Tuesday, August 9, 2011

Oh, and Put It On the Children's Tab

[by Mr.Hengist]

Republicans are a bunch of terrorist hostage-taking criminals for trying to impose their ideological insanity upon the nation, according to the excitable and apoplectic Left. In actuality they failed to bring fiscal sanity to our budget process - caved - and the can has once again been kicked down the road. Europe is circling the fiscal drain, America is trying to catch up with them, and Eugene Robinson is mad at the GOP. Oh, and the sun rises in the East, and - there! - I'm done with trite clich├ęs for the time being.

Let’s have a look at the talking points Robinson has regurgitated for us this time:
“The so-called analysts at Standard & Poor’s may not be the most reliable bunch, but there was one very good reason for them to downgrade U.S. debt: Republicans in Congress made a credible threat to force a default on our obligations.”
Well, no, they didn’t; that power rests solely with the POTUS. In the event that the Federal Government does not have enough money to pay all its bills, the POTUS has the legal authority and obligation to allocate what monies are available on a discretionary basis. In that context, Robinson’s statement could be taken to mean that he believes the POTUS would not have prioritized our debt obligations, but that would be giving him too much credit.

“This isn’t the rationale that S&P gave, but it’s the only one that makes sense.”
Like most Liberals, when their opposition states something which doesn’t gibe with their worldview, they discard what they’ve been told and substitute their own fantasies. I believe him when he says that S&P’s rationale doesn’t make sense to him, but the problem lies with Robinson, not S&P.

"Like a lucky college student who partied the night before an exam, the ratings agency used flawed logic and faulty arithmetic to somehow come up with the right answer."
In short, Robinson likes the result, but the reasoning is in conflict with his worldview, so he's openly discarding it but keeping the conclusion. The right answer, for Robinson, is that America should be downgraded because of the intransigence of the GOP, so long as that downgrade can be pinned on them. To the extent that S&P was critical of anything that might make the Left look bad - well, that's just crazy talk!

Take a moment to review the actual document issued by S&P. S&P’s rationale for the downgrade is that the deal won’t stabilize our fiscal situation, and with an additional $2.4T increase in debt, that’s correct. They also say that the differences between the parties are “contentious and fitful” and that the debt ceiling has become a political bargaining chip, and that’s also correct. As far as bridging the chasm between revenues and spending, S&P notes simply that the two sides can’t agree on spending cuts and/or tax increases. S&P does not take sides in that debate.

“And no, I can’t join the `we’re all at fault' chorus. Absent the threat of willful default, a downgrade would be unjustified and absurd. And history will note that it was House Republicans who issued that threat.”
Not exactly true, since the decision to default would lie with the POTUS. At any rate, history will also note that the POTUS threatened to veto any bill which did not extend the debt limit sufficiently to get us past the next election. To get him past the next election - and the Left has no problem with that.

“There is no plausible scenario under which the United States would be unable to service its debt.”
That's true - in medium term. Not servicing the debt would be a choice, not a necessity, and that choice lies with the POTUS.

“If political gridlock were to persist, our government would be able to pay bondholders with a combination of tax revenue and funds raised by selling more Treasury bills.”
Tax revenue alone would cover our debt obligations and avert default, albeit without enough left over to meet other obligations. Treasury bills could not be sold, however, unless they came from the Social Security “Trust Fund” in which case every T-note sold would lower our debt by equal measure, allowing for us to borrow that much more.

“And in the final analysis, as Alan Greenspan noted Sunday on `Meet the Press,’ the United States `can pay any debt it has because we can always print money to do that.’ I know this kind of talk is horrifying to Ron Paul and others who believe we should be walking around with our pockets full of doubloons, but most of us find paper money more convenient.”
... aaaaand, just like that, there it is. No apology, no regret, no pleading for the possibility of considering the necessity of doing the unthinkable. That last-ditch seawater-on-the-reactor cut-off-your-leg-to-save-your-life nuclear bomb of fiat currency mismanagement is casually put on the table with snide contempt.

Sure, the Treasury could simply create as much money as we owe and pay it off that way, and if it really were no big deal, why isn't Robinson wondering why we haven't done it already? $14T in the hole? Clickety-Clack, the Treasury can create that amount. Heck, why stop there? Why not turn that minus sign into a plus sign! Why not fill our coffers with $140T and fix this deficit problem for the foreseeable future?

The answer is this: “printing” our way out of this would rightfully be considered a default, both by the rating agencies and the rest of the world. It would literally destroy our economy, and, by the way, we’d never be able to borrow again. The result looks like Zimbabwe, and here, Robinson floats the idea as a viable alternative.

Eugene Robinson: charitably speaking, you are an idiot.

“What happened this summer is that Republicans in the House, using the Tea Party freshmen as a battering ram, threatened to compel a default.”
Wrong, wrong, wrong. Aside from the repetition of the false assertion that the Congress could force a default, Robinson has the dynamics of this completely inverted. The Republicans did not “use” the Tea Party freshmen; the Tea Party freshmen held firm and forced the Republicans to get a better debt deal. He writes in the WaPo, but does he even read it?

“More accurately, they demanded big budget cuts as the price of raising the debt ceiling. If the Senate and President Obama did not comply, the Treasury’s access to capital through borrowing would have been cut off.”
Well, one could have simply said so, but what’s a Liberal opinion piece without throwing up partisan hyperbole?

“The government’s cash flow would have been slashed by 40 percent, leaving not nearly enough to fund essential operations, pay entitlements and also service the debt. Somebody was going to get stiffed. Paying interest to bondholders could have been given priority over competing obligations such as salaries for our people in military service and Social Security checks for retirees. But for how long?”
OK, so did the House Republicans threaten to default or was default always an option of the POTUS? As Robinson admits here, it was always an option. Social Security, on the other hand, was never threatened; as I described above, the “trust fund” – which has in excess of $2T – is guaranteed convertible into U.S. dollars and allows for an equal amount to be borrowed through the sale of regular Treasury bills. Sure, it exchanges one IOU for another, but the SS recipients would get paid. In fact, we could do that and not touch tax revenues at all, for a while.

That, by the way, is the answer to, “But for how long?” For a while, until we can get more tax revenue and/or cut our spending. A better question would be, "How, by Crom, did we get to the point that 40% of our spending has to come from borrowing?" There's a reason this keeps getting called "unsustainable." It might be a debate worth having whether we should increase taxes or not, but when our elected officials keep finding new entitlements to grant (as noted below), it's easily demonstrable that no amount of taxation will ever sustain the nanny state they envision.

“S&P, however, gave a host of largely bogus reasons for its action. Why am I not surprised? This is a firm that aided and abetted the subprime crisis — and the devastating financial meltdown that ensued — by giving no-risk ratings to dodgy securities based on mortgages that should never have been written. The firm’s credibility is spent, as is that of the other ratings agencies, Moody’s and Fitch.”
The reasons S&P gave for the downgrade were far from bogus, but Robinson is correct in that the ratings agencies were complicit in the financial meltdown. However, the assertion that S&P’s “credibility is spent” is contradicted by the ensuing drop in the market. Obviously not, then, eh?

“Initially, S&P pinned the downgrade on the sheer size and weight of the mounting federal debt. Treasury officials noticed that S&P had made an error in its calculations, overstating the debt burden by a whopping $2 trillion. This discovery negated the ratings firm’s rationale — so it simply invented another.”
Reading this, you might be led to believe that those numbers alone formed the basis of S&P's rationale for a downgrade. Not so; Robinson is outright lying here. I've already linked to the original S&P report and it's worth reading. What's really more compelling here is that this “mistake” appears to be anything but a mistake. Here’s what appears to have happened: S&P used actual budgeting numbers vs. the Administration’s having used CBO numbers – and the CBO uses assumptions dictated by the WH, and those assumptions are completely implausible (The WH numbers assume that baseline expenditures grow with a nominal GDP increases of 5%/yr while inflation sits at 2.5%.) This is what Liberals are calling a “math error.” S&P revised that part of the budget analysis as the Feds implicitly threatened to strongarm S&P by holding hearings.

“Instead of basing its argument on economics, S&P made an ill-advised foray into political analysis. In its `revised base case scenario,’ the firm assumed that all the Bush tax cuts will remain in place past their scheduled expiration at the end of next year — even for households making more than $250,000 a year. But Obama vows not to let this happen, and S&P apparently fails to understand that after the election he will be in the strongest possible position to stand firm.”
It's amusing to read Robinson chastise S&P for making "an ill-advised foray into political analysis" when his own political analysis is so deeply flawed, and then to see that he in turn has no qualms in blundering about on his own ill-advised forays into economic analysis. You’ll recall that, the last time around, Democrats wanted to keep $298B of the $366B in “Bush” tax cuts. The Dems also promised to eliminate the Doc Fix as a part of the “savings” of Obamacare, but then reneged on that in a matter of months. Really, when you consider all the things POTUS Obama said he’d do, or not do, and then ended up doing the opposite – well, one can hardly blame S&P for a lack of faith. Heck, even in the midst of this Mexican hatdance around the fundamental problem of unsustainable entitlements the Obama Administration created a brand new entitlement.

“Obama should have made clear from the start that if necessary he would take unilateral action, based on the 14th Amendment, to ensure there could never be a default.”
Actually invoking the 14th Amendment for this purpose would have precipitated a constitutional crisis and, if his own party didn’t have control of the Senate, would surely and rightly have led to his impeachment. What’s more, the validity of any T-bills issued under such circumstances would have been of dubious authenticity and would therefore have commanded a high premium for the risk of their turning out to be worthless. Another excellent plan, Robinson.

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