Shutdown / Debt Crisis

So how’s that for a headline?  That one get your alarmist hackles up?  It should.

A friend of mine quoted The Economist this morning and it kind of sent my blood pressure up:

The Economist on the government shutdown. Key quotes: “Republicans are setting a precedent which, if followed, would make America ungovernable… In the short term, House Republicans need to get their priorities straight. They should pass a clean budget resolution without trying to refight old battles over Obamacare. They should also vote to raise the debt ceiling (or better yet, abolish it).”

Skimming over the article, the left leaning, euro-centric Economist thinks that the current activities in Washington D.C. are leading the United States into a situation that will result in the nation being ungovernable.  My opinion is a little more fundamental than that, this nation has not been governable since 1776 as King George found out.  The method of government set forth by the founding fathers is based on a several basic premises the two that I think matter most in this case are:

  1. The rule of law applies, and is accepted as a framework for all.
  2. The three branched checks and balances provide a mechanism to prevent any one branch of government from gaining an upper hand over the others.
  3. “Career politicians” will not be tolerated by “the people” and will be cycled out on a regular basis.

Now, that last one I think is true but, a stretch.  I don’t believe that the founding fathers really expected anyone to embrace a career as a politician.  I believe that they firmly believed that job of elected official was a part time “night job” that no one in their right mind would want.  The bottom line here is that this nation’s system of government is designed for leaders to step into a role that is to provide for the common defence, and promote the general welfare.

Let’s get back to The Economist’s statement that “Republicans are setting a precedent which, if followed, would make America ungovernable…”.  Hmm, this is the 18th time the government has shutdown since 1976.  Seems to me the precedent was set in 1976.

That said, let’s take a look at the current situation in Washington, “THE GOVERNMENT IS SHUTDOWN”.   Not even close to true.  Looking at it more closely, 17% of the government has currently suspended operations.  17% of the things that government does has been identified as non-essential.  Personally, I think the number of non-essential activities that the government engages in is higher than that but, we will work with 17%.

That’s not a very large number.  Can anyone tell me where those services are?  What makes up that 17%?  We know the national parks are part of it because they are spending a lot of money to close them, and adding more police and park rangers to the schedules to try and enforce those closures.

“Based on estimates drawn from CBO and OMB data, 83 percent of government operations will continue. This figure assumes that the government pays amounts due on appropriations obligated before the shutdown ($512 billion), spends $225 billion on exempted military and civilian personnel, pays entitlement benefits for those found eligible before the shutdown (about $2 trillion), and pays interest costs when due ($237 billion). This is about 83 percent of projected 2014 spending of $3.6 trillion.”

Ok, so not much of a shutdown then.  Why did we wind up in this situation?  Great question that I don’t know can be easily answered.  Some would have you believe that it is the Republicans fault.  Others the Democrats, some the President’s.  Let’s boil it down to this the current government shutdown is political attention getting by all parties.  Face it, this administration has been operating without a budget since they took office (I am pretty sure there is a law against that).  This administration has a goal in mind, and that is to dictate to the American people what will and will not take place.  Whereas, the executive branch is really designed to work within the constraints placed on it by the other two branches of government.  We really aren’t seeing that are we.

Did you know that this is the 18th government shutdown since 1976?

Since the modern congressional budgeting process took effect in 1976, there have been a total of seventeen separate government shutdowns (or “spending gaps” in Hill jargon). Given that we appear to be headed for another one imminently, let’s look back at those experiences, the political circumstances around them and what happened as a consequence. Most of the specifics were drawn from The Washington Post print archives, which you can access for a modest sum here.

It’s also important to note that not all shutdowns are created equal. Before some 1980 and 1981 opinions issued by then-Attorney General Benjamin Civiletti, a failure to fund some part of the government didn’t necessarily mean that that part of government would stop functioning. Civiletti’s opinions interpreted the Antideficiency Act, a law passed in 1884, as meaning that a failure to pass new spending bills required government functioning to shut down in whole or in part. So the “shutdowns” listed below that happened between 1976 tand 1979 did not always entail an actual stop to government functioning; they were often simply funding gaps that didn’t have any real-world effect.

We should be getting pretty good at this by now.  And we know how to solve it.  Let’s see first the leaders of the parties in the House and Senate get together with the President and meet until a resolution is determined.  If the house and senate cannot agree POTUS acts as moderator and the brokers a solution.  If the house and senate agree but POTUS does not vetoes and veto overrides can be used.  Seems simple but no one seems to want to solve this shutdown.  So we are back to a bunch of career politicians playing politics for the cameras.  But the reality is that this shutdown is not much of a shutdown, and it would be months before people really took notice that anything negative was happening (assuming that you do not have a narcissistic, dictatorial, tempermental, vengeful, in over his head, figurehead as POTUS who only likes to talk to cameras and not people).

Now, the deadlines for the debt ceiling are starting to come into play, and this is where the real issues are going to surface.

Problem number one, we are working without a budget!!!  How can our government know if it is overspending if it doesn’t have a budget!

Problem number two, we have accepted that the government is going to run on a deficit spending basis.  Hmm, common sense tells me that should be an emergency measure not a best practice.

So here we are in a situation that presents the Treasury with a need to have to prioritize spending activities if we do not increase the debt ceiling.

CNBC also notes that the moment of prioritization has almost arrived for Lew:

Treasury Secretary Jack Lew is about to face the very same choices confronted by any financially struggling American household: Which bills to pay and when to pay them.

If Congress fails to raise the debt ceiling by around Oct. 17, Lew, who has been in the job less than a year, will have to sit at his desk and figure out how to make due on roughly one-third less in the way of government funds for the bills he has to pay. Because he can no longer borrow, according to the Bipartisan Policy Center, government spending will fall by about 32 percent, or $108 billion in the first month.

It’s like the head of a household who has a family member gone wild with a credit card: Lew will be responsible for paying the very bills that Congress has rung up, even while Congress denies him the right to borrow money to pay for them.

But there are some key differences with households: While a homeowner might juggle a dozen or so monthly bills, Lew has to figure out which of more than 100 million monthly government payments to make. Because the government payment system is largely automated, Lew can’t just decide not write a check here or there. He has to figure out how to transform a system designed to pay all of America’s bills in full and in a timely way, to one that pays some of its bills, and not others.

Seems like a tough gig but, I am not crying in my beer over this.  It feels like the bureaucracy has taken over and will continue to churn no matter what the consequence.  As long as Skynet does not become self aware we might be okay.   But seriously, who designs a system without a manual override?  Just go in and end date the payments, and then put an approval process in place that says here is your budget to pay the bills today, this week, this month, pay what you can until we get this squared away.

 

Will the US choose to default on the debt?  Not likely.

The CEO of credit rater Moody’s agrees with the conservatives, and reassured markets that the US will almost certainly choose to make scheduled payments:

The CEO of credit rating agency Moody’s ruled out the chance of a U.S. government default, even if an agreement over raising the debt ceiling is not achieved by mid-October. …

“It is extremely unlikely that the Treasury is not going to continue to pay on those securities,” Moody’s CEO Raymond McDaniel said in an interview with CNBC.

“Hopefully it is unlikely that we go past October 17 and fail to raise the debt ceiling, but even if that does happen, then we think that the U.S. Treasury is still going to pay on those Treasury securities,” he added.

 

How do we fix this whole thing?  Aside from some significant personnel changes I think that there are a number of things that can and should be done.

  1. Forget about Continuing Resolutions, pass a budget bill.
  2. If you have to pass a CR make it for 2 weeks and pass a budget bill during that time.
  3. Pass a balanced budget bill, set deficit spending back to an emergency measure.
  4. Do not pass any additional increases in the debt ceiling.

This entire fiscal mess is the result of entitlements, paying for previously incurred entitlements, foreign aid, active conflict, and deficit spending.  It is not going to iron itself out overnight.  The US government has to be held accountable for it’s actions.  Whether those actions are forced upon it by previous administrations or not they still have to be addressed.   Perhaps that means that we do less and less in the way of foreign aid?  Perhaps that means we reform the entitlement system (I saw an interesting idea that I will post separately)?  As a nation we have a problem.  The fix to the problem is fairly straight forward in that we need to spend less than we bring in as revenue.  This is the same solution that every business, family, and individual faces.

We can all point at Republicans and say, “You want to dismantle the ACA!  It’s all your fault”.  Perhaps they chose the wrong hill to battle on.  ACA is a disaster.  When the speaker of the house at the time the bill was passed says, “We have to pass the bill so that we can see what is in it” there is a whole other issue to be addressed.  I promise I won’t go too far down this road.  Assume for a moment that all 50 states adopted the ACA and exchange program whole heatedly and said we are all bringing this live on time with the same identical requirements.  In and of itself this would me a major IT undertaking that would take a long time to implement.  Pull that back into reality of: it is a government project, the requirements keep changing, it is often intergovernmental, and you have a number of commercial companies involved as well.   It is a pure recipe for disaster.  I am afraid that the whole thing will have to be scrapped as it collapses under it’s own weight.

Back to the wrong hill to battle on.  With ACA being the “Obama legacy” perhaps that was not the right issue to take up as a battle standard because of the “optics”.  From a reality standpoint the Dems might have taken that as a gift to delay the implementation another year and get things fixed as they negotiated any additional funding.  The Senate chose not to pass the CR presented by the House.  The House chose not to consider the Senate’s language but offered a counter proposal that the Senate refused to consider.  Guys, we are back to “pass a budget”.  Stop playing games and do things the right way.  Congress’ primary duties are fiscal.  There are some other things in there job description but as I re-read Article I, Section 8 everything pretty much boils down to fiscal and military.

The Congress shall have Power To lay and collect Taxes, Duties, Imposts and Excises, to pay the Debts and provide for the common Defence and general Welfare of the United States; but all Duties, Imposts and Excises shall be uniform throughout the United States;

To borrow Money on the credit of the United States;

To regulate Commerce with foreign Nations, and among the several States, and with the Indian Tribes;

To establish an uniform Rule of Naturalization, and uniform Laws on the subject of Bankruptcies throughout the United States;

To coin Money, regulate the Value thereof, and of foreign Coin, and fix the Standard of Weights and Measures;

To provide for the Punishment of counterfeiting the Securities and current Coin of the United States;

To establish Post Offices and post Roads;

To promote the Progress of Science and useful Arts, by securing for limited Times to Authors and Inventors the exclusive Right to their respective Writings and Discoveries;

To constitute Tribunals inferior to the supreme Court;

To define and punish Piracies and Felonies committed on the high Seas, and Offences against the Law of Nations;

To declare War, grant Letters of Marque and Reprisal, and make Rules concerning Captures on Land and Water;

To raise and support Armies, but no Appropriation of Money to that Use shall be for a longer Term than two Years;

To provide and maintain a Navy;

To make Rules for the Government and Regulation of the land and naval Forces;

To provide for calling forth the Militia to execute the Laws of the Union, suppress Insurrections and repel Invasions;

To provide for organizing, arming, and disciplining, the Militia, and for governing such Part of them as may be employed in the Service of the United States, reserving to the States respectively, the Appointment of the Officers, and the Authority of training the Militia according to the discipline prescribed by Congress;

To exercise exclusive Legislation in all Cases whatsoever, over such District (not exceeding ten Miles square) as may, by Cession of particular States, and the Acceptance of Congress, become the Seat of the Government of the United States, and to exercise like Authority over all Places purchased by the Consent of the Legislature of the State in which the Same shall be, for the Erection of Forts, Magazines, Arsenals, dock-Yards, and other needful Buildings;–And

To make all Laws which shall be necessary and proper for carrying into Execution the foregoing Powers, and all other Powers vested by this Constitution in the Government of the United States, or in any Department or Officer thereof.

So let’s get back to job 1.  Pass a budget.  Focus on the minimums necessary to operate and maintain a balanced budget.  From a tax standpoint people are tapped out, that means limiting spending.  Debt service has to continue.  Defence is a primary responsibility as defined by the Constitution.  That brings us back to foreign aid, and entitlement spending.

My proposal to Mr. Reid, Mr. Boehner, Mrs. Pelosi, and Mr. McConnell is simple.  Folks, get some comfortable clothes on.  Leave your phones, your egos, and agendas at the door and start working through the root cause of the issue.  Solve the problem.  There are no sacred cows, cut what you need to cut.  Then take it back to you caucus and tell them in no uncertain terms that the primary function of the House and the Senate is fiscal responsibility, and this budget is what it is going to take to reestablish that function in our nation.  Then deal with their objections one by one, without significantly changing the bill and PASS A FREAKING BUDGET.

If you were POTUS, what would your message to Congress be?  Would you be a leader and lead them to a resolution?  Would you sit in the corner and say, “That’s their job to solve it”?  Would you sit in your palace and wait for them to give you everything that you asked for and accept nothing less?

As much as I dislike Bill Clinton, and the damage that he did to the Office of The President, he did lead the congress through to a solution to government shutdowns twice.  He did that by making it a priority for everyone, and working with the leaders of the House and the Senate to solve the problem.

So POTUS get off your ass, get off the golf course, be a leader and SOLVE THE PROBLEM.  If you cannot, will not, or do not want to then you are going to get what is developed for you by the House and Senate and you will have to live with it.  Your call.  Are you a leader or a figurehead?

 

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