Brent Nyitray
Fairlington Blade
Let the mutherfuker burn!
jnc4p
Kevin S. Willis
Michigoose
lmsinca
markinaustin
Memetrics
novahockey
quarterback
ScottC
yellojktVital Statistics:
| Last | Change | Percent | |
| S&P Futures | 1466.5 | -0.7 | -0.05% |
| Eurostoxx Index | 2720.1 | 2.3 | 0.08% |
| Oil (WTI) | 93.97 | 0.4 | 0.44% |
| LIBOR | 0.304 | 0.000 | 0.00% |
| US Dollar Index (DXY) | 79.6 | 0.041 | 0.05% |
| 10 Year Govt Bond Yield | 1.84% | -0.02% | |
| RPX Composite Real Estate Index | 191.9 | 0.4 |
Markets are down small after disappointing iPhone data out of Apple. There is no economic data this morning, although the Bernank speaks at the University of Michigan after the close. This week will be heavy with bank earnings, with US Bancorp, JP Morgan, Goldman, Bank of America all reporting 4Q / full year. Wed and Thurs are the most interesting economically, with Housing starts and Capacity utilization / Industrial Production. Bonds are up 1/2 a point while MBS are up small.
David Blitzer of S&P discusses the outlook for housing in 2013. He thinks (a) housing is going to be an outsized contributor to GDP next year and (b) shadow inventory fears are overblown.
Different industry groups weigh in on the QM from the CFPB:
- The MBA notes that cap on points is moronic when you are comparing different note rates
- The Center for Responsible Lending complains that prime mortgages are protected under QM
- The National Association of Federal Credit unions loves the special dispensation for them
Filed under: Morning Report |
All Things in Moderation 
Of all people, Lawrence Tribe is making sense on the debt ceiling:
“The Priorities
Paying bondholders before other bills avoids default and is the approach that does the least violence to the Constitution.
Laurence H. Tribe
Laurence H. Tribe is the Carl M. Loeb university professor and professor of constitutional law at Harvard Law School.
Updated January 13, 2013, 6:31 PM
The 14th Amendment commands that “the validity of the public debt of the United States, authorized by law … shall not be questioned.” If the debt ceiling is not raised soon, however, we may be forced to default — thereby violating this constitutional requirement.
One solution to this problem — floated by former President Bill Clinton and House Minority Leader Nancy Pelosi, among others — would have the president unilaterally disregard the debt ceiling statute to prevent this outcome. But as I wrote two years ago, this is no solution at all. It faces an insurmountable legal problem: nothing in the 14th Amendment suggests that the president may usurp the power “to borrow money on the credit of the United States,” which Article I, Section 8 of the Constitution vests in Congress, in order to prevent a default. It also faces an insurmountable practical problem: the legal cloud that would hang over any new bonds would result in a steep increase in interest rates — costing billions.
A second approach calls for the Treasury to “prioritize” the payment of bondholders when allocating incoming tax revenues. But prioritization comes at a cost: the very reason we need to borrow is that incoming revenues don’t cover all our spending. So prioritization requires skipping other payments mandated by law — perhaps payments on Social Security, Medicare and defense.
From a constitutional perspective, this approach is preferable to outright default, because it would ensure that the 14th Amendment’s basic promise is kept. It is likewise constitutionally preferable to unilaterally ignoring the debt ceiling, because it does not entail the presidential usurpation of a power specifically committed to the legislative branch. Apart from the technically legal but wildly unrealistic device of minting a trillion-dollar platinum coin, prioritization is the approach that does the least violence to the Constitution.
But this approach, too, would be a disaster in practice. Stopping government employees’ pay, retirees’ Social Security checks or seniors’ Medicare reimbursements would bring chaos to the lives of millions of Americans – and would be catastrophic for our recovering economy.
The inadequacy of each of these alternatives highlights a truth I pointed out during the last debt-ceiling crisis: we cannot find solutions to all of society’s problems in the Constitution. Here, we must find them in political courage, in compromise and in a congressional willingness to fulfill its unique constitutional duties. Nothing else will avert the impending crisis.”
http://www.nytimes.com/roomfordebate/2013/01/13/proposing-the-unprecedented-to-avoid-default/priortizing-debt-obligations-is-the-most-constitutional-plan
Longer piece by Tribe from 2011:
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Amusing. Apparently the progressive narrative about hitting the debt ceiling equals default has confused Jon Stewart, and now progressives are mad at him for misconstruing the platinum coin option as a response:
Krugman citing another piece.
http://krugman.blogs.nytimes.com/2013/01/12/lazy-jon-stewart/
I wonder where Stewart could have gotten the idea that the debt ceiling had something to do with existing Treasury debt vs current spending?
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jnc:
Thanks for the links.
I wonder where Stewart could have gotten the idea that the debt ceiling had something to do with existing Treasury debt vs current spending?
He should read ATiM.
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This probable scam was brought to my attention today.
http://www.iiicitadel.com/apply.html
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I realize I have been out of the loop here for a long while and I am sure, given this crowd, that this has already been discussed….but a third approach might be for the President and congressional leaders to actually sit down together and work to come up with a plan to get spending under control.
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I heard last night that there are secret negotiations, Dave!
We can’t know about them, of course.
Actually, considering the media and the grandstanding of the players, secret negotiations are welcome, as far as I am concerned.
And Happy New Year!
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I’m sure this is different.
http://thehill.com/homenews/senate/67293-sens-squeeze-speaker-over-commission
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One interesting fact that came to my attention today is that the original Graham-Rudman-Hollings deficit bill from the 1980’s was structured as an amendment to a debt ceiling increase.
http://www.rollcall.com/issues/56_138/debt_ceiling_debate_then_now-206440-1.html
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Well, a few quick numbers on the sequestration (which is supposedly so draconian). 2013 amount: $109 billion. 2012 requested expenditures: 3.729T. 2013 requested expenditures $3.803T. 3.803 – 109 = a $35 billion spending cut from 2012 (about 22 basis points of GDP or 94 basis points of the budget).
To get spending down to where the ceiling has been with revenue (about 20% of GDP), we would have to cut spending by $640 billion.
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Did you reverse the years, Brent?
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Ezra’s blog has a good piece on the mechanics of actually prioritizing payments to holders of Treasury debt over other appropriations.
It may not surprise you to find out that there are concerns that even if the Treasury wants to do this, they may have problems executing it due to limitations in their computer systems.
http://www.washingtonpost.com/blogs/wonkblog/wp/2013/01/14/if-we-hit-the-debt-ceiling-can-obama-choose-which-bills-to-pay/
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Brent,
The problem with the sequester is that about 60% of the federal budget is “mandatory” spending, so the $109B would fall on the other 40% in mid-year. Most of the increase in expenditures YOY goes to Medicaid/Social Security (and interest) which are not touched by sequestration. Plus, cutting 7% of your discretionary budget is much easier to deal with at the beginning of the FY rather than 5-6 months in.
Entitlement reform would have a bigger effect on spending.
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Mike:
The problem with the sequester is that about 60% of the federal budget is “mandatory” spending…
Has the constitutionality of mandatory spending ever been tested in the courts?
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You might be a giant nerd if you typed the following or agree that it is interesting:
One interesting fact that came to my attention today is that the original Graham-Rudman-Hollings deficit bill from the 1980′s was structured as an amendment to a debt ceiling increase.
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ashot:
I take it as a given that anyone who posts at ATiM is a giant nerd in at least some respects.
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I think the new PC term is “wonk” instead of nerd.
Scott, I have no idea on the mandatory spending test. I suspect there may be some standing issues that have precluded a court challenge. Only relevant case I know of is Flemming v Nestor which established that there’s no “right” to a specific set of benefits and that Congress can change them at will.
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So, JNC, you are the pretend POTUS and Congress doesn’t increase the Debt Ceiling. You have no power, express or implied, to change spending up or down from the statutory authorizations.
You pay the bond/bill interest, and any emergency spending within your limited discretionary authority [probably military and national security stuff]. You’ve got money left but not enough, and no prioritizing is within your constitutional power. What do you do?
I’m thinking scrip, at this point. It has been done before, and no Court would stop it.
Or not spending anything that you cannot legally prioritize, and shutting down virtually all operations.
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mark:
Wouldn’t it be easier just to negotiate in good faith with congress over spending cuts, thus enticing them to raise the ceiling?
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Scott, in my hypothetical you can assume that negotiations in good faith have been ongoing.
The question I present is what to do if they have failed?
ADDENDUM: Looked at another way, this is purely a legislative issue. There is no part in it for the POTUS, other than what the Constitution requires and his small discretionary budget permits.
Congress created the spending and can change it by legislation, having apparently determined they created too much. That’s all there is here.
If the House and Senate do not agree to do this, or to lift the ceiling, the POTUS is caught in my hypothetical bind. If the House and Senate vote to rescind some spending the POTUS would have to veto it to recreate the bind.
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Mark:
Looked at another way, this is purely a legislative issue. There is no part in it for the POTUS, other than what the Constitution requires and his small discretionary budget permits.
If all you are doing is presenting a pure hypothetical entirely unrelated to the current situation, fair enough. But if your hypothetical is supposed to reflect what is actually going on currently, I think it is wrong.
It would be misleading to frame the current situation as a congress vs executive issue, whereby the congress has tied the hands of the poor, defenseless president. Clearly it is a Republican vs Democrat issue, with the president, as leader of his party, being the focal point of his party’s position. In other words, it is wrong to speak of “congress” as if it is a single actor with a will. If congress was unified under a single party, there would be no problem. Either the debt ceiling would be raised unconditionally under Democratic leadership or a bill raising the debt ceiling would have spending cuts attached to it under Republican leadership. Then the president would have to sign or veto. But since congress is split, the president can avoid the appearance of having to veto a bill raising the debt ceiling by simply having his party colleagues in the Senate block any attempt to attach spending cuts to a hike in the ceiling.
If all the president cared about was his ability to pay the bills, he could easily achieve it by negotiating in good faith with Republicans over future spending cuts. That he won’t do this shows that he has goals other than simply paying the bills, and is willing to jeopardize paying the bills in order to achieve those other goals.
I also think it is somewhat misleading to say that “congress created the spending and can change it by legislation” as if the president has nothing to do with it. Any legislation designed to reduce mandatory spending, which as has been pointed out is most of it, would have to be approved and signed by the president. And of course what Republicans in congress are now attempting to do is negotiate with the president over legislation that will reduce future spending which he will be willing to sign. He refuses to negotiate, preferring instead to demagogue the issue by portraying Republicans as willing to default on our debt.
I suppose one can imagine a hypothetical situation in which an intransigent congress is stymieing the presidents simple desire to pay the nation’s bills. The current situation, however, is quite different.
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Scott – from what you have written the negotiation must be between the House and the Senate. Seeking Presidential advice on what he would veto would be worth someone’s time on the Hill.Seeking advisory legislative proposals from the Treasury is always a useful option on budgetary matters. If this is to be a budget negotiation I suggest the appropriate committee chairs from both houses go off to a quiet room in the Capitol Building. Bring along the ranking members if you want to do it the way it used to be done.
The bills were incurred by Congress. I am hypothesizing that Congress is tying POTUS’ hands. I think reality is more nuanced than, but closely related to, the hypothesis.
In the big picture, if Congress is permitted by its own rules to first authorize and commit to expenditures and revenue collection and then within the same budget period, to renege, then the system is chaotic, and the congressional rules should be changed. It is clearly not the intent of the Constitution to force the POTUS to violate it no matter what decision he makes.
****
JNC, I am interested on your take in this matter.
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mark:
from what you have written the negotiation must be between the House and the Senate.
Yes, of course. But the notion that the majority in the Senate is totally independent of and not acting in concert with the president who is, coincidentally, the leader of their party seems pretty far-fetched to me.
If this is to be a budget negotiation…
That is precisely what it must be, no? If the current congress is not happy with the amount of spending that has been committed to by previous congresses and the size of the debt that is required to finance it, its only choice in attempting to correct the problem is to pass legislation that the president is willing to sign which alters the amount of spending. The president must be involved in that process.
The bills were incurred by Congress.
They were incurred by both congress and the executive. And to alter them requires both congress and the executive.
In the big picture, if Congress is permitted by its own rules to first authorize and commit to expenditures and revenue collection and then within the same budget period, to renege, then the system is chaotic, and the congressional rules should be changed.
I agree. I think that the president ought not be allowed to submit, and congress ought not be allowed to pass, a budget which cannot be financed under current tax and debt ceiling laws.
I suspect we both agree that the present system is not ideal. I agree that it makes no sense to authorize spending that the executive cannot in fact pay under existing law. I think the system should make it more difficult to authorize such spending. You would like to alter the system to make it easier to pay for such authorizations. I think my ideal is better because it would make deficit spending more difficult and ultimately limited by law. Under your ideal, it seems to me, the natural inclination of politicians to promise goodies to voters without making them pay for them is essentially unchecked.
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Scott:
Has the constitutionality of mandatory spending ever been tested in the courts?
Not to my knowledge, though there are proponents of testing it based on Article 1, section 9(?). I’d guess you would have to be a member of Congress to have standing though.
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“constitutionality of mandatory spending ever been tested in the courts?”
Court in California blocked cuts to Medicaid after provider groups sued. The cited the Medicaid statute’s access to care provision, which essentially requires reimbursements to be high ensure to ensure enough providers participate.
it’s still pending. there’s been various injunctions filed. IIRC, the state wanted a 10% cut.
http://www.cmanet.org/issues/detail/?issue=medi-cal-litigation-california-medical
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Scott:
Wouldn’t it be easier just to negotiate in good faith with congress over spending cuts, thus enticing them to raise the ceiling?
Just wondering who you think BHO should negotiate with. Boehner is the logical choice and I do think the two of them could come to a grand bargain on taxes, spending cuts, entitlement reform, etc., public pronouncements aside. But clearly Boehner’s willingness to compromise doesn’t extend to all of his caucus, as we saw in the lame duck session last month. And now Boehner isn’t really in a position to compromise, given the tax rate adjustment vote.
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Mike:
But clearly Boehner’s willingness to compromise doesn’t extend to all of his caucus, as we saw in the lame duck session last month.
Perhaps not all, but enough make a deal possible. If Obama had any interest in cutting spending, that is.
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Brent Nyitray
nyitray@hotmail.com
108.179.21.2
Submitted on 2013/01/02 at 9:28 am
Republicans should not push for spending cuts with the debt ceiling bill, because the media will accuse them of brinkmanship. Take the debt ceiling off the table and nip the suicide pact accusations in the bud.
They should separate the sequestration and the debt ceiling, give obama his increase in the debt ceiling, and draw an ultra-hard line in the sand with the sequestration. They have the benefit that obama had in the fiscal cliff – that the cuts will happen anyway, even if nothing is done. Make obama justify no cuts in spending.
SCOTT – IF BHO IS NOT SERIOUS ABOUT SPENDING CUTS THIS IS WHERE THE NEGOTIATION WITH THE POTUS TAKES ON REALITY. I AGREE WITH BRENT.
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mark:
I AGREE WITH BRENT.
Brent’s suggestion seems to me to be strictly a political calculation, ie “…because the media will accuse them of brinkmanship.” And he is probably right about that. At this point it is probably politically unwise of the R’s to make a stand on the debt ceiling. That, though, doesn’t mean that there is something inherently wrong or unsavory with using the debt ceiling as leverage to force a reduction in future spending.
I didn’t understand your position to be a political analysis of what would be best for the R’s to do as R’s, but rather what would be best for congress to do as congress.
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Scott – you previously understood me correctly. I shifted ground in response to your suggestion that the reality on the ground was different than my hypothetical.
To be sure, I think spending must be cut and I hope sequestration forces some serious exercises in Congress, which has seemed so lame to me in recent years, whether R, or D, or mixed.
Everybody wants sacrifice from some other sector, so the best we can ever hope for is a little sacrifice from every sector, it seems to me, there being no majority for any single idea except eliminating “waste, fraud, and abuse”.
If BHO is serious about posing $1.5T in cuts over ten years as a goal that is a starting point. I think “sequestration” posed $1.2T over ten years, but I am not sure.
Backloading is usually BS, as JNC suggests, so we would like to start with trimming 2013-14 in the negotiations, the very next budget year up for grabs. I believe sequestration starts in the 12-13 time frame, however, so it could even mean adjustments to the current budget in midflight.
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nova:
Thanks for the heads up on CMA v. Douglas. It looks like the Ninth Circuit has reversed the district court’s decision, so the 10% cuts can now be administered.
No real Constitutional question though. The claim against Sebelius was under the Administrative Procedures Act. The subsequent claim against Douglas was a Supremacy Clause claim, but the APA claim failed Chevron deference.
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“markinaustin, on January 14, 2013 at 5:49 pm said:
So, JNC, you are the pretend POTUS and Congress doesn’t increase the Debt Ceiling. You have no power, express or implied, to change spending up or down from the statutory authorizations.
You pay the bond/bill interest, and any emergency spending within your limited discretionary authority [probably military and national security stuff]. You’ve got money left but not enough, and no prioritizing is within your constitutional power. What do you do?”
You do what Clinton did in 1995. Shut down the government, do an across the board cut on Social Security, Medicare, Medicaid, and veterans benefits and go on TV to lay out the exact consequences with full charts and graphs.
Then you order a pizza, turn on the game and wait 24 – 48 hours for the Republicans to cave.
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“markinaustin, on January 14, 2013 at 5:49 pm said:
…
I’m thinking scrip, at this point. It has been done before, and no Court would stop it. ”
Also, I believe scrip has only been done by state governments. If the federal government were to do it, I believe it would either be considered issuing debt or printing money and subject to various statutes.
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I thought Treasury issued scrip to buy the land for the Morrill Land Grant Act during the Civil War.
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“The bills were incurred by Congress.
They were incurred by both congress and the executive. And to alter them requires both congress and the executive.”
The great thing about the new “bills were incurred by Congress” talking point, as QB pointed out on PL, is trying to square it with pining all the responsibility for the previous deficits and debt on President Bush.
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“markinaustin, on January 15, 2013 at 9:23 am said:
I thought Treasury issued scrip to buy the land for the Morrill Land Grant Act during the Civil War.”
No idea about that. I’ll take your word for it, but there was a total revamping of the authority on printing money and script with the passage of the Federal Reserve Act when it shifted from the Treasury.
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