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The Moody’s Ratings Agency is recommending the United States Government simply eliminate the idea of a debt ceiling all together. From CNN Money:
In addition, Moody’s suggested the U.S. would be better off if the debt ceiling were eliminated entirely.
The limit has not effectively restrained spending, Moody’s notes, and the legislative process “creates periodic uncertainty over the government’s ability to meet its obligations.”
Rarely do I agree with Moody’s, but on this point we are in full agreement.
There is absolutely no reason we need a debt ceiling vote. The periodic vote does nothing positive, but having it creates the possibility that a small group of elected politicians could choose to unnecessarily create economic problems. It is likely the debt ceiling vote isn’t even constitutional given the 14th Amendment. Most countries don’t have such a bizarre legislative action.
There is no reason why tomorrow congress can’t set the debt ceiling at infinite or simply state that the passage of every bill inherently includes approval of borrowing sufficient to meet the obligations of this new law.
The great irony of all this is that Republicans are constantly complaining that “uncertainty” is created by President Obama’s new laws, and thus are a big drag on the economy. If the Republicans were really worried about protecting the private sector from dangerous and unnecessary government uncertainty, they would vote to eliminate this foolish debt ceiling limit altogether.
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Moody’s blue:
Aren’t these the same folks who thought 4 trillion in tax cuts in December 2010 were going to be catastrophic unless there were extreme cuts in government spending in the future when the debt ceiling needed to be raised again?????
The ‘Debt-Ceiling’ Fiction: Republican PAYMENT Ceiling is Unconstitutional
There is no ceiling on the debt. The debt has already been incurred. Should August 2 come and go without Congressional action, then what Bachmann and other teabaggers like Jim DeMint suggest is that the US can keep paying the interest it owes on its debt, thus avoiding any default on that, while the US picks and chooses which other debts and obligations it will continue or cease to pay at its own discretion …
Article:
The ‘Debt-Ceiling’ Fiction
Republicans would pay off Communist China … to hell with US troops, vets and families!
Obama is ‘coasting’ on his presidential bike, not bothering to pedal anymore, just letting the Baggers drag us off course until he can get himself re-elected. He has no intentions of standing up for the jobless, the poor, the elderly living on Social Security. He has no interest in protecting Medicare for our elderly or Medicaid for our poor. He is just going to coast, coast, coast on that bicycle, ignoring the pleas of those who need government to create jobs for them. He’s not going to advance any progressive solutions to our climate and energy problems while he enjoys coasting, lazily down that lazy hill to his election campaign. He is enjoying have one less group like the elderly on Social Security to court and one less group like the progressives to please as he coasts lazily down that hill, just letting the dead weight of dead ideas and failed policies carry him over his own ‘finish line’.
I’m all for eliminating the debt ceiling as long as they also institute a balanced budget ammendment or at the very least a limit on the annual deficit. Otherwise, it’s just an open checkbook and the party in power will have nothing stopping them from spedning us into oblivion.
That is just silly. The country has had a debt almost its entire 200 plus years of existence.
A anachronism that is a hold over from the 1930s and should have been eliminated ages ago.
Punaise — even after all these years on FDL, you are still the master.
I don’t understand what you think a debt ceiling does that doesn’t result in an open checkbook. The debt ceiling that they are currently trying to raise is to pay for debts that Congress has already incurred with their legislation. It didn’t stop them from creating and spending more.
What we really need to stop is the Congress from selling themselves to the highest bidder. That’s the really important legislation. Help stomp out the purchase of congress critters by special interests.
I doubt it is unconstitutional since just because you can’t say a debt isn’t valid, it doesn’t you have to pay it at a specific time. People can’t or won’t pay their debts, it doesn’t mean automatically that they are also saying the debt itself is otherwise invalid…someone for instance might have lost their job and so can’t make their car payments, so they are saying the amount owed on their car is a voided debt just that they can’t pay that debt. There has in fact been a number of posts on here advocating for Treasury to make selective payments, which is a way of saying “I won’t pay you now.” That is not paying off a certain debt at it’s schedule due date but not disavowing the debt altogether.
Balanced budget amendment. Debt ceiling. …
Yep, Moody’s position is a no-brainer.
Congress establishes what the debt is though appropriations and tax laws that originate in the House of Representatives.
Both of these straightjacket pieces of legislation want to move the blame for Congressional fiscal imprudence to some other body or take the politics out of it through a spurious, “Don’t blame us; the law required us to do it.”
What we are seeing is that even with these “we had to do it” laws it still comes down to appropriations and tax laws. So what are they negotiating: appropriations and tax laws.
Instead of extending the debt ceiling, the Democratic position should be that it be repealed to put the responsibility back on Congress where it belongs.
And how many of those years has our debt been more than the entire productivity of the country for a year? You’re advocating an un-ending spiral of more and more spending without the means to pay for it.
Your comment is akin to saying that individuals should have unlimited creidt card accounts just because they have always carried a balance. The only difference is that individuals can’t just print more money when they need it, and Uncle Sam does.
Uh, Ann. When there is a debt ceiling, we can’t spend more than we take in. It’s a hard cap that prevents those greedy pols from being able to sell us all down the river.
Yeah, that’s working well so far. We are where we are because, in spite of a debt ceiling, we keep spending more than we take in. In any year when we have not hit our debt ceiling, the Congress has been uncosntrained by it and we are in this mess. Unless you control the balance of spending and revenues, the debt ceiling is the only thing that has a chance to rein in this government.
Spot on -
but the original bill around the time of WW1 was to avoid the President asking Congress for authority to issue debt every time he needed to do so – the debt limit was more eff. because he was granted authority to issue up to that limit.
I doubt Congress will grant authority to issue at anytime – without limit – if it needs any tea party votes to pass.
selise selise where are ya. In that lecture series you provided a few months back, they discussed the stupidity of having a debt seiling. It was a product of the days of having a gold standard when an argument could be made for it.
the bal. budget amendment is guaranteed to destroy the US economy because those economic cycles we always learn about will get out of control as a recession – tax revenues down and welfare spending and UE spending needing to go but instead cut – will get much worse as cuts in government spending reduces consumption and makes it worse.
From a post on New Deal 2.0 by James K Galbraith, cross-posted by Scarecrow last Tuesday.
I left ya a couple comments on primitive capital at Morning Swim.
Is your mortgage less than your yearly income, if we’re using the family budget idea ?
Should we limit mortgages to less than your last years salary also ?
I’m looking forward to the rally numbers next year -
is he going to need a 70,000 seat football stadium to give his acceptance speech in …??
HOPEfully he’ll be the opening act to the puppet show?
I went to see Hillary in …93? in downtown Seattle at Westlake Center – she was kicking off the ultimately failed health “care” fiasco -
anyhoo – the local right winger radio shows had hundreds and hundreds of nutjobs on the street raising a real ruckus – and they dogged her all the way across the country!
I will GLADLY HAPPILY go to the OUTSIDE of 0bummer events and stand with the professional left f’king retards – and hell will freeze over before I’m part of the photo op.
rmm.
rmm.
So you don’t advocate raising taxes during a recession or as you we coming out of one?
On par with MSM rules, Diane Rheme had Milquetoasty EJ Dionne and two Repthugs on her show. EJ said that the Debt Limit had been raised 17 times under Raygun and 7 (IIRC) under Shrub.
Repthug Argument: Yo Gabba Gabba! We never had a trillion debt before! Unique situation! Fucking Unique.
“Unique” is apparently code for a black President and a Trillion dollar deficit which Repthugs never had anything to do with causing to be incurred.
hi psalongo…
do you mean last year’s teach-in, the counter conference to the peterson 2010 fiscal summit (or my fav, from rob parenteau, “Time to Sweep the Vampire Squid Off Our Faces and Make Room for the Real Change”)
Wow, did you think that up all by yourself? Here’s the difference – your mortgage (actually all of your debt) is generally throttled by lenders according to your ability to pay. Historically, lenders have found that an individual’s ability to service his or her debt is strong up to the point where all of that debt service approaches a certain percentage of income. That leaves money left for other expenses and savings as well.
There is no arguing that the level of debt as a percentage of GDP is at an all-time high and that it is unsustainable. Now, is 100% of GDP some sort of maginc tipping point? I don’t know. But it is dangerous.
Oh, and by the way, you will see that I initially referred to GDP. That is NOT the same thing as “income” to the government and thus your analogy is flawed on that point as well.
ah, SD has psalongo covered!
from bloomberg news
Likelihood of a US Rating Cut Opinion Piece
Matthew Freund, a fund manager at USAA Investment Management Co., discusses Moody’s Investors Service’s decision yesterday to place the US on its downgrade watch list. http://www.newslook.com/videos/329660-likelihood-of-a-us-rating-cut?autoplay=true
Yup, I am referring to that. Thanks so much for those teach-ins. What a great source of knowledge!
The federal budget is not a household budget. People who equate the 2 are doing themselves and others a disfavour.
As long as the federal deficit does not cause inflation there is no limit to the amount of money the Treasury can spend. Has the current deficit caused interest rates on bonds to increase? Look at the interest rate the Fed now charges. Have they been raised to slow down the economy?
That “family budget” thing was brought up by TJBS and I was just trashing his/her argument. Thanks for seconding.
And while you are right that inflation levels are ONE consideration in limiting the amount of federal spending, they are not the only consideration. The ability of the government to repay its debt (actually the perception of others) is also key. And our lenders are telling us that they believe that we are getting very close to the edge.
Your argument about federal interest rates is specious. Just because the Fed is keeping rates low to goose the economy does not mean anything in this argument. Have you looked at the prices of commodities (food, raw materials, energy, gold/silver) lately? Why do you think they are at record levels?
We’re talking about federal monetary policy, not the volatility of the price of commodities. Do not confuse the two.
Federal spending is federal spending whether it’s for war expenditures or interest on debt. It all comes from the same place, spreadsheets at Treasury and the Fed.
I highly recommend you read Warren Mosler’s Seven Deadly Innocent Frauds of Economic Policy
It’s only been Kabuki Show in order to ram further draconian measures of one sort or another – mostly cutting Soc Sec & Medicare/Medicaid, which have Nada/Zip/Bupkiss to do with the deficit and/or our nation’s debt – that inure to the detriment only of the middle/working class.
That’s all. They raised the so-called Debt Ceiling at least FIVE times during the reign of error of W, and no one said anything about it.
Just bc an alleged “Democrat” is now POTUS, it’s open season on the erstwhile middle & rapidly growing working & lower classes. Don’t get fooled again.
Moody’s is only saying what makes sense bc Wall St doesn’t want the Kabuki Show to end up eating into their vast gazillion$.
thank you for taking advantage of the teach-in materials! very relevant, imo, to current discussions.
I bookmarked it too. Missed it when it first came out. Thanks.
My friend, do you really believe the price of commodities is not a signal that we are devaluing our fiat currency? And that in doing so, interest rates will inevitably rise? What happens to our ability to roll over all of that short-term borrowing we have been doing lately?
I’m not a fan of Mosler – I think his analysis is seriously flawed. The fact of the matter is that we cannot keep spending money we don’t have. If you think we can, you’re wrong.
:~)
You and I will then have to agree to disagree.
yes – i’ll think of you when the price of Gold hits an all-time high
oh yeah, it just did.
You are talking nonsense. Tell me when is it we will have “too much” debt and how will we know? We apparently havnt gotten there yet, or have we? BTW you brought up the idea of an individual having unlimited credit card debt. It is not a good analogy since government is not like an individual, you understand that don’t you? But surely, if I can borrow a heck of a lot more than my annual income, the US Governemt should be allowed the same. I think you just want to hyperventilate.
It will do so again tomorrow. Quelle surprise.
You say the debt is unsustainable. Do you have some math proof of that theory? How does it work exactly? I think it is a function of people like you waving your arms about and trying to cause a panic: o look the sky is falling, the sky is falling, cant you see it?
Gold prices are partly self induced like panic attack. Keep waving your arms, maybe it will go higher. When Moodys downgrades the debt it may go higher.
Interest rates are generally controlled by the Fed. And inflation is a function of scarcity. There is 16% unemployment in the US now so there is no scarcity of production. Commodities are increasing in price bc there is not enough oil or even food.
I am a total dummy on these matters, but with respect to commodities and such, doesn’t an unregulated market have something to do with what is happening to, say, the price of gold, in the same way that it had to do with the values of mortgages? We saw how that had been manipulated, and just to think of fractional of a second transactions makes me think that normal values can’t be applied so long as nobody has gone to jail for doing this and even for giving things triple A ratings. I find it hard to understand how any sense can be made of the economy so long as these derivative markets on everything including the kitchen sink are going on at this horrendous pace.
I may be told that this has nothing to do with the price of fish, but we were told similar things about the value of our homes and look what happened there. I think the public has a right to be completely confused; that has been the idea all along. But it means that those doing financial business are just as confused, I think, as we mere mortals are. Only they don’t admit it.
When there are food shortages and oil shortages as we have now the prices of those things will go up. gold is a little different, since people buy it (in part) as a store of value, which is imputed depending on ones feelings. A mortagage depends on the underlying property and the debtor for its value and in that sense is a derivative. The recent recesssion, unemployment and fall in property values have put many mortgages underwater, meaning the underlying security is less than the face value of the mortage.
“…Many economists, for example Nobel Laureate Paul Krugman, have argued that the country is nowhere near its debt limit. They point to the fact that both the United States and other countries have sustained much higher rates of debt to GDP than the United States does now or is projected to in the near future. For much of the 19th century the UK had a debt to GDP ratio of more than 100 percent. Japan currently has a debt to GDP ratio of more than 200 percent yet can still borrow long-term in financial markets at interest rates of less than 1.5 percent.
They also point to the fact that the markets do not seem concerned about the debt situation of the United States. If the financial markets were concerned about the ability of the U.S. government to pay off its debt then they would not be lending the country money for ten years at interest rates close to 3.0 percent….”, http://www.cepr.net/index.php/blogs/beat-the-press/senate-budget-committe-chair-kent-conrad-only-pays-attention-to-economists-who-could-not-see-an-8-trillion-housing-bubble
A Sovereign Nation which produces its own currency is not a “household” nor is its economics similar to those of an individual. Even business accounting is highly different.
Let’s see. We have a friend with a problem. He has a wallet full of credit cards and has maxed them all out. He can’t afford his present lifestyle, and can’t pay down the debt he already has accumulated. What shall we do? I’ve got it! We’ll give him a new wallet with new cards, with NO limits. Problem solved (according to the debtor-in-chief and his Democrat enablers). How simple knotty problems become if only you eat your peas and do what the government tells you.
Good point. No limits, keep on borrowing…. how does that work?! It doesn’t.
Is the solution always to raise the limit and borrow more? What would you do to solve this crisis: http://bit.ly/Votocracy
Ratings Agencies Were Wall Street Cat’s Paws; and Wall Street Is Next
http://www.larouchepac.com/node/14269
Ah yes, dear, sweet Moody’s. This is the soft approach.
Then, there’s always this approach:
It’s Showdown Time, and Bankers Are Issuing Their Threats
http://www.larouchepac.com/node/18775