The catastrophic debt ceiling debate - James K. Galbraith

[MNBrewer]

"News reports hold that President Obama scored a political victory by agreeing to put Medicare and Social Security on the chopping block to achieve a "go-big" $4 trillion deficit reduction. Speaker Boehner had to concede that Republicans won’t vote for any package that includes tax increases -- and the deal died. So the gambit worked and the President emerged with a solid image as the alpha deficit hawk.

To which one can only say: how nice for him."

<http://www.salon.com/news/debt_ceiling/index.html?story=/politics/war_room/2011/07/11/the_catastrophic_debt_ceilng_debate>

[Hawkowl]

1. Obama: Russian roulette champion!

Boner and the Batshit Crazies insist on playing Russian Roulette with the world's economy, but Obama outdoes them! He insists on loading five of the six cylinders! Bravo! Obama can out ignorant the Batshit Crazies! :puke:

[PATRICK]

2. Gave cover to Boehner

In the flak the GOP dropped another bomb on the American people with little spectacular consequence. Just as the news did its usual sideways analysis of "entitlement cuts" it let the GOP in effect say "no giving back tax breaks on billionaires". Period. Let's have that again: .

But they never even got to the end of that extremely obvious sentence. They rarely do, and never on purpose.

[girl gone mad]

3. k & r

Some key graphs (emphasis mine):

"What fiscal crisis? The great unasked question in this summer of sound-and-fury is "why?" The United States has many problems at the moment: a high-and-stubborn unemployment rate, a foreclosure catastrophe, a slowing economy that has not recovered and will not recover from the Great Crisis, and the ongoing challenges of infrastructure, energy and climate change. Fiscal crisis? The entire thing is a figment, made up of wise-men’s warnings repeated endlessly and linked to the projections of technicians at the Congressional Budget Office and elsewhere.

The projections, as I’ve written here, are made up of two economically impossible arguments. One is that there will be a big economic rebound, restoring near-full employment by 2013 or so. We’re already off that track, as some of us warned from the beginning. Of course, a recovery would reduce the deficit even if nothing were done. But CBO then recreates the exploding debt by assumptions, which include steady growth and low inflation, but sharply higher health-care costs and much higher short-term interest rates. These lead the projected debt to compound skyward, soon surpassing all previous records in relation to GDP.

Is this possible? No it is not. The Federal Reserve would never raise the short-term interest rate as CBO projects, without a prior increase of inflation, which CBO assumes will not occur. If they did, the economy would collapse! And if they don’t, the debt does not compound out of control. I have presented these simple numbers here. For what it’s worth, if you believe the capital markets signal anything, they signal their disbelief in doomsday forecasts, in the long-term interest rate on US government bonds, every single day."

(snip)

There are many people who believe fervently in the resilience of the private sector and for whom government is just a burden. Some of those people are pure predators: resource magnates, media magnates, banking magnates. Others have blinded themselves to the role government actually plays in sustaining the advanced networks, human protections and social systems that make up our lives, and imagine that one can go back to the world of subsistence farming, church charity and credit from the corner store. But there were many fewer people in that world, they didn’t do what we do, and they didn’t live nearly so long.