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What about the possibility that this spending-to-GDP ratio is not temporary due to revolutions in technology that have made a lot of jobs redundant? Specifically, that technology has not only replaced a lot of manual labor (this has been the case for decades) but has replaced a lot of "intellectual" (generally white-collar) labor as well? Paul Krugman has recently taken this idea seriously.
This implies that current spending and unemployment rates may be the "new normal," which means that Republican talking points will probably not go away any time soon. I really hope I'm wrong, but I fear that 25% of GDP may be necessary just to prop up basic safety net and entitlements from now on.
Congrats! It certainly is a top blog. But they've got Zero Hedge and Mish up in the top 10. Gonna have to wait for the sky to fall a bit more. I think of you as a wise, experienced political navigator.
Congratulations, though how CG&G is a "finance blog" in the manner of the others on that list escapes me.
Should you now expect an influx of ZeroHedge/Shedlock-san readers? Will we be seeing a mass of Gold-as-Inflation-Hedge posts now? (Hmm, come to think of it, reasonable "fiscal cliff" coverage is a good counterweight there. Maybe you should start recommending Fidelity funds...)
w00t!
"And while the Left might take glee in the Right caving on this, they shouldn't because it'll just cause more hard feelings and future unwillingness to compromise down the road."
We now have a totally loony right with which no compromise is possible. That's nobody's fault except theirs and that of the ill-informed people who voted them into office.
Honestly, don't we want our gov't to stop stalling and actually start governing? We have enough black swan events that occur naturally that we don't need to be making artificial ones.
And while the Left might take glee in the Right caving on this, they shouldn't because it'll just cause more hard feelings and future unwillingness to compromise down the road.
Certainly the horserace or warfare interpretation of events is mainstream media. However, what does it serve America to be distainful and triumphant when someone takes a step (voluntarily or otherwise) toward the middle ground? Is a rare glimse of reality on the part of the Republicans to be mocked? I think a thank you or attaboy would be far more constructive than this article's disasterous approach.
The GOP's play on the debt ceiling was really stupid. It had approximately zero chance of working out well for them as long as the President refused to adopt their terms (which he fatefully accepted in 2011, hoping it would facilitate a grand bargain). Obama refused to adopt their terms.
What is the right thing to do at this point? Clearly, it is to back down. To use Bill McBride's poker metaphor, the Republicans were essentially bluffing into the nuts--the longer they persisted, the more they would lose. The smart play is to fold the hand, period.
To portray this as some kind of "tail between the legs" surrender is thus puzzling. Yes, it would have been far better never to raise the rhetorical stakes; but no, that does not mean that walking away now is best understood as ignominious or cowardly.
I think the Republicans were bad actors on the debt ceiling in 2011 and 2013; I wish this resolution were far more lasting. But why are people so eager to make them eat crow for coming to their senses
In addition, the proposed solution might be unconstitutional: the pay of senators and representatives can only be changed with an election in between (27 Amendment). Witholding pay in an escrow, as suggested, is 1) still unconstitutional and 2) pure theatrics, because they can borrow the money from a bank against the escrow.
For the past 2 years, the GOP has been trying to bluff the Dems with its losing hand in budget negotiations. The bluff reached its peak in August 2011 when the Dems finally called the bluff and the GOP had to show that it had nothing.
Since then, Wall Street has completely undercut the GOP position and the Dems have picked up a new ace: threats to raise taxes on the 1% which they made good during the fiscal cliff fight. Now the Dems are threatening to do it again by closing loopholes of the 1%, so the GOP must fold.
Boehner is simply between a rock and a hard place with his losing hand. Obama wins again.
Not in their base but in themselves (or maybe their wallets).
I'm not sure how you define the word "base". Typically it refers to large numbers of people not extraordinarily extreme or rich people.
The reason I'm puzzled is that I just don't get "The GOP's base's two biggest economic issues are tax and spending cuts." First note the key qualifier "economic". The Tea Partiers' key issues are immigration and environmentalism (against both of course). These are economic issues, but I am sure you meant economic to mean "fiscal" (at which point I must concede that taxing and spending are perceived by the GOP base to be a big part of fiscal policy ).
But you seem to assume that the GOP base wants to cut entitlement spending. Gee that's odd, the GOP ran against Medicare spending cuts in the past two elections. Self identified Republicans ferociously oppose cutting Social Security or Medicare. On taxes, in a recent poll, 51% of self described Republicans said they supported higher taxes on family income over $250,000.
On fiscal issues, the GOP caucus is way to the right of the median self identified Republican. I think the base you have in mind consists of elected Republicans themselves or of big donors and, especially, the wingnut welfare organizations.
The sequester will get delayed again. Probably for a month this time, to coincide with the expiration of the continuing resolution.
What we OUGHT to do with the sequester is phase it in rather than delaying it. Let the cuts happen, but let them happen slowly over time rather than all at once. This makes infinitely more sense than having a law that makes them happen all at once but then never allowing the law to take effect by delaying it every time at the eleventh hour.
Of course, as I pointed out in my previous comment, the GOP doesn't want the military cuts to happen, despite all of their talk of spending cuts in the abstract.
The real battle is going to be over the expiration of the continuing resolution. I'm not sure how it's going to play out. A shutdown for anywhere from a few days to a week my happen, but what will it accomplish? The likelihood of any sort of grand bargain is small. The most probably outcome, based on recent history, is another short-term, small deal.
"Greg also notes, however, that there may well be enough Senate Republicans willing to join the 55 Democrats to make this happen."
Yep. Five Republican Senators who didn't break with the party over any major or minor issue over the past two years are going to break with the party over what they have made a Signature Issue.
Forget finding 30 bankers, or ten capable managers of Fortune 500 companies. Find five Republican Senators who are not indebted to the party enough that they will sign off on any bills that also can get past Bernie Sanders.
See also the story the Financial Times ran today on Americans for Prosperity's argument for punting on the Debt Ceiling: a focus on debt is the wrong way to reduce federal spending because any "grand bargain" to increase the Debt Ceiling would be negotiated with liberals.
This is nonsense, in that any legislation to counteract sequestration, and any budget or continuing resolution, will be "negotiated" with the same people as would have been involved in a "grand bargain" triggered by the Debt Ceiling, or for that matter the tax-rates piece of the Fiscal Cliff.
But it may send the signal that, even if the "base" hates it, Americans for Prosperity won't "primary" republicans based on a vote to raise the Debt Ceiling.
I think Sargent is just reading comments sections of various different sites where this interpretation has been a very, very common observation since the minute the ink dried on the fiscal cliff law. Plus who is to say why the government shutdown if the House has sent the Senate an approved continuing resolution which the Senate happens to hate? But I do agree that it may all be leading up to the point where Republicans are going to have to describe in specifics and then vote on things they want to cut. But should they find a manner to package it so that Democrats grudgingly signoff on it, well come 2014 the quick rejoinder to Democratic complaints will be easy - you voted for it, too. Hence, make sure that PPACA implementation is viewed as a success by most Americans as that, probably, is going to be a much clearer story over who did what by the next election.
After all the sturm and drang the GOP has raised over spending, it's telling they never come up with specific cuts. This is because the cuts they want --the elimination of Social Security, Medicare, Medicade, CHIP, unemployment insurance,etc. -- are hopelessly unpopular beyond the extremely wealthy and the rabidly extreme. So they dance this Devil's dance, demanding unnamed, massive cuts with the intention of demonizing Obama afterwards for making the cuts. And the media wonders why our President has lost all interest in negotiating with these unprincipled lunatics.
Consider the "Iron Law of Institutions": the people who hold power in institutions are guided principally by preserving power within the institution, rather than the success of the institution itself.
The overall good of the party (much less America) are irrelevant to the incentives of any given Republican. No one in the GOP has the incentives, or perhaps even the inclination, to engage with reality on public policy-- or electoral demographics, for that matter.
It's been pointed out that today’s House GOP “consists half of people who think like Michele Bachmann ... and half of people who are afraid of losing a primary to people who think like Michele Bachmann.”
In the 2010 primary in a state of just under 900,000 people, Christine O’Donnell defeated her relatively sane rival for the GOP Senate nomination, Mike Castle, 30,561 votes to 27,021.
It doesn’t take that big a group of people to continue to successfully enforce idiocy in GOP primaries.
Folks from an ever-shrinking demographic and worldview can easily maintain a hammerlock on an ever-shrinking, ever more universally despised and irrational GOP.
Your blog excluded, I've been waiting for those in the pundit class to remember the actual government shutdown deadlines, rather than the misunderstood government default deadline.
While the GOP has been burned at the shutdown altar before, it wins points with their base and House members are unlikely to be punished in their primaries for a government shutdown (as you point out in your other post).
On the other hand, a government default and its ramifications might be far too great of a price for the House GOP members to bear. I think even members of their base would turn against them, once the true consequences are understood, and certainly there would be fallout in the business community.
I'll be curious if we start to see more on their other options in the days to come.
From what I have seen, almost no one has been talking about the fact that minting the coin or invoking the 14th puts the focus back on Obama and opens up for all sorts of silliness regarding impeachment hearings, etc., for a problem that Congress has created. He's better to take it off the table completely and force the GOP to deal with their own crazies.
I get the impression that while there is still a fundamental misunderstanding about the debt ceiling this time around, it seems a little less widespread. I see less nonsense comparing it with credit card limits, and a little more input from the business community to not mess around with it, etc..
Maybe Obama will end up caving and compromising on future spending reductions that are irrelevant to the debt ceiling debate. But I also wonder if he might want to see some of those things happen (like COLA indexing) and this could be a way of giving him the political cover with his base to enact changes that his administration has offered up before.
The House GOP can only play this game only until their base finally understands that breaching the debt ceiling does not force spending cuts, it only delays it, makes it more expensive, and is a nihilistic response to a problem they frankly don"t really want to solve.
Maybe they will force us to briefly breach the debt ceiling, but the reaction from the markets is likely to be so immediate (I'm reminded of the stock market tanking after the first failed TARP vote) that even the intransigent members will get the message and they will raise it.
Two other things come to mind:
1) the debt ceiling is coming at a time when people are expecting their tax refunds. While it may not be clear exactly how Treasury would determine how to make payments to SS beneficiaries, bondholders, military personnel, etc., it seems that people waiting on tax refunds would be at the end of the line. That will certainly motivate the base even if a market crash doesn't.
2) For those who believe this hostage-taking is the only way to cut spending, I'd remind them that they have two at least two other hostage taking opportunities, the March 27 and Oct 1 deadlines for FY13 and FY14 appropriations. And at least those hostage taking opportunities actually shut down the government, more immediately result in cutting government spending, and have less far-reaching global ramifications, as compared with their fundamental misunderstanding of the debt ceiling limit.
"neither the Treasury, which would produce the coin, nor the Fed, which would exchange the coin for cash, are wiling to enter into the transaction. That means that, even if minting and selling the coin is legal, neither the buyer nor the seller are interested in doing the deal. That effectively eliminates the trillion dollar coin option from the debt ceiling debate."
That is nothing an executive order by Obama could not change: the Treasury, as part of the executive, can be made to print and deposit the coin; and the Fed can't refuse to accept legal tender. I understand, however, the desire to keep pressure on the GOP - when the default has been there for a few days, and IOUs swamp the market, the pressure will only increase. IOUs might be a better weapon than the coin - it's a political call. One thing is clear: the GOP politically cannot demand minting the coin, to relieve the pressure from them ;-)
it's so important that a Democratic President mint a $60 T platinum coin forthwith!
Rue got it right.
I also reacted to the part: "The GOP's base's two biggest economic issues are tax and spending cuts. Therefore, taking a hard line in all budget debates is what makes the most sense politically". The GOP's base contains also many retirees. After the debt ceiling is reached, pay social security above a threshold only as Treasury's IOUs, and see how the richer retirees like the discount that they have to pay at the bank to get real US dollars.
Similarly, spend only IOUs for military contractors, as Rue suggested.
The GOP political power comes from the South, a region rich in Federal Spending that takes in far more Federal tax dollars then other regions. The overall Southern GOP will not appreciate significant reduction in government spending in there districts but the social conservatives could care less and this is where the rubber meets the road in the GOP. The South loves Federal pork spending expect Obama and the Democrats to cut spending in Republican States, not a pleasant prospect for the GOP.
I completely agree with Rue.