A friend who’s been watching the absurd machinations in Congress asked me “what happens if we don’t solve the budget crisis and we run out of money to pay the nation’s bills?”Go read the whole post.
It was only then I realized how effective Republicans lies have been. That we’re calling it a “budget crisis” and worrying that if we don’t “solve” it we can’t pay our nation’s bills is testament to how successful Republicans have been distorting the truth.
The federal budget deficit has no economic relationship to the debt limit. Republicans have linked the two, and the Administration has played along, but they are entirely separate. Republicans are using what would otherwise be a routine, legally technical vote to raise the debt limit as a means of holding the nation hostage to their own political goal of shrinking the size of the federal government.
In economic terms, we will not “run out of money” next week. We’re still the richest nation in the world, and the Federal Reserve has unlimited capacity to print money.
Nor is there any economic imperative to reach an agreement on how to fix the budget deficit by Tuesday. It’s not even clear the federal budget needs that much fixing anyway.
Yes, the ratio of the national debt to the total economy is high relative to what it’s been. But it’s not nearly as high as it was after World War II – when it reached 120 percent of the economy’s total output.
If and when the economy begins to grow faster – if more Americans get jobs, and we move toward a full recovery – the debt/GDP ratio will fall, as it did in the 1950s, and as it does in every solid recovery. Revenues will pour into the Treasury, and much of the current “budget crisis” will be evaporate.
Get it? We’re really in a “jobs and growth” crisis – not a budget crisis.
Notice the bit about "unlimited capacity to print money". Yes, that is one way to fix the problem. It would cause some damage but mostly to the ultra-rich. It is not my preferred solution to the debt ceiling fight, but Obama should use it to call the bluff of the Republicans. He should simply print the money required to pay all claims on the US treasury. That will immediately put great fear in the ultra-rich about inflation. It shouldn't bother the bottom 90% too much (except for pensioners on fixed non-indexed incomes). There is a beneficial side-effect of printing money to pay the bills.
The inflation that would be unleashed would goose the economy, create jobs, and make it easier to pay off debts. Since this unfairly benefits some at the expense of others, it is not the preferred solution, but if the Republicans want to play "hardball", then Obama should too. But the truth is that Obama is more Republican than Democrat, so he will never take this approach to solve the impasse.
The problem for the Democrats rests squarely with one man: Obama. Here is a bit from another post by Robert Reich on his blog:
How can it be that with over 9 percent unemployment, essentially no job growth, widening inequality, falling real wages, and an economy that’s almost dead in the water — we’re locked in a battle over how to cut the budget deficit?The people need to tell Obama he is a one-term president and they want a real Democrat in 2012.
Part of the answer is a Republican Party that’s the most irresponsible and rigidly ideological I’ve ever witnessed.
Part of the answer is the continuing gravitational pull of the Great Recession.
But another part of the answer lies with the President — and his inability or unwillingness to use the bully pulpit to tell Americans the truth, and mobilize them for what must be done.
Barack Obama is one of the most eloquent and intelligent people ever to grace the White House, which makes his failure to tell the story of our era all the more disappointing and puzzling. Many who were drawn to him in 2008 (including me) were dazzled by the power of his words and insights — his speech at the 2004 Democratic convention, his autobiography and subsequent policy book, his talks about race and other divisive issues during the campaign.
We were excited by the prospect of a leader who could educate — an “educator in chief” who would use the bully pulpit to explaini what has happened to the United States in recent decades, where we must go, and why.
But the man who has occupied the Oval Office since January, 2009 is someone entirely different — a man seemingly without a compass, a tactician who veers rightward one day and leftward the next, an inside-the Beltway dealmaker who doesn’t explain his comprises in light of larger goals.
In his inaugural address, Obama warned that “the nation cannot prosper long when it favors only the prosperous.” In private, he professes to understand that the growing concentration of income and wealth at the top has robbed the middle class of the purchasing power it needs to keep the economy going. And it has distorted our politics.
He is well aware that the Great Recession wiped out $7.8 trillion of home values, crushing the nest eggs and eliminating the collateral that had allowed the middle class to keep spending despite declining real wages — a decrease in consumption that’s directly responsible for the anemic recovery.
But instead of explaining this to the American people, he joins the GOP in making a fetish of reducing the budget deficit, and enters into a hair-raising game of chicken with House Republicans over whether the debt ceiling will be raised.
Never once does he tell the public why reducing the deficit has become his number one economic priority. Americans can only conclude that the Republicans must be correct — that diminishing the deficit will somehow revive economic growth and restore jobs.
Instead of powerful explanations we get the type of bromides that issue from every White House. America must “win the future,” Obama says, by which he means making public investments in infrastructure, education, and basic R&D. But then he submits a budget proposal that would cut nondefense discretionary spending (of which these investments constitute more than half) to its lowest level as a share of gross domestic product in over half a century.