Sunday, July 17, 2011

notes on the week ended July 16th

bpc debt ceiling table

its getting closer to the Aug 2 date that the US can no longer pay its bills without going over the artificial debt limit, and ive yet to see anything that looked like a serious solution in sight in the news about the daily meetings...on wednesday, for instance, obama was said to have stormed out of a meeting after having been interrupted mid-sentence three times by eric cantor's ranting, and instead of meeting with republicans on friday, he held a press conference to make his case in public...as of saturday, the house republicans were planning to vote next week to link a debt limit increase to an unworkable balanced budget amendment, so they're still spinning their wheels in their own ditch as well...meanwhile, Moody"s put the US on credit review for a possible downgrade, and as that potential downgrade would affect billions in municipal debt including MBS secured by the US or a GSE, 7000 municipal debt ratings were also put on review...S&P then warned that any missed government payment, not just interest on the debt, would also trigger a downgrade from them...as i've got the play by play of the debt ceiling related events in over 50 links to articles on my blog, i'll dispense with retelling all of that here, and instead give a few pictures of the predicament having both legislated budgeted spending and a debt ceiling has put us in...

this adjacent table was from a 38pp debt limit analysis (PDF) from the bipartisan policy center, which i believe is the rivlin-domenici group; it estimates what would happen in to government programs in august should the debt ceiling not be raised; estimating receipts of $172.4B, the government could cover interest, social security, medicare, medicaid & unemployment benefits, and not much else (i know obama was on TV saying social security checks would not be mailed on august 3, but it seems unlikely anyone is going to intervene & deliberately shut down the SS computers)

US Spending Breakdown.png

the second example of the problem we'd face is similar, a pie graph worked up by libertarian blogger megan mcardle @ the atlantic, in which she is attempting to convince her right wing followers that stonewalling the debt ceiling vote is a non-starter...if you click the graph to the left, you'll see she pays interest & pensions, military payroll, VA benefits, social security, medicare & medicaid (in green) and then runs out of money for military operations & the rest of the budget in red...and as she points out, you cant just stop running the prisons, leave the troops in iraq & afghanistan unsupplied, stop IRS operations & refunds, and leave the border checkpoints unmanned...

some of the more senior republicans, who've been willing to let the theatrics play out up until now, are trying to weasel their way out of the impasse without losing face; the one proposal that has got the most press has come from senate minority leader mitch mcconnell...instead of congress voting on the debt limit each time it would come up, the mcconnell debt limit proposal would allow the president to raise the debt limit, and give congress the power to overrule him with a two-thirds majority in both houses...every time the president raised the debt limit by $700 billion, he would have to submit a plan to cut spending by more than $700B; congress would vote on that package, likely disapprove of it, then the president would have to veto their resolution of disapproval, and unless they overruled his veto, it would take effect...notice what this would do: it make the president responsible for both raising the debt and cutting a number of possibly popular programs, and since it would take 3 such $700 billion debt increase/ spending cut tranches to get through next year, it would give the republicans a campaign issue right up until the next election...even so, many of the house tea party caucus oppose this proposal, as they  dont want to give up their direct chokehold on government operations that the debt ceiling gives them...

   there werent many important headline economic reports out this week, so i'll just briefly mentioned them...seasonally adjusted retail sales in june were up 0.1% over may, and flat without autos; lower gas prices kept the total down...continuing a trend i noticed during the holidays, the big same store sales increases were concentrated in the luxury chains like nieman marcus, limited, and saks, while the discount & dollar stores where the poorest shop lagged...also in june, industrial production increased 0.2% and capacity utilization was unchanged at 76.7%,....the reported US trade deficit widened for May to the widest gap in three years, "exceeding all forecasts of 73 economists surveyed by Bloomberg", who apparently didnt figure in the high cost of imported oil...RealtyTrac released a report that foreclosures were down 29% for the first half of the year over the same period last year, apparently because banks are having trouble proving they own the notes on homes under the laws of some states; and "ForeclosureRadar" produced a study showing that the more thats owned on a house, the longer the owner can live in it without paying on the mortgage without threat of foreclosure...& both goldman sachs & macroadvisors downgraded their forecasts for the second quarter growth to below 1.5%...after last week's dismal employment report, there have been a lot of anecdotal stories in the press wherein someone tells how unemployment has affected their life & their family...with over 14 million unemployed, if ten such stories are published every day, 365 days a year, it would take over 38 centuries to have all their stories told...

as most of you know, ive been watching & documenting the deterioration in europe for some time, certainly not completely comprehending the complexities of it, but understanding what i can from the news and the tone of it....my sense of what's happened this past week is that it's spiraling out of control; the reporting has become frantic and the debt situation, based on the cost of the PIIGS to borrow, became worse each day...the week started with a concession from the european leaders that greece would likely default, after their budget deficit widened 28% in the first six months in spite of (or because of) the imposed austerity...then irish debt was downgraded to junk by moody's, borrowing costs for portugal & ireland began rising again, & italian debt was said to be under speculative attack...sarkozy wanted an emergency summit but merkel declined & visited africa instead, which seemed to make thing worse, & by friday borrowing costs for all five troubled countries had hit records....the risk with italy now also in trouble is immense; they have to roll over €69bn in debt by september with their interest rates now over 6%, & they have the world's third largest bond market, after the US & japan, making them too big for anyone to save...

the above is my weekly commentary that accompanied my sunday morning links mailing, which in turn was selected from my weekly blog post on the global glass onion…if you’d be interested in getting my weekly emailing of selected links that accompanies these commentaries, most coming from the aforementioned GGO posts, contact me

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