I see things similarly to Jonathan Bernstein. We’re all waiting around to find out which option the Tea Party Republicans want to use to save some face before they surrender. The Senate is throwing different things out there to see if they can provide enough balm to soothe the nutters’ injured pride. On the other hand, I look at what Judd Gregg has to say, and I wonder if he’s right.
Former Senator Judd Gregg (R-NH) says Social Security checks will need to be halted before House Republicans will agree to a deal to raise the debt limit…
…”My gut tells me that we’ll need a weekend of drama — maybe a weekend of the government not paying its bills — politicians need drama to make something happen. As soon as social security checks don’t go out, the politics will change. I suspect it’ll take artificial drama to get closure past the House.”
“Boehner understands that a shutdown is bad for his caucus and that there’s something viable short of a shutdown but right now… it’s a 50-50 chance that we go into a few days of disruption.”Gregg said lawmakers don’t really care about the nation’s credit rating:
“Policy-makers only worry about a ratings downgrade at the margins. They don’t really care.
Yeah. We had a couple of shutdowns in 1995. Seems like we’re about due for another one.
Is it time to short some stocks?
Since at this point the Tea Party House members have, figuratively, pretty much doused themselves with gasoline, wouldn’t this just be the equivalent of themselves lighting a match in a final act of defiance? A willingness to commit political suicide on this principle does not seem to be tremendously supportive of evidence for a rational, or even a sane, mind.
But I’m sure the national narrative would be that “both sides share equal blame” for the negative consequences.
I don’t think it’s time to short stocks, but it might be time to put a little money aside to buy buy buy if there’s a panic.
BTW, the message on progressive blogs is PANIC PANIC OBAMA SOLD US OUT THE REPUBLICANS WON I TOLDJA SO! Again.
From what I hear, the sun will rise in the east tomorrow as well.
See my previous comment
Of course there’s really no such thing as ‘a weekend of drama’. Once the default takes place it will have a life of its own…something the Rep’s will never grasp until their own grandmothers will knock at their doors with their bags packed to move in.
Osama missed the boat with 911, all he needed to do was throw in with the Koch brothers.
Gregg isn’t saying that default will take place – he’s saying a government shutdown will take place. These are different things – the government shutdown takes place to prevent the default.
Basically, because the debt ceiling isn’t getting raised, spending needs to be turned off to the point where spending equals revenue and we’re generating no new debt. The spending that cannot be turned off by the administration includes things like debt service – constitutionally the government cannot put the full faith and credit of the US into question. And there’s no way that military spending in Afghanistan, Iraq or Lybia is going to be shut off to prevent a default – no president would go down that road. So a lot of other stuff from the budget WILL be shut down in order to get that spending down under revenue.
The Tea Partiers hear this and get no further – “woo-hoo”, they think, “we’ve now gotten spending under revenue”. Except that they already tried to DO that once (with the budget battle) and it turned out that even the Tea Party folks didn’t actually want to make the cuts needed (let alone raise the taxes) to get spending under revenue.
They’re completely shooting themselves in the foot – they have no understanding that this is the exact. same. fucking. battle. that they fought at the end of last year. Exactly the same – when they passed a budget where spending outstripped revenue they approved a de facto increase in the debt ceiling. When the government shutdown happens and they start getting calls from angry constituents perhaps it will finally sink in exactly what they’ve done here.
They’re morons. And most of the reporting on this situation has been equally moronic. The US is not going to default because we don’t have idiots in the executive administration. We’re going to get another government shut down so that there isn’t a default.
Now that will probably have an impact on things like our interest rate. But that’s because investors are going to be looking at us a bit skittishly because we’ve proven that our politics are completely fucking dysfunctional. And suddenly perhaps Chinese bonds or EU bonds will look more attractive than they previously did. Or perhaps not. We’ll find out I guess.
And that will occur because the 14th amendment forbids default.
The Tea Party has just succeeded, regardless of what happens, in raising everybody’s interest rates.
If I thought that interest rate increase would trickle down to ordinary savings accounts, it might be a good thing. But it won’t.
Nothing trickles down anymore but the Wall Street shitpile.
Yes. and more to the point – it will occur because the 14th amendment forbids a default and the Executive Branch, unlike the Legislative Branch right now, is taking that Constitutional duty seriously.
If we had a nut in the White House there might be a real risk of an actual default. But we don’t, so what we’re going to get is a shutdown. Which will be bad – as bad as any other shutdown would be – but not as bad as a full-on default.
And interest rates for US government borrowing will probably rise – we’ll be paying a “stupid dysfunctional government” premium on our bonds for the near future (maybe longer). But I’m surprised that the bond rate hasn’t been rising anyway given that all the evidence suggests that we should already be paying a “stupid dysfunctional government” premium on our bonds. So we’ll see – it could be that with the world economy the way it is we’re STILL not stupidly dysfunctional enough to make US Treasury bonds a worse choice than the other choices.
And no – of course it won’t trickle down into higher interest in savings accounts. The Fed isn’t going to be raising interest rates any time soon – it’s become clear that the majority in the Fed sees their job ONLY as inflation hawks and not anything else. Raising interest rates might lead to a miniscule amount of inflation in a couple of the economic models out of the University of Chicago, so any talk along that like is forbidden.
Today might be the day that bond investors get scared.
The interesting part about this whole event is that Jane Hamsher in talking to many people on the Hill and in the gossip media in DC has found no reports that the banks are leaning on any members of Congress. That would indicate that the reality of the situation has not sunk in on Wall Street. But I think that Judd Gregg delivered the wake-up call in an NYT report this morning.
Disagree. A govt shutdown may shove the funds around but there will be bills that go unpaid and I can’t get past the fact that those bills will represent a default. You can’t say some equal default and others don’t.
In the end Gregg’s representation of this as ‘drama’ is the lightning rod of the disussion. West Wing was drama.
Well that’s your problem, because those kinds of “unpaid bills” is not what a default is. A “default” is when debtors are not paid money they are owed – meaning that we’re not servicing our Treasury bills the way we promised. Shutting down, say, the National Park Service or the Social Security offices so that you’re not paying for them over a period of time is not a “default” – it’s “not spending money”. Congress allocated the spending but didn’t allocate the revenue – the choice is to borrow to make up that unallocated revenue (which you need to raise the debt ceiling to do) or not spend the money (which is what the government shutdown entails).
The scare about “default” is that we will leave debt unserviced because we don’t have enough revenue to pay for all of the services that Congress outlined in the last budget – and one of those “services” is debt service. To prevent an actual default they will shut things down to the point where, if they have to, all of the incoming revenue goes towards debt service. It won’t be that bad of course – our debt service bill is large but it isn’t ALL of our revenue – but it will be bad enough to hurt a helluva lot. Especially when ALL of the shutdown will be on the non-war spending side of things.
Actually, since these are bills already incurred that outpace the funds coming in without a ceiling raise, there is, as the charts point out, no way that existing coffers can pay defense, ss, medi/care/aid, the basics…you can shutdown all the parks you want but it won’t bring you to a bandaid moment of equalization. Just won’t.
Which is why new SS and Medicare payments won’t be made either. And some of the Pentagon spending (but not war spending) will be stopped as well. People will be furloughed and checks will not be cut.
I didn’t say it wasn’t going to be ugly – I said they were going to avoid a “default” – which is not servicing our creditors. Folks on SS and Medicare are going to get screwed in a shutdown – just like they would in any other shutdown. You might want to consider the temporary withholding Medicaid or SS payments as a “default” but it isn’t – a default is all about our debt service (which is what makes THIS shutdown different from previous real-and-threatened shutdowns).
More likely a deferral than a default in payment. There will be lots of low-level civil service folks having discussions with low-level federal contractors about when payments will occur and how. What will happen is that contracts that have not been put out for bid and those that have bids but vendors not selected most likely will be canceled until the time that they can be rebid.
There will be a lot of little bandaids. The brighter civil service managers will have already prepared for this contingency.
And what will continue to come in is a substantial revenue stream. The bloomberg.com interactive exercise in paying August’s bills was instructive in showing that it could be done.
Making it through August with people seeing where the deferrals of payment are coming makes it easier to get some realism in September or October.
Who you don’t want to defer for right now are the IT contractors who process Social Security payments.
And you want to have a good plan for which IT systems can be shut down and which ones can’t.
The executive has the advantage in that it has seen this coming since the discussions in March.
I would recommend to any President that he not shut down the National Parks in tourist season. A lot of folks who make a living of tourism in hard-red Republican areas might change their minds about the President if he did that one thing. They are already hurting from state parks being closed.
I’m so old I remember when Judd Gregg was one of the “responsible” GOPers.
McMegan via Drum runs down some things that will happen in this shut down IF as the GOPers want, we don’t stop military payments, SS, medicare, veteran checks, and debt interest:
–You just cut the IRS and all the accountants at Treasury, which means that the actual revenue you have to spend is $0.
–The nation’s nuclear arsenal is no longer being watched or maintained
–The doors of federal prisons have been thrown open, because none of the guards will work without being paid, and the vendors will not deliver food, medical supplies, electricity, etc.
–The border control stations are entirely unmanned, so anyone who can buy a plane ticket, or stroll across the Mexican border, is entering the country. All the illegal immigrants currently in detention are released, since we don’t have the money to put them on a plane, and we cannot actually simply leave them in a cell without electricity, sanitation, or food to see what happens.
–All of our troops stationed abroad quickly run out of electricity or fuel. Many of them are sitting in a desert with billions worth of equipment, and no way to get themselves or their equipment back to the US.
–Our embassies are no longer operating, which will make things difficult for foreign travellers
–No federal emergency assistance, or help fighting things like wildfires or floods. Sorry, tornado people! Sorry, wildfire victims! Try to live in the northeast next time!
–Housing projects shut down, and Section 8 vouchers are not paid. Families hit the streets.
–The money your local school district was expecting at the October 1 commencement of the 2012 fiscal year does not materialize, making it unclear who’s going to be teaching your kids without a special property tax assessment.
–The market for guaranteed student loans plunges into chaos. Hope your kid wasn’t going to college this year!
–The mortgage market evaporates. Hope you didn’t need to buy or sell a house!
–The FDIC and the PBGC suddenly don’t have a government backstop for their funds, which has all sorts of interesting implications for your bank account.
–The TSA shuts down. Yay! But don’t worry about terrorist attacks, you TSA-lovers, because air traffic control shut down too. Hope you don’t have a vacation planned in August, much less any work travel.
–Unemployment money is no longer going to the states, which means that pretty soon, it won’t be going to the unemployed people.
So I think it’s worse than a mere “shutdown” as we have experienced it recently. I’ve seen comparrisons to a default in the 1970s that raised interest rates 62 basis points. I suppose that would take care of the non-existent inflation that the neo-libs are all worried about.
Ah cain’t wait!!!
AG
P.S. It ain’t gonna happen.
Bet on it.
Not on that level, it’s not.
Word.
This.
There will be some workaround. And you can bet your sweet ass that prisons won’t spew felons or Strykers sit in Afghanistan bone dry of fuel.
Us little people out here? We’ll feel some hurt, count on it.
That’s what Social Security recipients are for. Where else can you save an instant $300 billion a year just by shutting off checks.
BTW, the bankers are going to feel some hurt too. They depend on us for their money. If the flow stops to us, it stops to them.
The march of folly continues.
Won’t happen.
Alla them SS recipients vote.
Alla them.
Next idea?
AG
I shoulda put on the snark tags.
What is likely is a delay in Social Security payments because the IT contractors that process them cannot be paid. So there “will be a delay in payment”.
Enough to wake people up but not enough to make them angry at the President.
Obama’s perfect popular pitch put to the test once again.
Will he please 51% or more of the likely voters?
So far he has squeaked through.
Will he make it through again?
We shall see.
AG
P.S. I kinda thought that your comment was snark. But it was so close to the truth of the matter that it rubbed up against being “stark” instead of “snark.”
As in “the stark truth.”
A little truth serum injected into many of the RatPub congressmen and senators would produce some lovely variations around the theme of:
OH yes!!!
Ka CHING!!!
AG
Short News Corp.
This whole deal is stressful. I keep hoping Obama is playing Spock chess but he is talking about a temporary debt increase now. Just when I think we have their backs against the wall Obama’s nature is to “let em up easy”…or he knows for sure Boehner can’t get enough votes to pass anything…or “never waste a crisis” and he is leaning to the right to use the “crisis”.
I doubt they’ve asked how they are going to save face. I doubt they’ve thought enough steps ahead to have a clue as to what might happen. They played no “what-if” scenarios… like what if those saying default might be catastrophic weren’t lying?
In their little tea party sized brains it’s enough just to show resolve and go down with the ship.
Their weakness is that they think they are going to be admired for or proven right for their monumental stupidity. They’ve not imagined a scenario by which even their own supporters might want to tar and feather them.
Holding out longer only serves to magnify the licking that’s coming. It should be interesting.
No, Booman. It’s not.
But in might be time to darn some socks…
AG
Even if the shut down only lasts a weekend, the interest rate with which we borrow will go up and stay there. Thus, the deficit will increase. The value of the dollar will decline and may not recover even after the debt ceiling is raised. We are screwed.
If all that happened was a lower dollar, that wouldn’t be bad. A carbon tax would be better, but it would discourage oil purchases, and exports would get a tailwind.
The rest of the package, not so much. I locked the HELOC (kids’ tuition for the last six child-years) today. LIBOR spiked in late ’08-early ’09, and it’s got a LIBOR-tied variable rate.
Thats what I keep thinking. This is a mess. No reason for it. Talk about reading into an election result. The Republicans think people want higher unemployment and another recession?
Not the people — the GOP. So they can sweep the 2012 elections riding a wave of fury at the (Democratic) incumbents.
Yes, and when the bad things happen, the GOP will attempt to pin it on Obama; and I’m beginning to think that the House is going to use whatever happens as an excuse to impeach; not that impeachment will have any meaning to any but the tea party since the Senate will just ignore it. The House GOP also seems to be assuming that the media will continue in their role as enablers and if the media does continue to play that role, the GOP may well effectively pin the crisis on Obama–not so much that the debt crisis is Obama’s fault but that Obama is incapable of governing effectively.
Aside from the rest of your comment, the Senate can’t “just ignore” impeachment. If the House were to impeach the President, the Senate would be required to try him. The House has sole authority to vote to impeach, the Senate to convict.
Carelessly worded. By ignore, I mean that nothing will come of it. They’ll try the case quickly and as pro forma as possible, vote, and be done with it.
they’re forgetting that they are most of the incumbents. Over tpm a commenter named It’s Pat coined the useful phrase for GOP the Get Obama Party
Don’t borrow.
Duh.
AG
At this point even if everyone just agrees to a clean deal, the credit ratings pooh-bahs say our interest rates will be going up. Now they want sizable cuts along with the debt ceiling deal, or else. Two questions, when did they begin dictating policy, and haven’t they failed at their jobs already?
Two answers: Since the days when Alexander Hamilton ran the Treasury, and yes, spectacularly.
Well before Alexander Hamilton, considering the reason he wanted a national debt in the first place was so that people would be willing to lend to the United States at favorable rates, leading to the emergence and expansion of the US as a great power.
All of the Founders had their faults and strengths, but had Hamilton not gotten his way on Assumption, we’d be even worse off.
Or we could have lived in an agrarian paradise and gone bankrupt like Tommy Jefferson.
Two answers: Since the days when Alexander Hamilton ran the Treasury, and yes, spectacularly.
…and two posts!
good work there,
They had Moody’s and the S&P in Hamilton’s day? Who knew? I know Treasury directs policy but ratings agencies? The point is we’re screwed either way now, big cuts or a raise in interest rates. And I liquidated my stocks last year so I missed out on some of the recent gain but I slept better.
I believe what he meant was, “Rich people will dictate interest rates to their own benefit.” Ratings agencies started in the early 1900’s, although S&P originated around 1860.
And yeah I got out around 2009. I figured I’d get back when I had solid investment income I could afford to lose, and when things aren’t so insane.
I knew what he meant, I was trying to be funny. It’s hard to be funny though when you’re worried. Another problem with all this debt ceiling/deficit hysteria and indecision is it’s affecting small business confidence. We own one and the last two weeks have been horrendous on sales, everyone’s waiting for the next shoe to drop. They talk about lack of confidence a lot re tax increases, I don’t believe that for a second, it’s lack of confidence in our “leaders”. Every day a new deal to game out that won’t pass anyway.
BooMan, you have stocks? Really?
No, it’s too late to short stocks. Eric Cantor signaled the end of that time.
Really, it’s time to invest in people, in their doing stuff in their local communities and in the building of skills that will be needed when the economy turns up.
Paper assets are in a bubble. That’s why everyone’s so nervous and wanting to get their share of the government.
Meanwhile, this is going on:
Wiki City – How citizens can improve cities
And this:
Why pay when it’s free?
I have a 401(k) account. It’s not like I’m day trading.
Well then, shorting’s not a real option, is it? Your “fund managers” will make those decisions for you.
And unless you are in dire need of cashing that puppy out to pay bills (and the 10% penalty), what happens in the next two months is kinda irrelevant to the entire life of the account. Conditions change over decades.
There are some folks shorting investments who are going get caught in a bind. Not everything deserves shorting. And that’s essentially what investors have done to the entire global economy.
I have been missing your take on things today. Do you have any thoughts on the latest happenings?
We’re at the point in the opera when we are waiting for the fat lady in the Viking helmet and long blonde braids to sing.
I doubt that any of the folks in Congress, or the President, know how this will play out. Essentially Eric Cantor said that he was not going to play his part in the kabuki, and the Tea Party caucus said that they had a different script for the kabuki. In form, it will be like the denouement of the movie Blazing Saddles. But without the limousine.
It’s gone past SNAFU .. through TARFU .. all the way to FUBAR .. and close to beyond that .. to pretty soon .. some Mad Max type place
Time to begin welding up the homemade armored dune buggys, eh?
Come on, girls!
Platoon
Well, not Pete Peterson himself, but one of his minions:
Is a Sovereign Credit Event a Disaster?
Short term – medium term – long term
Watch for those ideas to appear in the discussion very soon.
So, people on SS and Medicare are badminton birdies in this mess?
How sweet.