Comments on: The Suckers March: Show Us the Cuts

By: Jeffrey C. Goldfarb

Jeffrey C. Goldfarb — Fri, 29 Jul 2011 14:37:00 +0000

I often have wondered why a coalition of reasonable people in the House couldn’t come up with a compromise solution, along with the coalition represented by the “gang of six” in the Senate. Now, perhaps, that is about to happen. The reason why such a solution is less the ideal for Boehner is that his leadership of the Republicans will then be under attack from the Tea Party true believers. Not sure that Pelosi will play such a central role as Gary suggests. This, in my judgment, is when the President comes in, revealing why his not having a plan, the critical mantra of the Republicans, may have been wise. The President is about to speak. “Only time will tell.” (A cliche I am particularly fond of).

By: Gary Alan Fine

Gary Alan Fine — Fri, 29 Jul 2011 13:41:00 +0000

What seems clear this Friday morning is that after last night’s debacle, if a debt limit extension is to be passed, it will require the support of House Democrats. Nancy Pelosi will be the politician of the hour: who would have thunk it. It is hard to imagine that if Speaker Boehner could not get enough Republicans to pass his own plan, it seems impossible to believe that there would be enough support among Republicans to pass a plan agreed to by Harry Reid and the President. A substantial number of Democrats in the House will be essential. And so the nation survives or falls on Nancy’s determinations.

By: Gary Alan Fine

Gary Alan Fine — Fri, 29 Jul 2011 02:12:00 +0000

I certainly don’t belittle revenues, certainly not nearly as much as the Senate or the White House. Right now – should anything be done – there seems to be little hope for revenue enhancement. Perhaps they should, but they won’t be. But we should never forget that marginal tax rates are not given by the divine, they are proposals that can pass a legislature: there is nothing sacred about 32%, 35%, 39%, 44%. Part of the problem is that, as I write this, we are watching a drama – a farce – in which the House is struggling to pass legislation, just so it can be defeated in the Senate, but we have a group of Republicans who are so sincere that they won’t even vote for a bill that they dislike that will tomorrow go down in flames, and we have a President who has consistently refused to present a clear plan that the nation can evaluate and a Senate that seems unlikely to reach consensus. And in the process, the financial solvency of the nation hangs in the balance.

By: Michael Corey

Michael Corey — Fri, 29 Jul 2011 01:18:00 +0000

I agree that a debt solution involves dealing with both spending and revenues; however, an economic recession triggered by over leverage is unlikely to be remedied by debt escalating at a dangerous rate. I don’t see anyone looking at spending and revenues in a serious manner. Missteps on taxation may yield lower economic growth, and further complicate the recovery. In my view, addressing inequality is best done through addressing all of the policies that drive the economic growth: particularly those that deal with our natural resources and re-industrializing America. It is highly unlikely that we can provide adequate outcomes unless we build a base for realizing potential and opportunities. A service oriented economy is not likely to provide adequately paying jobs and be able to fund benefits long term. Virtually all investments are based upon estimates of risk and after tax cash flows. When barriers are put in place to delay or prevent them,the beta increases and the requirements for returns increases. Cash flow returns are negatively impacted by the length it takes to complete a project and the amounts of cash absorbed by taxes, When cash flows diminish or slow, returns become unattractive and don’t get done; and people seek alternative investments. The net result frequently is the loss of good paying jobs and the migration to other countries. I feel this perspective is getting lost in the side show of the debt ceiling crisis which is a diversion from the major issues. The de-industrialization of America is a major cause of persistent inequality in my opinion.

By: Jeffrey C. Goldfarb

Jeffrey C. Goldfarb — Fri, 29 Jul 2011 00:06:00 +0000

Michael, the problem of the deficit is not only a matter of spending but also of revenues, as Richard Alba demonstrated here last week, but Fine belittles in his post. And beyond the deficit: the near term challenge is to get our economy moving again, with the long term challenge to address the increasing inequality in American society, which fundamentally blocks American growth. Alba will consider such issues tomorrow in his next post.

I should add that I think Fine is right about the deep libertarian ideological commitments of the Tea Party, which is defining the agenda of the Republicans. But I observe that the American political system is damaged by such ideological politics. More on this in my “Week in Review” post which I am now preparing.

By: Michael Corey

Michael Corey — Thu, 28 Jul 2011 23:32:00 +0000

Months ago, as discussed on Deliberately Considered, the major rating agencies issued watches and warning about the possible downgrading of the United States’ credit rating. This has had nothing to do with the current debt limit “crisis.” It has everything to do with the trajectory of U. S. debt, the amount of unfunded liabilities the government has, and the actuaries views on the problems within the Social Security and Medicare programs. Nothing has really changed. There is a lack of appetite to deal with these issues, and if meaningful changes in terms of structure and process, the credit rating may be downgraded. This may have tremendous unanticipated consequences that will impact the world for a decade or more; and yet, there is no serious attempt to recognize the issues and deal with them. The distraction of the debt limit “crisis” has allowed attention to be diverted from the bigger issue, the likely downgrading of the U. S. credit rating. A financial default, in my opinion will not happen in the near term due to the continuing strength of our cash flows which can service our debt but not our total payables. What will happen when the world’s reserve currency is no longer “AAA” rated? My guess is that an alternative to the U.S. dollar as the world’s reserve currency will be seriously considered, and if this status is lost, the mechanisms to sustain the mounting debt with be severely restricted potentially creating a crisis of even larger proportions. Is this perspective too alarmist? I don’t think. The most basic principle in responsible financial management is to protect the credit rating. We seem to have lost sight of this.