Tea Party Shenanigans Take a Recess

Published on: 1/31/2012

No man's life, liberty, or property is safe, while Congress is in session.  

Often attributed to Mark Twain - this observation couldn't be closer to the truth.  Which is probably a contributing factor to Congress' dismally low approval rating.  At the end of last year only 5 percent of likely voters surveyed by Rasmussen rated the job Congress is doing as Good or Excellent.

If we never raise the debt ceiling again, we're going to pay our bills, we're going to pay Social Security. We won't default. We'll be going back to budget levels of about eight years ago.  - Jim DeMint 

Do you remember the game of chicken?  Just the other day I was fondly reminiscing about the orchestrated bit of political theater last summer surrounding the raising of the debt ceiling.

It isn't true that the government would default on its debt because, very simply, the treasury secretary can pay the interest on the debt first and then, from there, we have to just prioritize our spending…. It is scare tactics because the interest on the debt isn't any more than 10 percent of what we're taking in. In fact, it's less than that. And so the treasury secretary can very simply pay the interest on the debt first, then we're not in default. - Michele Bachmann

Don't you just love the vacuous bouquet of cluelessness in the air?  I have to wonder sometimes if these Tea Party types have ever handled an economics textbook in their past - because they really are (barely) functioning without a clue.

The thing about raising the debt ceiling is it's all about paying for expenditures that Congress has already authorized.  You know - stuff like military pay, Social Security, wars. Medicare, tax refunds, interest on the debt and Congressional pay,  I'm not making this up - here is the explanation.

From Bachmann - It’s more fashionable for the president to scare people and say, ‘The sky is about to fall. We’re going to lose our credit rating.’ No, we won’t! We have plenty of money to pay it. Just pay it, take that issue off the table. And then we — here’s the big issue. The president doesn’t want to have to be confronted with priorities in spending because he has a lot of chutzpah.

Of course the response of Standard and Poor's to all of this was to promptly downgrade the US Government's previously sterling credit rating from AAA to AA+.  By explanation - This reflects our opinion that the fiscal consolidation plan that Congress and the administration recently agreed-to falls short of what, in our view, would be necessary to stabilize the government's medium-term debt dynamics

Do you think Bachmann saw this coming?  I suppose a drop from AAA to AA+ is arguably a small change but it's a shot across the bow nonetheless. 

In case you missed it - S&P also blamed the destabilized and undermined - Effectiveness, stability and predictability of US policymaking and political institutions during challenging times.  My reading of the tea leaves suggests that this observation might be an oblique reference to individuals elected to high office who made childish and reckless threats of default.  When you behave like a pouting child you have to be careful what you ask for lest you open a serious self-inflicted wound.  The consequence of which might be If additional rating institutions pile-on resulting in the Chinese and other people who hold our debt to begin to lose faith in our ability to repay.  Then they would ask for a higher rate of interest as compensation for the perceived greater risk.

I guess what was true in Twain's time remains true today.

2011 closed with a combined debt figure totaling $15.2 trillion carrying an average interest rate of 2.826%.  If you do the math every 100 basis point increase (+1%) on that average interest rate increases the annual carrying costs of that debt by an additional $152 billion.  That's the part which would make the problem that Congress has so far failed to address even more complicated.  The self-inflicted wound part.

Why has this been on my mind?

Just last week the debt ceiling was raised by $1.2 trillion - sufficient to allow the bills to be paid through the November elections.  As expected the Congressional Republicans advanced a non-binding vote of disapproval and the Democratic-controlled Senate voted to allow the increase. Unless you were paying attention you might have missed the passing of this event.  No tantrums. No bomb throwing.  No threats of stiffing the country's creditors.  And no game of chicken.  In fact - hardly a peep from the coop.