Thursday, October 17, 2013

Message to Tea Party (and anyone else with a conscience)

Are you still going to have Congressman Lee Terry as a headliner at Tea Party events? Click below for my take on the debt ceiling deal.

Exactly what is the debt ceiling? It’s a limit on federal spending created by Congress. It’s not in the Constitution. It’s done by federal law through an act of Congress.

There almost always has been a national debt, with upward spikes at times of crisis such as the Civil War and World War I. Sustained and ominous growth of the debt occurred during the New Deal in 1930s. In 1939, Congress created the debt ceiling to limit borrowing by the federal government.

Because the debt ceiling was created by legislative action, it can be changed by legislative action. Congress has raised the debt ceiling more than 70 times. By routinely raising the debt ceiling, Congress has rendered it virtually meaningless – except that periodic debates about whether to raise the debt ceiling send nervous tremors through financial markets because of feverish speculation that America will default on its debt-financing obligation.

When Congress raised the debt ceiling in October 2013, a supersize headline on the front page of my local newspaper blared: BACKING AWAY FROM THE BRINK.

That was misleading. Our country is in terrible fiscal shape, but there need not be any threat of default on our debt. The Constitution requires America to service its debt, meaning we make the periodic debt payment on what we have borrowed to finance deficit spending, similar to a mortgage payment. There is no default on American credit if we follow the Constitution and pay that obligation first.

Then there is the problem of insufficient money in the treasury to pay for the remaining spending that has been approved. The federal government should cut spending to match revenue or raise revenue to match spending. It should not keep borrowing more money to cover the difference.

An Oct. 17, 2013, news item at www.nbcbayarea.com ridiculed U.S. Senator Rand Paul (R-KY) for making the same argument. Senator Paul said: There’s enough revenue to cover the debt-financing obligation; pay it and then prioritize remaining spending. The story relied on a professor at Berkeley Law School who served in the U.S. Treasury’s Office of Tax Policy from 2010-12. This professor and former Obama administration bureaucrat is an example of what we’re up against in trying to save the country. He said federal government computers are programmed to pay bills in the order they are received; they aren’t set up for prioritized spending. He said there was “absolutely no authority” for prioritizing spending and it would be “illegal” to do so.

Pardon me, professor, but there is authority for prioritization of spending; it’s called the Constitution. If the computers aren’t programmed to make the debt-financing payment first, then that system is unconstitutional. The Constitution mandates that America service its debt. The Treasury Department’s computer system is not exempt.

After the debt is serviced, Congress and the president can get back into the budget to prioritize and reduce spending. It might be a healthy exercise to go through each line item and say pay this first, pay this second, and so on.

The president keeps saying that raising the debt ceiling does not increase the debt. He says when we raise the debt ceiling, we’re not spending any more than has been approved in the budget. True, but there isn’t enough money in the federal treasury to pay for the level of spending that has been approved. We’ve maxed out on debt, so how does the president propose that we pay for the amount of spending not covered by existing revenue? By raising the debt ceiling and borrowing more money – thereby increasing the debt! I suppose you can say raising the ceiling by itself does not increase the debt, but the purpose of doing it is to utilize the new borrowing authority to take on more debt to finance continued deficit spending.

The president has daughters the same age as mine. Why is he trying to hide the way he is setting up our daughters for a fiscal thrashing? Has he achieved that super-rich status that will allow him to insulate his family from whatever economic disaster ravages the rest of us? Or is he so steeped in leftist ideology that he is blind to basic principles of government finance?

I have experience with this kind of situation. My first two years in the Nebraska Legislature (2001-02), there were special sessions in addition to the regular annual legislative sessions. The national economy already was sliding into recession in 2001 when 9/11 happened. The special sessions were necessary because the struggling economy meant revenue kept falling short of projections. There wasn’t enough money in the state treasury to pay for the amount of spending approved, so we had to dig back into the budget and reduce spending.

Why is that option never considered on Capitol Hill? It’s never considered because cutting spending to match revenue would require leadership and tough decisions. Instead, all we hear is that the government will default on its debt and become a disgraceful deadbeat nation unless we raise the debt ceiling. Politicians and their media allies whip up a panic that blots out the option of reducing spending.

The next round of the debt ceiling drama is in February. The House should declare right now (November 2013): No raising the debt ceiling and borrowing more money unless a balanced budget amendment has been added to the Constitution. Congress immediately should crank out to the states a balanced budget amendment with an effective date 10 years out, and state legislatures should approve it ASAP. Otherwise the debt ceiling should not be raised in February and the federal government should buckle down to the brutal task of paring the budget to make spending match revenue. The president and members of Congress will have to earn those six-figure salaries by making tough fiscal decisions. Either we start chopping spending now to match available revenue, or we do it in a more measured manner over 10 years under the pressure of a constitutional provision requiring a balanced budget. Fiscal reformers can no longer do business-as-usual and raise the debt ceiling without getting anything meaningful in return.

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7 comments:

Anonymous said...

Totally agree the time has come to stand for the future of this country, running hiding and taking cash for pork barrel politics. Happens all the time the total Nebraska delegation embarrassed the state.

Tony Staup. said...

I agree.It will take consistent simple graphs to convince the moderates and Regan Democrats for a significant vote shift. Boehner and McConnell should Never be on Tv or stage without iconic graphs. Think like Ross Perot.Same with social media. Simple graphs and charts.Keep it simple and obvious.

Tony Staup. said...

I agree.It will take consistent simple graphs to convince the moderates and Regan Democrats for a significant vote shift. Boehner and McConnell should Never be on Tv or stage without iconic graphs. Think like Ross Perot.Same with social media. Simple graphs and charts.Keep it simple and obvious.

OmaSteak said...

While I agree with your objective (a balanced budget amendment) and the sentiment behind it Chip, do you really think that even after servicing the monthly debt that not paying the military, Social Security benefits, Medicare, etc., etc. wouldn't cause about the same financial shock wave that a true debt default would? Yes, lots of wasteful spending would be cut but at what cost? Markets would tank...think Great Depression level collapse...interest rates would spike...that $30 billion/month then becomes $50 or $75 billion/month...GDP would collapse as money moving around the economy dries up...the US dollar immediately is significantly devalued and the Yuan becomes the new global standard...and so on. This scenario is likely to happen anyway but why would anyone deliberately try to set it in motion even the achieve a "noble" end? Do you honestly think this kind of severe economic disruption could happen without some significant social chaos? I hope you have your bunker fully stocked and plenty of ammo if you get your wish. Please give me a little notice so I can finish the process of relocating out of the country before I have to use all my gold and silver holdings to bribe the border guards on the way out.

Chip Maxwell said...

OmaSteak,

The threat of pain is what gets us a BBA, and a decade to phase in spending reductions. Otherwise we start the pain now. The scenario you describe becomes more certain the longer we wait to correct course. When I add debt, Social Security, Medicare, and military, I come right up to $200 billion per month. If we want to make room for other things, then we have to cut from the first four. What's your alternative? If somebody has a better idea, I welcome it. I can't think of another way to break out of the fiscal death spiral. If we accept your argument that we can't reduce government spending because that would take money out of the economy, then we are saying we must spend ourselves to death like an alcoholic drinking himself to death because it would be too painful to stop drinking. Also, the money that the federal government puts into the economy is taken out of the economy! Or it's created out of thin air, thus fueling inflation and reducing the value of the dollars in our possession. Let me be clear (as the president likes to say): I don't want disrupted lives and communities and chaos in the streets. I'd rather adopt a BBA and tame the federal budget over the course of a decade. But I will not keep robbing from the future and guarantee the financial collapse on the nation.

OmaSteak said...

Chip,
I fully support a BBA (btw, which variation out there already do you support?), but I want to elect enough constitutional conservatives to get it passed but not by walking right up to the edge of a self-started financial crisis to do so. A financial collapse may be coming and the US dollar will be replaced as the world's reserve currency. One of those two is avoidable but how do you propose to eliminate the millions of progressives in the US and remove their malignant influence from society? History gives us a model...look at Chile and you'll see how it can happen.

Daniel Revas said...

This will probably get Moderated out, but here goes:

This is all about EGO. Brad Ashford is on his way to Washington because of Chip Maxwell, it is HIS fault. He wants to preemptively blame Voters, but it is all about HIM, not the Voters.

I used to be a big Fan, but if you don't have the guts to run in the Primary, why should anyone think you will stand up to the Powers that Be in Washington?

I'm no Lee Terry Fan, but I like Brad Ashford a lot less.

Geez, thanks Chip.