Friday, July 22, 2011

Tea Party probably not numerous enough to block eventual debt extension deal, but their "anti-Chicken-Little" claims have more credibility than I had thought

As for today’s debt missive, I guess I could focus on Charles Krauthammer’s suggestion of a “Half-Trillion Dollar” plan: a half-trillion extension of the ceiling before Aug. 2, but a legislated commitment to $500 million in cuts over the next six months, or almost $100 a month.

That’s more than what might actually be cut every month with no ceiling extension, if you follow the math and logic of a Texas A&M economics professor  (Thomas R. Saving) whose article I discussed today on my Retirement Blog.  On the surface, this idea gives the Tea Party’s claims some credibility.

But it’s close – maybe even stricter – than the plans advocated by Moody’s and by Standard & Poor’s, and it’s a bit like a Grand Bargain. His Washington Post link is here. And it keeps the good name of the US behind its obligations, keeping the dominoes from falling.

There are some other pieces of this. Fareed Zakaria sees the debt ceiling debate as a side show, on his CNN blog here

On July 7, Robert A. Levy had published in “The Daily Caller” and later on Cato an article “Defaults, Debt Ceilings, and the 14th Amendment”, link here.There is some discussion of the difference between default and repudiation, but an admission later that a prolonged default amounts to repudiation.  The relevant case is Perry v. US (1935).  He discusses the constitutionality of the debt ceiling itself, but also suggests that the government could be compelled to do whatever is necessary to pay existing obligations (with Social Security that’s tricky, as with the Saving article from Texas A&M),and in doing so, the president could still borrow money (through a well-known but clandestine securities operation in Washington near the Treasury Building), because no one would have standing to sue to stop him  -- but only in the short run, to pay existing obligations.

In other words, as much as I hate to admit it, the hardliners do have a point – there is more the government can do to meet its current obligations than it is admitting. It’s like going to bankruptcy court and hiding assets.
All of this leaves us with the likelihood of some rather draconian cuts in spending soon; a look at the numbers tells me that the fattest place to cut is not entitlements but contractor abuse.

Can members of the Tea Party Caucus in the House really block any attempt to block the debt ceiling extension?  A website with a list dated March lists 56 such members, hardly enough to block a reasonable debt extension bill, with link here. Barney Frank, on the other side, said there are worse things than default.

But the idea that a sudden new majority can barge in to the scene, effectively repudiate previously made obligations and throw a lot of people overboard for the sake of their own “grandchildren”, is indeed frightening. History tells us it’s happened many times before.

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