From FOX Business:
Berkshire Hathaway Chairman and CEO Warren Buffett told the FOX Business Network that S&P’s downgrade of the United States’ triple-A credit rating “doesn’t make sense.”
“Think about it. The U.S., to my knowledge owes no money in currency other than the U.S. dollar, which it can print at will. Now if you’re talking about inflation, that’s a different question.”
Says it all:
Boehner-Reid Debt Plan
By Sen. Jim DeMint
July 26 — I have troubling news. I’m very careful about criticizing my party’s leaders, but what is happening in Washington right now cannot be ignored.
House Speaker John Boehner (R-OH) has abandoned the Cut-Cap-Balance Act and is now pushing a new plan that is nearly identical to the one proposed by Senate Majority Leader Harry Reid (D-NV).
The Boehner-Reid plan gives the President an immediate increase in the debt limit and only promises to cut spending in the future. It violates all three principles of the Cut-Cap-Balance Pledge because it does not substantially cut current spending, it does not truly cap future spending, and it does not require the passage of a strong Balanced Budget Amendment before raising the debt limit.
In short, I oppose the Boehner-Reid plan because it won’t balance the budget and stop the debt that is destroying our country.
The Boehner-Reid Plan
You will hear many claims about this plan over the next few days as it is pushed through the House and Senate. Some of these claims will be true, but many will be false. Here are the facts. The Boehner-Reid plan:
Provides two increases in the debt limit — $900 billion and $1.6 trillion — totaling $2.5 trillion. It gives the President an immediate $900 billion increase given that Congress does not vote to disapprove it. It gives the President another $1.6 trillion increase next year if a bill written by a new Super Committee passes both houses and becomes law.
Reduces spending by only $1.2 trillion over the next ten years. This amount won’t even come close to balancing the budget, as the debt is expected to grow by as much as $10 trillion over the next decade. The plan also reduces spending by only $6 billion in 2012. Considering that our government currently spends $10 billion a day, $6 billion is far too little to cut over the first year of the plan.
Calls for a vote on the Balanced Budget Amendment but does not require its passage. Without passage of a strong Balanced Budget Amendment, Congress will never break its addiction to spending.
Makes it virtually impossible to stop the debt limit from going up. The debt ceiling increases can only be stopped if Congress passes a resolution of disapproval and then votes to override the President’s veto with two-thirds support in the House and Senate.
Creates a new, 12-member Super Committee to write another “grand bargain” to reduce the deficit by at least $1.6 trillion. It does not, however, prohibit the Super Committee from writing a bill to raise taxes and destroy jobs. The bill can then be fast-tracked through the House and Senate with no amendments.
Why It Should Be Rejected
After reviewing the details of Boehner-Reid plan, I cannot support it.
It won’t balance the budget and stop the debt. Even if the cuts called for in the plan were real, the debt will still increase by $7 trillion over the next ten years.
It won’t protect our AAA bond rating. According to financial reports, this plan will not reduce long-term spending by enough to prevent a downgrade. If we lose our AAA rating, it will create higher interest rates and cause our debt to grow even faster.
It will likely result in higher taxes that will destroy even more jobs. The unemployment rate is over 9 percent. We cannot afford to lose more jobs when so many Americans are struggling to find work.
There are some in my party who think I should ignore the flaws of the Boehner-Reid plan, bite my tongue, and support my party’s leaders. If I thought this were a political game, that might make sense. But the future of our country is at stake, I don’t believe this plan will save it, and I have a moral obligation to say so.
The Way Forward
Fortunately, there is a much better solution.
The Cut-Cap-Balance Act would balance the budget, stop the debt, and protect our AAA bond rating. This legislation passed the House with bipartisan support but was blocked by Democrats in the Senate.
The votes in the Senate for Cut-Cap-Balance are there if Republicans stand firm. 23 Democrats in the Senate have expressed support for the Balanced Budget Amendment at some point in their careers. They’re blocking it now because they believe Republicans will blink and agree to something much less.
And that’s exactly what will happen if the Boehner-Reid plan is passed. It gives the big spenders in Washington everything they wanted — an increase in the debt limit, phony spending cuts, and a mechanism to pass tax increases.
Please call your senators today and urge them to oppose the Boehner-Reid plan and to demand passage of the Cut, Cap, Balance Act.
Respectfully,
Jim DeMint
United States Senator
Chairman, Senate Conservatives Fund
In Defense of Holding the Line
By Erick Erickson
July 26 — I’m getting beat to hell and back by conservatives for insisting the GOP hold the line on Cut, Cap, and Balance. Even here at RedState, I’m getting accused of “ideological intransigence.” Yeah, here at RedState. There’s a first time for everything.
People want a deal. People want John Boehner’s deal. People are upset with me for not liking John Boehner’s deal. People are telling me, “They only have one house, Erick. You can’t expect them to not compromise. They control nothing.”
I’ve said all along I expect a deal and a compromise. Here’s the problem and I need you to understand this from perspective, whether you agree with me or not.
See, I worked to send people to Washington, DC to solve problems, to make things right, to fix the things that were broken, and to send power back to the states. They are not doing that.
We all saw Democrats go to Washington in 2008 and take the whole thing. They controlled everything and they made everything worse. They passed a stimulus bill that killed or ruined hundreds of thousands of jobs in the private sector while growing the government. They increased dependency on the federal government. And then they passed Obamacare and socialized American healthcare. But it doesn’t fully take effect until 2014. We saw Democrats willing to lose their positions to lurch the nation left.
So we sent to Washington an army of conservatives to Washington to defund Obamacare and stop the White House. And now they’ve gotten there and have refused to fight. They promised and put in writing that they’d cut $100 billion from the federal government budget in 2011 and they ultimately cut only $38 billion. The Congressional Budget Office, when it was done scoring it, said they really were only cutting about $500 million and it would cost more money that it was worth it to actually cut those dollars.
So they said, “But we”ll stand firm on the debt ceiling. We’ll hold the line.” Everybody gave them a pass and said, “Okay, hold the line on the debt ceiling.”
Now here we are the week before the deadline. John Boehner laments they should have done it sooner, but he refused to do it sooner. The Speaker has prevented the Republicans from submitting legislation to ensure we would not default so that he would have leverage over his own members to force them to take a deal. And now they are dealing.
What is their deal?
Their deal creates another committee to look at spending — the 18th in the past 30 years. These 18 committees have never done anything except raise taxes. Their spending cuts are put off a decade and future congresses ignore them.
Boehner’s spending caps are easily waived as they’ll be rules, not laws. And they punt.
A lot of you are emailing and getting on twitter saying to take the deal. Take the compromise. Why should we compromise? That’s what we always do. Even when in the majority we compromise. The Democrats didn’t compromise on healthcare. But you people want to compromise. Republicans, whether in the majority or minority, are always compromising in favor of bigger government and imaginary spending cuts.
To make matters worse, why the hell are the Republicans the ones coming up with the plans if they only control one house of one branch of the federal government? Why are they doing it? We’re on the third damn plan. They aren’t even compromising with the Democrats. They are compromising with themselves.
The Democrats are holding their line. The GOP is splitting conservatives. The Democrats are saying “Raise the debt ceiling. Don’t cut anything.” And Boehner is saying okay and putting in cuts that take affect in year eight of ten so none of them will be around to be held accountable. Why?
The GOP came up with Paul Ryan’s plan. They passed it. They took bullets. The GOP put him in a witness protection program and dropped it like a hot potato.
So then the GOP passed Cut, Cap, and Balance and the Democrats beat them up and again accused the GOP of killing grandma. The leadership was lukewarm to it and never fought for it. And immediately after voting for it, the leadership said, “Now, let’s move on to the third plan.”
Are these all just symbolic votes? If so, I’d rather some substance. This symbolism is getting the GOP killed with nothing to show for it.
Why the hell are we on our third plan when the Democrats haven’t even come up with one plan? They haven’t even passed a budget in over 800 days. We’re in this mess because Harry Reid, in December of 2010, refused the raise the debt ceiling so the GOP could own the problem. The GOP fell into the trap with eyes wide open.
And the Republicans are falling for it yet again.
And now I’m being accused of thinking this is all a game even by long time RedState readers. I do not think this is all a game.
I know the credit rating is going to be downgraded and I don’t want it to happen. You people who want the deal are so worked up in emotion that you are ignoring all the facts. Here are the facts:
1. S&P says we need a deal of at least $4 trillion in cuts to avoid a credit rating drop.
2. Neither Boehner nor Reid get us there.
3. The only plan that gets us there is Cut, Cap, and Balance and the GOP is running away from it as fast as they can. The GOP already passed it and it just four votes shy of a majority in the Senate.
No one wants to fight. “No, we’ve already had that vote. It can’t pass the Senate,” they say.
There will be no default on August 2nd. We know it will not happen. How do we know? Because we have more money coming in each month than is needed to pay principle and interest on our national debt. And we have had multiple prior occasions where we have gone passed the deadline and the world did not suddenly end. It is all political rhetoric. Shame on you for succumbing to fear.
Barack Obama does not want to be remembered as the President on whose watch the nation defaulted. His leverage goes away on August 3rd and the GOP holds all the cards. We won’t default. We can improve our negotiating position.
The GOP could hold the line. And because they won’t hold the line, they are tanking our credit behind a bunch of smoke and mirrors. If the Democrats blame the GOP when the credit rating drops, the GOP will damn well deserve the blame if they stick with Boehner’s plan.
They could at least fight to turn the tide. They could at least hold the line.
Somewhat misleading headline.
It reflects the odds of being able to deliver a specific treasury bond to the insurer at par.
Insurance cost?against US default hits record
By Michael Mackenzie and Nicole Bullock
May 25 (FT) —Insurance Cost Against US Default Hits Record
Published: Wednesday, 27 Jul 2011 | 10:14 PM ETText Size
By: Michael Mackenzie and Nicole Bullock in New York
The cost of buying insurance against a default by the U.S. rose to a record on Wednesday, in a sign of growing unease that gridlock in Washington over raising the federal debt ceiling may result in the Treasury failing to pay interest to bondholders.
In a CDS, a buyer of protection is compensated by the seller should there be a default or missed payment, known as a “credit event”. Premiums for one-year U.S. sovereign CDS rose sharply this week and traded at about 90 basis points in London on Wednesday, overtaking the previous high set in March 2009.
In the event of a U.S. credit event, the buyers of CDS would locate the February 2039 Treasury bond, currently priced at less than $88, and deliver that to the writers of insurance and receive $100 back, or par.
And if the US debt ceiling is not extended the drop in aggregate demand (spending) will take down most of the world economy:
Headlines:
Swiss Investor Sentiment Falls to Lowest in More Than 2 Years
Euro-Area Services, Manufacturing Gauge at Lowest Since 2009
Juncker Says Selective Default for Greece Is a Possibility
German output growth slowed sharply to its weakest in two years
and this:
China’s Manufacturing May Contract for First Time in a Year
July 21 (Bloomberg) — China’s manufacturing may contract for the first time in a year as output and new orders drop, preliminary data for a purchasing managers’ index indicated.
The gauge fell to 48.9 for July from a final reading of 50.1 for June, HSBC Holdings Plc and Markit Economics said in a statement today. The final July reading is due Aug. 1.
Today’s data adds to evidence that growth in the world’s second-largest economy is slowing on Premier Wen Jiabao’s campaign to tame consumer and property prices. The International Monetary Fund said in a report released late yesterday in Washington that risks for the economy include the threat of faster-than-expected inflation, a real-estate bubble, and bad loans from stimulus spending.
“The data are another sign that the monetary tightening measures that commenced last October are biting,” said Tim Condon, the Singapore-based head of Asia research at ING Groep NV. “If there is a concern that growth is slowing too much, past practice is that there will be a pause in the tightening.”
Stocks in China fell for a fourth day. The benchmark Shanghai Composite Index closed 1 percent lower at 2,765.89, the biggest decline since July 12.
The yuan rose to a 17-year high after the central bank set the strongest reference rate since a dollar peg was scrapped exactly six years ago. It was 0.12 percent stronger at 6.4516 per dollar at 3:28 p.m. in Shanghai, the biggest advance in a week, according to the China Foreign Exchange Trade System.
Cost Pressure
Lu Ting, a Hong Kong-based economist at Bank of America Merrill Lynch, said the HSBC survey may be “more downward- biased” than an official PMI because the average size of the businesses covered is smaller. Such companies “are under increasing pressure” from labor costs and to secure capital, Lu said. He advised investors to “not overly respond” to the data.
The government has raised interest rates five times since mid-October, boosted lenders’ reserve requirements to a record level and imposed curbs on property investment and home purchases.
Inflation, which has breached the government’s 2011 target of 4 percent every month this year, accelerated to 6.4 percent in June from a year earlier, the highest level in three years.
The IMF said in the report that China’s economy “remains on a solid footing, propelled by vigorous domestic and external demand.” The Washington-based lender’s 24 directors also “generally agreed” that a stronger yuan would help rebalance the China’s economy toward domestic demand.
Slowing Demand
HSBC’s preliminary index, known as the Flash PMI, is based on 85 percent to 90 percent of responses to a survey of executives in more than 400 companies. Output in July contracted at a faster rate, export orders shrank at a slower pace and the gauge of new orders dropped below 50, the dividing line between expansion and contraction, today’s data showed.
Manufacturing in some industries is being hit by slowing demand. Li Ning Co., China’s largest sportswear maker and retailer, said July 7 its first-half sales dropped by about 5 percent. The China Association of Automobile Manufacturers said July 8 that vehicle sales may increase about 5 percent this year, compared with an earlier estimate for 10 percent to 15 percent growth, due to lower demand for commercial autos.
The preliminary number has matched the final reading twice since HSBC began publishing the series in February. If it’s confirmed on Aug. 1, the index will have dropped to its lowest level since March 2009. It last fell below 50 in July 2010.
First, I’d guess the President will sign anything Congress passes, including short term measures.
But he might not.
And yes, there are options that allow the executive branch to continue to deficit spend if it wanted to, ranging from issuing a multi trillion dollar platinum coin to spending under cover of the 14th amendment.
However, there’s a real possibility Congress won’t pass anything for the President to sign, or that the President vetos what they do pass, and that the Treasury honora the current debt ceiling and limits spending to tax revenue.
Should that be the case, the US govt, as widely discussed, immediately goes to a ‘balanced budget’ mode, prioritizing interest payments, so there is no default by the US Treasury.
That means a lot of other bills won’t get paid.
Chairman Bernanke said that this could cut 6% off of GDP and send the US into a recession with GDP going from positive to negative.
However, falling GDP means falling revenues which means more spending cuts, and revenues falling further.
It also means the automatic fiscal stabilizers of rising transfer payments will not be funded by deficit spending and therefore not provide the support they have provided in all prior downturns.
In other words, for the first time the US would experience an unchecked downward spiral, which could make the downturn that much more severe than the Fed Chairman suggested.
And as difficult as it might be for the US, the euro member nations may be looking at something even more catastrophic.
The drop in US consumer, business, and govt spending will mean a drop in sales for euro zone exporters, possibly sending that region into negative GDP growth and falling govt revenues.
This means their current solvency and funding issues further deteriorate as the entire euro zone could experience a funding barrier and general default.
While the ECB can, operationally, write any size check required to fund the entire region, it doesn’t want to do that, and can be expected to wait until things deteriorate sufficiently to the point were there is no other choice.
Ironically, the US debt ceiling, a seemingly innocuous relic of the gold standard, where it once served to protect the nation’s gold supply and should have been eliminated when the US dollar ceased to be officially convertible into gold, could now bring down the entire world economy, and threaten the world social order as well.
Buying US Debt ‘Mind-Boggling’: Marc Faber
It’s just a reserve drain, Marcie, get over it!
The term structure of rates simply/largely anticipates future fed rate
settings.
The overall trade picture continues to appear to be ‘deteriorating’ and could be removing fundamental support for the euro.
Yes, German net exports remain firm, but it’s the euro zone as a whole that drives the value of the euro.
And higher prices for imported energy could be hurting the euro zone more than the US, as they import their natural gas as well and pay more for it.
France reports record trade gap in May
July 7 (Xinhua via COMTEX) — Sluggish exports and soaring costs of imported petroleum products drove higher France’s trade deficit to a record of 7.42 billion euros (10.61 billion U.S. dollars) in May, customs figures showed on Thursday.
For the past 12 months, the cumulated trade deficit widened to 63.41 billion euros in total compared to 51.55 billion euros in 2010.
“As in April, the trade deficit exceeded seven billion euros. It worsened due to double effects of surging imports, notably energy, and of sluggish exports …” French customs said in a statement.
The country’s total imports stood at 41.6 billion, up from 41.47 billion euros reported in April as purchases of refined products remained high and imports of natural hydrocarbons grew.
At the end of May, France reported a slight drop in its sales abroad to 34.17 billion euros on the back of lower sales of Airbus.
The giant aero group garnered 1.33 billion euros after selling 21 aircrafts versus 26 worth 1.7 billion euros in April, but during the week-long Paris Airshow in June, Airbus reported record orders for a total of 730 aircraft worth 72.2 billion U.S. dollars.
The recovery continues to more of an L shape than a V shape.
No signs yet of whether we stay in the current soft spot or move back to 4% growth as most forecast for Q3
(The same 4% forecasts for Q1 and Q2 were continually revised down closer to 2%)
The hope is that the entire soft spot is a temporary consequence of the earthquake, and that China holds together, and that global austerity isn’t sufficient to slow overall growth:
Headlines:
Bank of England warns against quick fix to crisis (AP)
U.K. Services Drop Most Since January 2010 on Extra Holiday (Bloomberg)
U.K. Mortgage Approvals Increased Less Than Forecast in May (Bloomberg)
Bank of England Split on Interest Rate Policy as Consumers Struggle (Telegraph)
PBOC Adviser Sees China ‘Chronic’ Inflation Lasting Decade
Why China’s Heading for a Hard Landing, Part 3: A. Gary Shilling
Sweden: Slowdown After Strong Growth
Europe June Economic Confidence Drops to Lowest in 8 Months
Trichet Urges New Vision of Europe as Greeks Protest Austerity
Up to 15 EU banks to fail stress test
ECB’s Stark Rejects Brady-Bond Solution for Greece, Zeit Reports
French Greek Rollover Plan Depends on No Default Rating
French Output Grew Less Than Estimated on Consumer Spending
Growth of German retail sales maintained in June
French Jobless Claims Increase for First Time in Five Months
Spanish premier proposes new economic measures
Portugal plans tougher austerity measures
Spanish Existing Home Prices Decline 1.8% in Second Quarter
Mortgage Applications Dipped Last Week
RIP
USA
:(
House Majority Leader Eric Cantor (R-VA) today issued the following statement regarding House consideration of a balanced budget amendment, H.J. Res. 1, sponsored by Congressman Bob Goodlatte:
“We are being asked by the Obama Administration to approve a debt limit increase. While President Obama inherited a bad economy, his overspending and failure to enact pro-growth policies have made it worse and now our national debt is currently more than $14 trillion. House Republicans have made clear that we will not agree to raise the debt limit without real spending cuts and binding budget process reforms to ensure that we don’t continue to max out the credit card. One option to ensure that we begin to get our fiscal house in order is a balanced budget amendment to the Constitution, and I expect to schedule such a measure for the House to consider during the week of July 25th. I have no doubt that my Republican colleagues will overwhelmingly support this common sense measure and I urge Democrats to as well in order to get our fiscal house in order.”