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(cross posted at Progressive Blue)

The Republicans and the President both want us to be scared in order to sacrifice the most successful programs of the New Deal and Great Society. They want us to be frightened to death of the self induced crisis(because this president can't negotiate a debt ceiling raise like every other president or he has something else in mind) they created together in this debt ceiling debacle. And it is entirely a self induced crisis.

It was entirely avoidable and entirely predictable if one knows their history, even recent history from the Obama/Bush tax cut deal as well as the 80s. This isn’t the 90s. There is a jobs crisis. There is not enough demand in the economy and tax cuts, even employer side payroll tax cuts being proposed (the only arguably effective stimulus in this situation) are not efficient and won’t increase hiring.

The president doesn’t understand demand or economics in general. It’s sad to say, but he believes in the pseudo economics of the confidence fairy that will supposedly lure back the bond vigilantes (who haven’t even left yet even during this debt ceiling debate) and his magical Internet gnome David Plouffe perpetuating his Independents deficit disorder. The public does not share the president’s adherence to pseudo economics, so he’s using the crisis he helped create:

"I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse"

The president is using this crisis he helped create in order to make us “eat our peas.”

There is no debt/deficit crisis. As professor James K. Galbraith says:

“When Obama says, even offhand, that the United States is "out of money," he's talking nonsense--dangerous nonsense. One wonders if he believes it.”

If you read that piece you learn that the federal budget is not deficit constrained nor is it like a family's budget because we issue our own currency unlike any EU nation like Greece or Ireland. It's a shame I have to keep repeating this and that the president still is talking nonsense when it comes to fiscal matters. But let's pretend the federal budget is deficit constrained for a second. Let's for a second buy RW and neoliberal framing(like the president is doing) that the debt is an immediate problem and must be handled now or we'll all die!

In doing so I will take you back in history when the deficit/debt did matter to a point because we were still on a version of the gold standard as the dollar was pegged to gold until Nixon took us off of it in 1971. The Bretton Woods system of international financial exchange then ended. There used to be a gold reserve constraint in our banking reserve system and when we ran a trade deficit as we started doing during this time, we had to pay the surplus country we ran the deficit with in gold so it was bound to fall anyway. So this is when in the long run, deficits and debt mattered, but not anymore because we don't have those constraints anymore.

However debt only means something even in this scenario when compared to something else and that is the debt to GDP ratio. If we listen to the John Boehner or Obama buying into his framing but in a lesser way, you would have thought the world ended and our economy collapsed during the height of WWII when our debt to GDP ratio was 120%.

It didn't. In fact, it was the most prosperous period across the globe there had ever been, the Keynesian golden age. The global economy grew at an average of 4.9% and all one has to do to make themselves feel better if they are worried about deficits and debts and spending is to look at that downward slope the national debt took as the economy grew during this period. It's like skiing down the alps and though the debt to GDP ratio is picking up though not expected to be close to 120% of GDP(depends on medical inflation) it's clearly not an immediate crisis even if one thinks we are still deficit constrained in the long run, but we are not.

So don't believe the BS! The President, John Boehner, Harry Reid, and Mitch McConnell, and the gang of six are all coming after our social safety net in this debt ceiling sham of a negotiation. They are all using these proven pseudo economic lies to push Shock Therapy Americans don't want or need. We must fight this. It is unacceptable.

Originally posted to The Amateur Left on Mon Jul 25, 2011 at 07:23 AM PDT.

Also republished by Progressive Policy Zone, The Democratic Wing of the Democratic Party, and Team DFH.

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Comment Preferences

  •  Shared sacrifice (7+ / 0-)

    That's when two people climb on side-by-side altars, at simultaneously stab each other in the heart.

  •  Checking into it a bit I've found there is a (12+ / 0-)

    6-700 trillion derivatives market that needs to be cleared and another 5 trillion plus bank bailout.  Then there's the issue of the SS Trust Fund.  I'm not so sure the President doesn't know some things Galbraith doesn't.  But I'm no economist so I'm not sure what it all means but that's a shitload of fake money.  
    But absolutely they're coming for the entitlements and social services.

    S.A.W. 2011 STOP ALL WARS "The Global War on Terror is a fabrication to justify imperialism."

    by BigAlinWashSt on Mon Jul 25, 2011 at 08:05:25 AM PDT

    •  This why they want our money. (8+ / 0-)

      They can not manufacture their money fast enough in the new ponzi schemes to pay off their old ponzi schemes and still remain the overpaid, do nothing uber rich criminal elite that they are.

      16 trillion dollars loaned at near zero interest OR outright given to them in bailouts in the shock doctrine choreagraphed bank and Wall st. "crisis"?

      No problem.

      But a few bucks for the poor, or what used to be the working poor, during the crisis they created? Like extending unemployment?

      Fuck no! We can have austerity.

      And they still need more money and will steal it from us if they have to.

      It has come down to a choice between them giving up some of their many houses, yachts and golden parachutes.... Or stealing our money we need to survive.

      The politicians have told us what side they are on with their actual policies, never mind the lies and absurd discussions based on manufactured crisis after manufactured crisis.

      ePluribus Media
      Collaboration is contagious!

      by m16eib on Mon Jul 25, 2011 at 08:24:47 AM PDT

      [ Parent ]

    •  You know that (7+ / 0-)

      600-700 Trillion - just for the derivatives is over 10 times world GDP. Tens times the entire capacity of the world economy.

      It would take 10 years of taking every single penny earned by everyone - including the super wealthy - to cover that with nothing left for anything else like food, shelter, etc.

      It is a joke number because it could never be collected.

      That is how far out in Ponzi la-la land the whole global financial system has gone. And they aren't finished yet.

      •  The Bank for International Settlements (BIS), (6+ / 0-)

        which is the super bank, verified over 600 trillion in 2010 but it's been estimated by others to at least 700 trillion.  I don't think many people know this.  

        S.A.W. 2011 STOP ALL WARS "The Global War on Terror is a fabrication to justify imperialism."

        by BigAlinWashSt on Mon Jul 25, 2011 at 08:41:21 AM PDT

        [ Parent ]

        •  But when you add up the plusses and minuses, (3+ / 0-)
          Recommended by:
          priceman, BigAlinWashSt, Nada Lemming

          Should it all be lost and won on their bets.... It probably only comes out to about 100 or 200 trillion dollars that does not exist.

          I am sure some would argue that is a good thing. lol

          It is like the pluses and minuses of the mortgage derivatives only added up to about 14 trillion dollars missing. And that we are paying. And that only equals the GDP of the USA in 2009.

          The whole game is rigged to destroy us whenever they choose to, IMHO. The time of their choice to start appears to be now.

          ePluribus Media
          Collaboration is contagious!

          by m16eib on Mon Jul 25, 2011 at 09:37:23 AM PDT

          [ Parent ]

        •  hell give it ALL to the top 5%, all of it (4+ / 0-)

          ...then start a new currency. (s)

          May be a joke, but say there is one main square for America and I could join a pilgrimage to it to make a statement to Wall Street Banksters and their enablers in DC.  
          Maybe others would be planning the same thing as me, which would be to dump my toaster oven, kitchen utensils, tools, clothes, food, books, rug, mattress and covers, extra shoes,socks, guitars, hub caps, spare tire...everything in my possession, and leave with a sign saying ' when will it be enough ?

           Maybe someone else will dump a big screen and someone will rig it up to get this playing on it in a perpetual loop...

          without the ants the rainforest dies

          by aliasalias on Mon Jul 25, 2011 at 01:18:04 PM PDT

          [ Parent ]

    •  The SS Trust Fund is solid (5+ / 0-)

      because by legal tender status the same obligation that covers the trust fund and the special issue securities are the kind that cover all treasuries which are knows as the safest investment and no one has ever defaulted before(though you're right that they government has borrowed from it but the government is also legally obligated to pay it back from that and the Greenspan Commission's deal).

       The trillions of dollars the rich get are redeemable. The 600-7000 trillion derivatives market is more than the whole worth of the entire world and those are insurance contracts known to be a bad investment ever since Long term Capital Management collapsed(because Bill Clinton, Greenspan, and Rubin didn't listen to Brooksley Born), so it's not the same thing as money, though both involve a contract. One a social contract and one that allows everything in our country to operate and one created on bundling multiple risky garbage assets into CDOs and tranches with insurance contracts on them no one is going to honor unless they are found to b invalid.

      But yeah, Galbraith knows a whole lot the President doesn't know like how the federal budget operates etc. Bill Mitchell. Marshal Aurback. etc.

      This whole debate either shows the president is stuck on stupid or he's up to something.

      Pro Life??? Conservatives want live babies so they can raise them to be dead soldiers!- George Carlin

      by priceman on Mon Jul 25, 2011 at 08:40:53 AM PDT

      [ Parent ]

  •  Excellent diary priceman! (9+ / 0-)

    That is exactly what is going on; there is no problem with the deficit and the debt/GDP ratio can be dealt with through government investment that is job creative, the green economic development proposals would be a perfect example of a programme that could address the debt/GDP ratio.

    There is no reason nor logic to pass austerity measures to supposedly enable economic growth; these measures actually run counter to growth creation as they reduce effective demand on the part of the poor and those on fixed incomes (in addition to impoverishing those living on the edges of poverty in our countries). The austerity measures are part of an ideological attack on our social welfare states and state sectors to provide an additional area of exploitation for corporations while destroying our services.

    I simply cannot understand why letting the repugs frame the discussion was allowed unless President Obama in some sense agrees (even to a lesser degree) with them. We cannot allow this impoverishment of the poor, working poor and working classes to continue and we cannot allow these people to argue these policies unchallenged. Diary tipped and rec'd.

    "Hegel noticed somewhere that all great world history facts and people so to speak twice occur. He forgot to add: the one time as tragedy, the other time as farce" Karl Marx, The Eighteenth Brumaire of Louis Bonaparte .

    by NY brit expat on Mon Jul 25, 2011 at 08:39:25 AM PDT

  •  I wonder if Monsanto genetically enhances (4+ / 0-)
    Recommended by:
    priceman, Agathena, aliasalias, joanneleon

    "Shock Doctrine Peas"?

    ePluribus Media
    Collaboration is contagious!

    by m16eib on Mon Jul 25, 2011 at 09:31:29 AM PDT

  •  The issue: Cash settlements on US sovereign CDS... (6+ / 0-)

    ...which will arise as the CDS spreads increase (wherein CDS' issuers will be forced to make good on calls), even if it's just for a short while, if default were to occur.

    That's the immediate issue, as far as the banks are concerned (that wrote the paper on the wrong side of the deal).

    Plenty of naked shorting (entities engaged in pure betting that the U.S. will default) has occurred in recent days/weeks on all of this, too.

    When one digs just a little further, this is all merely an indication of how pathetically little so-called Wall Street reform has accomplished to resolve core problems with our country's (and the world's) too-big-to-fail behemoths, and the FIRE sector in general.

    Forget all the other bullshit, once again, it's all about concern for the top 1% of our country that rules the day.

    Hell, over the past couple of days Geithner, et al, have even brought Hank -- "I know I saved Goldman's ass with almost $20 billion in government handouts, which, if asked, we'll deny that they occurred" -- Paulson's ass out of mothballs!

    (I think it's because he's so good at kneeling in front of Nancy Pelos; it worked like a charm last time; why not do it again!)

    "Believe it or not..."

    Get Ready for TARP 2.0
    Yves Smith
    Naked Capitalism
    July 23, 2011

    Consistent with the “let’s create a crisis” view is the talk of Armageddon coming from the officialdom. They’ve even hauled Hank Paulson out of the mothballs to give the concerns more weight. From the Financial Times:

       The collapse in the talks came after Tim Geithner, US Treasury secretary, met top officials from the Federal Reserve as well as Hank Paulson, his predecessor, to step up preparations for a possible default on US debt, which could occur as early as August 2.

        After Mr Geithner spoke on Friday with Ben Bernanke, Fed chairman, and Bill Dudley, president of the Federal Reserve Bank of New York, they issued a joint statement saying they had discussed the “implications for the US economy” of a default but were confident that the country’s borrowing limit would be lifted.

        Mr Paulson, who earlier had breakfast with Mr Geithner, was blunt in his assessment of the dangers. “Failing to raise the debt ceiling would do irreparable harm to our credit standing, would undermine our ability to lead on global economic issues and would damage our economy,” said Mr Paulson, who dealt with the financial crisis. “The sense of urgency is clear.”…

        Calls with Mr Dudley are also common but none of these discussions are normally publicised. Both the Treasury and the Fed have been reluctant to discuss any contingency plans in case of default.

    "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

    by bobswern on Mon Jul 25, 2011 at 09:39:30 AM PDT

    •  Thanks for the comment, bobswern (3+ / 0-)
      Recommended by:
      bobswern, aliasalias, joanneleon

      and the link. Yves Smith is a daily must read.

      When one digs just a little further, this is all merely an indication of how pathetically little so-called Wall Street reform has accomplished to resolve core problems with our country's (and the world's) too-big-to-fail behemoths, and the FIRE sector in general.

      Forget all the other bullshit, once again, it's all about concern for the top 1% of our country that rules the day.

      I agree. Wall Street Reform was pathetic. They're not even using anything that was good in it anyway for the CFTC on oil futures etc.

      Lol. Paulson is back! You would think they would want a better spokesman. Kneeling in front of Pelosi won't work this time.

      Very typical these vultures would be naked short selling the prospects of a default.

      Banks are on the hook for CDS(that wrote the paper on the wrong side of the deal), regardless. I often wonder at what point can they be declared void(it's all contractually based like everything) since there was never any intention to back them up because the whole world economy is only like 60 trillion. That is in an unprecedented world where not even T-bills are a safe investment assuming a default. There may be some payouts in the short term, but Wall Street will feel it and so will all of us if this happens.

      This shouldn't be the battle it is and now the New Deal and the Great Society are now being put up as if on an auction block to stop this self induced crisis because there is no leadership, no responsibility, and no accountability.

      The only plus side, is will this crisis, assuming it happens, wake enough people up(as this coming deeper great recession happens) so this crisis won't be wasted like the crash of 2008? I fear it will be and whatever happens with insolvency and TARP 2.0, when the right antidotes are not pushed(like real Wall Street reform should have been right on the onset of TARP) in moments of crisis, the backs of the working poor and taxpayers will continue to be broken.

      Pro Life??? Conservatives want live babies so they can raise them to be dead soldiers!- George Carlin

      by priceman on Mon Jul 25, 2011 at 10:07:56 AM PDT

      [ Parent ]

      •  Count on the status quo not "wasting a... (1+ / 0-)
        Recommended by:

        ...perfectly good crisis" for their benefit, once again.

        When I look at my comment, above, I think it's not just "the" issue, but one of many issues that will quickly arise. The one thing we can count on, however, is the status quo and the MSM refusing to acknowledge the total fail that has occurred among our regulatory sector to effectively address these problems, to date. Quite pathetic, actually.

        "I always thought if you worked hard enough and tried hard enough, things would work out. I was wrong." --Katharine Graham

        by bobswern on Mon Jul 25, 2011 at 10:41:29 AM PDT

        [ Parent ]

  •  The sacrifice will be shared (4+ / 0-)
    Recommended by:
    Agathena, priceman, aliasalias, joanneleon

    among the poor, the elderly, the middle class.

  •  Thanks priceman for trying to disspell the (2+ / 0-)
    Recommended by:
    priceman, joanneleon

    scare tactics.

    This above all: to thine own self be true...-WS

    by Agathena on Mon Jul 25, 2011 at 10:07:43 AM PDT

  •  Bogus Deficit History in Obama Speech (1+ / 0-)
    Recommended by:

    Dean Baker:

    This fact should have been highlighted in the news reporting on President Obama’s speech last night. President Obama asserted:

    “For the last decade, we have spent more money than we take in. In the year 2000, the government had a budget surplus. But instead of using it to pay off our debt, the money was spent on trillions of dollars in new tax cuts, while two wars and an expensive prescription drug
    program were simply added to our nation’s credit card.

    As a result, the deficit was on track to top $1 trillion the year I took office.”

    This is seriously mistaken.

    The Congressional Budget Office’s projections from January of 2008, the last ones made before it recognized the housing bubble and the implications of its collapse, showed a deficit of just $198 billion for 2009, the year President Obama took office. In other words, the deficit was absolutely not “on track to top $1 trillion.”

    Dean Baker concludes:

    This is what is known as a “gaffe” of enormous proportions. It indicates that President Obama does not have the most basic understanding of the nature of the budget problems the country faces. He apparently believes that there was a huge deficit on an ongoing basis as a result of the policies in place prior to the downturn. In fact, the deficits were relatively modest. The huge deficits came about entirely as a result of the economic downturn brought about by the collapse of the housing bubble. This misunderstanding of the origins of the budget deficit could explain President Obama’s willingness to make large cuts to core social welfare programs, like Social Security, Medicare, and Medicaid.

    It is incredible that no major news outlet noted this enormous gaffe on the fundamentals of the most important issue facing the country today.

    •  Thanks for that, splashoil (0+ / 0-)

      Makes the speech last night even worse.

      Pro Life??? Conservatives want live babies so they can raise them to be dead soldiers!- George Carlin

      by priceman on Tue Jul 26, 2011 at 04:09:24 PM PDT

      [ Parent ]

      •  Check This! (1+ / 0-)
        Recommended by:

        Michael hudson:

        You know that the debt kerfuffle is as staged as melodramatically as a World Wrestling Federation exhibition when Mr. Obama makes the blatantly empty threat that if Congress does not “tackle the tough challenges of entitlement and tax reform,” there won’t be money to pay Social Security checks next month. In his debt speech last night (July 25), he threatened that if “we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

        This is not remotely true. But it has become the scare theme for over a week now, ever since the President used almost the same words in his interview with CBS Evening News anchor Scott Pelley.

        Of course the government will have enough money to pay the monthly Social Security checks. The Social Security administration has its own savings – in Treasury bills. I realize that lawyers (such as Mr. Obama and indeed most American presidents) rarely understand economics. But this is a legal issue. Mr. Obama certainly must know that Social Security is solvent, with liquid securities to pay for many decades to come. Yet Mr. Obama has put Social Security at the very top of his hit list!

        This is a must read to understand what we are up against!

  •  Great Post! (1+ / 0-)
    Recommended by:


    "First there is a mountain, then there is no mountain, then there is." - Donovan

    by racetoinfinity on Wed Jul 27, 2011 at 04:04:41 AM PDT

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