9 votes

Republican Senator: 'We Will Raise The Debt Ceiling'

Brett LoGiurato | Jan. 18, 2013 | 11:11 AM

Republican Sen. John Cornyn, who said two weeks ago that a government shutdown "might be necessary" as a step to curb federal spending, said in an interview published Friday that Congress "will raise the debt ceiling."

"We will raise the debt ceiling. We're not going to default on our debt," Cornyn told The Houston Chronicle's editorial board. He added, firmly, that "we're not going to default."

Cornyn joins a growing list of conservatives that appear to be backing off on a potential debt-ceiling fight, arguing that the risk of default is not worth it. Rep. Paul Ryan said Thursday that Republicans are discussing a possible short-term increase in the nation's borrowing limit.

Read more: http://www.businessinsider.com/debt-ceiling-crisis-republica...




Comment viewing options

Select your preferred way to display the comments and click "Save settings" to activate your changes.

What's the debt ceiling got

What's the debt ceiling got to do with default?

= = = =
"Obama’s Economists: ‘Stimulus’ Has Cost $278,000 per Job."

That means: For each job "created or saved" about five were destroyed.

here comes another

credit ratings drop and global economic slowdown even more.

Homeland security statement: patriotism is now considered terrorism.
I love www.isidewith.com shared it with everyone I know. If anything they realize its not just a red and blue idiot running for reelection.

We will borrow and spend wastefully.

Tax revenues are flowing in, no need to default on debt

Just shut down the government. It's nothing but a non-productive money hole.

Government officials worry that a government shutdown will prove that they are worthless tax parasites. Story at 11.

Free includes debt-free!

We'll never fix our roof! Mark Twain is a fool saying such...

[Questioning rabble indecipherable.]

No I did not say Mark Twain was wrong. I said he is a fool! - Senator Spendthrift (1913 - )

PAPER MONEY, REAL DEBT, AND SPENDTHRIFT NATIONS By: Alan Caruba. Published: 12 01, 2011.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

I saw an episode of Bonanza the other day...

that had Sam Clemens as the newspaper editor. I think the episode was named The 26th Man.

Spendthrift? You've got to be kidding.

That's hilarious!

"If you want something you've never had before, you have to do something you've never done before." Debra Medina

Keep em flying

Keep em flying Cornyn.
Thanks, A--wipe.

Southern Agrarian

There was a spirt of jabber about

impeaching Obama if he unilaterally raised the debt ceiling by EO. Whew that was close. Thanks statist GOP for coming to his rescue.

"If you want something you've never had before, you have to do something you've never done before." Debra Medina

All I can say

is that Congress is a bunch of cowards. We passed the time when the budget needed to be balanced to save the American economy and way of life.

The raising of the debt ceiling is life support for a brain dead patient who will never wake up again.

New Ammunition Listing Starting July 24th 2015 - Components are Back In Stock! www.ammopit.com

That's what I'm talking about-

the things these two Professional Wrestlers -Dems and Reps- agree on. That's where that's where the fleecing takes place.

"If you want something you've never had before, you have to do something you've never done before." Debra Medina

It's true...

...they will.

The easiest way to get the budget balanced would be to prevent the debt ceiling from being raised: boom, balance budget overnight. This is entirely within the control of the Republican Party, they control the House, the House could refuse to raise the ceiling. But they won't do it. They'll be lots of drama, some token gesture to appease conservatives, maybe Boner will cry again...and then they'll fold like a cheap suit.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

Don't make book on it......

On the surface it might seem as self evident that a refusal to raise the debt ceiling would as you say result in a balance budget overnight. Problem is that if the government was forced to go cold turkey into balanced budget mode, it would like waking up some morning to find that 40% of all ATM machines were no longer dispensing cash or as if 40% of bank customers were unable to withdraw cash from their savings/checking accounts. This would throw the economy back into recession which paradoxically would throw the budget back into deficit due to plunging tax revenues. However, since the government would not be legally authorized to issue any new debt, it would be forced to cut more spending and/or raise more taxes until the budget was in balance again, which could lead to a downward deflationary spiral with no bottom in sight.

The debt ceiling is the wrong time and place to pick a fight. In 2012, the federal budget deficit declined by $206 billion, not from spending cuts and not from tax increases, but from economic growth.... weak and tepid as it is. All else being equal, at that pace the budget will be back in balance in 5 years. Congress should follow the Hippocratic Oath.... "First Do No Harm".

Ed Rombach

A few points

if the government was forced to go cold turkey into balanced budget mode, it would like waking up some morning to find that 40% of all ATM machines were no longer dispensing cash or as if 40% of bank customers were unable to withdraw cash from their savings/checking accounts. This would throw the economy back into recession which paradoxically would throw the budget back into deficit due to plunging tax revenues. However, since the government would not be legally authorized to issue any new debt, it would be forced to cut more spending and/or raise more taxes until the budget was in balance again, which could lead to a downward deflationary spiral with no bottom in sight.

1. I don't think a sudden and drastic reduction in federal spending would necessarily cause bank failures. However, if that were to happen, it would indicate that the banks can only remain solvent if the federal government continues to run gigantic deficits: i.e. we are destroying the country through massive federal spending for the benefit of the banks. That's not a good policy methinks. If the banks have to fail, they have to fail. Though, as I say, I don't see that happening merely because of cuts in federal spending.

2. I agree that budget cuts would cause a recession, and this would cause tax revenues to fall, requiring further budget cuts. However, firstly, this is a good thing! Even if federal spending were reduced to the level of present tax revenues, that's still far too much spending. Secondly, it is not true that this would prompt an endless downward spiral: that's Keynesian nonsense. The recession would allow for the reallocation of resources (currently misallocated thanks to government interventions) to more highly valued uses. For example, resources might flow away from housing (currently subsidizes by the federal government) and into a more productive field. This is the cure, not the disease, though it might be unpleasant in the short term.

The debt ceiling is the wrong time and place to pick a fight. In 2012, the federal budget deficit declined by $206 billion, not from spending cuts and not from tax increases, but from economic growth.... weak and tepid as it is. All else being equal, at that pace the budget will be back in balance in 5 years. Congress should follow the Hippocratic Oath.... "First Do No Harm".

So, in other words, you favor no spending cuts at all? You think we can grow our way out of this problem? That is not the case. Debt to GDP is rising rapidly, we are accruing debt much more quickly than the economy is growing. Moreover, the federal government spending (aka misallocating/wasting) ~25% of GDP every year, and otherwise interfering with the operation of the free market is precisely what is and will continue to prevent economic growth at anywhere near the level needed to keep up with debt accumulation.

The Treasury in 2012 had to issue $7.9 trillion in new debt, that's to cover the 2012 deficit and to refinance existing debt: up from $7.5 trillion the previous year. Realize the magnitude of this: every year the federal government is borrowing more than half of GDP. If the deficits are not brought under control ASAP, there is going to to be a funding crisis at some point in the near future. At this rate, we're not going to make it five years. I'd make book on that.

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

There Is A Better Alternative

"1. I don't think a sudden and drastic reduction in federal spending would necessarily cause bank failures."

I can say with scientific certainty that if the government is forced to go cold turkey into balanced budget mode it will immediately mean that there will be about 40% less currency reserves circulating in the commercial banking system. Draw whatever conclusions you want about what the consequences will be, but the old analogy of musical chairs seems appropriate because when the music stops there will be about 40% fewer chairs out their for people to sit down on. In my opinion, forced sudden austerity of this kind will likely produce similar results to Spain and Greece where unemployment has risen above 26%. Note also that the budget deficits in those two countries continue to grow larger as their depressions deepen.

"2. I agree that budget cuts would cause a recession, and this would cause tax revenues to fall, requiring further budget cuts. However, firstly, this is a good thing!"

Hmmmnnn..... So, just to clarify my thinking, you think that another recession and the higher unemployment that would go along with it would be preferable to the current economic situation?

"Even if federal spending were reduced to the level of present tax revenues, that's still far too much spending."

I don't disagree with you on that count. I would just prefer to downsize the public sector government share of the economy by having the private sector grow faster until such time as government spending as percent of GDP is more like 10% to 15% rather than the current 25%.

"Secondly, it is not true that this would prompt an endless downward spiral: that's Keynesian nonsense. The recession would allow for the reallocation of resources (currently misallocated thanks to government interventions) to more highly valued uses. For example, resources might flow away from housing (currently subsidizes by the federal government) and into a more productive field. This is the cure, not the disease, though it might be unpleasant in the short term."

You may be right. Can you cite an example?

"So, in other words, you favor no spending cuts at all? You think we can grow our way out of this problem?"

Yes I do think we can grow our way out of this economic problem. The economic recovery, weak and tepid as it is, is nevertheless producing enough additional tax revenue relative to current government spending to reduce the deficit by $206 billion in 2012. Look at the deficits of the Bush years which weighed in at about 4.7% of GDP in 2004 after the second round of tax cuts and subsequently declined to about 1.2% of GDP by 2007 before exploding again with the 2008 recession. The last thing any of us should want to do right now is to trigger another economic relapse into recession.

That said, the whole debt ceiling impasse is a straw man because there is a better way to deal with the immediate crisis and that is to try what Ron Paul suggested back in the summer of 2011 during the first round of debt ceiling battles.

The $16.4 trillion national debt is partly an illusion, because the Federal Reserve owns $1.65 trillion of it, which it purchased through its QUANTITATIVE EASING (QE) operations. 



In recent years the Fed has been earning about $80 billion a year in interest income from these Treasury holdings and it earned $90 billion in 2012, $87 billion of which was simply remitted back to the Treasury.



In other words, this is debt that the Government owes itself! Our children and grandchildren aren’t even involved and they will not be saddled with this debt as long as the Fed holds on to it. This raises the question about why this $1.65 Trillion of Treasury debt held by the Fed should even apply to debt ceiling. 



After all, what difference is there between the Treasury issuing debt only to have the Fed buy it back, vs. the Treasury not issuing that debt in the first place?

Is there any good reason why the Treasury and Federal Reserve couldn’t simply wave a magic wand over this $1.65 Trillion of debt held by the Fed and in effect cancel it? This would reduce the outstanding debt to about $14.75 Trillion which is well below the current statutory debt ceiling of $16.394 Trillion.

Ron Paul promoted this course of action as a means to bring lasting savings to the federal budget and interestingly enough he was endorsed by Keynesian economist Dean Baker writing in the New Republic in July, 2011. "Ron Paul’s Surprisingly Lucid Solution to the Debt Ceiling Impasse"

http://www.tnr.com/article/politics/91224/ron-paul-debt-ceil...

There are also these articles which appeared more recently ( mid-Oct ) in the FT blog and Seeking Alpha....



http://blogs.ft.com/gavyndavies/2012/10/14/will-central-bank...?

http://seekingalpha.com/article/925171-will-central-banks-ca...

The debt cancellation idea is only a temporary solution to the debt ceiling time bomb, but it would buy Congress about a year or so of valuable breathing space to formulate sensible pro-growrth economic policy rather than causing a self inflicted wound on the economy and millions of American workers and businesses. 



Mr. Bernanke, if you seek transparency and accountability for the Fed…. If you seek prosperity for the American people then come to Congress and tell our law makers that the Treasury debt held by the Fed should not apply to the debt ceiling. Mr. Bernanke TEAR UP THIS DEBT!

Ed Rombach

Response

if the government is forced to go cold turkey into balanced budget mode it will immediately mean that there will be about 40% less currency reserves circulating in the commercial banking system.

Why? The only way reserves can shrink is if (a) the banks start lending out the reserves and/or buying assets with them, or (b) people draw down their demand deposits (i.e. withdraw physical cash from checking/savings accounts). What makes you think a reduction in federal spending will have either of these effects? The only way that cuts in federal spending affect the banking system is if the people/businesses currently receiving federal money default on their obligations when spending is cut, and this damages bank assets (loans/securities). If bank assets are damaged enough, you could see bank failures, with reserves (and all other bank assets) being liquidated to meet liabilities. But, as I said before, I don't see the consequences of federal spending cuts being so severe as to cause bank failures. And if there are no bank failures, there is no decline in M1 or reserves.

You may be right. Can you cite an example?

Every recession/depression in the history of the world where the government reacted by doing nothing (as it should). For example, the Depression of 1920.

http://mises.org/daily/3788

Is there any good reason why the Treasury and Federal Reserve couldn’t simply wave a magic wand over this $1.65 Trillion of debt held by the Fed and in effect cancel it?

Yes, two reasons. Firstly, it would have an inflationary effect, by impairing the ability of the Fed to reduce M1 in the future. Secondly, by allowing the federal government to borrow more money right now. Evading the debt ceiling has one effect: allowing more debt sooner. This makes the problem worse. The debt ceiling is a check (however weak) on the ability of the federal government to borrow, there us no value in undermining it.

GENERAL REMARK: it seems to me, based on your comments in general, and about "austerity" in particular, that you don't understand (pardon me, I mean no offense) (a) what causes booms and busts, and (b) what ought to be done (or not done) during the bust phase. I highly recommend that you read some Austrian economics re the business cycle.

www.mises.org

"Alas! I believe in the virtue of birds. And it only takes a feather for me to die laughing."

Reply to Response

If the government is forced to go cold turkey into balanced budget mode it will immediately mean that there will be about 40% less currency reserves circulating in the commercial banking system.

"Why?"

Because the deficit represents about 40% of the federal budget.

"The only way reserves can shrink is if (a) the banks start lending out the reserves and/or buying assets with them."

By definition, banks don’t lend out reserves. That’s why they’re called reserves.

"or (b) people draw down their demand deposits (i.e. withdraw physical cash from checking/savings accounts)."

If the government is forced to go cold turkey into balanced budget mode it means that about 40% of reserves currently in the commercial banking system will no longer be there. This means that there will be about 40% less reserves (i.e. cash) available for withdrawal from household and business savings/checking accounts. Note that cash, like the folding cash you carry around in your pocket, is the paper equivalent of reserves, most of which exist as electronic balance sheet ledger entries. Banks only hold enough “vault cash” on hand to satisfy expected check clearing and cash withdrawals. In this context, a move to immediate federal balanced budget means that many people would not be able to get their money out of the bank under normal circumstances...... not to mention conditions giving rise to a run on the bank which every bank is vulnerable to under fractional reserve banking convention in times of liquidity stress.

"What makes you think a reduction in federal spending will have either of these effects?"

See above comment.

"The only way that cuts in federal spending affect the banking system is if the people/businesses currently receiving federal money default on their obligations when spending is cut, and this damages bank assets (loans/securities)."

If roughly 40% of the people/businesses currently receiving federal money in one form or another cease receiving those payments, its a pretty good bet that those people and businesses will default on their obligations.

"Every recession/depression in the history of the world where the government reacted by doing nothing (as it should). For example, the Depression of 1920.
http://mises.org/daily/3788"

Great example! I should have thought of it myself. Touche! I think this would have been a good policy response to the economic crisis in 2008, but at this point I’m not so sure because now we would have to back track and revisit the economic downturn with all the loss of economic output and jobs.

[Rombach Report] “Is there any good reason why the Treasury and Federal Reserve couldn’t simply wave a magic wand over this $1.65 Trillion of debt held by the Fed and in effect cancel it?

"Yes, two reasons. Firstly, it would have an inflationary effect, by impairing the ability of the Fed to reduce M1 in the future."

I see your point but I disagree. If the fed cancels out Treasury debt purchased in the QE operations, some market participants wonder how the Fed will ever be able to drain the $1.65 trillion in excess reserves if, as and when they finally get around to raising interest rates.

The answer is simple and it lies in the excess reserves held on account at the fed earning an overnight interest rate of 25bp. The fed won’t need to reverse repo those Treasuries from it’s balance sheet because all it has to do is raise the interest rate it pays on these excess reserves. Bernanke has been explicit in recent stateements that this is probably how the fed will raise rates when they get around to it.

Nevertheless, perception is often reality and if enough market participants believe that fed canceling of government debt is inflationary they will act accordingly and sell dollars, sell bonds, buy equities, credit and commodities. In other words traders may move to execute the “RISK ON” trade.

By the way, if the fed and Treasury did by some remote chance opt to cancel the Treasury debt purchased in its QE operations, it would mean that the fed would have negative capital which as far as I know is not illegal, but I reckon it would infuriate policy makers at the fed and all the member banks.

All that aside, I’m somewhat surprised that you don’t support the idea of canceling the Treasury debt held by the fed since it was Ron Paul who first proposed the strategy.

Ed Rombach

First, fix the roof!

Leaking like a sieve. Should'a never built that Washington DC anywhere near that swamp! Should'a never allowed Wall Street to be built near their swamp neither.

Can't pay off National Debt with more National Debt. Every Federal Reserve Note monetized into existence creates another Federal Reserve Note dollar of debt. It is absurd to pretend to pay off National Debt with said same.

End the Fed: Loaning you blind, since 1913.

Disclaimer: Mark Twain (1835-1910-To be continued) is unlicensed. His river pilot's license went delinquent in 1862. Caution advised. Daily Paul

Perfect meme for pic of Obama hi-5ving the kids-

Pay off National Debt with more National Debt. Thanks, kids! Hi-5! You plugged MY roof!

"If you want something you've never had before, you have to do something you've never done before." Debra Medina