May 29, 2012
Debt-Ceiling Spin Deja Vu
Bloomberg is out with a piece of pure spin by Betsey Stevenson and Justin Wolfers. Similar to the spin that followed the White House failure last year, it is riddled with errors and bad logic. (http://www.bloomberg.com/news/print/2012-05-28/debt-ceiling-deja-vu-could-sink-economy.html) Consider:
- “John Boehner, the leader of the House Republicans, has promised yet another fight with the White House over the debt ceiling — the limit Congress has placed on the amount the federal government can borrow.”
John Boehner promised no such thing. What he actually said was, “Yes, allowing America to default would be irresponsible. But it would be more irresponsible to raise the debt ceiling without taking dramatic steps to reduce spending and reform the budget process.” Read the speech and you will not find a promise to fight anywhere.
- “In other words, congressional Republicans are taking the government’s creditworthiness hostage when they threaten not to increase the debt ceiling.”
Again, there is no, none, zero, nada evidence top support this claim. Republicans are arguing that it is better to make progress on the accumulation of debt and acknowledge the symptom of too much debt – the debt limit. An irresponsible attack on the creditworthiness of the U.S. would be a so-called “clean” debt limit increase that conveys to markets that the U.S. has given up being serious about its fiscal problems. (See my previous analysis, Budget Histrionics – and Reality.)_
- “The sense that the U.S. political system could no longer credibly commit to paying its debts led the credit-rating company Standard & Poor’s to remove the U.S. government from its list of risk-free borrowers with gold-standard AAA ratings.”
If the U.S. did not have gross debt in excess of its GDP and projected debt even higher, its credit rating would not be threated. In the end, the core problem is the debt and what is needed is a commitment to address it.
- “Confidence began falling right around May 11, when Boehner first announced he would not support increasing the debt limit. It went into freefall as the political stalemate worsened through July.” … “After July 31, when the deal to break the impasse was announced, consumer confidence stabilized and began a long, slow climb that brought it back to its starting point almost a year later.”
There is no question that a confidence drop – from any source – is a threat to an economy with as meager a core growth rate as the U.S.. But the pattern described is just as consistent with a public that is concerned with progress on the debt as it is with the debt limit. This is pure speculation.
- “The next debt-ceiling battle could be worse, because the stakes are even higher. In addition to the threat of default, the U.S. is facing the so-called fiscal cliff: a raft of spending cuts and tax increases that will happen at the end of this year unless Congress acts to postpone them. Another stalemate would almost certainly plunge the economy into a deep recession.”
The Congressional Budget Office has warned of the recession dangers that accompany the fiscal cliff. But it also warned about the economic consequences of not dealing with the debt and pointed out that individuals and firms anticipating the fiscal cliff would lead to a slowdown as early as this fall. The lesson is clear: avoid the fiscal cliff, undertake real reforms to address the debt, and begin now. Speaker Boehner was right to tee up the issue.
- “All told, the data tell us that a debt-ceiling standoff is an act of economic sabotage.”
A debt ceiling debate is economic sabotage? How about sailing deliberately into the “most predictable crisis in history” (as Erskine Bowles has said). That’s sabotage.