"THE WEEKLY WRAP" with Diane W. Collins

The Debt Crisis: Raising the Debt Ceiling- We Have a Deal... or Not

Friday, July 8, 2011, 3:09 pm, Central

Archive: Publications, Weekly Wrap


The Weekly Wrap

Raising the Debt Ceiling - We Have a Deal... or Not


Welcome to the Weekly Wrap. I’m Diane Collins.


This week "The Weekly Wrap" will extend its coverage through Sunday. President Obama has continued his meetings on the debt crisis with congressional leaders. The plan is to meet again on Sunday. We'll produce our Weekly Wrap video after that meeting.


The purpose of our "Debt Crisis Series" has been to help ensure those who hold our debt securities (both domestic and foreign) that the United States will continue to meet those obligations and considers them a priority. Following our report on July 1, 2011 Mark Zandi in a video on Yahoo's Daily Ticker stated he didn't think investors would take much solace in getting paid interest on Treasuries if Social Security recipients aren't getting paid. My response to Mr. Zandi's comment was two fold: (1) The largest holder of US debt instruments is China... not exactly known for humanitarian efforts. Don't think they're really in it to care about Americans. More interested in a plan that stabilizes while they continue to be paid. (2) What I have called for is prioritization that includes debt service, and payments to current recipients of social security, veteran, and active military pay. Following that, categorize programs that are capable of sustaining a rolling, temporary suspension of pay; and eliminate duplicative, and wasteful programs that are not accomplishing their stated goals. This is what will build confidence, Mr. Zandi. I don't agree with your statement regarding investors. Nor do I believe August 2nd is the [X-Date] although it may be manufactured as such by Geithner and, thereby, cause market reaction.


If you have been following our articles this week then you know our focus has been on action, not rhetoric... As the party leaders met with Obama we were more interested in the Senate which had cancelled its July 4th recess "to concentrate on the debt crisis." Majority Leader Harry Reid (D-NV) waxed poetic on this point, Tuesday quoting T.S. Elliot while figuratively pointing his finger at Republicans and saying "Hurry up, please. It's time." Reid, oblivious to the potential faux pas proceeded to move the Senate to a discussion of S. J. Res. 20, Libya. Sen. Roger Wicker (R-MS) asked senators to reject bringing any debate to the Senate floor other than that concerning the debt. Wicker went on to state, "If we had a serious effort to talk about the national debt in this week of recess that has been canceled we'd would be convening the (Senate) Budget Committee today and asking them to report a budget on the floor for the first time in almost 800 days so that we could have a debate on the floor about the budget." Senate Majority Leader, Harry Reid (D-NV) postponed the procedural vote on S. J. Res. 20 after pressure from Republicans and moved the Senate to S.1323, "Sense of the Senate on Shared Sacrifice" (anyone making $1M annually, heads up). At least, this was on topic and has allowed debate on the debt crisis.


Wednesday, we returned to the definition of "default" in terms of the United States not meeting its debt obligations. As we stated in the July 1st edition of The Weekly Wrap, Geithner, according to several congressmen and senators has made “false and misleading” statements concerning the ability of the United States to meet its debt obligations. Further, it is believed these statements may have had a damaging effect on how our country’s credit standing is perceived and could be a factor in any potential default. The liberal media picked up on Geithner's remarks and parroted them. It is our opinion Geithner and the liberal media have done more to harm the "full, faith, and credit" of the United States than anyone. It is the view of most Conservatives that default  would occur if the United States no longer serviced (paid interest and returned principle) on the debt instruments through which foreign and domestic investors lend the federal government money. I’m talking about Treasury bills, notes and bonds. The definition of default Geithner has promulgated is the inability to meet all Treasury payables... big difference. I was gratified to see CSPAN's Washington Journal interview Jerome Powell, visiting scholar and main author of the Bipartisan Policy Center's 6-28 report, Debt Limit Analysis. Mr. Powell supported the view that servicing sovereign debt is paying interest and returning principle on Treasury debt instruments and that default was highly unlikely. However, Mr. Powell made clear that failing to increase the debt limit would cause a government interruption that could severely impact the economy.


The reports coming out of the President's Thursday meeting with congressional leaders had little to offer other than "frank, open discussion" by all parties. Republican leaders have said we'll know Sunday if there is a "deal" on raising the debt ceiling. They were quick to add the "deal" would not be like the last one, referring to the FY 2011 budget resolution which simply required Congress to pass it. The aim of the talks from the Republican perspective is to provide a "deal" that gives lawmakers guidance on what is agreeable to both parties and the president while allowing congress to debate and work out the details. We favor this but wonder if a self-imposed [X-Date] of August 2nd will allow it. Seeing a pattern in this "create a crisis" thing? But, as we mentioned July 1st we also see a corollary to "The Boy Who Cried Wolf."


Thursday, however, wasn't all bad. A group of Republican senators introduced and filed S.1340, "The Cut, Cap, and Balance Act." According to Sen. Lee (R-UT), the proposal would raise the debt limit by $2.4T conditioned upon the occurrence of three significant events. The events include immediate cuts; statutory caps; and a balanced budget amendment passed by congress and submitted to the states for ratification. The cuts and caps in the bill mirror Sen. Toomey's recent legislation. The balanced budget amendment to the Constitution would be based on S.J. 10 which was previously supported by all Republican senators though it failed to pass the Senate.The Cut, Cap, and Balance Act has 20 cosponsors including Sens. Barrasso, Blunt, Bozeman, Coburn Corker, DeMint, Graham, Hatch, Issacson, Johnson, Lee, Paul, Portman, Roberts, Rubio, Sessions, Thune, Toomey, Vitter and Wicker. (As of this time, Sen. McConnell has not formally endorsed the bill.) Okay Senators... get it done. You know the House has your back.


Friday the government's job report for June hit showing only 18,000 jobs had been created. The report missed estimates and was only 1/5th of the average forecast by most economists. "Disastrous" was the word of the day. President Obama took to the "pulpit" touting the "2 million jobs" he has created and blaming the debt limit crisis, the recession, the weather... The President went on to tell congress "what they could do" and gave them his list of "right nows," which Press Secretary Carney later stated were not necessarily part of the debt ceiling discussions between the President and congressional leaders... GOOD GRIEF.


We're working through the weekend. More later.




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