Countdown to the Federal Gov't Shutdown

British_Rover

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So what month do you want in the pool? Or maybe a better question is how many weeks after Congress is sworn in on on Jan. 3rd. do you want to pick in the pool?

I wouldn't even give them till early summer before a shutdown is being threatened.

The fiscal year ends on October first so maybe a full fledged shutdown right after that week.

There is going to be a fight on the debt ceiling during the beginning of the year.

Back in October not a single Republican voted to raise the debt ceiling.

Let us be clear the US does not have a short term debt or deficit problem If we did short term and medium term treasury rates would be higher then they are now and rising fast. Even longer term T-Bills are still pretty low. No one in the bond market is actually worried about the US even if some people are saying so.

Full 2010 Treasury rates

As you can see 10 year rates started the year in the high 3.XX% to low 4.XX percent range. By the spring they were in the mid three to low three percent range and now they are well into the mid to upper two percent range.

Back in May of last year you had similar rates in the mid three percent range.

Even at the worst the financial crisis when the world was going to end the ten year rate didn't climb much above four percent.


So no short term debt or deficit problem no matter what certain people say. Yeah it is higher then we would like but as GDP grows with the recovery and inflation starts again some of that short term debt is going to be wiped out. Remember the Feds target inflation rate is two percent and we are under that.

In 2009 we actually had real deflation for a while and that is bad. Deflation is so, so, so, much worse then inflation I can't even imagine how to describe it.





We do have a potential medium term debt and deficit problem. Medium term defined as greater then ten years out and long term defined as greater then 20 years out.
Medicare is fine until about 2029 currently and Social Security is fine without reducing benefits until 2037. We absolutely have a long term debt and deficit problem but that is almost entirely related to medicare costs.

If medical costs keep rising at the rate they are now the only thing the federal gov't will have enough money to pay for is medicare in the long term. Remember currently think of the federal gov't, at least from a dollars standpoint, as an insurance company with an Army. Defense expenses and then other entitlement expenses, Social Security, medicare/medicaid etc.are the vast majority of the federal budget.

http://en.wikipedia.org/wiki/File:U.S._Federal_Spending_-_FY_2007.png

There needs to be a fight about long term deficits and spending will have to be cut along with some taxes raised. There is just no way around it we can't cut enough out of the budget to cover those expenses.

So why do I think there will be a gov't shutdown next year?

Simply answer about half the blue dog moderate Democrats are gone replaced by mostly conservative Republicans. Some of those Republicans are going to be tea partiers and many of those have pledged to cut and cut and cut without compromise.

The Blue Dog caucus went from about 49 to 25 after the election.

Some of them have even gone after the defense department as a basis for cuts and been warned off by Republicans. Ron Paul and Barney Frank are all for doing that too.


The Republicans are going to be much more conservative then they were previously as they have already kicked out most of their moderates during the past two election cycles or during primaries. The Democrats just lost 25 of their most conservative members plus many other moderates during this past election.

Now you have two parties with larger ideological gap then before and as I said previously many current and freshly elected Republicans were already saying no compromise even before the election.

All of this of course is another great argument for a viable third party to force the two major parties to work together more. The exit poll data suggests that voters on a whole don't really care for Republicans or Democrats but they want the other guy right now and the other guy is the Republicans at the moment. If they had another viable other guy to vote for things would be better.

The problem is I don't see that happening till the party realignment finally happens in two to three more election cycles.
 

nomix

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You're thinking of a sort of Clinton vs Gingrich like in the good old days of 95?

It's possible. I think it'll be a question of wether or not the Conservative reps have the balls to do so. It's been tried before, not only didn't it work, it was catastrophic for Gingrich (for reasons not really related to the shutdown itself, but it's hard to ignore that it failed like a two-by-four holding a Leopard Tank), memories like that die hard.

Another question is wether or not the new speaker (Boehner, I suppose?) has the guts and stamina Gingrich had in 95. I don't know. He's surely enough of a fiscal conservative (perhaps not when it comes to certain fiscal matters, but that's nothing new), but is he reckless enough? The shutdown of 95 was expensive. If you're going to waste tax payer money, I think they'd be better served if they employed two million men to look at the Pacific Ocean. Yes, look, as in looking at it at the seaside.

At least that would give people something to do. It'd be the Hoover dam of the 21st century. At least it'd be more productive than a fucking shutdown. Come on America, you're not Russia in 1993.

Edit: "Must spread more shutdown around before establishing an exploritory committee on British_Rover again."
 
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SpitfireMK461

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The Reps tried it in '95 and it backfired horribly. Well I don't help much respect for the intelligence of the current congressional GOP establishment (or dem for that matter), I can't imagine there's any way they would try the same thing this time around. I think both parties will be tip toeing around issues like the budget as to not give their opponents ammunition in the media.
 

Cobol74

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Well let us hope no one is 'manipulating' the TEA party, and this is sincerely held views, a bit scary being against everything and not really having a plan though.
 

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Put me down for January 2012. :p

The GOP does have a plan: to oppose Obama's plans. To reign in "out of control spending in Washington". The more I think about it; it will surprise me if we don't see a repeat of what happened in '95.

As for the economics side of the argument, all I really hope for is that Paul Krugman's fear of the US' sliding into a liquidity trap don't come true.
 

nomix

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Let's just hope no one does anything silly. A shutdown in these economic conditions might spell disaster.
 

Cobol74

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Now what you guys need is a constitutional monarch - er we have one who, I suspect, would be glad to help out. ...
 

hajj

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Let's just hope no one does anything silly. A shutdown in these economic conditions might spell disaster.
Financial markets have become a snoozefest, far too little is happening. This could spice things up a little, it would be bad for most Americans, but who is looking?
 

nomix

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Now what you guys need is a constitutional monarch - er we have one who, I suspect, would be glad to help out. ...
As long as the, err, colonials.. are happy with taxation without represenation.
 

wooflepoof

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So this whole chart shows a change of...less than 2%?
 

British_Rover

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So this whole chart shows a change of...less than 2%?
Yes but what is the fed's target rate for inflation? About 2% but in 2009 the average wage fell by about 2%. That is very bad as wages are sticky, for going up or down but particularly down, and so making them trend down is difficult. Think about it no one wants to take a pay cut but you will if you have too espesially if it means your company will have fewer layoffs.

Now look at the second chart which shows what happened in Japan over the course of almost 20 years. Starting around 1990 when the asian financial crisis hit japan started a deflation death spiral that they still can't really get out of. That was Japan's lost decade where prices and wages just kept falling. It becomes a death spiral because people won't spend money because they see the products getting cheaper all the time. They figure they will just wait to buy something because it will be cheaper later. Everyone starts doing this and the death spiral begins.
 

British_Rover

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REPUBLICANS are pushing to slash federal government spending in the present fiscal year. If they don't get their way, the government will shut down. And if they do get their way?

Spending cuts approved by House Republicans would act as a drag on the U.S. economy, according to a Wall Street analysis that put new pressure on the political debate in Washington.

The report by the investment firm Goldman Sachs said the cuts would reduce the growth in gross domestic product by up to 2 percentage points this year, essentially cutting in half the nation's projected economic growth for 2011.
That's just one estimate, of course. It's also possible that the Fed would react to these deep cuts by pursuing a more expansionary monetary policy than they'd planned, but the British example suggests that rising commodity prices may make this balancing act difficult.

What really makes this so upsetting, and it's really, genuinely upsetting, is that these proposed cuts are basically useless. America doesn't face a short-term fiscal crisis; its debt is dirt cheap. America faces a long-term fiscal crisis due to projected increases in government health spending. So Republicans are cutting short-term discretionary spending to address a fiscal crisis that doesn't exist while ignoring the fiscal crisis that does exist. Their proposed cuts aren't emerging from any cost-benefit analysis; rather they seem designed to spare GOP interests at the expense of Democratic interests. And to do this, they're prepared to?potentially?cost the American economy 2 percentage points of growth.

It's really remarkable. It's remarkable how things have deteriorated in so short a time. Last year, the president's bipartisan deficit commission recommended deficit cuts that didn't focus on the short-term, and that did put defence and entitlements on the table. Now Republicans are declaring that they'll shut down the government unless all of their demands are met?demands with virtually no redeeming value. This is no way to govern. No way at all.
http://www.economist.com/blogs/freeexchange/2011/02/fiscal_policy_1?page=1

Someone at the economist thinks the same way I do.
 

nomix

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And I do. Let's just hope they don't try it on. What they fail to realise is that while a president is unpopular, he is known. He is a factor of stability. Heck, even a VP is known by pretty much everyone in the nation, and outside it.

While the speaker of the House of represenatives is the second in line, and while holding considerably power over procedure in the House, not to forget the personal favors he or she has always the ability to pull.. there is still the issue that he is not, and never will be, such a public figure as POTUS. The speaker is perhaps the best known member of the House, but most reps aren't known at all outside their districts, with few exceptions of course.

As the speaker, you go up against the personification of the Federal US government. That's a tough task. And that is why Pelosi never tried anything of the sort. W was a very unpopular chap at the end of his term. But he was still.. well, it.

Don't fuck with the executive branch.
 

tigger

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Someone at the economist thinks the same way I do.
Good article. I just wish that more Democrats, as in Senators or the White House, would come right out and say that. Sure, people want the gov't to cut spending. But do they want Social Security cut? No. Do they want defense spending cut? No. Medicare/medicaid? No. Infrastructure? No. And so on and so forth. Most people don't know their elbow from their asshole when it comes to government and hearing politicians liken it to balancing your personal checkbook makes me sick. But I suppose that if any politician tried to give an in-depth explanation of ... anything, instead of some idiotic irrelevant analogy, most people would just zone out. /mini-rant

Don't fuck with the executive branch.
Boehner's got more to fear from his own caucus than the White House, I think. There are something like 80 new Republican representatives; most of them teabaggers. They're the ones who want the arbitrary (and harmful) 100 billion a year cut. Compromising would be a slap in the face for them and could split the House GOP.

But if Boehner truly doesn't want to shutdown the gov't he's really put himself in a corner here. Neither the White House nor the Senate will ever accept this budget. They don't even seem to want an extension with cuts in it. But the Democrats are willing to meet him halfway (which is a hell of a lot more than they should offer). But if he makes concessions he risks mutiny in the House GOP. That's what he gets for trying to stay on the sidelines.
 
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