Should there be a debt limit at all? Moody's Investors Service doesn't think so.
In a new report that says the debt ceiling creates ?periodic uncertainty? is an intriguing line: "The current wide divisions between the House of Representatives and the Obama administration over the debt limit creates a high level of uncertainty and causes us to raise our assessment of event risk. We would reduce our assessment of event risk if the government changed its framework for managing government debt to lessen or eliminate that uncertainty."
Translation: Moody?s is asking the U.S. government to toss the limit, and instead have a framework based on the size of the total budget to keep borrowing in check. Can that work?
Not in an environment where the White House now calls the Republicans' "cut, cap and balance" bill, in a statement saying "neither setting arbitrary spending levels nor amending the Constitution is necessary to restore fiscal responsibility."
Problem is, DC has treated the debt ceiling as an "arbitrary spending level," raising it about 100 times since 1939. DC political dysfunction in high definition looks more like Italy with each passing day, which in turn means US Treasuries could look more and more like emerging market debt.
Last week both Moody?s and Standard & Poor?s threatened to slash the U.S.?s Triple-A rating down to double-A status if the government opted to default and did not pay interest on Treasuries, after blowing past the debt ceiling.
Both Moody?s and Standard & Poor?s have said the debt ceiling is not the big issue. It?s the size of the U.S. debt at more than $14 trillion, and paying the interest on the debt. That's what matters. Paying interest on the debt. If a country can't pay interest on its debt, then it's in default and it loses its rating. Interest costs on the debt are about the size of Belgium at $413.9 billion. That figure includes interest on intra-government holdings in Social Security. Strip out those costs, and net interest on the U.S. debt is $197 billion or 9% of the $2.1 trillion in federal tax and other revenue. That's about what the U.S. government collects annually, $2.1 trillion, in federal tax and other revenue. It borrows the rest.
The ratings agencies seem to weigh net interest costs more, the $197 billion figure. Some insiders tell me if interest on the U.S. debt surpasses 15% of federal tax revenue, then that will set off alarm bells. Factor in Social Security, it?s already approaching 20%.
Which is why the President and the Democrats are talking about raising taxes, to pay that interest bill.
They tried to buy economic growth, but they gambled, they lost, and now they want you to pay for their bad bet.
The Democrats tried to buy economic growth with $3.8 trillion in new spending, adding the equivalent of Germany and Russia to the US debt.
?You?ve got to spend money to create money,? to paraphrase Vice President Joe Biden.
But joblessness has only grown, and US economic growth is flat lining at around 2%. That amounts to about $280 billion on a $14 trillion economy, just about enough to pay for interest on the debt.
Also, the $14.29 trillion figure doesn?t include the budget busting cost of health reform, it doesn't include unfunded liabilities for Social Security and Medicare. Nor does it include the cost of U.S. conservatorship for housing finance companies Fannie Mae and Freddie Mac, at more than $5.5 trillion. Factor that debt in, and the US debt surpasses the gross domestic product of the planet, at more than $70 trillion.
Economists Carmen Reinhart and Ken Rogoff have already reported that, historically, economies shrink as public debt exceeds 90% of GDP, as the government sucks more capital out of the markets to fund itself.
The problem is, the U.S. historically has blunted the twin blade of the scissors to cut the deficit, a debt ceiling and a balanced budget amendment to the Constitution, which takes two-thirds of Congress and three-quarters of the states to pass. Congress has consistently been unable to pass a balanced budget amendment.
So that leaves the debt ceiling as one blade of the scissors. And when history repeats itself, things get more expensive, as the history of the debt ceiling fights proves.
The U.S. enacted the first ceiling on the national debt in 1917 as part of a law that ended a requirement that Congress approve every debt issue. President Woodrow Wilson then signed into law the Second Liberty Bond act of 1917.
Even at that time, elected officials knew they were making borrowing easier, as Congress was concerned about paying for World War I, says the Congressional Research Service [CRS].
The first ceiling was $8 billion over the prewar level of about $3 billion.
Sure enough, by the end of World War I, the government hiked the limit to $43 billion. For the first time, in 1939, Congress applied the limit to nearly all federal debt; by the end of World War II, the limit had risen to $300 billion, says CRS.
In the 1960s and 1970s, inflation and deficits grew hand-in-hand, CRS notes. In 1981, President Reagan signed the first debt ceiling that exceeded $1 trillion. Since then, the debt has grown faster than inflation. The most recent debt limit, enacted in February 2010, is $14.29 trillion.
Since 1939, the U.S. government has lifted the ceiling nearly 100 times. The Congress has raised the debt ceiling 11 times since 1996?and, no surprise, for 14 consecutive years the Government Accountability Office says it could not sign off on the government?s books because they are in such disarray.
In 1979 political fighting over the debt ceiling, and then a computer logjam, triggered a small technical default on about $110 million in short-dated bills, but interest rates did rise higher by about a third of a percentage point, until the U.S. cured the problem.
Breaking the debt ceiling deadline does not mean automatic default. The president in concert with the U.S. Congress and the Treasury Dept. would decide whether or not to pay interest on the U.S. debt in that event. The Bipartisan Policy Center, a DC think tank, says the government would immediately have to cut cash outlays by 45%.
In that event, all borrowing rates across the board would rise, and the repurchase market, or repo market, which exists for short-term liquidity and is built on U.S. Treasuries, would likely go into gridlock.
For now, the bond market has been quiescent due to investors achieving maximum escape velocity out of Euro zone debt, due to the fiscal crisis there, and into U.S. Treasuries.
The Wall Street firm Blackrock says without this flight to safety, interest rates would be 25 points to 30 basis points higher. Keeping a lid on U.S. yields as well as is the deflationary environment in the U.S., as unemployment sticks adhesively above 9%.
Consider the source (Faux News) if you think this insane.
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I'll believe corporations are persons when Texas executes one.: LBJ's Ghost
it really doesn't serve much purpose other then serving political needs of whoever is NOT in power.
I would love to see a rational balanced budget bill though, and not one like the republicans where they snuck in wording to end tax increases as part of the measure so they know that it cannot and will not happen but they can still use it during next years political frenzy
it really doesn't serve much purpose other then serving political needs of whoever is NOT in power.
I would love to see a rational balanced budget bill though, and not one like the republicans where they snuck in wording to end tax increases as part of the measure so they know that it cannot and will not happen but they can still use it during next years political frenzy
That could only be possible with an idiot electorate but then that's exactly what Fox and the Right are shooting for.
Oregon puts out these excellent voters guides prior to each election. The candidates pay part of the cost and unlike in PA there are no throwaway questions that every candidate twists to their own benefit.
The November issue can run over 100 pages and I read every word about candidates for offices I may vote on. I feel it's my duty not just to vote but also to cast an informed vote.
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I'll believe corporations are persons when Texas executes one.: LBJ's Ghost
CBS News Poll analysis by the CBS News Polling Unit: Sarah Dutton, Jennifer De Pinto, Fred Backus and Anthony Salvanto.
Americans are unimpressed with their political leaders' handling of the debt ceiling crisis, with a new CBS News poll showing a majority disapprove of all the involved parties' conduct, but Republicans in Congress fare the worst, with just 21 percent backing their resistance to raising taxes.
President Obama earned the most generous approval ratings for his handling of the weeks-old negotiations, but still more people said they disapproved (48 percent) than approved (43 percent) of what he has done and said.
Tune into the CBS Evening News with Scott Pelley at 6:30 p.m. for the full poll results.
CBS News senior White House correspondent Bill Plante reports there was no visible progress over the weekend, despite warnings from debt rating agencies that the nation's credit rating could drop, even if there is a deal, if government spending isn't cut.
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Congressional leaders' inability to convince their own party members that concessions are necessary is likely driving the dismal approval for lawmakers involved in the testy negotiations.
Approval drops to 31 percent for the Democrats in Congress, and only 21 percent of the people surveyed said they approved of Republicans' handling of the negotiations, while 71 percent disapprove.
Even half of the Republican respondents (51 percent) voiced disapproval of how members of their own party in Congress are handling the talks. Far fewer Democrats expressed disapproval of their own party's handling (32 percent) or President Obama's (22 percent) of the urgent quest to raise the nation's debt limit ahead of a looming default on Aug. 2 if action isn't taken.
The Obama administration has pointed to the warnings from rating agencies as evidence that not raising the debt ceiling could have severe consequences for the economy, and even suggested the government might not be able to make Social Security payments if there's no agreement.
However, some remain skeptical; 36 percent said the administration is trying to scare people by painting the potential outcome if the debt ceiling is not raised as more dire than it really is. But slightly more, 40 percent, say the administration's warnings are valid.
While the poll shows little confidence in the men and women doing the negotiating, there still seems to be hope that the politicians will be able to stop politicking for long enough to avert financial disaster.
Sixty-six percent of those polled said they believe an agreement will be reached before the Aug. 2 deadline, while only 31 percent say it's unlikely.
Read the complete poll (PDF)
Search the CBS News poll database
This poll release conforms to the Standards of Disclosure of the National Council on Public Polls.
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I'll believe corporations are persons when Texas executes one.: LBJ's Ghost
CBS News Poll analysis by the CBS News Polling Unit: Sarah Dutton, Jennifer De Pinto, Fred Backus and Anthony Salvanto.
Americans are now roughly split on raising the debt ceiling, a new CBS News poll shows, with support for an increase nearly doubling since last month.
The spike in support for an increase follows dire warnings from the Obama administration and many economists concerning the consequences of lack of action. They have warned of a possible U.S. default on its obligations, a stock market crash, an increase in interest rates and a halt in Social Security payments and other obligations.
Some Republicans, among them presidential candidate Rep. Michele Bachmann, have deemed such warnings "scare tactics." But the warnings -- and the increased media coverage of the issue -- seem to have prompted many Americans to move from opposing an increase to backing one.
Support for increasing the debt ceiling has risen 22 points from last month, from 24 percent to 46 percent. Opposition has fallen 20 points in that period, from 69 percent to 49 percent. (See graphic at left.)
The poll found that the more one follows the debt ceiling debate, the more likely he or she is to support an increase: 51 percent of those who are following the debate very closely think the debt ceiling should be raised, compared to just 29 percent of those who are not following it closely.
The shift toward more support for an increase can be seen across the political spectrum. Last month, 54 percent of Democrats opposed raising the debt ceiling. Now 61 percent support increasing it. And while a majority of Republicans and independents oppose an increase, it's by a narrower margin than last month. Thirty-three percent of Republicans now say the debt ceiling should be raised, up from 16 percent last month; 40 percent of independents say it should be raised, up from 21 percent last month.
Two thirds of Americans back the Obama administration position that a deal to increase the debt ceiling should include both spending cuts and tax increases, while just 28 percent back the Republican position of only spending cuts. Three in four say an agreement they do not fully support would be preferable to having the U.S. default on its debts.
Expected consequences of inaction: A slim majority of Americans - 51 percent - say they think the United States will "probably not" default on its debts if the debt ceiling is not raised. Thirty-eight percent say the nation will "probably" default without an increase. Republicans and independents are more likely than Democrats to predict that the nation will not default.
The Treasury Department could potentially prioritize paying off U.S. debts before other obligations without an increase in the debt ceiling, avoiding default. But according to the Bipartisan Policy Center, that would mean cutting all other government expenditures - which include military pay and entitlement payments - by 44 percent.
A majority of Americans say it is at least somewhat likely that certain entitlement payments will be stopped without an increase in the debt ceiling; 44 percent say it is not very likely. President Obama warned in an interview with CBS News last week that he could not guarantee that Social Security checks will go out after the August 2 deadline without a deal.
(Credit: CBS News) Eight in ten Americans, meanwhile, predict a severe downturn in the economy and stock market without a debt ceiling increase, including 45 percent who say it is very likely. The percentage who says a severe downtown is very likely has risen 20 points since last month. Just 13 percent say a severe downturn is not very likely. (See graphic at left.)
There are skeptics when it comes to the Obama administration's dire warnings, however. Thirty-six percent of Americans - including 51 percent of Republicans - say the administration is making the consequences of not increasing the debt ceiling sound worse than they actually would be. Forty percent say the administration is describing the situation accurately, while 14 percent say it is understating the potential consequences of not acting.
Two thirds of Americans say Republicans and Democrats will probably come to an agreement to raise the debt ceiling by the August 2 deadline. Thirty-one percent say the two sides will probably not reach agreement.
The debt ceiling debate has not improved perceptions of Washington. Twenty-eight percent now say they are angry about the way things are going in the nation's capital, up nine points from May -- and the highest percentage recorded since the question was first asked in early 2010. Another 51 percent say they are dissatisfied with Washington. Just 14 percent call themselves satisfied with how things are going in Washington, and a mere 3 percent say they are enthusiastic.
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I'll believe corporations are persons when Texas executes one.: LBJ's Ghost
CBS News Poll analysis by the CBS News Polling Unit: Sarah Dutton, Jennifer De Pinto, Fred Backus and Anthony Salvanto.
Most Americans think any agreement on the budget and debt ceiling should include a combination of spending cuts and tax increases, according to a new poll from CBS News.
The survey, conducted from July 15-17, suggests that Americans side with President Obama on what a deal to raise the debt ceiling should include: the president has repeatedly called for tax increases for wealthy Americans, as well the elimination of tax loopholes that benefit corporate interests, to go along with spending cuts as part of a "balanced approach" to lower the government's deficit.
According to the poll, 66 percent of Americans believe that the deal to raise the debt ceiling should include both spending cuts and tax increases. Only 28 percent said they thought the deal should contain spending cuts exclusively, and a mere three percent wanted it to include tax increases only.
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Full poll (PDF)
Indeed, the desire to see an agreement that contains both elements spans the political spectrum: 55 percent of Republicans, 53 percent of Tea Party members, 71 percent of Democrats and 68 percent of Independents said they support such a plan.
Republicans and Tea party supporters, however, are more likely than Democrats and Independents to support an agreement that includes spending cuts only: 39 percent of Republicans and 44 percent of Tea Party members supported that option, whereas only 20 percent of Democrats and 28 percent of Independents did.
In a press conference on Friday, Mr. Obama argued that his proposal of a "balanced approach" on a debt deal - one that includes revenue increases as well as spending cuts - is what the American people want.
My Republican friends have said that they're not willing to do revenues, and they have repeated that on several occasions," he told reporters at a news conference at the White House. "My hope, though, is that they're listening not just to lobbyists or special interests here in Washington, but they're also listening to the American people. Because it turns out, poll after poll, many done by your organizations, show that it's not just Democrats who think we need to take a balanced approach, it's Republicans as well."
When it comes to finding fault for the budget standoff, it appears that Americans place more blame on Republicans in Congress than on the president. Forty-nine percent of voters said they faulted Republicans for politicians' failure to agree on a deal, while only 29 percent said they blamed Mr. Obama. Thirteen percent said both are to blame.
Views were similar during the budget standoffs in 1995 and 1996. Then, more Americans found the Republicans in Congress to be at fault than Former President Bill Clinton.
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Mr. Obama may receive less blame from the public because he is more likely to be seen as trying to resolve the problem, the survey indicates. According to the poll, sixty percent of Americans think he is genuinely trying to find a solution to the standoff, while just 32 percent say the same for the Republicans in Congress.
And while 56 percent of Republicans said they doubted Mr. Obama's commitment to finding a solution to the debt limit stalemate, 37 percent said they were skeptical that their fellow Republicans in Congress were really seeking a solution, either.
These views reflect similarities with voters' perspectives in 1996, during the budget standoff between Clinton and congressional Republicans, when 62 percent of Americans said they thought Clinton was trying to find a solution to the problem, and only 42 percent thought the same of Republicans in Congress.
Moreover, Americans generally seem to think that Mr. Obama is looking out for American families. Fifty-one percent of Americans say the president is more concerned than Republicans about doing what is best for their families; just 32 percent expressed the reverse opinion.
Regardless, Americans want to see compromise from all parties when it comes to striking a deal on raising the debt limit. Sixty-nine percent of Americans said they wanted Mr. Obama to compromise; 85 percent said they wanted congressional Republicans to compromise, and 78 percent said the same of congressional Democrats.
Ban the Debt Limit
And while more Americans disapprove than approve of how Mr. Obama is handling the negotiations, he still receives less criticism from the public than does either party in Congress. Forty-three percent approve of how the president is handling the talks, and 48 percent disapprove. Approval drops to 31 percent when it comes to congressional Democrats' handling of the negotiations, however, and approval dips even further - to just 21 percent - when it comes to congressional Republicans (with 58 percent disapproving of congressional Democrats and 71 percent disapproving of congressional Republicans).
Even a majority of Republicans (51 percent) disapprove of how Republicans in Congress are handling the debt negotiations. Among Democrats, those figures are significantly lower: Only 32 percent disapprove of congressional Democrats' behavior in the talks, and only 22 percent feel the same about Mr. Obama's handling of them.
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I'll believe corporations are persons when Texas executes one.: LBJ's Ghost
If it weren't for that pesky interest payment just think how many more government freebies we could have (and maybe even grow the agencies that dole them out!
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