The Weiner Component #47 – The Tea Party & The Debt Ceiling

  

English: The holders of the United States nati...

English: The holders of the United States national debt as of December 2008. (Photo credit: Wikipedia)

On October 17th the United States Government will reach its authorized Debt Ceiling unless the House of Representatives passes the bill raising it.  According to the analysis released Tuesday by the Bipartisan Policy Center the Federal Government will be unable to pay its bills and face default as early as October 22 and no later than November 1.  

The Treasury Secretary warned Congress that the 16.7 trillion dollar debt limit must be raised by October 17th or the Federal Government will face default.  At that point the Treasury would have to depend on cash on hand, about 30 billion, and incoming revenues to pay its bills on any given day.  Unfortunately all its multi-thousands of bills are paid by computers that can’t be reprogrammed to pay selectively or partially.

According to some Tea Party members of the House of Representatives this problem is no big deal.  These people’s knowledge of government and economics is non-existent.  They have said that they don’t trust economists who all have different opinions.  One member stated that his knowledge of economics is based upon the fact that he raised a family.  Rand Paul said that the Federal Government has so much money coming in it doesn’t have to worry about having enough funds to pay its bills.  Others have stated that this change won’t even be noticed.  Another’s statement was that the default would stabilize international finances.  Of course all these individuals offered no proof for their inspired statements.

The economic awareness or sophistication of the people in the Tea Party is non-existent; they function by “common sense” based upon limited experience with no awareness of what they don’t know or understand.  I am reminded of the man who didn’t believe in or trust doctors.  His wife came out with a cancerous growth on her neck. His experience with illness had to do with occasional headaches and for these he took three to four aspirins each time he had one.  Since his wife’s problem was more serious than a headache he gave her six to eight aspirins to solve her medical problem.  No doubt she died of cancer.

If the default problem were a burning house and what to do about it then their solution would be to pour gasoline on the flames in order to put out the fire; that way it would burn out faster.  They have a strange solution to a problem that they themselves have created.  Basically they would destroy the economy if they can’t get their way.  And what is their way?  They want to get rid of the Affordable Health Care Law, reduce entitlement programs, reduce taxes for the upper few percentage of the population and force other unpopular programs down the throat of the American public.  Since they can’t do this by taking over the presidency and Congress the will do it by extortion, the House will force the rest of the government to do what it wants.  And in trying to achieve this nefarious goal they are wasting billions of dollars and disrupting not only he United States but also all the other industrial societies that use the dollar as a basis of value.

There has never been a Debt Default before in the entire history of the United States.  We can only guess what will happen.  The guesses go from a complete disruption to a total breakdown of the economy, far worse than the Great Depression of 1929 affected the world.  We are talking about ever-growing massive unemployment, disruption and possible destruction of all VA programs, crashing financial markets, virtually destroying a major part of the national economy, plus disrupting Europe and Asia.  This is what the Tea Party seemingly is willing to bring about if they don’t get their way.  This is extortion greater than any ever committed by any criminal.

If we ignore everything above then not increasing the Debt Limit will freeze the Federal Reserve’s ability to use Monetary Policy.  The Fed has been adding 85 billion dollars monthly to the National Cash Flow.  This has been going on for well over a year.  The increased flow of currency has allowed for most economic growth since 2011.  That also includes the housing recovery.  There has been no fiscal policy, spending by Congress to increase employment.  Stopping this flow of currency will cause immediate stoppage of all recovery.  The economy will instead begin a process of ever-growing shrinkage with an ever-increasing level of unemployment.

Will Barak Obama allow this to happen?  I don’t see how he can.  If the Republicans refuse to give in unless they get their way then he is left with two choices: (1) He can give the Tea Party Republicans what they demand and set a precedent for extortion, or (2) He can invoke Section 4 of the 14th Amendment to the Constitution, which states:

“The validity of the public debt of the United States, authorized by law, including debts incurred for payment Of pensions and bounties for services in suppressing Insurrection or rebellion, shall not be questioned.”

The next sentence states essentially that the United States shall not be held responsible for paying for the freed slaves and the last section gives Congress the power to enforce this Amendment by proper legislation.

Can the President then authorize paying the public debt or does only Congress retain this power?  It’s an interesting question that in the end can only be answered by the Supreme Court.  And their decision, depending upon the makeup of the Court, could go either way and even be reversed by a future Court. 

But if Congress is irresponsible does the President really have a choice?  He swore an oath to uphold the Constitution of the United States.  He assumed responsibility for the welfare of the nation.  For him to allow this to happen would be breaking his oath.

Currently and each day increasingly there is greater pressure on the Tea Party and other Republicans in the House of Representatives to end the Debt Ceiling and provide a budget for the United States, to again fund the government.  Currently the Tea Party group within the House is reluctant to do this but the more moderate Republicans seemingly are willing.  If the Speaker, John Boehner would bring a clean bill on both of these issues up before the House then, with Democratic support, it should easily pass.  Up to this point he has not been willing to do this.  Doing so will probably cost him the speaker-ship of the House of Representatives.

And when both the Debt Ceiling and the budget problems are resolved there is still the Sequester.

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The Tea Party Group is actually living in the wrong century.  They would have been happy and well adjusted in the late 18th Century, around the time of the American Revolution.  Government then was far away and bothered you very little except for taxes.  Many of the people living then considered taxes a gift that they gave to the government.  The people were very independent, building their own houses, clearing their fields, raising their own food, making their own furniture, running their own stills, bringing meat to the table by the use of their muskets.  They were an independent lot, standing tall, and proud of it.

The problem with the Tea Party is that they are now living in the 21st Century where everyone is interdependent upon everyone else.  The muskets have become automatic weapons capable of firing over 100 rounds a minute and there are specialists to do all the other tasks.  People are crowded in society and function best through endless compromise.  The Tea Partiers see compromise as a sign of weakness.  Real men don’t compromise; they push until they get their way.

Unfortunately for them the group that financially backed the Tea Party, the billionaires like the Koch Brothers and the large corporations are withdrawing their support, which means their money contributions.  I imagine these people thought they could control the Tea Partiers and have just discovered that they created Frankenstein Monsters that are out to destroy the country if they can’t get their own way.

What I suspect we will be seeing in the near future is an inept Tea Party breaking away from the Republican Party and forming its own third party.  They will then be like the No Nothing Party of the 1840s and 1850s, appearing noisily for a decade or two and then disappearing.  Their influence will wane to nothing as time passes.

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The Weiner Component #38 – The National Debt

To most people the National Debt is an unimaginable amount, over sixteen trillion dollars

United States Capitol

that the United States Government or the taxpayers owe to foreign entities like China and Japan, whose interest payments alone will eventually bankrupt the nation.  This also seems to be the image projected by the Republicans in Congress.  It is total misinformation and nonsense, more mythical than real.

The initial debt was incurred during the Revolutionary War and under the Articles of Confederation.  With the exception of the year 1835, the United States has continually held a public debt since the Constitution went into effect on March 4, 1789. 

The National or Public Debt of the United States consists of two components.  The first is debt held by the public and the second is debt held by government accounts or intergovernmental debt.  Debt held by the public consists of Treasury securities held by investors outside the Federal Government.  These include individuals, corporations, foreign states like China and Japan, and local governments, both in and out of the United States.

Debt held by government accounts includes non-marketable Treasury securities held in accounts administered by the Federal Government that are owed to program beneficiaries such as the Social Security Trust Fund.  This account currently exceeds 2.7 trillion dollars.  Other large intergovernmental holders include the Federal Housing Administration, the Federal Savings and Loan Corporation’s Resolution Fund, and the Federal Hospital Insurance Trust Fund (Medicare).  Debts held by governmental accounts represent the cumulative surpluses, including interest earning of these accounts that have been invested in Treasury securities.  In 2012 there were at least two direct transfers of 89 billion dollars from the FED to the Treasury that were mostly interest paid on the National Debt.

By my estimate the Federal Government owns well over fifty percent of its own debt.  Dr. Ben Bernanke, the Chairman of the Federal Reserve, recently stated (May 2013) that the FED, which had monthly been investing 85 billion dollars in the National Debt for well over the last twelve months, 40 billion in re-buying government securities and 45 billion in purchasing mortgage paper, would increase or decrease the monthly amount according to the nation’s needs.  He indicated that this would depend upon whether or not Congress would utilize fiscal policy, which it has not done since 2011.

It is interesting to note that the deficit under President Obama, which increased when he took office in 2009 because of the economic disaster facing the nation, has been dropping significantly and could by 2015 reverse itself and generate a surplus as it did in President Clinton’s last year in office.

Up to the end of 2008 there seemed to be endless amounts of money available.  Banks were refinancing real estate at 125 percent of their appraised value and in the process creating endless amounts of money.  People were spending like there was no tomorrow.  All of this ended when the Real Estate Bubble burst.  Every dollar in circulation suddenly became a nickel.  Virtually overnight there wasn’t enough money available to meet the needs of the economy.  If Presidents Bush and Obama had not bailed out the banks the nation would have been in a far worse depression than that of 1929.  The government, under the guidance of President Obama saved the economy from total ruin.  This was done by bailing out the financial institutions that had brought about the crash and then by bailing out some core industries like the automobile companies.  Where did the money come from?  The government created it and gave the needing companies the financial backing to recover.

Foreign trade has been unequal; we buy far more than we sell to others.  The two foreign nations that hold large amounts of the National Debt are Japan and China; each holding about 1.1 trillion dollars worth. 

Keep in mind that each nation has its own currency that has value only within the boundaries of that nation.  While money can be exchanged internationally if the trading is totally out of balance/unequal, then an international exchange of currency following the laws of supply and demand, could drop the value of the money fifty or more percent causing the nation that has acquired it to take a substantial loss in its profits.  Actually the money becomes a prisoner in the country of the sale and has to be invested there.  The value of this to the country making the massive purchases is that it gets the goods it wants and in a slightly convoluted fashion retains the funds it has spent for these items.

Several decades ago Japanese businessmen purchased large amounts of real estate in the United States, particularly in Hawaii.  They actually bought high and ended up eventually having to sell much of it far below what they had originally paid.  While China is very adept at selling goods and services to the rest of the world she has problems with certain aspects of her economy.  On 2012 many thousands of pigs died, presumably from drinking polluted water.  China has the largest population in the world and has to be able to successfully feed them.  It seems that she is in the process of buying food-producing companies in other nations (June 2013).  She is currently in the process of buying Smithfield Foods, the largest producer of pork in the U.S., for 4.7 plus billion dollars.  She is probably doing this also with countries other than the United States.  She will be importing what she needs from companies all over the world that she will own.

The Federal Government utilizes Macroeconomics.  Here money is the tool that it uses to allow the economy to function properly.  Ultimately the government prints/creates the money it needs to allow the economy to work.  It can do this knowingly or blindly.  The manner in which the state performs and controls the process determines the success of its economy.

On April 2, 2013, the National Debt was 16,805 trillion dollars.  What is the significance of this massive amount of money that the government has created?  Does this in any way hamper the productivity of the nation?  The answer to the first question is that there isn’t any real significance other than functionality.  The answer to the second question is NO.  It has become, as far as many of our conservative legislatures are concerned, the tail that is wagging the dog!  

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The Weiner Component #32 – Are The Republicans Their Own Worst Enemies?

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  English: Breakdown of political party represen...

The basic position of the Republicans in Congress is that the National Debt is out of control, being currently over sixteen trillion dollars, and that it must be reduced.  The current Ryan Plan is their general roadmap to achieving this objective.  They have generally ignored the 2008 Recession, the effects of which still exist and the massive problem of unemployment.  What they want to do is cut discretionary spending, this includes Social Security and Medicare, reduce the size and costs of government, raise military spending, not raise any taxes, this includes not cutting any subsidies, and reduce taxes on those earning  four hundred thousand dollars or more a year.  With the income from this they want to overbalance the National Budget, spend less that is taken in and thus help reduce the debt.  This to the Republicans will bring about prosperity in the United States. 

What would be the effects if they were able to achieve this?  The consumer base for purchasing goods and services would be decreased considerably lowering overall demand for much of what is produced and bringing about a shrinkage in productivity and a substantial increase in unemployment.  The money taken out of the economy would have a multiplier effect, beginning a cycle of economic shrinkage that would cause an ever-growing level of misery for a goodly percentage of the population.  Money, the National incomes, would have been moved upward to the upper few percent of the population leaving and ever decreasing amount for the lower echelons of our society and allowing far more to be stored, probably outside the country, because there would be far less worth investing into in the United States.  The level of economic misery among a goodly percentage of the population would continue to grow.  This is what the Republicans would achieve if they could successfully bring about their Congressional aims.

Because the Republicans have not successfully been able to achieve this we are currently dealing with a dysfunctional Congress.  The Republicans, with control of the House of Representatives and a filibustering Senate, have been successful in not allowing any fiscal (job creating) bills. 

The Federal Reserve, which is separate and not under the control of Congress, has continually and very creatively added money to the economy helping to bring about a slow recovery through monetary policy.  Government, on both state and Federal levels, has continually shrunk lowering both tax revenues and services but the private level has very gradually grown and continues to grow.  It has more or less offset a part of the public shrinkage. 

Today corporate profits are up; industries profits are continually growing, Ford Motors is currently in the process of expanding one of its plants and hiring two thousands additional workers to expand its truck-building capacity; CEOs and upper echelon executives salaries are growing exponentially but unemployment is still at a 7.6% level; many people are doing without.  The GDP is currently growing at the slow level of 2 1/2%.  Population, according to the Senses Population Clock is growing at the rate of one person every eleven seconds; that is 3,063,273 people per year.  The GDP has to grow enough to accommodate over three million additional people each year before any real growth can occur.

A large percentage of these increased profits are moving to the upper few percent of our society.  This money is not being invested in any form of economic growth because the money available to the consumer base is actually decreasing, continuingly lowering the base for consumer consumption.  Overall demand is decreasing because there is less and less money available for the purchase of goods and services.  The upper echelon is storing its ever-growing incomes, probably a goodly percent of it overseas where it can accrue a better rate of interest and be largely except from domestic taxes.  While consumption is up for the upper middle class and above, it is decreasing for the rest of the population.

While all this is going on the Republicans in the House of Representatives and in the filibustering Senate are working vigorously to shrink the government by reducing its expenditures.  They consider the National Debt, most of which Republican Administrations have created since 1981, too high and obscene.  They have all become, since Barak Oboma was elected president, fiscal conservatives.  Consequently they are attempting to limit government expenditures by decreasing Federal expenses.  The result of this is for the Federal Government to gradually employ less people and shrink the economic base, making less money available in the GDP.

It is difficult to understand the thinking of the Republican leaders.  Are they more interested in achieving control of Congress and the Presidency than in the welfare of the country, than in following their oath to the Constitution, in having a Democratic President fail even at the cost of large-scale human misery?  If they follow the logic of their thinking through to its conclusion it leads to endless austerity, intense economic shrinkage, recession and depression.  And while this is going on the military will grow and the upper echelon of society will become phenomenally richer with taxes that run the country being paid by the ever-shrinking resources of the bottom rung of society.  The nation would end up with privation, starvation, and probably violence.

Is this the Republican objective or don’t they understand that everything in the economy effects everything else, that seemingly minor changes can lead eventually to horrible disasters.

It would seem that the Republicans are their own worst enemies.  Their so-called reforms could eventually lead to ultimate chaos.

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