selective default” is the lowest of S&P’s 20 grades of untrustworthiness.

Newsweek
Exclusive: S&P Says U.S. Was Minutes From Falling To Rock-Bottom Rating
Leah McGrath Goodman

Brian Romanchuk — Why A Hard Debt Limit Is A Very Bad Idea

At the time of writing, the debt ceiling negotiations in the United States are in a state of flux. One idea that has been floating around is that the U.S. should just let the debt limit kick in, and have a “cold turkey” balanced budget. In other words, cut back spending to match taxes as they come in, so the amount of debt outstanding does not rise. As the chart above shows, even if such a policy was operationally possible (which I doubt), it would not merely be bad, it would be a disaster.

To explain these charts: they shows economic variables for a simulated economy (using a simple Stock-Flow Consistent (SFC) model I developed)....

Bond Economics
Why A Hard Debt Limit Is A Very Bad Idea

Brian Romanchuk

Mehdi Hasan — The World Is Laughing At The United States Over The Government Shutdown

Not a laughing matter.

"Civilisations," wrote the legendary English historian of empire [Arnold Toynbee], "die from suicide, not murder."

The Huffington Post
The World Is Laughing At The United States Over The Government Shutdown
Mehdi Hasan

Ian Millhiser — Read This One Document If You Want To Understand Why Republicans Followed Ted Cruz Off A Cliff

Conservative Evangelicals and Tea Party classical liberals are sure that this is the endgame for them, and they are convinced that if they don't win this one, they are history:  The country will take a direction that marginalizes them. Given that picture, they have no choice but to fight to the death.

As long as they can keep control one branch of government they can essentially shut the government down for as long as elections keep them in power or their coalition breaks.

Think Progress

Read This One Document If You Want To Understand Why Republicans Followed Ted Cruz Off A Cliff

Ian Millhiser

David Corn — Economist Mark Zandi on Default: "We Will Be Dooming Our Economy and the Entire Global Economy" For Years

McCain//Palin economic advisor Mark Zandi: "The point is that with each passing day the debt limit is not increased the more damage it will do to our economy. If lawmakers don’t raise the debt limit by November 1, the economy will fall back into recession. If they can't raise it by the end of November, we will be dooming our economy and the entire global economy to a wrenching economic downturn with implications for years if not decades to come."

Mother Jones
Economist Mark Zandi on Default: "We Will Be Dooming Our Economy and the Entire Global Economy" For Years
David Corn

David Edwards — GOP House members sing Christian hymn ‘Amazing Grace’ before pushing to derail Senate deal (via Raw Story )

GOP House members sing Christian hymn ‘Amazing Grace’ before pushing to derail Senate deal (via Raw Story )

Before pushing an alternative to a Senate bid to end the government shutdown on Tuesday, conservative Republicans in the House of Representatives reportedly sang “Amazing Grace,” a Christian hymn usually reserved for funerals. Rep. Darrell Issa (…

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Stephen Rosenfeld — Will Obama Abandon Tens of Millions of Seniors to Get a Budget Deal with Right-Wing Republicans?

It appears that the GOP’s price for reopening government and raising the debt limit is for Obama to “seriously consider,” as Cole said, an array of policy options targeting these needed and popular entitlements. This menu would include theunbalanced Simpson-Bowles plan of cutting retirement benefits while lowering federal income tax rates, especially in the top brackets. Or, as Obama has said, possibly changing the inflation formula that calculates Social Security increases, which would hurt the majority of seniors who have little lifetime savings.

These “grand bargain” proposals are nowhere near the political 50-yard-lines. They are far to the right, just as the shutdown and debt fight are driven by even more extreme right-wingers. Yet mainstream media coverage of would-be dealmakers is filled with revisionist history or worse, historical amnesia. Republicans who a year ago were seen as being out-of-touch—notably 2012 Vice Presidential nominee Paul Ryan—are today touted as “adults” that the White House can deal with. That’s how The New York Times portrayed Ryan this week, glossing over his slash-and-burn agenda that voters rejected in the 2012 presidential election.

There’s a real danger that the Republican extremists will move from their 5 yard line to their 15 yard line and stop there, bellowing that they have compromised while demanding lasting cuts to safety nets. Obama would then look intransigent if he keeps saying no.

AlterNet
Will Obama Abandon Tens of Millions of Seniors to Get a Budget Deal with Right-Wing Republicans?
Stephen Rosenfeld

The president will only agree to what he actually wants and then say he had to compromise. The Democratic establishment is part of the US Establishment that is represented by both the establishments of both parties.

Michael Stephens — What Happens if We Don’t Raise the Debt Ceiling? A Stock-Flow Analysis

What would that kind of radical austerity do to the economy? Michalis Nikiforos uses the Levy Institute’s macroeconomic model to estimate the effects of beginning rapid fiscal consolidation in the last quarter of this year and maintaining a balanced budget through the rest of the 2014 fiscal year (which is to say, through 2014Q3).

Multiplier Effect
What Happens if We Don’t Raise the Debt Ceiling? A Stock-Flow Analysis
Michael Stephens

John Carney — Is Washington crying wolf over a default?

John, this is not just Washington. Did you catch Jeff Cox's piece today on the doomsday scenarios outlined by financial professionals, you know, from Wall Street, which is in New York not Washington, DC. It's up on CNBC NetNet, and  I linked to it here. :)

Of course markets are not pricing in a default because they don't believe it will happen, and as many financial professionals are saying, as I am sure you are aware, there is no hedge anyway.

Actually, an extended shutdown, which some of the Tea Party is planning as a strategy to defund the AFA, is a real threat. Along with the sequester that is kicking in, it will reduce government spending significantly, and if carried on long enough, will become a serious economic damper. Talk to Warren about it.

CNBC
Is Washington crying wolf over a default?

John Carney | Senior Editor

John Harvey — Debt Ceiling Theatrics

What we are witnessing in Washington is a travesty. A small group of Republicans is holding our economy hostage. As usual, the casualties will be innocent, hard-working people who have absolutely nothing to do with this debacle. In fact, it’s already started.

I say the following as someone who is not particularly a fan of the Affordable Care Act: it was introduced, debated, passed, signed into law, and declared constitutional. Then it’s chief architect was reelected. Republicans have voted to repeal it over forty times, and each time they have failed. It’s done. It’s over. It’s law.

Of course, one should be permitted to argue for changes or even repeal, that’s how the process is supposed to work. BUT, to decide to shut down the federal government, throwing American citizens out of work, because you didn’t get your way time after time is despicable.

Forbes
Debt Ceiling Theatrics
John T. Harvey | Professor of Economics, Texas Christian University

John LIght — Ignore the Spin: This Debt Ceiling Crisis is Not Politics as Usual

Ignore the Spin: This Debt Ceiling Crisis is Not Politics as Usual (via Moyers & Company)

Never before has a minority party linked controversial legislative demands with a threat to shut down the government or imperil the global economy. But House Republicans would have you believe otherwise. In an op-ed in The Wall Street Journal this morning…

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Kevin Drum — The Weird Politics of Republican Hostage Taking

Here's the weird part: The (relative) moderates want to rely on the debt ceiling for leverage, even though breaching the debt ceiling would be far more catastrophic than a government shutdown. The (relative) extremists are shying away from the horror of a debt ceiling breach and just want to continue the shutdown. Doesn't this seem backward? 

It depends on what the real motivations are. Team Boehner claims that they want to use the debt ceiling as a hostage because it's better leverage. But Team Erickson doesn't believe them. They apparently think this is just cover. The moderates know perfectly well that a debt ceiling breach would cause a market panic that in turn would force Republicans to cave in. So they're only pushing this line because they want a way out of the fight, and this will do it. Conversely, a fight over the government shutdown could go on for a long, long time, and eventually Democrats might end up caving in.

I think that Kevin Drum is correct here. Any game theorists out there?

Mother Jones
The Weird Politics of Republican Hostage Taking
Kevin Drum

Howard Fineman — Heritage Action Bails On Debt Ceiling Fight [But Not Shutdown]

A crack appeared Wednesday morning in the conservatives' united front against President Barack Obama in the budget-and-borrowing crisis of 2013.

Michael Needham, CEO of the powerful group Heritage Action, said that he opposed conditioning a crucial vote to increase the government's borrowing authority on the group's main goal: defunding Obamacare.

Under questioning at a breakfast with reporters, hosted by the Christian Science Monitor, Needham, a product of the Stanford Business School, conceded that failure to raise the debt ceiling would indeed disrupt the global economy.

"I'm sure the markets will react negatively," he said, even if, as he suggested was possible, the Treasury could "prioritize" interest payments to foreign bondholders.

Rather than try to hold the debt ceiling vote hostage to the defunding of Obamacare, he said, the better "tactical" course for Heritage and other key foes of the administration is to continue to focus on annual spending -- and on allowing the full opening of government only if Obamacare is dismantled.

"No, we should raise the debt limit," he said, though he added that he would oppose an increase that extends until after the 2014 election, which is Obama's preferred outcome.
But with regards to the government shutdown, Needham insisted that his group would continue to oppose any continuing resolution -- no matter how short in duration -- that did not defund the health care law.

The Huffington Post
Heritage Action Bails On Debt Ceiling Fight
Howard Fineman

Randy Wray — Flash From the Past: Why QE2 Wouldn’t Save Our Sinking Ship

Here’s a piece I published in HuffPost back on Oct 18, 2010. A flash from the past–three years ago–predicting that QE2 would prove to be as impotent as QE1 had been. And here we are, folks. No recovery in sight–at least once you get off Wall Street.

We’re now set–yet again–to go off the fiscal cliff. Some have begun to talk again of the Trillion Dollar Coin–an idea President Obama has again rejected. He fears it would get tied up in the courts. So what? That would take years to settle.

Or perhaps he doesn’t want to break the logjam. Politically, he’s winning while the Republicans self-destruct.

However, here’s a better idea. We’ve got museums and national parks shut down. Why not sell them to the Fed? We can find a few trillion dollars of Federal Government assets to sell–and the Treasury can pay down enough debt to postpone hitting the debt limit for years. Heck, if we run out of Parks and Recreation facilities to sell, why not start have the Fed start buying up National Defense? How much are our Nukes worth? That should provide enough spending room to keep the Deficit Hawk Republicans and Democrats happy for a decade or two.

Economonitor — Great Leap Forward
Flash From the Past: Why QE2 Wouldn’t Save Our Sinking Ship
L. Randall Wray | Professor of Economics, UMKC

Joseph Cotterill — Breaking the full faith and credit, vs breaking the buck

...we are told not to fuss about those T-bills. Really? If money market funds aren’t treating T-bills as fungible with cash right now, that might not say anything particularly shocking about default risk. Though what are T-bills for but cash?

The Financial Times — FT Alphaville (Free registration required)
Breaking the full faith and credit, vs breaking the buck
Joseph Cotterill

David Lightman — Debt Limit? Why Should I Care?

People generally don't understand what it's all about, and a lot don't fear the economic fallout, according to a new United Technologies/National Journal Congressional Connection poll.

Sixty-two percent thought a higher debt limit means allowing more borrowing "for future expenditures," while 28 percent think it's to pay off debts already accumulated--the correct answer.

"With less than 10  days until the nation hits its borrowing limit, the poll found that the misunderstanding was rampant. It was shared by the young and the elderly, the rich and the poor, the college educated and those with only high schools educations," according to a poll analysis.

McclatchyDC
Debt Limit? Why Should I Care?
David Lightman — McClatchy Washington Bureau