Playing Chicken With Federal Debt Ceiling
By Barry Ritholtz - April 19th, 2011, 11:30AM
Bloomberg Businessweek on the debt ceiling: “Forcing a U.S. default is no small matter, yet many Americans say they want just that. It’s time for cooler heads on Capitol Hill to step up and lead.”
I love this graphic:
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click for ginormous graphic
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Source:
Washington Plays Chicken With the Debt
Peter Coy
Bloomberg Businessweek April 13, 2011
http://www.businessweek.com/magazine/content/11_17/b4225006049043.htm
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April 19th, 2011 at 11:43 am
This is all you need to know:
At the beginning of the Bush presidency, the United States debt limit was $5.95 trillion. Despite promises that he would pay off the debt in 10 years, Bush increased the debt to $9.815 trillion by the end of his term, with plenty of help from the four Republicans currently holding Congressional leadership positions: Speaker John Boehner, House Majority Leader Eric Cantor, Senate Minority Leader Mitch McConnell, and Senate Minority Whip Jon Kyl. ThinkProgress compiled a breakdown of the five debt limit increases that took place during the Bush presidency and how the four Republican leaders voted:
June 2002: Congress approves a $450 billion increase, raising the debt limit to $6.4 trillion. McConnell, Boehner, and Cantor vote “yea”, Kyl votes “nay.”
May 2003: Congress approves a $900 billion increase, raising the debt limit to $7.384 trillion. All four approve.
November 2004: Congress approves an $800 billion increase, raising the debt limit to $8.1 trillion. All four approve.
March 2006: Congress approves a $781 billion increase, raising the debt limit to $8.965 trillion. All four approve.
September 2007: Congress approves an $850 billion increase, raising the debt limit to $9.815 trillion. All four approve.
April 19th, 2011 at 12:27 pm
The people who think it’s a good idea that the US default are (mostly) the same people who thought there wouldn’t be any problem if the banks all went out of business in late 2008. I never could figure out how, given that nearly all financial transactions in this country are done by credit card or check, having all the banks stop functioning could lead to anything other than total economic collapse.
That said, I also thought the bank’s management, bondholders and shareholders should have paid a price for being bailed out. The fact that they didn’t is part of what drives the free-floating anger in this country, IMO.
April 19th, 2011 at 12:41 pm
Of course they’ll raise the debt ceiling, they’re not gonna go full retard on this one but they do have to keep their little armies of tea partiers entertained and angry.
Deficit hawks my ass.
April 19th, 2011 at 12:55 pm
“This is all you need to know”
Really? What about 44 Democrats -including Obama, Harry Reid, Hillary Clinton and Joe Biden- who voted against raising the debt ceiling in March 2006? Funny how that is conveniently forgotten. I guess it was prudent then but irresponsible now?
April 19th, 2011 at 12:59 pm
And buried in that Bloomberg piece is this nugget:
“The problem is that in the absence of political leadership, the debt limit becomes a loose cannon instead of a lever. In a divisive political climate populated by ideologues, there’s a real risk that the U.S. will default because of a stalemate by members who stand on principle to the very end.”
which sounds very much like a caution issued only yesterday.
April 19th, 2011 at 1:05 pm
Speaking of playing chicken with debt…margin debt is second highest ever and only off 5% from the 2007 peak…goes hand in glove with individual investors bullish stats
when Ben’s “we want higher assets values” scheme comes undone it could be very dramatic, hope the PPT is on their toes!
The NYSE has released its monthly margin debt update for March… $75.2 billion. This is the second highest net leverage ever seen on on the NYSE, only lower compared to the $79 billion at the absolute peak of the credit bubble in June 2007.
April 19th, 2011 at 1:14 pm
The chart displayed on this website on April 15th showed a very positive correlation between strong capital gains tax receipts and deficit reductions. The current chart tries to blame Bush for the problem, but the tech bubble collapse and recession in 2000 and then the economic impacts of 9/11 are all but ignored. TARP was additional debt when signed and expended at the height of the crisis, but most of the recipients of the largest portion of TARP have repaid the assistance with interest and is a source of cash. No mention in this chart of those cash recoveries, debt is growing even faster.
Isn’t the real driver of debt the fact that our political elite have spent at tech and housing bubble capital gains and taxable income peaks, with no ability to fund the programs at trend levels of economic growth and non-bubble levels of capital gains tax receipts? I think Mr Ritholz has provided substantial evidence over the recent past that shows that problem is structural spending levels. Even the Bush tax cuts for the rich are but a rounding difference in the growth of deficits and debt under the bloated spending schemes of both parties. And regrettably, many states have followed the same recipe for setting programs at bubble revenue levels with comparable results in state debt and deficits.
April 19th, 2011 at 1:17 pm
Look at the graph! If we don’t stop now, where does it stop? Total collapse? Now that’s a solution!
April 19th, 2011 at 1:21 pm
When asked about the huge deficit,Ronald Reagen said “it was big enough to take care of itself”. The news conference ended with the supply siders singing “Don’t worry, be happy”
April 19th, 2011 at 1:25 pm
Clearly two wrongs don’t make a right – both parties are guilty of extreme hypocrisy.
That said, the graph is interesting in that it clearly shows three fairly constant slopes (rates of debt increase) – with by far the steepest slope in the past few years.
1995 thru 2001 (7 years), increase from about $4.75T to about $5.75T ($1.0T total) – $0.14T/yr
2002 thru 2008 (7 years), increase from about $5.75T to about $9.75T ($4.0T total) – $0.57T/yr
2009 thru 2010 (2 years), increase from about $9.75T to about $13.75T ($4.0T total) – $2.00T/yr
The first steepening of the slope happened at the start of Bush 43, second started at the end of Bush 43, but it hasn’t exactly slowed – at all – since then. Not placing blame (on party and/or administration), just making an observation.
April 19th, 2011 at 1:26 pm
Barry:
To feature this piece from the Post is really idiotic.
Our government debt/GDP is roughly 90%. Our deficits are runing close to 10% a year. We are issuing debt to pay back debt.
We have two choices … simply raise the debt limit next month, as the Post would have us do, or raise the debt limit with conditions attached, namely, restraining spending. Now Barry, please explain to us all, what exactly is your opposition to the latter? And who comprises the constituency that embraces this opposition? Let’s see a show of hands please.
Yeah, I know, it’s those rascally Republicans you so dislike, but other than that Barry …. please tell us there’s something deeper, more fundamental, to your opposition.
April 19th, 2011 at 1:41 pm
It is clear that refusing the raise the debt ceiling is irresponsible and everyone except the wing nuts know it. It is equally clear that elected officials on both side understand we need to do something about it and to cut spending and/or raise taxes. The president has said as much over and over to anyone who listens. The argument is not “to do or not to do” but WHAT to do. Moreover, the general public’s attitude is best summed up by the old blues line, “Everybody wants to go to heaven but nobody wants to die.” They all want cuts until you tell them that THEY are going to have to take a bit of a hit, yet everybody taking a hit of some sort is the only way this can get done. That means Medicare, Medicaid, SS and Defense taking some kind of hit and letting the all of the Bush tax cuts expire, or at minimum on those over 250K. The problem is that the Rs know that if they screw around with older, white American’s SS or Medicare, they will be slapping a core constituency in the face. Whites over the age of 60 were the only demographic that voted more for McCain than Obama. The Ds know that they are correct in saying, “Where the hell have you guys been?” to the Tea Party folks who were mute when the Rs had both houses and the WH and started two wars and a huge prescription hand out to Big Pharma without funding any of it and that the wealthy have been the major beneficiaries of the last decade while the middle class is sinking fast.
Finally, Obama knows he can’t get re-elected if the economy slumps into a double dip and that’s what might happen if we cut to the bone, willy-nilly, with a chain saw. The only way out for both sides is to make concessions and declare victory and hope they get re-elected. Everybody except the wing nuts and those who are in ultra safe districts no matter how they vote knows this. A deal will get done because a flawed deal from one’s perspective is better than no deal and getting re-elected is goal number one for almost all elected officials. We’ll get a deal. Just what KIND of deal remains to be seen.
“All government, indeed every human benefit and enjoyment, every virtue, and every prudent act, is founded on compromise and barter.”
Edmund Burke
Read more: http://www.brainyquote.com/quotes/keywords/compromise.html#ixzz1JzYl5aiD
April 19th, 2011 at 2:13 pm
Black & white thinking is infantile. Either banks fail or they don’t. Either the debt ceiling is raised or it’s not.
There are (and were) other alternatives to the either/or, black/white, right/wrong narratives – it just requires uncompromised adults to come to the negotiating table and unfortunately for our Nation uncompromised adults are in very short supply inside the beltway.
They all have a price.
April 19th, 2011 at 2:20 pm
If they are against increased debt they should pass a budget that take as much in by taxes as it spends. Unfortunately none if these irresponsible idiots are willing to do that, because it would cost some serious pain to them and their masters. To pass a budget with a huge deficit and then refuse to increase the debt sealing is like ordering a 5-course meal at a fancy restaurant and then refuse to pay the bill.
What they are talking about doing with the debt sealing is to hook some ideological BS onto this “won’t skip out on the bill” law. Sort of like if the democrats added funding for abortions onto the defense spending bill. Question is not so much whether they eventually will increased the debt sealing, they will. But will they in the process of playing politics with it end up scaring someone out there and cause serious damage to the economy and national debt interest cost (adding another trillion to the debt as the collateral damage from a fight about cutting 100 billion from discretionary spending). Single minded ideologoged idiots will actually do these things even if it is being explained to them.
April 19th, 2011 at 2:33 pm
Let’s get one thing correct…
Hitting the debt limit does NOT = Default on the debt!!!!
We could still pay interest and roll current bonds, but treasure/congress would have to cut all other spending by 40% in order not pass the debt limit.
That said we all know this is a huge joke, the limit will be raised… just enough to become an issue around election time.
April 19th, 2011 at 3:38 pm
LET IT COLLAPSE!!!
I can survive the repercussions, the question is can you?….my OverPrivelaged friends….
April 19th, 2011 at 4:22 pm
Nice inflection point at the first Bush tax cuts. It almost looks like basic math does apply to government spending. Who would have thought it?
April 19th, 2011 at 5:14 pm
The debate is not be about the deficit or the rising debt. It is about the Constitutional role of government and spending.
The theater aside, default is *not* a risk if the debt ceiling is not raised. Federal receipts are sufficient to pay interest. Existing debt could be rolled over without incident.
However, it would immediately force a balanced budget and 43% reduction in spending because deficits could no longer be financed.
The only default would be on mathematically unsustainable political promises.
BR posted this link as to when those promises began (http://bit.ly/ggOHUa) and marked the shift towards dependency on a benevolent government versus self reliance.
There are thousands of places to cut ranging from foreaign aid to subsidizing the cost of defense in Europe and elsewhere to entitlements. Take a look at the CFDA (https://www.cfda.gov/). CFDA contains detailed program descriptions for 2,131 Federal assistance programs.
I have little doubt that the debt limit will be raised and hard choices will deferred until we are disciplined by the market. This is after all human nature.
Then we will facing the biggest of risks. “A government big enough to give you everything you need, is a government big enough to take away everything that you have…”
April 19th, 2011 at 5:29 pm
Clearly we are framing issues for the 2012 presidential election.
The debt ceiling will be increased this year, and twice next year.
The debate will be about how to stop doing this.
The elephant will propose we cut entitlements (but never say which ones).
The donkey will propose we raise taxes (but not on you, just anyone richer than you).
Both will be liars, neither will have the means to deliver.
We get higher taxes and wait for Israel to get bombed or China’s economy to crash.
April 20th, 2011 at 1:34 pm
Comment to “me Says”.
If I read the figures correctly ‘mesays” indicates that George Bush raised the countrys debt from 5.9Trillion to 9.38Trillion in the eight years he was in office an increase of 3.9Trillion.
Lo and behold his figure also say that in Obama’s two years he raised the debt from 9.38 to about 15, an increase of 5.2Trillion.
Score- Bush-8 years = 3.9Trillion
Score-Obama-2 years = 5.2Trillion
Sound to me that we should us the requirement to raise the debt limit to force Obama to settle down and stop giving our nation away.