The Risk of Sovereign Debt

By David Howden

 

With a 50 percent haircut recently given on the Greek sovereign-debt question, investors are increasingly asking what the real risk of sovereign debt is. It would appear that investors underpriced the risk inherent in sovereign debt, especially that of Europe's periphery. One might even go so far as to say that investors made foolish choices in the past and are now getting their just deserts.

 

Such statements require an assessment of what the specific risk is of holding sovereign debt, and how specific European institutions affected these risk factors.

 

Debt is in almost all cases collateralized by some asset. A mortgage is backed by the value of the house that it is borrowed against. Student loans are backed against the future earnings ability of the student (or their parents' income and assets if cosigned). In almost all cases debt is collateralized by the asset that it is used to purchase.

 

Sovereign debt is slightly different, as no clear asset stands ready to serve as collateral. Instead, borrowing is backed by the future taxing capacity of the state. When investors purchase sovereign debt, they do so knowing that if their plans turn out wrong they will not be receiving some portion of that state's assets as the consolation prize. They purchase the bond knowing that the ability to repay is conditioned by the future economic health of the country, and also by its future taxing power. As there is a general negative relationship between tax rates and economic health there is an upper bound on how much tax revenue can be raised in the future to pay off debts incurred today.

 

When we say that sovereign debt is "risk free," we mean that there… (Read more)

 

Source: Mises.org

UPDATE: He’s Making It Worse

The Real Solution to the Debt Problem

By David S. D’Amato

In his famously doleful, dystopian novel, Nineteen Eighty-Four, George Orwell described a world enthralled to what was functionally a "permanent war economy," an "economy existing by and for continuous warfare."

Today, on the heels of a debt ceiling increase calculated to forestall a federal-government default, we both are witnessing and are yoked to the many indispositions of what could be characterized as a permanent debt economy.

The Federal Reserve System, as the radix and arguably most defining component of the American economic paradigm, is fostering a scourge on productive activity that has metastasized through society to a now-catastrophic degree.

As a malignant growth eating away at the foundations of prosperity and freedom, the state, together with its parasitic courtiers, could not survive without the… (Read the full article)

Source: Mises.org

UPDATE: He's Making It Worse!

UPDATE: He's Making It Worse

Myths and Facts about the Debt-Ceiling Compromise

By Jon Carson

The budget compromise removes the cloud of uncertainty over the economy, and takes important steps toward reducing our deficit. In that sense, it’s a win for all Americans. (A picture is worth a thousand words, so click here to see an infographic on exactly how this agreement will work going forward.)

Here at the Office of Public Engagement, we’ve been working overtime to help explain all the details of this deal – and why we think it’s a win for our shared agenda. We also know that in the rush to figure out exactly what the deal is all about, there has been a lot of inaccurate information and analysis.

Below, I’ve tried to address, head-on, some the most common misconceptions we’ve been hearing about the deal.

Myth: President Obama caved.

Fact: President Obama laid out key priorities that had to be part of any deal. Those priorities are reflected in this compromise. First, we avoided default which would have plunged the economy into a deep recession, imperiling the well-being of millions of Americans. Second, the initial down payment on deficit reductions does not cut low-income and safety-net programs such as Medicare, Medicaid, and Social Security. Third, we set up a path forward that will put pressure on Congress to adopt a balanced approach. And finally, we raised the debt ceiling until 2013, ensuring that House Republicans could not use the threat of default in just a few months to force severe cuts in Social Security, Medicare, and Medicaid.

Myth: Republicans got everything they wanted

Fact: They won’t admit it publicly, but when push came to shove, Republicans backed down on their key demands. For months, Republicans called for a budget that would have ended Medicare as we know it, made catastrophic cuts to Medicaid, or cut investments in education by 25 percent, clean energy by 70 percent and infrastructure spending by 30 percent. As if that wasn’t enough, they also demanded that we repeat this debt-ceiling crisis, just a few months from now.

None of these of these demands made it into a final deal.

Myth: This deal cuts Medicare, Medicaid, and Social Security.

Fact:  There are no changes to these programs included in the initial phase of this agreement. In the second phase of the agreement, everything will be on the table – and the President has made clear that the committee must pursue a balanced approach where reforms to programs like Medicaid, Social Security or Medicare would only be acceptable if coupled with higher revenues from the most fortunate.

Myth: This deal reduces the deficit entirely on the backs of the middle class.

Fact: While the initial down payment on deficit reduction - about $1 trillion – will require belt-tightening, it still will allow us to invest in the programs and priorities we care about most. Moreover, hundreds of billions of this initial round of cuts will come from security spending.

As we negotiated the domestic side of the cuts, we protected our historic new investments in Pell Grants as part of the down payment. For the second phase, we made sure that  programs for the most vulnerable, like food stamps, Medicaid and the Earned Income Tax Credit, would not be hit by the “trigger,” the automatic cuts that will go into place if Congress does not find an acceptable compromise.

Myth: The joint committee -- the so-called "super committee" -- makes it easier for Congress to cut the programs we care about.

Fact: The joint committee system puts pressure on Republicans to seek compromise. As we all know, in this round of deficit reduction, there wasn’t a lot of leverage bringing Republicans to the table. In round two, that changes.

If Republicans aren't willing to compromise, then the joint committee will fail. This would automatically trigger an additional $1.2 trillion in deficit reduction designed to be painful for both sides, with half that coming from savings in the defense budget.

Myth: Since we weren’t able to raise revenues right now, we won’t be able to raise revenues in the future.

Fact: The deal lays out two paths for further reducing our deficit. Both of them include revenues. Option one is for the joint committee to develop a plan that is passed by both Houses of Congress, and signed by President Obama. The President has already said that he will only support a balanced approach involving shared sacrifice. That means raising revenue through steps such as closing loopholes for corporations, reforming our tax code, and asking millionaires and billionaires to pay their fair share in taxes.

If the joint committee cannot develop a balanced compromise,that brings us to option two for raising revenues: the expiration of the Bush tax cuts. On January 1, 2013, President Obama can use his veto pen to end special tax breaks for high-income Americans if Congress votes to extend them.

THE TRUTH ABOUT THE DEBT DEAL: It’s Pretty Much Meaningless

By Zeke Miller

The "historic, bipartisan compromise" reached to raise the debt limit does not end the struggle to reign in the federal deficit — in fact, it pushes the most difficult decisions off into the future.

More surprising, the debt deal actually cuts almost nothing now--it just promises future cuts that may or may not materialize.

There are very few specific cuts in the deal — and the $1 trillion in immediate cuts are almost entirely constituted of caps on future spending. And those caps are not required to be honored by future congresses.

The "real" spending cuts to current programs will come out of a bipartisan committee of Representatives and Senators, which is charged with finding an additional $1.5 trillion in savings from the federal deficit.

But White House and Republican leaders appear split on exactly what the so-called "Super Committee" can do.

In a presentation to his caucus, Speaker of the House John Boehner said it would "be effectively...impossible for [the] Joint Committee to increase taxes," even though it could consider reforming the tax code... (Read on)

Source: Constitution Party

“Freeze the Budget and Stop Plundering the American People!”

By Ron Paul

One might think that the recent drama over the debt ceiling involved one side wanting to increase or maintain spending with the other side wanting to drastically cut spending, but that is far from the truth.

In spite of the rhetoric being thrown around, the real debate is over how much government spending will increase. No plan under serious consideration cuts spending in the way you and I think about it. Instead, the cuts being discussed are illusory and are not cuts from current amounts being spent, but cuts in prospective spending increases.

This is akin to a family saving $100,000 in expenses by deciding not to buy a Lamborghini and instead getting a fully loaded Mercedes when really their budget dictates that they need to stick with their perfectly serviceable Honda… (Read on)

Source: RonPaul.com

Fact Sheet: Bipartisan Debt Deal: A Win for the Economy and Budget Discipline

Bipartisan Debt Deal: A Win for the Economy and Budget Discipline

•Removes the cloud of uncertainty over our economy at this critical time, by ensuring that no one will be able to use the threat of the nation’s first default now, or in only a few months, for political gain;

•Locks in a down payment on significant deficit reduction, with savings from both domestic and Pentagon spending, and is designed to protect crucial investments like aid for college students;

•Establishes a bipartisan process to seek a balanced approach to larger deficit reduction through entitlement and tax reform;

•Deploys an enforcement mechanism that gives all sides an incentive to reach bipartisan compromise on historic deficit reduction, while protecting Social Security, Medicare beneficiaries and low-income programs;

•Stays true to the President’s commitment to shared sacrifice by preventing the middle class, seniors and those who are most vulnerable from shouldering the burden of deficit reduction. The President did not agree to any entitlement reforms outside of the context of a bipartisan committee process where tax reform will be on the table and the President will insist on shared sacrifice from the most well-off and those with the most indefensible tax breaks.

Mechanics of the Debt Deal

•Immediately enacted 10-year discretionary spending caps generating nearly $1 trillion in deficit reduction; balanced between defense and non-defense spending.

•President authorized to increase the debt limit by at least $2.1 trillion, eliminating the need for further increases until 2013.  

•Bipartisan committee process tasked with identifying an additional $1.5 trillion in deficit reduction, including from entitlement and tax reform. Committee is required to report legislation by November 23, 2011, which receives fast-track protections. Congress is required to vote on Committee recommendations by December 23, 2011.

•Enforcement mechanism established to force all parties – Republican and Democrat – to agree to balanced deficit reduction. If Committee fails, enforcement mechanism will trigger spending reductions beginning in 2013 – split 50/50 between domestic and defense spending. Enforcement protects Social Security, Medicare beneficiaries, and low-income programs from any cuts.    

1. REMOVING UNCERTAINTY TO SUPPORT THE AMERICAN ECONOMY

•Deal Removes Cloud of Uncertainty Until 2013, Eliminating Key Headwind on the Economy: Independent analysts, economists, and ratings agencies have all made clear that a short-term debt limit increase would create unacceptable economic uncertainty by risking default again within only a matter of months and as S&P stated, increase the chance of a downgrade. By ensuring a debt limit increase of at least $2.1 trillion, this deal removes the specter of default, providing important certainty to our economy at a fragile moment.

•Mechanism to Ensure Further Deficit Reduction is Designed to Phase-In Beginning in 2013 to Avoid Harming the Recovery: The deal includes a mechanism to ensure additional deficit reduction, consistent with the economic recovery. The enforcement mechanism would not be made effective until 2013, avoiding any immediate contraction that could harm the recovery. And savings from the down payment will be enacted over 10 years, consistent with supporting the economic recovery.

2. A DOWNPAYMENT ON DEFICIT REDUCTION BY LOCKING IN HISTORIC SPENDING DISCIPLINE – BALANCED BETWEEN DOMESTIC AND PENTAGON SPENDING

•More than $900 Billion in Savings over 10 Years By Capping Discretionary Spending: The deal includes caps on discretionary spending that will produce more than $900 billion in savings over the next 10 years compared to the CBO March baseline, even as it protects core investments from deep and economically damaging cuts.

•Includes Savings of $350 Billion from the Base Defense Budget – the First Defense Cut Since the 1990s: The deal puts us on track to cut $350 billion from the defense budget over 10 years. These reductions will be implemented based on the outcome of a review of our missions, roles, and capabilities that will reflect the President’s commitment to protecting our national security.

•Reduces Domestic Discretionary Spending to the Lowest Level Since Eisenhower: These discretionary caps will put us on track to reduce non-defense discretionary spending to its lowest level since Dwight Eisenhower was President.

•Includes Funding to Protect the President’s Historic Investment in Pell Grants: Since taking office, the President has increased the maximum Pell award by $819 to a maximum award $5,550, helping over 9 million students pay for college tuition bills. The deal provides specific protection in the discretionary budget to ensure that the there will be sufficient funding for the President’s historic investment in Pell Grants without undermining other critical investments.

3. ESTABLISHING A BIPARTISAN PROCESS TO ACHIEVE $1.5 TRILLION IN ADDITIONAL BALANCED DEFICIT REDUCTION BY THE END OF 2011

•The Deal Locks in a Process to Enact $1.5 Trillion in Additional Deficit Reduction Through a Bipartisan, Bicameral Congressional Committee: The deal creates a bipartisan, bicameral Congressional Committee that is charged with enacting $1.5 trillion in additional deficit reduction by the end of the year. This Committee will work without the looming specter of default, ensuring time to carefully consider essential reforms without the disruption and brinksmanship of the past few months.

•This Committee is Empowered Beyond Previous Bipartisan Attempts at Deficit Reduction: Any recommendation of the Committee would be given fast-track privilege in the House and Senate, assuring it of an up or down vote and preventing some from using procedural gimmicks to block action.

•To Meet This Target, the Committee Will Consider Responsible Entitlement and Tax Reform. This means putting all the priorities of both parties on the table – including both entitlement reform and revenue-raising tax reform.

4. A STRONG ENFORCEMENT MECHANISM TO MAKE ALL SIDES COME TOGETHER

•The Deal Includes An Automatic Sequester to Ensure That At Least $1.2 Trillion in Deficit Reduction Is Achieved By 2013 Beyond the Discretionary Caps: The deal includes an automatic sequester on certain spending programs to ensure that—between the Committee and the trigger—we at least put in place an additional $1.2 trillion in deficit reduction by 2013.

•Consistent With Past Practice, Sequester Would Be Divided Equally Between Defense and Non-Defense Programs and Exempt Social Security, Medicaid, and Low-Income Programs: Consistent with the bipartisan precedents established in the 1980s and 1990s, the sequester would be divided equally between defense and non-defense program, and it would exempt Social Security, Medicaid, unemployment insurance, programs for low-income families, and civilian and military retirement. Likewise, any cuts to Medicare would be capped and limited to the provider side.

•Sequester Would Provide a Strong Incentive for Both Sides to Come to the Table:  If the fiscal committee took no action, the deal would automatically add nearly $500 billion in defense cuts on top of cuts already made, and, at the same time, it would cut critical programs like infrastructure or education.  That outcome would be unacceptable to many Republicans and Democrats alike – creating pressure for a bipartisan agreement without requiring the threat of a default with unthinkable consequences for our economy.

5. A BALANCED DEAL CONSISTENT WITH THE PRESIDENT’S COMMITMENT TO SHARED SACRIFICE

•The Deal Sets the Stage for Balanced Deficit Reduction, Consistent with the President’s Values: The deal is designed to achieve balanced deficit reduction, consistent with the values the President articulated in his April Fiscal Framework. The discretionary savings are spread between both domestic and defense spending. And the President will demand that the Committee pursue a balanced deficit reduction package, where any entitlement reforms are coupled with revenue-raising tax reform that asks for the most fortunate Americans to sacrifice. 

•The Enforcement Mechanism Complements the Forcing Event Already In Law – the Expiration of the Bush Tax Cuts – To Create Pressure for a Balanced Deal: The Bush tax cuts expire as of 1/1/2013, the same date that the spending sequester would go into effect. These two events together will force balanced deficit reduction. Absent a balanced deal, it would enable the President to use his veto pen to ensure nearly $1 trillion in additional deficit reduction by not extending the high-income tax cuts.

•In Securing this Bipartisan Deal, the President Rejected Proposals that Would Have Placed the Sole Burden of Deficit Reduction on Low-Income or Middle-Class Families: The President stood firmly against proposals that would have placed the sole burden of deficit reduction on lower-income and middle-class families. This includes not only proposals in the House Republican Budget that would have undermined the core commitments of Medicare to our seniors and forced tens of millions of low-income Americans to go without health insurance, but also enforcement mechanisms that would have forced automatic cuts to low-income programs. The enforcement mechanism in the deal exempts Social Security, Medicaid, Medicare benefits, unemployment insurance, programs for low-income families, and civilian and military retirement.

Source: White House

President Obama speaks in support of the bipartisan deal to reduce the deficit and raise the debt limit

By Macon Phillips

Tonight, President Obama spoke in support of a bipartisan deal to reduce the nation's deficit and avoid default. It extends the debt limit to 2013, removing the cloud of uncertainty over our economy and ensuring that no one will be able to use the threat of default now or in only a few months for political gain. The bipartisan compromise assures that the United States meets its obligations – including monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.

In order to receive the support from both parties -- as the President has consistently stressed -- the agreement has a few important elements:

•A down payment on deficit reduction with historic long-term spending restraint: Nearly $1 trillion in spending cuts -- done in a way to not harm the economic recovery, are balanced between domestic and pentagon spending, and protects critical initiatives like aid for college students;

•Expedited process for balanced deficit reduction: Puts in place a longer term process for additional $1.5 trillion in deficit reduction through a committee structure that will put everything on the table, including tax and entitlement reform. To prevent either side from using procedural tricks to prevent Congress from acting, the committee’s recommendations will receive fast track authority, which means they can’t be amended or filibustered.  

•Sets the stage for a balanced package, including revenues: The American people and a growing number of Republicans agree that any deficit reduction package must be balanced and included revenue.

◦If the Committee does not succeed in meaningful balanced deficit reduction with revenue-raising tax reform on the most well-off by the end of 2012, the President can use his veto pen to raise nearly $1 trillion from the most well-off by vetoing any extension of the Bush high income tax cuts.

•A proven enforcement mechanism: An enforcement mechanism that will compel painful enough cuts to both sides that it will force congress to act. Enforcement mechanisms by their very nature should include measures that neither side supports so as to ensure action.

◦If Congress fails to act, beginning in 2013 there will be $1.2 trillion in spending cuts through 2021 – 50 percent from domestic spending and 50 percent from defense spending.  Low income programs, including Medicaid, and Social Security and Medicare benefits would be exempted.  Medicare cuts would be capped, limited to the provider side.

•Does not accept entitlement reforms without equal consideration of revenue raising tax reform, and ensures that low-income and middle class families are not forced to bear a disproportionate share of the burden from deficit reduction.

INFOGRAPHIC: Where does our national debt come from?

By Macon Phillips

One of the fundamental things to understand when considering the debate about reducing our national debt is how we accumulated so much in the first place.

To explain the impact various policies have had over the past decade, shifting us from projected surpluses to actual deficits and, as a result, running up the national debt, the White House has developed a graphic for you to review and share:

As you can see, we've also included a quote from President Obama's speech last night that sums up the basic issues:

For the last decade, we’ve spent more money than we take in.  In the year 2000, the government had a budget surplus.  But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug program were simply added to our nation’s credit card.

As a result, the deficit was on track to top $1 trillion the year I took office.  To make matters worse, the recession meant that there was less money coming in, and it required us to spend even more -– on tax cuts for middle-class families to spur the economy; on unemployment insurance; on aid to states so we could prevent more teachers and firefighters and police officers from being laid off.  These emergency steps also added to the deficit.

Because neither party is blameless for the decisions that led to this problem, both parties have a responsibility to solve it.

And it's worth noting that, among many others, the Pew Charitable Trusts and the New York Times have addressed this issue too.

Obama Throws Good Money After Bad

Taxpayer-funded PR for Unsustainable CLASS Act

“We very much share the concerns that have been expressed that, as written into the law, the framework of the program was not sustainable.”

—Secretary Sebelius, 2/16/11

At a time when the federal government is running trillion-dollar deficits, the Obama Administration has proposed spending yet more taxpayer dollars to launch a PR campaign aimed at promoting the CLASS Act—a new Obamacare entitlement that even HHS Secretary Kathleen Sebelius admits is at risk of becoming “immediately insolvent.”

·         Non-partisan experts and actuaries have consistently warned that the program could become unsustainable without a massive taxpayer bailout.

·         The independent Medicare actuary concluded that there is a “very serious risk” of the CLASS Act becoming unsustainable, and the President’s own Fiscal Commission recommended that the “financially unsound” program be significantly reformed or repealed entirely.

·         Senate Budget Committee Chairman Kent Conrad famously called the program “a Ponzi scheme of the first order, the kind of thing Bernie Madoff would have been proud of.”

·         Senators Shelby and Thune wrote last week to Secretary Sebelius to express concern that the Administration plans to “use federal resources on television ads in an effort to mislead Americans that the CLASS Act is fiscally sound.”

The Administration has provided no details about how it believes it can turn a totally unsustainable entitlement into a solvent program, yet it already has plans to spend more taxpayer funds for a PR campaign to promote the program. It’s just another sign that Obamacare will prove to be a budget-buster for the federal government.

VIDEO: Don't Raise the Debt Ceiling!

Congressman Ron Paul speaks on the House floor for 5 minutes warning about the dire consequences of further destroying our currency by raising the debt ceiling

Unbalanced Approach to Deficit Reduction

By Jason Furman

Democrats and Republicans agree that getting our fiscal house in order is one of the critical challenges facing America. To address it we are going to have to make tough choices, bringing to the table a commitment to examine every area of the budget and every loophole in the tax code without presumptively taking any of the options off the table. But it is critical that we not bring down our deficits and debt at the expense of economic growth, innovation and job creation, or place the greatest burden on older Americans and the most vulnerable. That is precisely what the House’s Cut, Cap and Balance plan would do – a proposal that White House Press Secretary Jay Carney described as “duck, dodge and dismantle.”

The House plan fails to achieve a balanced plan to reduce the deficit, which is precisely the approach that has worked successfully in America in the past and has recently been recommended by a number of different fiscal commissions.

Let’s start with the “cut” and “cap” portions of the bill.  These sections require spending cuts in 2012 and caps over the next decade identical to those in the House Budget Committee Chairman Paul Ryan’s plan., By House Republicans’ own design, achieving those spending levels would require cuts that would be harmful to the economic recovery in the short-term while also damaging our long-term competitiveness and placing a higher burden on seniors and the most vulnerable. To give a few examples:

•The bill would abruptly cut more than $100 billion in spending in the first year alone, a step that Congressional Budget Office Director Doug Elmendorf stated would “affect our projections for GDP growth over the next two years.”

•The House Budget Resolution plan would cut clean energy investments by 70 percent, infrastructure investments by a third, and education and training by 25 percent – cutting 320,000 children from Head Start and reducing aid for families trying to put their kids through college by hundreds, or even thousands of dollars.

•It would cut Medicaid by one-third over the decade, and by nearly 50% by 2030. This could, according to the Kaiser Family Foundation, result in 36 million people losing Medicaid coverage, including people with disabilities and seniors in nursing homes.  And that comes on top of the 17 million who would lose coverage due to repealing subsidies in the Affordable Care Act.

•And it would cut programs for the most vulnerable – for example, by food stamp benefits for a family of four by $1,760 per year or cut 8 million households from the program.

•Finally, the House Budget Resolution proposed to convert Medicare to a voucher program, increasing costs for Medicare beneficiaries by $6,400 a year beginning in 2021 – with those higher costs increasing over time.

But “Cut, Cap and Balance” doesn’t stop there. It also includes a requirement that to secure an increase in the debt limit necessary to avoid default – and a devastating impact on families and businesses – Congress must pass a constitutional amendment requiring a balanced budget. Moreover, it is an extreme version of a constitutional amendment that would cap government spending and require a two-thirds supermajority to cut tax loopholes or take other steps on revenue. The President has frequently made clear why he thinks a Balanced Budget Amendment is a misguided effort to absolve leaders in Washington of their responsibility for making tough choices. But it is important to understand what this requirement means when added on top of the cuts in the House Budget Resolution.

To start with, consider that at the end of the next decade, the House plan would still be $400 billion a year short of achieving a balanced budget. Unless Republicans are willing to entertain $3 to $4 trillion in additional revenues over the next decade, that means $400 billion a year would need to be cut beyond the House Budget Resolution.

And when you’ve already made such deep cuts to discretionary spending, Medicaid and other programs, it becomes difficult to imagine any credible ways to achieve those spending levels without including Social Security in the reductions and making substantially deeper reductions in Medicare.

So if the required spending cut were across the board, it would mean all programs, including Social Security and Medicare, would be cut by 10 percent by the end of the decade on top of the House Budget Resolution. If defense spending alone were exempted, it would mean that all other programs (again including Social Security and Medicare) would be cut by about 12 percent by the end of the decade on top of the House Budget Resolution. It would be possible to avoid cuts of this magnitude, but that would require dramatically deeper reductions than the one-third cut in Medicaid and infrastructure currently proposed in the House Budget Resolution.

We obviously don’t agree with this approach.  The President has proposed a comprehensive approach that ensures we live within our means and reduces the deficit by $4 trillion, while supporting economic growth and long-term job creation, protecting critical investments, and meeting the commitments made to provide economic security to Americans no matter their circumstances. We want to make significant cuts to government spending, including additional savings that come from further strengthening critical programs like Medicare, while protecting the recovery, strengthening the middle class and making the investments that will promote economic growth so folks feel confident in their futures and their children’s futures.

Representatives from both parties will continue to talk about reaching the largest deal possible.  The President is pushing everyone to come to the table, put politics aside, work through our differences and prove to the American people that we can still do big and difficult, but necessary things.

Jason Furman is the Principal Deputy Director of the National Economic Council.

Treasury: No Change to August 2 Estimate Regarding Exhaustion of U.S. Borrowing Authority

WASHINGTON – Today, Mary Miller, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, issued the following statement reaffirming the projected date on which the United States will exhaust borrowing authority under the statutory debt limit.

“The Treasury Department continues to project that the United States will exhaust its borrowing authority under the debt limit on August 2, 2011.  Secretary Geithner urges Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”

Sound Financial Advice!

By Zach Foster

“Congress should act to remove taxpayer support from the housing GSEs before the bubble bursts and taxpayers are once again forced to bail out investors who were misled by foolish government interference in the market.”

--Ron Paul, September 10, 2003 (four years before the housing bubble burst)

It is clear that Ron Paul understood economics better than most, if not all, members of Congress, and following his advice probably would have averted many of the terrible economic situations many Americans find themselves in today.  Congressman Paul knew that excessive spending, dishing out artificial credit, and government manipulation of free market practices led to the current economic recession which many are calling the Second Great Depression.

Dr. Paul’s extensive knowledge of solid economics, driven in part by his partnership with great economists like Ludwig Von Mises and Murray N. Rothbard[1], can help the country get back to a solid financial footing.  His solutions will not be overnight remedies as promised by the current administration and even some of the Republican contenders.

As President, Ron Paul would veto any unbalanced budget Congress sends him.  This practice would put in check the recent trend reflected both in the federal and various state governments of legislatures passing budgets with huge deficits.  Deficit is merely a nicer word for incurring extra debt and without a plan for paying it off.

Ron Paul would eliminate reckless and unconstitutional government departments.  If anything, this would achieve a major pillar of Republican ideology by SHRINKING the size of the federal government. Not all sections of various departments of various branches of government are necessary for running the country, and many of these departments serve only as red tape that either hinder economic growth or restrict individual liberties, or even both.  The last two Presidential administrations have been growing government faster than underground farmers grow marijuana in Humboldt County.  Even George W. Bush, the so-called maverick conservative, added 7,000 pages of new federal regulations over business and the economy, and even began opposing free trade by imposing tariffs on various imports.[2]

Ron Paul will not raise the debt ceiling.  He understands that raising the debt ceiling only furthers the country’s already out of control debt and puts the country in an even more precarious position should any of its creditors come knocking (ever heard of China?).  Government spending must be limited just the way credit card companies limit spending of careless clients who can’t pay their credit card debt.  The average credit card delinquent’s debt is in the tens of thousands.  The federal government’s debt is in the ball park of FOURTEEN TRILLION.[3]

Ron Paul would work to fully audit and then abolish the Federal Reserve.  The basic fact that damn the institution is that the Federal Reserve is only a quasi-governmental institution that can manipulate interest rates and the value of money without consulting any government authority.  Furthermore, every dollar that the federal government wishes into existence is PRINTED by the Federal Reserve and LOANED to the federal government with INTEREST FEES.  Basically, every dollar the federal government creates, it’s already in debt for.  Does anyone see a problem with this???  Congressman Paul makes an initial case for this in his 2008 book The Revolution, and outlines an excellent plan to end the Fed and restore the value of American currency in his book End the Fed.  These ideas are justified and the economic theories confirmed by celebrated economist Murray N. Rothbard in his books The Origins of the Federal Reserve, The Case Against the Fed, and What Has Government Done To Our Money?.

Ron Paul would oppose all unnecessary regulations on small businesses and entrepreneurs.  He knows that, unlike the careless and parasitic mega-corporations and huge banks that have stained the good reputations of capitalism and the free market, small businesses and entrepreneurs are the lifeblood of the American economy.  By creating jobs for themselves and others, small businesses and entrepreneurs leave other jobs open for other people and raise the number of employed citizens who work, earn, save for their retirement so they don’t have to sponge off the public coffers, and best of all, they spend most of their earnings on consumer goods like housing, cars, and food, thus stimulating the local and national economies.

Ron Paul would fight for lower taxes.  He strongly believes that hard workers should be able to keep what they earn rather than have the money robbed from their paychecks when only some of it will actually go to good things like roads and schools, while most of it will be blown on fruitless multi-billion dollar domestic programs, the wars in Iraq, Afghanistan, Libya (and Yemen too?), and generous foreign aid packages.  The author wrote in an earlier article:

“Walter E. Williams, distinguished Professor of Economics at George Mason University and syndicated columnist, explains how tax cuts on big business benefits the middle class.  ‘If a tax is levied on a corporation, and if it is to survive, it will have one of three responses, or some combination thereof. One response is to raise the price of its product, so who bears the burden? Another response is to lower dividends; again, who bears the burden? Yet another response is to lay off workers. In each case, it is people, not some legal fiction called a corporation, who bear the burden of the tax.’  What this also means is that when big businesses are taxed less, profits are higher and more disposable, therefore jobs are created, prices don’t rise, and wealth is spread more liberally and plentifully…”[4]

Ron Paul is the candidate who has a solid voting record and solid qualifications in virtually every sector of political issues Americans are debating about.  Ron Paul’s Presidency can lead the country back to prosperity[5] while protecting and preserving civil liberties and abiding strictly by Constitutional law.  Visit RonPaul2012.com for more details on his platform.

Image courtesy of Wikimedia Commons

---

[1] Paul, Ron. End the Fed. Chapter 3.  Grand Central Publishing.  September 2009.

[2] Tanner, Michael.  Of Course That Implies He Has Principles. Cato Institute. http://www.cato-at-liberty.org/of-course-that-implies-he-had-principles/

[3] Federal Debt Limit (Debt Ceiling). The New York Times. June 2011. http://topics.nytimes.com/topics/reference/timestopics/subjects/n/national_debt_us/index.html

[4] Foster, Zach. The Failure to Vote on the James Zadroga 9/11 Health Bill. The Political Spectrum. December 2010. http://political-spectrum.blogspot.com/2010/12/failure-to-vote-on-james-zadroga-911.html

[5] Restore America’s Prosperity. http://www.ronpaul2012.com/wp-content/uploads/wpsc/product_images/RP-Economy-SJim.jpg

Get the REAL Facts about Raising the Debt Limit

By Zach Foster

A recent press announcement from the Federal Reserve would lead Americans to believe that failing to raise the debt limit “would have catastrophic economic consequences.”  Despite the glossiness that the economists hired by the Federal Reserve Board of Governors that might make a “slight increase” seem like a sensible thing to do, and even downright responsible, IT IS NOT TRUE.  Failing to raise the debt limit would not have catastrophic consequences at all.  Any “catastrophe” appearing to result from suspension of payments by the federal government for salaries or operations that would occur, if Congress took the high road and enforced it this time, would NOT be a consequence of enforcing the debt limit; any and all catastrophe would be consequences of the last seventy-eight times the debt limit was raised.

The federal government cannot continue to incur debt any longer, especially at the rate of eleven trillion dollars of debt incurred under the Obama administration.  If things aren’t going to be paid for, then it is up to Congress to cut federal expenditures and to do so immediately.  Congressman Ron Paul (R-TX) has repeatedly recommended across-the-board cuts so that all expenditures are affected equally.  Yes, it will be painful, but it has to be done.  Someday large portions of the national debt may be called in by the loaners (foreign banks and foreign governments), and America’s inability to pay will make hundred dollar bills useful only as fuel for fires and toilet paper for private-area hygiene.

Congressman Paul has also repeatedly called for the abolition of the Federal Reserve, because the existence of that entity is parasitic to the national economy and only grows the federal debt.  The Fed wants the federal government debt to grow.  Some might ask why anyone would want this.  The answer they seek is that the Federal Reserve is a bank that loans money out, even to the federal government, and the Fed is running quite a racket.  Every dollar that the federal government speaks into existence and is printed or minted by the Treasury Department is actually being loaned to the federal government by the Federal Reserve, and the Fed charges interest.  Therefore, not only is it bad enough that the constant printing of money makes the dollar worth even less, but the government is already in debt to a bank before it even gets to print its own money.  The amount owed is ever increasing, since interest rates accumulate and compound the balance owed.

The debt limit has been raised seventy-eight times since the year 1960, which means this willful self-impoverishment has only gone on for sixty-one years.  If the country managed to survive 184 years without greatly raising the debt ceiling, then it can manage going more time without allowing greater debt.

Get the Facts: Raising the Debt Limit

A Press Announcement from the Federal Reserve

The debt limit is the total amount of money that the United States government is authorized to borrow to meet its existing legal obligations, including Social Security and Medicare benefits, military salaries, interest on the national debt, tax refunds, and other payments. The debt limit does not authorize new spending commitments. It simply allows the government to finance existing legal obligations that Congresses and presidents of both parties have made in the past.  

Failing to increase the federal debt ceiling would have catastrophic economic consequences. It would cause the government to default on its legal obligations – an unprecedented event in American history. That would precipitate another financial crisis and threaten the jobs and savings of everyday Americans – putting the United States right back in a deep economic hole, just as the country is recovering from the recent recession.  

Congress has always acted when called upon to raise the debt limit. Since 1960, Congress has acted 78 separate times to permanently raise, temporarily extend, or revise the definition of the debt limit – 49 times under Republican presidents and 29 times under Democratic presidents.  In the coming weeks, Congress must act to increase the debt limit. Congressional leaders in both parties have recognized that this is necessary.

Treasury: U.S. Still Projected to Exhaust Borrowing Authority on August 2nd

WASHINGTON – Today, Mary Miller, Assistant Secretary for Financial Markets at the U.S. Department of the Treasury, issued the following statement reaffirming the projected date on which the United States will exhaust borrowing authority under the statutory debt limit.  Treasury has committed to providing Congress with updates each month of when extraordinary measures taken to keep the nation from defaulting will be exhausted.

“On the basis of careful analysis of actual and projected revenues and expenditures, the Treasury Department continues to project that the United States will exhaust its borrowing authority under the federal debt ceiling on August 2, 2011.  Secretary Geithner continues to urge Congress to avoid the catastrophic economic and market consequences of a default crisis by raising the statutory debt limit in a timely manner.”