Blackmail acceptable to curb federal spending

June 4, 2011


— As the sun rises in the east, the debt ceiling will be raised. Getting there, however, will be harrowing. Which is a good thing.

Treasury Secretary Tim Geithner warns that failure to raise the limit would be disastrous. In that he is correct. But he is disingenuous when he suggests that we must do so by Aug. 2 or the sky falls.

There is no drop-dead date. There is no overnight default. Debt service amounts to about 6 percent of the federal budget and only about 10 percent of federal revenues. This means that for every $1 of interest payments, there are roughly $9 of revenue the government spends elsewhere.

Move money around — and you’ve covered the debt service. Cover the debt service — and there is no default. What scares Geithner is not that we won’t be able to pay our creditors but that his Treasury won’t be able to continue spending the obscene amounts of money (about $120 billion a month) it doesn’t have and will (temporarily) be unable to borrow.

Good. The government will (temporarily) be forced to establish priorities. A salutary exercise.

Equally salutary is the air of crisis that will be generated by the fear of default. We shall have a preview of what happens when we hit the real debt ceiling several years from now, i.e., face real default. That’s our current fiscal trajectory. Under President Obama’s budgets, debt service, now $214 billion a year, climbs to $931 billion in a decade.

The current debt-ceiling showdown, therefore, is an instructive dry run of an actual Greek-like default, which awaits if we don’t solve our debt problem.

With one difference, of course. During today’s debt-ceiling fight, if the markets start to get jittery, interest rates on U.S. debt spike and the economy begins to teeter, the whole thing can be called off with a push of a button — an act of Congress hiking the debt ceiling. When the real crisis comes, however, there is no button. There is no flight-simulator reset. We default and the economy really does crash.

Which is why the current debt-ceiling showdown is to be welcomed. It creates leverage to force fiscal sanity.

But it can be a dangerous game. Republican demands must therefore be well-crafted. Fortunately, they are. Senate Minority Leader Mitch McConnell is pushing for budget cuts in the next two years. The effect would be real and multiplicative — when you cut the baseline budget, the savings get repeated year after year.

Spending caps are more problematic. They have a baleful history. Experience shows that Congress can padlock the refrigerator door but as long as Congress can still access the key, the gorging never stops.

I would suggest, therefore, enacting spending caps that could be overturned in future years only by supermajority — say, two-thirds of both houses. Now, of course, a future Congress could undo this whole scheme by repealing the caps through legislation that would require only a simple majority in both houses. But as long as Republicans maintain the House, they could block this maneuver. The caps would be essentially unrepealable.

In this spending-cut tug of war, it is of paramount importance to frame your demands in a way that the public sees as reasonable. The side that can command public opinion will prevail — the other side will ultimately cave for fear of being blamed for whatever dislocation occurs. Republicans should not be asking for, say, repeal of Obamacare as the quid pro quo for raising the debt limit. These are bridges much too far for these negotiations.

Which is why House Speaker John Boehner’s offer of a dollar-for-dollar deal — raise the debt ceiling to match corresponding spending cuts — is a thing of beauty. It is eminently logical and easy to understand. In a country with a huge 47 percent to 19 percent plurality opposed to raising the debt ceiling, the Boehner offer is difficult for the president to refuse.

After all, it invites Obama to choose how much to cut. For example, $500 billion buys him a $500 billion debt-limit hike — and only a short-term extension. Not wanting to go through this process again, Obama would like a $2 trillion debt-limit hike to get him past Election Day 2012. For that, he’ll have to come up with $2 trillion in spending cuts.

It may be blackmail. But it is progress.

Charles Krauthammer is a columnist for Washington Post Writers Group.


Liberty_One 6 years, 10 months ago

You know if they just balanced the budget they wouldn't have to worry about raising the debt ceiling at all.

Richard Heckler 6 years, 10 months ago

The fewer federal tax dollars in the economy the more jobs are lost

The fewer tax dollars available = higher local taxes without those federal and state tax dollars coming home.

There is no win win win!

Where are mu special tax dollar refund checks?

What are the state legislators doing with those tax dollars they so rudely eliminated from the economy?

just_another_bozo_on_this_bus 6 years, 10 months ago

Of course it does. That doesn't mean all those jobs need doing, but it does, indeed, create jobs.

just_another_bozo_on_this_bus 6 years, 10 months ago

Money to create any jobs by any means or organization has to come from somewhere.

just_another_bozo_on_this_bus 6 years, 10 months ago

Whatever. You can't argue against articles of religious faith.

just_another_bozo_on_this_bus 6 years, 10 months ago

"New technologies, new industries, new products and services are what creates jobs,"

But, what the heck, I'll give it a stab.

How many of the technologies we depend on today were developed through govt. sponsored research?

just_another_bozo_on_this_bus 6 years, 10 months ago

Do you ever get dizzy with all that circular logic?

jafs 6 years, 10 months ago

So, then government spending is really just private sector spending, in a different form.

As such, it has the same capacity to create jobs as private sector spending would have.

jafs 6 years, 10 months ago


Sure seems like it does - people spending money at restaurants allow restaurants to employ people.

Investing in entrepreneurial activity is a kind of spending.


Crazy_Larry 6 years, 10 months ago

The restaurant buys from the grocery tho.

jafs 6 years, 10 months ago

Assuming that somebody would either spend money on A or B, that may be true.

But, there's also the choice between spending and not spending.

Our whole system rests on consumer spending, without which it would grind to a shuddering halt.

Businesses can't exist, expand, etc. without enough people buying their products/services.

jafs 6 years, 10 months ago

I disagree, of course.

Your comment was that if something is spent at A, it doesn't get spent at B, and thus it's a zero-sum game, and spending doesn't create jobs.

If I spend money at a local business, it supports that business, allowing it to employ people. If I put the money into a bank instead, it doesn't do that. So spending does help businesses create/maintain jobs.

I think it's very relevant, since the whole way in which businesses thrive depends on consumer spending.

So a business can't open and succeed unless people spend money there.

jafs 6 years, 10 months ago

Banks may lend that money out, and they may not.

And, businesses purchasing capital assets is also spending, is it not?

And, the business will not do that unless they can count on people spending money at their business.

The whole chain depends on customers.

For some reason, you make funny distinctions here - if a business invests (spends) money on their business, that drives the economy, but if customers spend money at the business, it has nothing to do with it (even though without the latter, the former wouldn't happen).

jafs 6 years, 10 months ago

That convinced me.

Of course, it convinced me that I'm right, and you have no decent arguments.

just_another_bozo_on_this_bus 6 years, 10 months ago

So, by your "logic," anyone who gets money from the government for any reason should just start refusing it, because it's not "real" money.

And, of course, any bills those people owe shouldn't have to be paid, because the money they used to pay them with wasn't ever real, anyway, so no harm done, right?

Olympics 6 years, 10 months ago

NIH/NSF funding leads to zero innovation and jobs in your black/white world.

You are a fundamentalist.

just_another_bozo_on_this_bus 6 years, 10 months ago

So the money coming from government sources is real after all?

Make up your mind, LO. You can't have it both ways, no matter how hard you try.

Crazy_Larry 6 years, 10 months ago

The money doesn't come from the private sector. The government creates the money out of thin air...they literally go to the magic money fountain. Where do you think Bush Co. got the 700 billion back in 2008 to bailout their Wall Street bankster buds?

How does usury create jobs and benefit the economy?

Crazy_Larry 6 years, 10 months ago

Oh yes there is, just ask Ben and the boys--they bathe in it every chance they get.

Crazy_Larry 6 years, 10 months ago

"Military procurement has the further advantage that almost all of the equipment and supplies that the military buys is made in the United States, creating demand and jobs here at home." Defense Spending Would Be Great Stimulus - Wall Street Journal; December 24, 2008.

(but gov't spending doesn't create jobs)

"We find that pedestrian and bicycle infrastructure projects create 11-14 jobs per $1 million of spending while road infrastructure projects create approximately 7 jobs per $1 million of expenditures." - ESTIMATING THE EMPLOYMENT IMPACTS OF PEDESTRIAN, BICYCLE, AND ROAD INFRASTRUCTURE. CASE STUDY: BALTIMORE; Political Economy Research Institute University of Massachusetts, Amherst December 2010

(but gov't spending doesn't create jobs)

In 1969, the Advanced Research Projects Agency, a part of the U.S. government's Department of Defense, set up the first parts of the network that would eventually become the Internet.

(but gov't spending doesn't create jobs)

"A $35 million Commerce Department grant program was designed to spur job creation in high-tech fields, and a $5 million Federal Aviation Administration program would have created jobs..." - NASA budget cuts kill job grants; Orlando Business Journal, April 28, 2011.

(but gov't spending doesn't create jobs)

There also are government loan and grant programs for small businesses and start ups.

(but gov't spending doesn't create jobs)

Crazy_Larry 6 years, 10 months ago

Please, enlighten? Can you please present the data in common 'redneck' lingo so I can understand? That's what I do for you...

Government spending created the internet. Are you proposing that the spending was wasted and did not help the economy?

just_another_bozo_on_this_bus 6 years, 10 months ago

"How can you people really believe that the internet wouldn't exist if not for the government?"

It might. I might not. What's impossible to deny is that government funded R&D were indeed instrumental in the development of what has become the internet.

But little facts like that are in contradiction to your articles of faith, so I expect to see you here for the next several days endlessly squirming in an attempt to assert otherwise.

just_another_bozo_on_this_bus 6 years, 10 months ago

Actually, my "religion" says that both government and the private sector were partners in the development of the internet.

And it just so happens that the facts agree with my religion, not yours.

Crazy_Larry 6 years, 10 months ago

Uh, yeah..that tiny bit was everything (at the time). It spawned what we have today. How can you deny that? The point is that GOVERNMENT spent money to create something, which others built upon. Therefore, government spending initiated a chain of events which directly led to job creation, economic growth and the advancement of society as a whole.

(something tells me I might as well be talking to the wall)

just_another_bozo_on_this_bus 6 years, 10 months ago

BTW, my very first "internet experience" was roughly 40 years ago at a summer science camp at K-State. Each of us science campers got to exchange emails (they weren't called that) with students at a similar camp at Purdue-- all on a system developed and operated by evil government scientists.

jafs 6 years, 10 months ago

Early iterations of any technology are primitive compared to later ones, regardless of source.

jafs 6 years, 10 months ago

I was pointing out to LO that it isn't the fact that the government created the internet that made early versions of it less elegant and powerful than later ones.

Keith 6 years, 10 months ago

Of course, the first browser to integrate text and graphics was developed at the U of Champaign Urbana, IL, so there's some more of that useless government spending. Don't let the facts disturb your superior intellect.

Crazy_Larry 6 years, 10 months ago

I think we're on the same side of this argument.

Carry on!

Crazy_Larry 6 years, 10 months ago

Without the government spending to create the internet, youtube would not exist...neither would all those imaginary jobs people have with companies such as Google and Youtube. The government had a need to communicate and they initiated the process, which led to what we have today.

Government spending also electrified rural America and brought jobs to people in the process. Do you suppose the initiative created a high demand for copper wire? Who created the wire for this electrification? Private industry. The money spent by the government, brought electricity to people in need, created jobs for installation of the new infrastructure. The government's initiative also created a need for raw materials. This caused higher demand for supplies who increased production and employed even more people.

The economy would completely collapse and millions of jobs lost if the government simply quit spending money for defense. Government spending basically props up the entire military industrial complex. Government spending basically props up the entire space industry as well. Government subsidies (spending) props up the farming industry.

So what you're saying is that government spending doesn't create jobs. You said it, so it must be true.

Crazy_Larry 6 years, 10 months ago

It's funny because you keep insisting that government should stop spending to stimulate the economy and give the money to private industry instead. Let private industry create those jobs and stimulate the economy...I got news for you, bud, we've been trying that for the last 4 years and it just ain't happening. How did giving billions/trillions of dollars to the banks help us out? I've seen nothing but decline ever since. The only thing keeping the economy afloat at this point is government spending.

Crazy_Larry 6 years, 10 months ago

I seem to remember a mantra from several years back, "keep the bush tax cuts in place to create jobs."

Tax cuts are still in place, but we're still waiting on those jobs.

Stephen Roberts 6 years, 10 months ago

Merrill- maybe if you and your buddies would work more, pay more taxes and receive less government assistance, we would be able to help reduce the deficit.

notanota 6 years, 10 months ago

Maybe if those of us who worked more actually did pay more taxes, we would be able to reduce the deficit. http://www.ctj.org/pdf/bushtaxcutsvshealthcare.pdf

jhawkinsf 6 years, 10 months ago

That's cute, but... Of the 36 accused of spousal abuse, how many were convicted? Of the 7 arrested for fraud, how many were convicted? Of the 19 accused of writing bad checks, how many were convicted?

You get my point.

jhawkinsf 6 years, 10 months ago

Exactly. I have no idea what happened between Clarence Thomas and Anita Hill.

jhawkinsf 6 years, 10 months ago

To answer a rhetorical question, I have no idea. And neither do you.

jhawkinsf 6 years, 10 months ago

Definitely not bent out of shape. My comment was made with a smile.

Crazy_Larry 6 years, 10 months ago

Speaking of Clarence Thomas: Thomas' financial disclosure forms, of which amended versions were filed earlier this month and released publicly on Friday, reveals that his wife, Ginni Thomas, received a $165,000 in 2010 from Liberty Central, a group that she helped found--and which supports the repeal of Obama's health care plan.

Conflict of interest much? No such thing when you're a Supreme.

just_another_bozo_on_this_bus 6 years, 10 months ago

Republicans don't want a balanced budget. They just want to redistribute as much wealth and power to the already wealthy and powerful as they can.

They won't be making any cuts, or raising any taxes, that aren't directly precisely at the most vulnerable in this society.

But they'll play chicken with the debt ceiling. They trashed the economy under Bush. Why wouldn't they do it again?

just_another_bozo_on_this_bus 6 years, 10 months ago

Yea, and the definition you prefer is listed under "religious faith."

Crazy_Larry 6 years, 10 months ago

Earn: To gain especially for the performance of service, labor, or work.

Service, labor, or work being key. Wealthy people do not earn through service, labor, or work. They have a portfolio... They take money from people who work, labor and provide service. And the creepy part is, the wealthy believe they deserve the money.

Jimo 6 years, 10 months ago

If "earn" = "steal"

Most people don't realize for example that our gov't continues to bail out the GOP bankers every day.

Bankers borrow from the Fed at near 0% and then lend it back to the gov't at 3-4%, pocketing the difference. In the first quarter of 2011, a variety of banks, including Goldman and Citigroup made money on their trading EVERY day of the quarter. That isn't supposed to happen. Usually, you'd just be happy to make more than you lose. Indeed, the risk of trading is often the justification for paying out such enormous bonuses to bankers - their job is so difficult!

The supposed reason for the gov't doing this is to get banks to lend to businesses and consumers. They aren't. Instead, we get socialism for the wealthy and draconian survivalism for everyone else.

How do the wealthy "earn" their ill-gotten gain?

Crazy_Larry 6 years, 10 months ago

Believe it or not, usury was blasphemous at one point in history. Persons who accepted interest on loans could receive neither the sacraments nor Christian burial.

Pope Sixtus V condemned the practice of charging interest as "detestable to God and man, damned by the sacred canons and contrary to Christian charity."

Usury is meant to exploit the poor.

Bob_Keeshan 6 years, 10 months ago

The federal debt and deficit are driven primarily by spending on Iraq and Afghanistan and tax cuts that do not benefit 95% of the population.

I'm guessing Kraut doesn't want to get either of those under control, nor would he approve of blackmail.

just_another_bozo_on_this_bus 6 years, 10 months ago

Yep, Republicans are completely disingenuous when they say they want to balance the budget, since they would vote against any measures that have any chance of achieving that goal.

Godot 6 years, 10 months ago

Yeah, like the tax deal GE got, that resulted in a negative 60% tax rate for the Obama-supporting corporation in 2010. On top of that GE received billions in stimulus-funded contracts.

Crony capitalism and funding unions is what is driving the debt these days.

just_another_bozo_on_this_bus 6 years, 10 months ago

I agree on the crony capitalism part, but crony capitalists having been attempting to destroy unions for the past 30 years, and at this point, they're winning handily.

Godot 6 years, 10 months ago

Big Unions have succeeded in using the Obama administration to transfer billions upon billions of taxpayer dollars to fund union jobs, to become owners of GM, to fund their underfunded healthcare plans and pensions. Big Unions spent hundreds of thousands of dollars lobbying the Congress and the public to pass Obamacare, and when that wasn't enough, they resorted to bullying and intimidation. Now Big Unions have received the croniest of crony-capialism perqs: an exemption from Obamacare because "they can't afford it." These Big Unions are a scourge upon our economy and our society.

notanota 6 years, 10 months ago

Yes, those union auto workers, with their luxury yachts and caviar lunches. That's why everyone wants to move to Detroit now to go build cars all day. They cave that base salary of $28 an hour for UAW workers. It's so glamorous. I hear they all live in mansions.

Those poor, hardworking AIG employees, otoh. They deserved to have that bailout preserve their six and seven figure incomes. I'm so glad we rescued them, and I'm sure they didn't at all lobby for it or have deep connections to politicians all over the map.

The "exemption," btw, is that they don't have to pay tax on their expensive health plans. How much you wanna bet regular old HMO health insurance for physical laborers costs more than it does for me and my desk job?

Jimo 6 years, 10 months ago

So, if you can't convince the public of the merits of your position, just take hostages.

Godot 6 years, 10 months ago

Obama and Geithner have already played their cards: they have announced that they will default on the US debt, even though it is not necessary, even though there will be revenue to cover the interest payments. They will default and destroy our economy before they will cut a single dime of spending. They have announced, to all who will hear, that they are traitors.

just_another_bozo_on_this_bus 6 years, 10 months ago

I'd call this "argument by assertion," but I fail to detect any argument.

jafs 6 years, 10 months ago

That's one of those arguments that requires more than one step of logic.

jayhawklawrence 6 years, 10 months ago

It seemed to me that the Democrats looked at the economy and said the problem was related to two unfunded wars and the unnecessary Bush tax cuts.

The political parties chose to tap dance around the issue of who was to blame for the banking crisis but both fought hard to use it to justify their economic strategies.

One strategy was to increase government spending as a stimulus to the economy which most of the world's economies did. A reasonable strategy, but probably unmanageable on the scale in which it was executed.

The Republican strategy was and is to do something completely different and that is to give rich people a tax holiday. Make rich people even richer and hope they buy something they don't need so the little guys can catch some coins on the way down.

It cannot be proven that either strategy will create jobs.

The big elephant in the room is our global trade issue and our willingness to start competing in the world's economy.

We are just going to have to educate the American people on how to buy American again and we are going to have to create or promote government programs that help American manufacturers and companies who believe in keeping jobs in the United States.

We are going to have to admit that our foreign trade partners are often times taking advantage or our greed and ignorance.

As long as politicians keep demagoging and scaring people to get votes and avoiding the real and large issue of world trade and competitiveness, we are just spinning our wheels and most Americans are just going to get broke that much quicker.

Jimo 6 years, 10 months ago

"It cannot be proven that either strategy will create jobs."

Actually, Keynesianism creates jobs. This isn't controversial outside of talk radio. Questioning Keynesianism is akin to questioning evolution: something people do only because they put ideology first.

Several countries have avoided this type of stimulus. They are now wallowing in a cycle of decline: Greece, Ireland, the UK, Portugal. We did a half stimulus and a half anti-stimulus and we got a half recovery as a result. Most nations applied the economic medicine prescribed and now are growing nicely - Australia, Canada, Germany, China, etc. We can grow anytime we summon up the political courage to implement a full economic stimulus: putting people to work, building infrastructure, investing in our future.

What we are faced with in this country isn't a scenario where we don't know what to do but rather one where our dysfunctional political system refuses to do what needs to be done. The entire conversation is about what's politically possible not about what is clearly necessary economically.

Unfortunately, the Democrats alternative is to just keep sending out unemployment checks in return for nothing forever and the GOP's alternative is either to blame the victims as lazy or just let them starve so as to fund even more failed tax cuts, a/k/a, tax welfare. This would have been unthinkable a few generations ago. Then, we would have had a jobs program--you know, putting people to work--as well as shared sacrifice, where those with wealth were actually required to contribute some sacrifice. Instead, we have rich getting richer and banks wallowing in taxpayer funded profits while those with jobs literally abandon those without.

Let the feds hire a million people directly and subsidize employers' wages for several million more instead of just sending out unemployment checks. Put residential housing in the bankruptcy courts so a judge can quickly and conclusively balance the claims of all parties and we can find a housing bottom and start to grow - no more endless bank delays to avoid writing down mortgage balances. Place a surtax on all bank revenues over the next decade so the taxpayer can recover the taxpayer-created bank profits from bailing the banks out. It takes nothing more than political courage.

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