Monday, July 25, 2011

US House Takes Economy Hostage

As I understand this, Congress has been using its credit card to fund a whole lot of things.  Some are required by past agreements - like Social Security and Medicare.  Others are discretionary, like sending US soldiers to Iraq and Afghanistan.

And they've spent past their limit.  This has happened before and a mechanism has been put in place.  Congress simply passes legislation that raises the debt limit.  (You'd think the fact that they've passed bills authorizing all the spending would be enough, but when they hit a magic number, the president has to say 'pretty please' to be able to carry out all they've told him to do.)

If they don't do that, the US government's income won't be enough to cover all its debts.  The government will have to sort through the bills coming due and decide which ones to pay and which ones to stall or skip altogether.  Up until now, the US economy has been the most dependable and investors - individuals, corporations, and governments - have chosen the US economy as a safe place to invest.  Because of the US's reliability, they've been able to sell bonds and other financial instruments at relatively low interest rates.

But if the US starts to default on some of its debts, then its credibility will go down.  And its credit rating.  A slow cascade of collapses is likely to happen.  Government contractors who don't get paid, will stop paying their creditors and both will lay off employees.  Those employees will spend less money and the places where they normally would spend money will run into trouble.  The recession will get worse.

That's the scenario economists of all stripes have been painting.  The Republican leadership has even said not raising the debt limit is unthinkable.  A Wall Street Journal article said it threatened the US' special standing in the world even.

BUT, there are enough Republicans in the House who have decided that if it is so unthinkable, they can make demands on the President and he'll have no choice but to comply if he wants to raise the debt limit.  So, instead of just passing the bill to increase the debt ceiling to equal the budgets they've passed, they've taken this vital piece of legislation hostage and have told the president that if he doesn't meet their demands, the debt ceiling increase is dead.  

Sounds like a kidnapper or a hijacker to me.

Essentially, they are saying, if you don't meet our demands, we will let the air out of the American economy.  We've got the debt limit increase hostage, and if you don't bow to our demands, we're killing it.  We know it won't be pretty, they are saying, but the ends (apparently) justify the means.  Yes, we know people will get hurt, but they'll get hurt worse in the long run if we don't reduce the national debt. The President agrees the debt needs to be lowered.  But he understands that government spending, during an economic slump, is necessary until the economy revives.  And he doesn't want to hurt people already hurting.  So he wants to include taxes on the wealthiest Americans as part of the debt lowering strategy.

I've looked up terrorism and there's little agreement on a definition.  It seems officials want definitions that paint their enemies as terrorists, but are careful that they won't fall into that category themselves, so they can't agree.   While the House Republicans seem to be acting on their conservative ideology (one of the definitions of terrorists) one might argue that they aren't using violence to terrorize the population (another part of the most basic definitions of terrorism.)  So, technically, we might not call them terrorists.

But if they cause an economic crisis that worsens the US economy, I'd argue that they will cause far more deaths (because of cutbacks in services at all levels) and damage than the terrorists who took down the World Trade Center.   House Majority Leader Eric Cantor, for one, is willing to risk the standing of the US economy to get what he wants.  Back in April:
In exchange for raising the debt limit -- long a routine move allowing the Treasury Department to borrow more money -- House Republicans will demand further concessions to shrink the government, Cantor said.
"There comes at times leverage moments, a time when the president will capitulate to what the American people want right now," he said. "They don't want to raise taxes, they don't want borrowing to continue out of control."
[I went to the original source - Fox News - but could only find their transcript which was substantially the same, but either they garbled it, or they quoted Cantor verbatim.  It seems the Huffington Post (above quote) captures it pretty accurately and more eloquently.] 

It's common for politicians - and all those trying to wield power for whatever goals - to make their demands in the name of the people, rather than to say, it's simply what they themselves want.  Cantor calls it a "leverage moment," and from a purely utilitarian perspective, it is.  Other leverage moments include when someone has a gun at your head on a dark, empty street.  Or when someone's kidnapped your spouse and now demands $200,000 in unmarked bills by Friday or else.

(While there are times when 'leverage points' might reasonably be taken advantage of, one that risks the US economy and the well being of people around the world, is not one of those.  However, I would say that the Democrats need a modern day Tip O'Neil to help them work the rules of the House to counter this.)

I just don't see how this is different from blackmail.  If you don't do what we want you to do, we're going to inflict severe damage on the economy.  These are small minds at work.  The way they solve problems is by force, by bullying.  By tearing down, not by creating new options to work this out. These guys don't trust anyone who doesn't think like they do.  Maybe, because, like most of us, they believe others think like they do, and they think:  "Take no prisoners."  There's a reason they are called "Young Guns."   Subtlety and nuance doesn't seem part of their grey matter.

That's how  I see it.  Could I be wrong?  It's happened before.  If we default, will the world sigh a breath of relief knowing the Republicans are finally getting the US finances in order?  I wouldn't bet on it.


  1. The "Debt Ceiling" made simple:
    Page 18 shows budget numbers and transition since 2001.

  2. Well, the thing I still don't understand is that how come that the USA has the best scores at Fitch, Moody's and other rating agencies, because if we consider, your country is 8 days away from bankrupcy. You are bankrupt when you have to delay paying the burdens. Greece has just gone bankrupt technically (not admitted though) and they got the second worst score from one of these groups. I don't say the US should get the same score as Greece but the US is not among the best debtors for sure.

    I also don't understand why these institutes are so powerful. Greece has been among the best debtors according to them for a very long time, even when it became obvious that the country was in trouble.

  3. Oh, and I don't want to blame you, but for me, you seem to be a bit biased in this question. That's right to me, because people have opinion about most of the things, but so far you have mostly been "neutral" in my opinion.

  4. OFF POST WARNING!!! to Steve's regular readers.

    Steve, didn't want to try to find the post where you last discussed perception and language so I'm plopping this comment here. My apologies to your readers.

    I'm writing regards the Alaska bear attack story now in European press (even with Norway lead stories). I've read several accounts now, and I was so amused (at first) by something said by one of the boys I had to post a note to you.

    The boy who first encountered the bear after coming round a bend in the stream he and his fellow hikers were walking, mentioned that at first, he thought he saw a 'haystack' in the water in front of him. He added that in the moment he realized that it couldn't be a haystack, the bear was upon him.

    Now, I could leave that as an account of a bear attack. But beneath his comment is something far more profound about human memory and perception. Having grown up in Alaska, having been in its wilderness many times, I KNOW beyond any doubt that I would NOT have had 'seen' a haystack.

    My experience trained me to react to threat of a bear. And that got me thinking. When I failed to answer a question correctly in my law class a few weeks ago because I understood the word 'department' differently than its commonly used in Britain, how many other things (like haystacks for bears) do I engage each and every day concepts that work perfectly well in my culture of origin but not removed from it?

    If haystacks and bears can be switched in our mind when it is life-threatening to mix those images, do we experience these flips in the everyday given dissimilar experiences, age, cultures and language?

    Finally, to bring this to close on the current Norway situation and our thread on anger, isn't it easier for we humans to live among those like ourselves? It seems difficult work to exchange bears for haystacks.

    Anders Breivik chose nationalism. I'm very afraid we find that easy.

  5. Ropi, I have been worried about the economy collapsing, and then I realized that Wall Street will rake in big bucks on it and not let us really collapse. (Big bucks = lots of cash. . . buck is a term meaning "dollar.") Interest rates will sky rocket and somebody in power will simply benefit.

    Do other countries want us to pay off our debt, or do they like us paying interest?

  6. KC, you know bailing out is not sustainable on the long run. There will a time (maybe not now) when extra capital won't solve the economic problems. The USA has the tools to play according to their rules (and ignore some economic rules) but the World is changing, so one day your country may be in serious trouble.

    I am making an economic project and my teacher warned me not to mention the US as example because of this.

    If your country didn't affect World economy, I wouldn't care, but I wouldn't be happy if I could say "I told you", but my country would be in recession again.

  7. Steve- I am late to comment here because this reminded me of a few things, many of which are touched on in this essay :
    I am so irritated by the invocation and misrepresentation of "the will of the American people" / "what the American people want " by such as Mr Cantor who routinely ignore information which points to, contrary to his view, some of the intersections where Americans really do have majority views - where vast, different groups do agree- like the debt ceiling thingy, Social Security, etc. While it is routine to ride the "will of the American people" horse around the floors of both Houses of Congress , it is just flat wrong to clap one's hands over one's ears and chant la-la-la-la when the vast amorphous thing which is the American people do agree on something well enough to voice it which disagrees with one's own agenda.
    There ARE distinct elements of blackmail and so on in the current behavior of so many in the US House as well as indications, as some have said, of playing chicken with the economy to advance ideology over compromise.
    What I more and more see with remarks like "leverage moment" is a mindset completely wedded to the extension of market forces language and behavior into realms of human experience and life which are at bottom NOT economic.
    I see a lot of "sharp practice" moments by legislators . It is deeply disturbing.
    I also see a cognitive dissonance from those like Mr Cantor when it comes to what is tidily called "excess mortality" in the essay linked above.
    I am disgusted.

    Alaska Pi

  8. Help! I can't keep up today. Writing from the Cordova library.
    Ropi, Part of me is pleased you think I'm neutral. Though part of me thinks being neutral when we're facing fools with enough power to do serious damage is not good either. But I think my titles tend to show my bias. But trying to articulate what the different arguments are as fairly as possible allows for comments from anyone which might actually lead to real conversation and not just ranting.

    Pi, thanks for the link. It's titled "How Many People Did Thatcher Kill?" and tries a bit to quantify the effects of economic tinkering. It's not just conceptual, it affects people's lives. While some may be playing a game to see who has the most power, they will do harm to people. In some cases serious harm.

    OK, I've got to go to dinner. Thanks for all your comments.


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