Currently viewing the tag: “ShutDown”

Yeargh.


Earlier in the week, Howard Dean told an audience that Democrats should be rooting for a government shutdown rather than agree to budget cuts, because voter anger would punish Republicans.  That may have been true in 1995, but as Rasmussen discovered it its latest polling, the political and fiscal environment in 2011 is far different.  […]

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Hot Air » Top Picks

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As we noted earlier, it look like House Speaker John Boehner wants a budget deal.

The Hill reports Boehner said shutting down the federal government would be more costly than keeping it running and his party is against a shutdown.

Said Boehner: “If you shut the government down, it’ll end up costing more than
 you’ll save because you interrupt contracts — there are a lot of
 problems with the idea of shutting the government down — it is not the
 goal.”
Taegan Goddard’s Political Wire

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The Democrats have abandoned their responsibility to the country.
American Thinker Blog

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On today’s edition of Coffee and Markets, Brad Jackson is joined by Rory Cooper to discus a possible deal in the House to avoid a government shutdown. Then Pejman Yousefzadeh talks about what a shutdown could mean politically.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:
Budget Negotiators Reach Tentative Deal To Avert Government Shutdown
Heritage: Freshman Lawmakers Make the Case for Government Spending Cuts
Understanding the numbers in budget talks
Lots of Talk, But Shutdown Still Looming
Howard Dean: Democrats Should Be ‘Quietly Rooting’ for Shutdown

Follow Brad on Twitter
Follow Rory on Twitter
Follow Pej on Twitter


Big Government

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Download Podcast | iTunes | Podcast Feed

On today’s edition of Coffee and Markets, Brad Jackson is joined by Rory Cooper to discus a possible deal in the House to avoid a government shutdown. Then Pejman Yousefzadeh talks about what a shutdown could mean politically.

We’re brought to you as always by BigGovernment and Stephen Clouse and Associates. If you’d like to email us, you can do so at coffee[at]newledger.com. We hope you enjoy the show.

Related Links:
Budget Negotiators Reach Tentative Deal To Avert Government Shutdown
Heritage: Freshman Lawmakers Make the Case for Government Spending Cuts
Understanding the numbers in budget talks
Lots of Talk, But Shutdown Still Looming
Howard Dean: Democrats Should Be ‘Quietly Rooting’ for Shutdown

Follow Brad on Twitter
Follow Rory on Twitter
Follow Pej on Twitter


Big Government

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John Boehner’s professional hostage game is now working perfectly, and Dems are falling for it hook, line, and stinker.

A top Senate Democratic aide says there’s been a key thaw in discussions between Senate Dem leaders and House Republicans to avert a government shutdown.

The aide said Republican negotiators are once again willing to meet Democrats in the middle, to cut a bit over $ 30 billion from current spending — just about half the $ 61 billion House Republicans have proposed.

Crucially, the idea of drawing from mandatory spending areas — including the big entitlement programs — is back on the table, according to the aide.

“Part of the thaw is that we think we can get some of the cuts we need to add up to this number from areas outside of discretionary,” the aide said.

Another source familiar with the discussions says, “The appropriations committees in the House and Senate have been tasked to work on a bill that achieves cuts betweenw 30 and 36 [billion dollars].”

“That’s just on [overall] spending cuts,” the second source added, “and they’ll have to hash out how much mandatory, how much discretionary.”

I don’t buy the news that Cantor has been cut out of the budget loop, either.  Meeting the GOP halfway on budget cuts is not something the Tea Party will accept.  It’s possible they are going to save their ammunition for the debt ceiling fight, but you notice that the original GOP proposal way back in early February was $ 32 billion or so out of the House Appropriations committee.  After a Tea Party revolt, it was pushed up to $ 60 billion as a compromise with the wingers, who wanted $ 100 billion plus (and some wanting several times that.)

But you see, now the GOP has gotten their opening proposal as the minimum of what they are going to receive from the Dems.  The Dems have basically folded from day one.

All this talk about government shutdowns and Eric Cantor and his threats are just hiding the reality that the Dems have given the Republicans their original proposal without so much as a fight.  Orange Julius has gotten a 100% win here and the Dems, the Village, and everyone has fallen for it.  The Republicans started with $ 32 billion in cuts and the Democrats’ pushback lasted less than a week.  It is still possible that the Tea Party could go into complete revolt.  But the real power behind the GOP will put them in their place, as always, and the GOP will take yet another complete win.

Anything above the $ 32-$ 33 billion mark they are going to get now is gravy, and they know it.  Should make the debt ceiling fight even more fun.


Zandar Versus The Stupid

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I always think revisiting past predictions is good practice. Two days ago, Wonkbook led with me saying, “if I were a betting man…my money would be” on a shutdown. Today’s top story? “Democratic and Republican leaders are nearing a budget deal.” Shows what I know. The deal, at least as it’s being reported, has congressional leaders looking for $ 23 billion in cuts above the $ 10 billon included in the first two stopgaps. For those keeping track at home, that’ll leave us with $ 33 billion in cuts — barely half as much as House Republicans have called for, but actually slightly more than the House Republican leadership originally proposed.

That brings up the question of the riders — the policy-oriented amendments defunding Planned Parenthood and handicapping the EPA and so on. The way to think of an eventual agreement, a Republican aide told me, was to assume that the more cuts there were, the fewer riders there would need to be, and vice-versa. And you’re seeing some of that in this agreement. Paul Kane says that, “on Wednesday, the vice president indicated that such an agreement was at least a possibility, although he did not give details or say which riders Democrats might be willing to accept.” Remember that Sen. Chuck Schumer has ruled out riders on Planned Parenthood or the Environmental Protection Agency and Nancy Pelosi has ruled out riders trying to repeal or otherwise undermine the health-care law. But Boehner’s going to need to bring something significant back to his members lest they accuse him of folding.

Which leads to the remaining question: where do Boehner’s votes come from? A deal, after all, does not mean a law, and Boehner has lost important votes before. Conventional wisdom was that Republicans wouldn’t support a compromise on these terms, and reports have suggested Boehner will not back a plan that splits his members in half. But there’s no major third party in the House right now, so how is Boehner expecting to get a majority?

Housekeeping: You’ll notice a slight change to Wonkbook today: the “Top Stories” has been replaced by an “Unnamed list” of five stories. Why five stories? Because people love lists of five. And lists in general. And Wonkbook wants to be loved. Also, marketable. But I couldn’t think of a name for the feature. “Top Five” is banal, and “The Wonkbook Five” sounds like they’re defendants in a really boring murder case. So I turn to you. If you’ve got any ideas for a name, e-mail me or leave a comment. Winner will credit in Wonkbook, of course, and the thanks of a grateful nation.


Unnamed list feature

1) Democratic and Republican leaders are nearing a budget deal, reports Paul Kane: “After weeks of arguing, Republicans and Democrats on Capitol Hill began negotiations Wednesday on a possible budget agreement that would slash federal spending by as much as $ 33 billion and avert a government shutdown. ‘We’re all working off the same number now,’ Vice President Biden told reporters after meeting with Senate Democratic leaders at the Capitol on Wednesday evening. ‘Obviously, there’s a difference in the composition of that number — what’s included, what’s not included. It’s going to be a thorough negotiation.’ If approved, the deal would be the largest single-year budget cut in U.S. history… The two sides have already agreed on $ 10 billion in cuts; now, the House and Senate appropriations committees are searching for an additional $ 23 billion to extract from the budget.”

2) Obama has unveiled his new energy plan, reports Steven Mufson: “President Obama on Wednesday called for a one-third cut in oil imports by 2025, part of a plan he says will reduce U.S. dependence on foreign petroleum. With rising gasoline prices at home and political turmoil throughout the Middle East, Obama sought in a speech at Georgetown University to rally Americans — and bickering lawmakers — behind a program that draws equally from energy savings and increases in energy production. ‘We’ve been down this road before,’ Obama said, acknowledging that past presidents have made similar calls for greater energy independence. But, he added, ‘we can’t rush to action when gas prices are high and then hit the snooze button when prices are low again.’”

Note: Head down to Wonkbook’s energy section for a range of reactions to the proposal.

3) Nancy Pelosi has ruled out including anti-health care riders in a budget deal, reports Felicia Sonmez: “House Minority Leader Nancy Pelosi (D-Calif.) said Wednesday that any longer-term government funding bill that eventually gets signed into law by President Obama will not include any policy riders aimed at defunding the national health-care law. ‘Let’s put it this way: the health-care rider is not one that will be in any bill that will be sent to the president and that the president will sign…This bill will not be repealed,’ Pelosi said at an event touting Democrats’ health-care and student loan laws. Senate Democratic Majority Leader Harry Reid (D-Nev.) on Tuesday signaled some willingness to consider the controversial provisions known as policy riders included in the House-passed funding bill.”

4) GOP negotiations with Blue Dogs have backfired, reports Susan Crabtree: “Any attempt — real or imagined — by House Republican leaders to court enough Blue Dog Democrats to their side on the budget talks to avoid a government shutdown, may have backfired. Rep. Collin Peterson (D-MN), a founding member of the Blue Dogs, told TPM he didn’t think the talks were ‘all that effective’ because House Majority Whip Kevin McCarthy (R-CA) had ‘talked down to them’ during a recent meeting. Peterson was short on specifics but said McCarthy had definitely rubbed members of the fiscally conservative Democratic coalition the wrong way. Still, a significant number of Democrats carried an earlier stopgap spending bill across the finish line two weeks ago when 54 conservative Republicans voted against it.”

5) Shutdowns, defaults and assorted other pieces of evidence that our political system can no longer function will not be looked upon kindly by the market: “Asger Lau Andersen, David Dreyer Lassen and Lasse Holbøll Westh Nielsen — remember them? — have looked into how the market treats late budgets in the states — and late budgets in the states, it should be noted, are considerably less public and psychologically disruptive than a shutdown of the federal government during a weak economy. The answer is: not kindly (pdf). “We estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points,” they conclude. To put that in context, economists estimated that if the Federal Reserve pumped $ 400 billion into the economy, it’d lower yield spreads by about 20 basis points, or two-tenths of a percent. And it actually gets worse than that: ‘Markets also punish late budgets much more harshly if they occur during times of fiscal stress.’ I think it’d be fair to characterize this as a time of fiscal stress, don’t you?”

Country music interlude:
Deer Tick plays “These Old Shoes” live.

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Still to come: Liberals want GE CEO Jeffrey Immelt out of the Obama administration; Tom Coburn his laying a trap for Grover Norquist; Alan Blinder sees four major dangers blocking a global recovery; VA attorney general Ken Cucinnelli thinks he’ll win his anti-health reform lawsuit; the House wants to revive a voucher program in DC; commentators react to Obama’s energy plan; and a puppy pushes a car.


Economy

Liberal activists are pushing GE CEO Jeffrey Immelt to resign from his advisory role in the administration, reports Perry Bacon: “Two liberal groups Wednesday called for General Electric Chief Executive Jeffrey Immelt to step down as the head of the White House’s Council on Jobs and Competitiveness following a report that GE paid no federal taxes last year despite more than $ 14 billion in profits. ‘One of the chief ways GE avoids paying taxes is by shifting a large portion of its profits overseas, and jobs follow. Now GE’s CEO is the person charged with helping the President create jobs here in America. That’s just perverse,’ the groups MoveOn.org and Progressives United told supporters in an e-mail message. President Obama tapped Immelt to head the council in January.”

Tom Coburn has a plan to take on Grover Norquist, writes Jon Chait: “To Norquist, eliminating a tax loophole is just as bad as raising rates. So he opposes any attempt to increase revenue through the elimination of loopholes, however unworthy those loopholes may be. Norquist and Coburn have been circling each other for months, trading barbs in the media. Now Coburn is using a test case to expose Norquist’s Pledge. That test case is the ethanol subsidy, which is pork that survives due to the strength of the agriculture lobby, but which the conservative movement at least putatively opposes. The ethanol subsidy, like many subsidies, comes in the form of a tax break. Eliminating it is, therefore, a tax increase. Therefore, eliminating the ethanol subsidy, without using the revenue for a tax cut, would violate the Pledge. In other words, Coburn has set a trap for Norquist. He has proposed eliminating the ethanol subsidy. If Norquist supports it, he has to alter his pledge to allow for closing loopholes that raise revenue. If he opposes it, he has to admit that he opposes closing loopholes that even Norquist admits are unsupportable. Norquist’s response? He opposes closing the loophole”

Elizabeth Warren defended the consumer protection bureau before the Chamber of Commerce, reports Brady Dennis: “In her perpetual campaign to win over the many opponents of the new Consumer Financial Protection Bureau, Elizabeth Warren has crisscrossed both the capital and the country for months, meeting with bankers and business owners and lawmakers. On Tuesday, that quest took her only several blocks to the headquarters of one of the agency’s most ardent critics, the U.S. Chamber of Commerce, which spent millions of dollars and countless hours trying to prevent the creation of the consumer bureau last year. Warren, the Harvard law professor appointed to stand up for the new watchdog, joked that her visit had been likened to Daniel in the lion’s den or President John F. Kennedy speaking to Protestant ministers.”

The government safety net will continue to function if the government shuts down, reports Arthur Delaney: “Social Security recipients will still see receive their benefits even if the federal government switches off next month, said Cristina Martin Firvida, a lobbyist for the AARP… Current Medicare beneficiaries also should not be affected by a short shutdown, said AARP’s Mary Liz Burns… A similar situation would likely occur with unemployment insurance benefits…Elizabeth Lower-Basch, a senior analyst with the Center for Law and Social Policy, said other programs administered at the state level, including Temporary Assistance for Needy Families (formerly known as welfare) and the Supplemental Nutrition Assistance Program (food stamps), should continue as well.”

The economic recovery faces four obstacles, writes Alan Blinder: “If you’re searching for a metaphor for the U.S. economy right now, think of an athlete who is recovering from serious injuries and must navigate a difficult obstacle course. She’s getting into better shape but there are hazards along the way that might keep her from reaching the finish line. Here’s my list of the four biggest obstacles to recovery right now-in ascending order of seriousness. The Japanese disaster: Many people view the physical and human tragedy now afflicting Japan as a serious threat to global recovery. Based on what’s known so far, I don’t…The European sovereign debt crisis: This one is starting to look like a hardy perennial… The U.S. budget deficit: The unedifying and sometimes irrational political wrangling over our own budget deficit is more worrisome… The oil market: This is the most worrying.”

The SEC has issued a new rule regulating executive pay, reports David Gilzenrath: “The five members of the Securities and Exchange Commission gave their preliminary endorsement Wednesday to a proposal that would ostensibly require executive pay to be set by independent members of corporate boards. But the SEC proposed leaving details to another group of rulemakers, the stock exchanges. The SEC also proposed letting the exchanges carve out major exceptions to whatever independence standards they adopt.”

Tax deferral is dead, writes Matt Miller:
http://wapo.st/gYFJqp

Obama should show more resolve in the budget battle, writes EJ Dionne: “Someone should introduce the Barack Obama who addressed the nation Monday on Libya to the Barack Obama who has been dancing around the edge of the budget fight. In his Libya speech, Obama was clear, forceful and principled. Yes, there were some ambiguities but these were dictated by a genuinely uncertain situation on the ground, not by muddled thinking. The president made the case for a foreign policy rooted in morality yet also alive to the difficulties of acting wisely in an imperfect world that does not bend easily to one man’s or one country’s will. On the budget, by contrast, it’s hard to know what the president’s bottom line is, what deals he would regard as reasonable or when he will even join the fray.”

Adorable animals powering transportation interlude:
A dog-pushed car.


Health Care

VA attorney general Ken Cuccinelli handicaps his chances of persuading the Supreme Court to overturn health-care reform: “I am cautiously optimistic. I’d say, above 50 percent, no higher than 60 percent, because the nature of constitutional cases is very unpredictable. A lot of people presume the government will win, because it usually does, but there have been four major Commerce Clause cases and the court ruled in favor of the limited-government side in two of the four, so it isn’t as if we always lose and that is within the past 16 years.”

The Senate could fast-track 1099 repeal:
http://politi.co/fVExJ6

Tea Party legislators are finding success in blocking health-reform’s implementation at a state level, reports Sarah Kliff: “Despite their best efforts, tea party activists could not stop Congress from passing health reform last year. Now, they’re finding surprising success doing the next best thing: blocking the law’s implementation. In South Carolina, tea party activists have been picking off Republican co-sponsors of a health exchange bill, getting even the committee chairman who would oversee the bill to turn against it. A Montana legislator who ran on a tea party platform has successfully blocked multiple health exchange bills, persuading his colleagues to instead move forward with legislation that would specifically bar the state from setting up a marketplace.”


Domestic Policy

The House has revived a DC school voucher program, reports Ben Pershing: “The House approved a bill Wednesday to revive the D.C. Opportunity Scholarship Program, even as the controversial school-choice measure faces an uncertain future. Under the program, which began in 2004, low-income D.C. students are given federal money to help pay for private school tuition. Democrats closed the program to new entrants in 2009. House Speaker John A. Boehner’s bill — known as the SOAR Act — would reopen it, offering $ 20 million annually for five years for new scholarships, along with another $ 20 million apiece for D.C. charter schools and traditional D.C. public schools. Boehner’s bill passed the House on a 225 to 195 vote, with all but nine Republicans present voting in favor and all but one Democrat opposed.”

A bill would cut the number of Senate confirmable appointments:
http://wapo.st/hT3cmE

The House GOP is taking on the AARP, reports Dan Eggen: “House Republicans, who are continuing their efforts to chip away at President Obama’s health-care law, have now set their sights on a powerful group that strongly supported the legislation: the AARP seniors lobby. Two GOP members of the House Ways and Means Committee released a report Wednesday alleging that the nation’s largest seniors group stands to gain financially from the Affordable Care Act, because the law could result in greater demand for supplemental Medicare policies that carry the AARP stamp of approval. In addition, the Ways and Means health and oversight subcommittees have scheduled a joint hearing Friday to grill AARP officials about the organization’s financial ventures.”

Obama has threatened to veto an anti-union aviation bill:
http://bit.ly/ho0OjV

Gun control legislation enacted after Reagan’s shooting saved lives, writes Sarah Brady: “It took seven years and an immeasurable number of hours of talking, walking and testifying for Congress to pass the Brady Handgun Violence Prevention Act. President Bill Clinton cradled and carried our cause in his heart all the way to the signing ceremony. The legislation requires federally licensed gun dealers to perform background checks on purchasers. Since enactment, 2 million gun purchases have been denied to people too dangerous and irresponsible to possess firearms. We’ll never know how many lives have been saved. It’s hard to believe that despite this success, some conservatives who claim to revere Ronald Reagan still reject the common-sense gun reforms he backed.”

Adorable children being talented interlude:
10-year-old Connie Talbot covers Adele’s “Something Like You”.


Energy

The energy plan’s focus on “security” is a bad sign, writes Ezra Klein: “Energy security is shorthand for ‘oil we drill here’ as opposed to ‘oil that gets shipped here.’ So the first part of the plan is all about expanding domestic production of some of the very fuel we need to be weaning ourselves off of. The truth is that the Obama administration’s energy policy looks more like Sarah Palin’s applause lines than the cap-and-trade program it advocated during the election. That’s not because the White House wouldn’t prefer the plan it pushed in 2008 to the plan it’s pushing in 2011. Congress, not the administration, opposes to cap-and-trade. But we are where we are, and there’s no use dressing it up. You can put lipstick on ‘drill, baby, drill,’ but it’s still ‘drill, baby, drill.’”

The plan is unambitious, writes David Roberts:
http://bit.ly/iddWRU

There’s nothing wrong with imported oil, writes Daniel Griswold: “We Americans benefit tremendously from our relatively free trade in petroleum products. Like all forms of trade, the importation of oil produced abroad allows us to acquire it at a price far lower than we would pay if we had to rely more heavily on domestic oil supplies. The money we save buying oil more cheaply on global markets allows our whole economy to operate more efficiently. Oil is the ultimate upstream input that virtually all U.S. producers use to make their final products, either in the product itself or for shipping. If U.S. manufacturers and other sectors are forced to pay sharply higher prices for petroleum products because of import restrictions, their final goods will cost more and will be less competitive in global markets.”

Obama’s speech should have called the GOP to task, writes Joseph Romm:
http://bit.ly/g5y0U7

Closing credits: Wonkbook is compiled and produced with help from Dylan Matthews and Michelle Williams.







Ezra Klein

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Ezra Klein fears the market reaction a government shutdown:

A last-minute deal tells the market that America is a country that dithers and procrastinates and anguishes but eventually makes the necessary decisions to avert terrible consequences. We can be trusted to follow through, even if only at the last minute. A shutdown tells the market that our political system has become so dysfunctional that we actually can’t be trusted.





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The Daily Dish | By Andrew Sullivan

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I don’t want to start a market panic here. I’ve no desire to be known for “The Klein Crash of 2011.” But it’s safe to say that much of Washington finds the low, low yields on Treasurys — which represent the market’s serene confidence that the U.S. can handle its debts — a little baffling. Senior government officials have told me they think Treasurys are probably a bit underpriced, which is a bit like the executives of GE privately wondering why investors are so sure they won’t go bankrupt. The investors might be right, but it’s not comforting to hear.

The market isn’t totally wrong, of course. The federal government probably won’t default on its debt. But it’s actually pretty hard to explain how we get the spending line and the revenues line to match each other. And we have a really dysfunctional political system. We’ll figure it out somehow. We always do. But our low borrowing costs are an advantage we want to preserve for as long as possible. That means keeping the market from realizing that partisan polarization mixed with our weird legislative system makes insane outcomes easily imaginable.

This is why a shutdown would be so dangerous. A last-minute deal tells the market that America is a country that dithers and procrastinates and anguishes but eventually makes the necessary decisions to avert terrible consequences. We can be trusted to follow through, even if only at the last minute. A shutdown tells the market that our political system has become so dysfunctional that we actually can’t be trusted.

Asger Lau Andersen, David Dreyer Lassen and Lasse Holbøll Westh Nielsen — remember them? — have looked into how the market treats late budgets in the states — and late budgets in the states, it should be noted, are considerably less public and psychologically disruptive than a shutdown of the federal government during a weak economy. The answer is: not kindly (pdf). “We estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points,” they conclude. To put that in context, economists estimated that if the Federal Reserve pumped $ 400 billion into the economy, it’d lower yield spreads by about 20 basis points, or two-tenths of a percent. And it actually gets worse than that: “Markets also punish late budgets much more harshly if they occur during times of fiscal stress.”

I think it’d be fair to characterize this as a time of fiscal stress, don’t you?

There are some reasons for optimism here. Markets seem to punish fiscal mismanagement more lightly if the state has access to lots of money, which usually means reserves. The federal government has access to lots of money — though through borrowing, not reserves — so it’s possible we’d get off lightly, too. If you look back to Treasury yields in 1995, you don’t see an obvious change, but (a) perhaps yields would have been lower without the shutdown and (b) the economy is a lot weaker today than it was in 1995. At any rate, do we really want to test this? And if so, how many times? The tea party types are already promising to oppose an increase in the debt ceiling in the absence of massive entitlement cuts. Sen. Marco Rubio says he’ll oppose lifting the debt ceiling unless it’s accompanied by “a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.” That’s quite a list of demands in order to avoid economic catastrophe.

The irony of all this comes clear if you consider why we’re afraid of deficits in the first place. If the market comes to believe our debt is too large for our political system to pay back, they’ll become more skittish about buying government debt, and that’ll send interest rates higher and the economy lower. But if we have a series of shutdowns while we argue over how much to cut and how fast, our paralysis will convince the market we can’t get our act together in time to pay off our debts and they’ll send interest rates skyrocketing anyway. We’ll have caused exactly what we sought to prevent, and done it now, when the economy is weak, rather than later, when the economy is stronger. As I said at the beginning of this piece, I’d sure hate to be known for causing an economic crash. How about you, Congress?







Ezra Klein

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I don’t want to start a market panic here. I’ve no desire to be known for “The Klein Crash of 2011.” But it’s safe to say that much of Washington finds the low, low yields on Treasurys — which represent the market’s serene confidence that the U.S. can handle its debts — a little baffling. Senior government officials have told me they think Treasurys are probably a bit underpriced, which is a bit like the executives of GE privately wondering why investors are so sure they won’t go bankrupt. The investors might be right, but it’s not comforting to hear.

The market isn’t totally wrong, of course. The federal government probably won’t default on its debt. But it’s actually pretty hard to explain how we get the spending line and the revenues line to match each other. And we have a really dysfunctional political system. We’ll figure it out somehow. We always do. But our low borrowing costs are an advantage we want to preserve for as long as possible. That means keeping the market from realizing that partisan polarization mixed with our weird legislative system makes insane outcomes easily imaginable.

This is why a shutdown would be so dangerous. A last-minute deal tells the market that America is a country that dithers and procrastinates and anguishes but eventually makes the necessary decisions to avert terrible consequences. We can be trusted to follow through, even if only at the last minute. A shutdown tells the market that our political system has become so dysfunctional that we actually can’t be trusted.

Asger Lau Andersen, David Dreyer Lassen and Lasse Holbøll Westh Nielsen — remember them? — have looked into how the market treats late budgets in the states — and late budgets in the states, it should be noted, are considerably less public and psychologically disruptive than a shutdown of the federal government during a weak economy. The answer is: not kindly (pdf). “We estimate that a budget delay of 30 days has a long run impact on the yield spread between 2 and 10 basis points,” they conclude. To put that in context, economists estimated that if the Federal Reserve pumped $ 400 billion into the economy, it’d lower yield spreads by about 20 basis points, or two-tenths of a percent. And it actually gets worse than that: “Markets also punish late budgets much more harshly if they occur during times of fiscal stress.”

I think it’d be fair to characterize this as a time of fiscal stress, don’t you?

There are some reasons for optimism here. Markets seem to punish fiscal mismanagement more lightly if the state has access to lots of money, which usually means reserves. The federal government has access to lots of money — though through borrowing, not reserves — so it’s possible we’d get off lightly, too. If you look back to Treasury yields in 1995, you don’t see an obvious change, but (a) perhaps yields would have been lower without the shutdown and (b) the economy is a lot weaker today than it was in 1995. At any rate, do we really want to test this? And if so, how many times? The tea party types are already promising to oppose an increase in the debt ceiling in the absence of massive entitlement cuts. Sen. Marco Rubio says he’ll oppose lifting the debt ceiling unless it’s accompanied by “a plan for fundamental tax reform, an overhaul of our regulatory structure, a cut to discretionary spending, a balanced-budget amendment, and reforms to save Social Security, Medicare and Medicaid.” That’s quite a list of demands in order to avoid economic catastrophe.

The irony of all this comes clear if you consider why we’re afraid of deficits in the first place. If the market comes to believe our debt is too large for our political system to pay back, they’ll become more skittish about buying government debt, and that’ll send interest rates higher and the economy lower. But if we have a series of shutdowns while we argue over how much to cut and how fast, our paralysis will convince the market we can’t get our act together in time to pay off our debts and they’ll send interest rates skyrocketing anyway. We’ll have caused exactly what we sought to prevent, and done it now, when the economy is weak, rather than later, when the economy is stronger. As I said at the beginning of this piece, I’d sure hate to be known for causing an economic crash. How about you, Congress?







Ezra Klein

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According to news reports, Democrats and Republicans are unlikely to reach any sort of budget agreement before April 8, when a short-term spending bill for the current fiscal year expires.

Barring some new development, this could mean a shutdown of the non-essential parts of the government.

This makes both sides very nervous. Democrats don’t want the spending spigot turned off and are worried that voters might conclude that there’s no reason to ever re-open departments such as Housing and Urban Development. Republicans, meanwhile, mostly worry that they might look unreasonable and get blamed if certain parts of the government are mothballed and voters can’t get passports or visit national parks.

Given this state of play, what’s the best strategy for fiscal conservatives, libertarians, and other advocates of smaller government?

Fred Barnes of the Weekly Standard thinks Republicans should continue with short-term spending bills.

…the incremental strategy is working. Republicans have passed two short-term measures to keep the government in operation since early March while slashing $ 10 billion in spending. At this rate, they would achieve the target of GOP congressional leaders of lopping off $ 61 billion from President Obama’s proposed budget in the final seven months of the 2011 fiscal year. There’s every reason to believe the incremental strategy would continue to succeed.

He’s worried that a more confrontational approach, where the GOP passes a take-it-or-leave-it spending bill, might backfire – even though any shutdown would exist solely because Senator Reid and/or President Obama refused to act.

Would a shutdown give Republicans more muscle in negotiating for cuts? …Maybe it would. But it might not. …So long as they control the Senate and White House, Democrats will reject massive cuts. Republicans also want to bar spending for Planned Parenthood, the Corporation for Public Broadcasting, and Mr. Obama’s health-care program. Attach any of these prohibitions to a spending measure and Democratic opposition is certain. Should Republicans insist, we’ll get a government shutdown. This is a big gamble. …Indeed it might discredit Republicans and boost Mr. Obama in the same way the shutdown in 1995 hurt Republicans and lifted President Bill Clinton out of the doldrums. It could alienate independent voters so critical to the Republican triumph in 2010. True enough, the political atmosphere is more favorable to serious spending reductions than it was 16 years ago. …But why take a chance?

I think Barnes is a bit off in his portrayal of what happened in 1995, as I’ve previously explained, but these are all fair points. A “shutdown” fight could be considered uncharted territory.

Keith Hennessey, a former Hill staffer and Bush Administration official, also is skeptical of a confrontational approach. Instead, he suggests that the GOP increase the pressure on Democrats by slowly increasing the amount of weekly spending cuts.

While negotiating with the President’s team and Senate Democrats, in this variant House Republicans continue to pass short-term Continuing Resolutions as long as there is not an acceptable full-year deal. In these repeated future CRs, they ratchet up the spending cuts by the paltry figure of only $ 100 million each week. …Under this new variant, as April 8th approaches House Republicans would pass another three week CR, one which cuts $ 2.1 B in its first week, $ 2.2 B in its second week, and $ 2.3 B in its third week. …Such a tiny weekly increment would be nearly impossible for Democrats to reject. And yet if continued through the end of this fiscal year, $ 4.5 B of discretionary spending would be cut in the final week, that of September 23rd. This strategy…poses zero additional risk for Congressional Republicans. They would maintain the high ground on spending cuts and remain on the offensive for the next six months.

There’s a lot to like about Keith’s approach. If successful, he explains, GOPers could wind up with $ 82 billion of cuts rather than just $ 61 billion.

But here’s my concern about an incremental strategy. What makes anyone think that the left will go along with short-term spending bills, regardless of whether they cut $ 2 billion per week, or even more?

Democrats already have agreed to $ 10 billion of cuts, and even though that’s very trivial when compared to total spending (akin to a couple of french fries out of a Big Mac meal), the pro-spending lobbies and their allies on Capitol Hill are balking at the thought of additional cuts. So while it might be possible to push through a couple of additional short-term spending bills, there will come a point when Democrats refuse to play ball. And when that happens, we’re back to a partial shutdown.

Here’s how constitutional lawyer James Bopp, Jr., explained the issue in a piece for the Washington Times.

A government shutdown is inevitable because President Obama will insist on it. Nothing the Republicans do, short of total capitulation, will prevent this from happening. …With a three-week extension of government funding (which included $ 6 billion in cuts) expiring April 8, now is the time to escalate one’s bid. Demand $ 12 billion in cuts the next time. And when the shutdown occurs because of an Obama veto or a vote in the Democrat-controlled Senate, the House should keep passing bills to reopen the government, coupling it with more spending cuts. …There is a fundamental contradiction in the Democrats’ shutting down the government. The Democrats are the party of government. It is like a bank robber, caught in the act, who threatens to pull the trigger on himself if arrested; what would the cop say but, “Go ahead”? The government shutdown threat defeats the Democrats own objective and is thus ultimately self-defeating, while the Republicans protect the bank depositors – the taxpayers – from the bank robber.

I think this is largely correct, particularly in that there almost certainly will be a shutdown fight. The only question is when it will happen. And if a shutdown battle is inevitable, advocates of smaller government should decide whether it’s better to have that fight sooner rather than later.

My instinct is that it would be better to fight now. GOP resolve presumably will decrease over time, particularly since the “easy” spending cuts get used up first. Moreover, it is quite likely that a strategy of short-term spending bills will complicate GOP efforts to get budget process reform in a couple of months in exchange for an increase in the debt limit.

Democrats surely don’t want the GOP to have another opportunity to restrain the size of government, so they would insist on an increase in the federal government’s borrowing authority as the price for approving whatever short-term spending bill is being considered around that time. Republicans presumably will balk at that demand. But that brings us back, once again, to a shutdown fight. Only this time, it will be complicated by demagogic assertions of a default.

So long as the final result is a smaller burden of government, there is no right or wrong answer about the process. It’s simply a question of which approach is more likely to achieve the desired outcome. I think fighting now is better than fighting later, but if the GOP chooses a strategy of short-term spending bills, I hope I’m wrong.


Big Government

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More proof Republicans are nervous a government shutdown will hurt them politically:

National Journal reports the House GOP “plans to pass on Friday a measure called the ‘Prevention of a Government Shutdown Act.’ Passage will do nothing to avoid a government shutdown since no deal has been reached with Democrats in the Senate and the White House. But it will give the House GOP the opportunity to claim that they’ve tried to prod the Senate toward a deal on spending cuts.”


Taegan Goddard’s Political Wire

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The latest continuing resolution to fund the federal government runs out on April 8. While the last six deadlines have ultimately produced a temporary budget agreement between Republicans and Democrats, both sides say they are fed up with the piece-meal approach and want to hammer out a final budget for the rest of the year.

It’s looking more likely that this latest impasse cannot end without a government shutdown. This week, House Majority leader Eric Cantor (R-VA) declared that the American people would hold Democrats accountable for such a result. And this morning on Fox & Friends, Rep. Michele Bachmann (R-MN) repeated the talking point:

BACHMANN: We learned from Harry Reid, we learned from Chuck Schumer what the whole game plan is on the Democrats’ side. They are giddy about seeing the government shut down. That’s what they want. We can’t forget that. The Democrats want the government shut down.

In fact, Republican intransigence is the driving force behind the likelihood of a shutdown. Previous resolutions cut $ 10 billion from the budget, and the Democratic leadership has offered a total of $ 30 billion in cuts through the end of the year. This is roughly what Republican budget chairman Paul Ryan suggested at the start of the debate, before a Tea Party upheaval forced the House Republicans to pass a bill with both $ 61 billion in spending reductions and a series of controversial budget riders gutting funding for Planned Parenthood, health care reform, and the EPA.

Republicans now insist this budget must be the bare minimum for negotiations moving forward. They have also pointedly refused to consider savings in other parts of the budget, including defense spending or wasteful corporate tax subsidies.

Republicans have, of course, claimed again and again that they have no desire for a shutdown, and that it will be the fault of the Democrats if one occurs. The record, however, says otherwise. Watch this video report:

Whatever Eric Cantor may think, recent polls say it’s the Republicans that the public would hold accountable for a shutdown. As the video evidence demonstrates, there’s good reason for Americans to believe that.

ThinkProgress

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According to The Hill, Republicans are now trying to say a looming government shutdown is not actually a shutdown, it’s a “slowdown” or a “partial shutdown.”

“The rhetorical distinction is a subtle, but politically significant, shift in the intensifying blame game between Republicans and Democrats, who must reach agreement and pass a spending bill by April 8 to avert what is commonly referred to as a government shutdown.”


Taegan Goddard’s Political Wire

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You would think liberals in Congress have nothing better to do with their time. Amid a war in Libya, an effort to aid earthquake and tsunami-stricken Japan, a continuing war in Afghanistan, rising gas prices and endless unemployment, Senate Majority Leader Harry Reid (D-NV) and the Democratic leadership in the U.S. Senate are refusing to accept a modest agreement to fund the federal government through the end of the fiscal year. And time is running short. What’s Senator Reid wrangling over? A mere $ 51 billion in additional budget cuts, which amounts to a few days of government deficit spending.

But Reid’s stonewalling isn’t just about dollars and cents, or saving federal funding for a Cowboy Poetry Festival. Reid and the Democrats in Congress are setting the groundwork for a partial government shutdown so they can attempt to lay the blame at the feet of the Tea Party and Republicans in Congress and gain politically. They’re simply putting electoral politics over the business of our nation.

As it stands today, Congress has until April 8 to reach an agreement on a long-term budget through the end of FY 2011, pass another short-term stopgap budget, or face a partial government shutdown. It might seem shocking that our representatives would cut it so close. But to understand how we got here, it’s important to know where we’ve been.

Last May, then-House Majority Leader Steny Hoyer (D-MD) announced that, for the first time since 1974, the House would not pass a budget resolution. Never in modern history had a Congress ignored this basic mandated responsibility. Rather than stem the tide of big government spending, liberals in Congress opted to burn through borrowed cash as they pleased with no end in sight. But with the rise of the Tea Party movement and the November elections, the American people voiced their opposition to the big spending ways. They wanted Congress to get control of the budget.

Enter the 112th Congress and H.R. 1, the House Republicans’ FY 2011 budget which cut spending by $ 61 billion. It passed the House some 39 days ago, and yet under Reid’s leadership, the Senate has done nothing to move that bill forward or offer any serious alternative, for that matter. In the meantime, the House has passed two stopgap spending measures to temporarily fund the government, waiting for Reid to get his chamber in order.

So what are the Senate Democrats really up to? One doesn’t need to read tea leaves, hire a psychic or consult a magic eight ball. Yesterday, Senator Charles Schumer (D-NY) gave America some insight into his party’s game plan. The Washington Examiner reports that on a conference call yesterday, Schumer, without realizing reporters were already listening, instructed his fellow Democratic senators to tell the reporters that the GOP is refusing to negotiate. According to the Examiner, Schumer ”told the group to make sure they label the GOP spending cuts as ‘extreme.’” That is what “the caucus instructed [Schumer] to do last week.”

The spending cuts, though, are anything but extreme. As House Majority Leader Eric Cantor (R-VA) said yesterday, “Chuck Schumer did us a favor, he exposed their tactic. … He’s basically instructing his members to deem any spending cut unreasonable —  any spending cut … So clearly they are not serious.” The Senate Democrats’ inaction combined with their rhetoric means one thing: they want a government shutdown at all costs, and they want to blame it on Republicans. Their end goal: more spending and supposed political gain.

Yesterday, former Democrat National Committee (DNC) Chairman Howard Dean told the audience at a National Journal Insider’s Conference: “If I was head of DNC, I would be quietly rooting for it…I know who’s going to get blamed – we’ve been down this road before.” Dean continued: “From a partisan point of view, I think it would be the best thing in the world to have a shutdown.”

Reid’s inaction, Schumer’s political gamesmanship and Dean’s blunt honesty tell the whole story. This is not about putting America on a smart fiscal path, it’s about putting Democrats on a preferred political path. But it won’t work.

Reid and Democratic leadership in the Senate need to recognize that they have a job to do. As Majority Leader Cantor said: “We’ve got bigger things to deal with. Time is up here.” And with a $ 1.6 trillion deficit, cuts to non-defense discretionary spending are desperately needed. President Barack Obama, too, should show his face and weigh in on the stalemate. The president has been wrongly applauded for remaining silent by a complicit media; now is the time to show leadership. He can not continue to ’vote present’ as he has throughout his career. And in anticipation of a partial shutdown, Congress should pass a Department of Defense appropriations bill to ensure that our military is fully funded.

Last November, the American people cast their vote for fiscal responsibility and a limited government that lives within its means. The many voices of the Tea Party are not entirely satisfied with a modest $ 61 billion in cuts. But they know that we need to make these substantive cuts and move on to the business of the next year’s budget, where more reform will be possible. The Tea Party is not the problem.

For almost two months, they have watched many of their elected representatives play politics, rather than play ball. Senator Reid, it’s time to do the right thing. Stop the political games and get to work so the government can keep fully operating and Congress can get on with the people’s business.

Quick Hits

The Foundry: Conservative Policy News.

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