Government shutdown averted, more of the same coming soon

The U.S. narrowly avoided a federal government shutdown this past weekend. While President Obama has hailed the compromise which allowed the government to continue to function, it is already clear that more shutdown battles are coming very soon.

What is noteworthy is that core constituencies on both sides of this debate about government spending were unsatisfied with the deal hammered out in the last hour. For example, Fox News reported that conservatives are not happy with this deal.

Rep. Jason Chaffetz, R-Utah, voted against the bridge bill and said he could not back the final budget deal either.

"I can’t support this," Chaffetz told Fox Business Network shortly after the deal was announced. "We have a multitrillion-dollar problem here. And I feel disappointed we came up a little bit short."

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Many are already looking to re-double their efforts to win more concessions in the coming debt ceiling showdown that may begin as soon as next month.

Meanwhile, Paul Krugman voiced concerns on his blog, ‘The Conscience of a Liberal’, in a post entitled Celebrating Defeat:

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It’s one thing for Obama to decide that it was better to give in to Republican hostage-taking than draw a line in the sand; it’s another for him to celebrate the result. Yet that’s just what he did. More than that, he has now completely accepted the Republican frame that spending cuts right now are what America needs.

It’s worth noting that this follows just a few months after another big concession, in which he gave in to Republican demands for tax cuts. The net effect of these two sets of concessions is, of course, a substantial increase in the deficit.

These polarized views mean that the stakes will be even higher in the next spending battles. John Boehner is in a very tough position, as evidenced by his shifting stances in this last budget battle.  The Tea Party wanted more cuts than he was delivering and there is a certain degree of mistrust of Boehner within the Tea Party because he is perceived as a Country Club Republican who isn’t serious about cutting spending. His initial offer to the Democrats of $33 billion in cuts fell short of Ta Party goals. So, h came back with a higher cut stance after it seemed a deal was close. That is what sent negotiations down to the wire. Expect similar events to unfold in Washington again and again going forward.

Stan Collender argues forcefully that the probability of a shutdown is high.

Just a quick note…No matter what happens today with the government shutdown, the situation is going to be even more difficult this September when the House, Senate, and White House fight over the 2012 appropriations.  The House GOP is likely to propose even larger appropriations reductions in next year’s budget than it did for fiscal 2011 and the battle will be far more intense.  This especially will be the case if (1) the tea party wing of the GOP doesn’t get what it wants on the 2011 appropriations and feels that it needs to make a stand on 2012, and (2) if House Speaker John Boehner thinks he has to make a stand on 2012 spending to show the tea party he doesn’t deserve a primary opponent.

In other words…Expect another shutdown threat…or an actual shutdown…in less than 6 months.

Remember…You heard it here first.

The Shutdown Problem This September is Going to be Even Worse

Collender used even more alarming language regarding the pending deficit ceiling battle when he wrote yesterday.

Congressional Republicans want more spending cuts, repeal of ObamaCare, no tax increases of any kind, and a constitutional balanced budget amendment as their price for voting to increase the debt limit.  A significant number in both houses of Congress won’t vote for a debt limit increase under any circumstances, even if it means economic disaster, which a default surely would. 

By the way, continuing to pay interest and principal to Treasury debt holders won’t avert calamity at all. Default is default. The rating agencies wouldn’t have any choice but to lower our AAA rating, and that would drive up interest rates for a long time — not a smart thing to do when you have $14 trillion of debt outstanding and plenty more on the way.

I can assure you that raising the debt limit is going to be a lot harder than keeping the government from shutting down. [My emphasis]

So, get ready, you ain’t seen nothing yet.

P.S. – it was good that someone finally brought up the credit rating issue. I think a downgrade is in order if we see a shutdown.

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2 Comments
  1. jimh009 says

    This whole budget debate of the past few weeks was almost painfully funny. If all this time was spent debating how to cut a measly $40 billion (much of which was a sleight of hand as AP reported today), I can’t wait to see the encore of Congress and the Administration actually trying to make real progress toward reducing the deficit.

    I personally can’t see it happening, truthfully. Views are too polarized now, and Congress and the Administration are essentially “bought and paid for” by various interest groups. And as long as the feds can freely borrow money at virtually no cost anytime it wants, there is little motivation to actually reign in the deficit.

    Thus, call me cynical – but I see the deficit continuing endlessly until the day arrives when, suddenly, the money is no longer there. When the day arrives that the USA has a “Greek” or “Irish” moment will be the day when the USA finally starts to move in the right direction toward getting it’s fiscal house in order.

    Japan demonstrates that a country with its own currency can keep borrowing far longer than most people think, and I suspect it’s likely that the USA will be able to borrow massive amounts of money for many years to come (why anyone would loan the USA or Japan money for a 5+ year duration is beyond me!). But eventually the unsustainable level of borrowing will end, even for Japan and the USA. I guess the good news is that if you are an American, Japan will provide a front-row seat to future problems in the USA (thus, we get to watch before it’s our turn).

    1. Edward Harrison says

      Personally, I am in favour of spending cuts. I also favour raising the age for social security and Medicare and means testing Medicare.

      In my view, we should cut military spending drastically, get out of Afghanistan, Libya, all of that. Let the Koreans and Germans pay for their own national defense. I’m not making a nationalistic argument here. I feel like most Libertarians do that national defense is about defense, not offense and there is no reason for the U.S. to have such a larger overseas military presence.

      On the Medicare score, the Ryan plan is ridiculous. Healthcare in the private sector is the problem, not Medicare. Costs in the U.S. are substantially higher than they are in other countries, including in Canada the closest parallel to the U.S. Sacrifices have to be made if we want to get these costs under control, and privatizing Medicare is not going to get costs under control. Raise the age to 67, and to 70 for people under 40. Means test. That would cut the unfunded liabilities a lot. Same with Social Security. Clearly, people live longer. Why shouldn’t they receive benefits later? I don’t understand the progressive view on this at all.

      It’s not difficult to grasp what needs to be done. As you said, Congress and the Administration have too many ties to special interests or these would be the proposals they make. If congress and the Administration did this, they would be free to allow deficit spending in the present to help adjust the economy back to full employment.

      See here:

      http://pro.creditwritedowns.com/2009/06/means-of-deficit-reduction-medicare-and-social-security.html

      Roubini has made much the same argument.

  2. Anonymous says

    This whole budget debate of the past few weeks was almost painfully funny. If all this time was spent debating how to cut a measly $40 billion (much of which was a sleight of hand as AP reported today), I can’t wait to see the encore of Congress and the Administration actually trying to make real progress toward reducing the deficit.

    I personally can’t see it happening, truthfully. Views are too polarized now, and Congress and the Administration are essentially “bought and paid for” by various interest groups. And as long as the feds can freely borrow money at virtually no cost anytime it wants, there is little motivation to actually reign in the deficit.

    Thus, call me cynical – but I see the deficit continuing endlessly until the day arrives when, suddenly, the money is no longer there. When the day arrives that the USA has a “Greek” or “Irish” moment will be the day when the USA finally starts to move in the right direction toward getting it’s fiscal house in order.

    Japan demonstrates that a country with its own currency can keep borrowing far longer than most people think, and I suspect it’s likely that the USA will be able to borrow massive amounts of money for many years to come (why anyone would loan the USA or Japan money for a 5+ year duration is beyond me!). But eventually the unsustainable level of borrowing will end, even for Japan and the USA. I guess the good news is that if you are an American, Japan will provide a front-row seat to future problems in the USA (thus, we get to watch before it’s our turn).

    1. Edward Harrison says

      Personally, I am in favour of spending cuts. I also favour raising the age for social security and Medicare and means testing Medicare.

      In my view, we should cut military spending drastically, get out of Afghanistan, Libya, all of that. Let the Koreans and Germans pay for their own national defense. I’m not making a nationalistic argument here. I feel like most Libertarians do that national defense is about defense, not offense and there is no reason for the U.S. to have such a larger overseas military presence.

      On the Medicare score, the Ryan plan is ridiculous. Healthcare in the private sector is the problem, not Medicare. Costs in the U.S. are substantially higher than they are in other countries, including in Canada the closest parallel to the U.S. Sacrifices have to be made if we want to get these costs under control, and privatizing Medicare is not going to get costs under control. Raise the age to 67, and to 70 for people under 40. Means test. That would cut the unfunded liabilities a lot. Same with Social Security. Clearly, people live longer. Why shouldn’t they receive benefits later? I don’t understand the progressive view on this at all.

      It’s not difficult to grasp what needs to be done. As you said, Congress and the Administration have too many ties to special interests or these would be the proposals they make. If congress and the Administration did this, they would be free to allow deficit spending in the present to help adjust the economy back to full employment.

      See here:

      http://pro.creditwritedowns.com/2009/06/means-of-deficit-reduction-medicare-and-social-security.html

      Roubini has made much the same argument.

Comments are closed.

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