China Tells US ‘Good Old Days’ of Borrowing Over

China and others buy US Treasury securities primarily to support the dollar vs their own currencies, and thereby drive exports to the US, and not because they are looking for safe investments per se. That is, it’s a consequence of their drive for ‘competitiveness’. And with no Treasury securities China would be forced to buy […]

post debt ceiling crisis update

With the debt ceiling extended, the risk of an catastrophic automatic pro cyclical Treasury response, as previously discussed, has been removed. What’s left is the muddling through with modest topline growth scenario we’ve had all year. With a 9% budget deficit humming along, much like a year ago when markets began to discount a double […]

The danger is from the spending cuts, not the potential downgrade

The headlines are all about the risks of default or a too small deficit reduction package causing a downgrade of US debt. And while markets react to those issues, they all miss the point. The consequences of a downgrade to US govt debt are minor at best. Note that when Japan was downgraded below Botswana, […]

Kelton responds to the Progressive Caucus Co-chair

Maddening! The Clinton surpluses were driven by the bubble and unsustainable private sector deficits. When the bubble burts, stocks crashed, the economy went into recession, and the surplus quickly reversed itself. It was only AFTER the government’s budget moved sharply into deficit that the private sector was able to get out of the red. […]

DeMint and Erickson to Boehner : HOLD THE LINE

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 […]

WSJ- Boehner pulls out of debt talks….

As previously discussed, the President is no longer involved, and if Congress does get a bill to his desk he’ll sign it. Grand Bargain Talks Collapse By Carol E Lee and Janet Hook July 22 (WSJ) — A high-stakes effort by President Barack Obama and House Speaker John Boehner to hatch a landmark deficit reduction […]

Debt ceiling dynamics: President Obama now irrelevant

It now seems to me the President will sign anything Congress sends to him for final approval. So the question is whether the Senate and House can agree to anything they can both pass and send to the President. And there is no point in further discussion with the President. It’s all up to the […]

Debt ceiling comments update

I see three ‘dug in’ groups: There are those pledged never to cut Social Security benefits or eligibility. I personally heard Senator Blumethal pledge this while running for office. And Barney Frank was on saying much he same thing. There are those pledged to never increase taxes. There are those who believe it’s in the […]

Soft spot softening?

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 […]

From Senate Deficit Plan working document

Karim writes: Not sure how they pull this off: “If CBO scored this plan, it would find net tax relief of approximately $1.5 trillion. To the extent future Congresses find that the dynamic effects of tax reform result in additional revenue beyond these targets, this revenue must go to additional rate reductions and deficit reduction, […]