Yes, Virginia.  There Really Is American Exceptionalism


Well, boys and girls, it’s that time again.  Treasury tells us we’re about to reach our debt limit in the Halloweenish time frame, so the House Sons of Anarchy Caucus is gearing up to prove just how masterful they are at political mind games even if they can’t get out of their own way on matters legislative.

Many of us mere mortals of the “represented” class have it on good authority that this is a dangerous game that can result in credit downgrades, Wall Street volatility and all sorts of other, more localized economic mayhem.  That is why the Congressional Record reflects a long and relatively serene history of periodic debt limit rises, as the need arose.

But that was then, and . . . well, you know the rest.  Things are a lot different today, now that a subset of Exceptional Americans have decided that, if government involves community organizer black people in the White House, fewer guns, more abortions and allowing every Tom, Dick and Harriet to vote, then they just don’t want none of that “gummint” stuff anymore.  So they’re fixing to blow it up and the debt limit is the perfect IED.

And the cherry on top? A brand new, ultra-timely NBC/Wall Street Journal Poll telling us what to think:

By a 44-22 percent margin, Americans oppose raising the debt ceiling . . .

A poll like this is analagous to asking your mailman, pastor and the cafeteria lady whether you should go for chemo and/or radiation for your brain tumor.  The answers that those folks give you may make you feel less alone but they won’t even come close to solving the problem.

And, BTW, what’s up with the math thing, NBC/WSJ guys?  What about the missing 33%?  Are they the ones who laughed in your faces, the ones who gave a NSFW response to such an idiotic question.  You do realize that your results indicate nothing useful to the real people wrestling with this “problem”  that should be a no-brainer? 

These numbers are significant only in that they demonstrate everyday Americans’ woeful ignorance of how their a) government b) global economy and c) national budget process work.  But ooh Baby! do they love giving their opinions anyway.  The thing that’s most exceptional about Americans, IMO, is that they are literally fearless about appearing stupid.  If they don’t understand something, they’ll never admit it—they’ll pretend they have advanced degrees in whatever it is and demonstrate their ignorance in a thoroughly American, thoroughly dramatic way.

Oh and one more thing it demonstrates . . . it shows how people like some of the ignorant miscreants currently gumming things up in the US Congress get elected.

Posted by Bette Noir on 09/13/13 at 09:54 AM • Permalink

Categories: PoliticsBedwettersBqhatevwrOur Stupid Media

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The poll summary indicated that 33% of people didn’t know enough. Makes sense - it’s a fairly arcane issue that really only matters in connection to things people understand.

But I suspect that there are more people who just won’t admit that they don’t understand. This is only the third time they’ve asked that question, but the results are still really volatile. The first time they asked was back in June ‘11, when the results were 28-39. A month later, the results were 38-31. Hell of a swing, innit?

The lack of understanding of what the debt ceiling is and how it works really didn’t even come up as an issue in the media of any note until recently—it was a just a pro forma part of guvmint bidness. As D Johnston says—its fairly arcane, so if you aren’t an economist, political writer or member of congresssss…

But when people like, for example, the trio of Bachmann, Gohmert and King make like they don’t understand it (and no one, like maybe, the Speaker, tamps them the hell down), or a true ninny like Paul Broun (who is running for senate in GA, poor Georgia) actually wants to lower the debt ceiling (how we’re gonna unspend the money, I do not know), as they did in 2011, why, I get a bit cross.  If only there was some mechanism by which informed people questioned our political leaders in the service of also making the public informed…or if only people paid attention to the useful bits.

Once I had a professor who succinctly pointed out that in the US we have a romantic political system and a rational economic system.

Politically we can scream and holler and object on the right and left, but the economic system only allows certain flexibility.

Right now we’re ostensibly between 16 and 17 trillion dollars in debt.

This might not matter except that we sell bonds, often to other countries, and we have to pay the interest on those bonds.  And ultimately the interest comes out of our tax revenues.

Our credit-worthiness as bond issuers has been degraded from AAA to AA with threats of it going lower. Whenever our credit worthiness is diminished we have to offer a higher interest rate as a temptation to other countries for purchase of our bond.  So naturally the interest (the vig) we must come up with is larger than previously.

When you start having 16 and 17 trillion dollar deficits, all that has to happen is for interest rates to go up and put you out of business.

By that I simply mean that the money that previously went to fund social programs and the military and other essentials now has to be used to pay the interest on the bonds purchased and held by other countries.

Right now, with quantitative easing backing off, interest rates are rising. And with the calamities usually caused by the business cycle, interest rates could go very high.

(During the Carter administration, interest rates went up to 21%.)

with high interest rates, economic activity slows even more and therefore the country generates less tax revenue to pay the interest on the debt.

The United States has never defaulted on its debt, and that is one of the reasons that other governments and large entities still wish to purchase our bonds.  Probably there is no concern about a default, so that means interest rates are going to creep higher.

Greece fell into a similar situation, and now its unemployment is at 26%.  Of course, Greece had the EU to bail them out, and we do not have anyone to bail use out.

However, we can ‘print’ money (or invent it thought ledger entries).  Printing money to cover a horrible financial policy, though, creates inflation.

Because of quantitative easing, the one sector that is still profiting is the stock market. But as interest rates rise that area will stop profiting as well. (Traditionally when interest rates reach 8% people bail out of the market and start buying CDs, bonds, annuities, and the like…  if you’re getting 8%, why risk money in the market?)

If we do not start finding some method agreeable to the right and left to shrink our debt, at some point in a few years we will be in a world of hurt. This should be something that both parties can come to agree on that at least is a workable solution.

Dear Formerly,

Your use of the expression “16 or 17 trillion dollar deficits” indicates that you may be one of those unfortunates who cannot tell the difference between the annual deficit and the permanent national debt. The debt cannot be shrunk, only refinanced, just like the coop building where I live. (The board recently discussed a refinance and when somebody even more uneducated than I am asked if we couldn’t just pay it down eyebrows were raised. I was so glad it wasn’t me.)

I remember in the 1970s when interest payments on the debt rivaled the Pentagon appropriation and it certainly wasn’t pretty for those who favored social spending. However I also remember the late 1990s when the deficit was actually wiped out by a boom in employment, and the interest on the debt has been remarkably low ever since.

Printing money to cover a bad fiscal policy (I don’t think you mean “financial”) is a bad idea; when it goes with a good fiscal policy, as over the past five years, it is a good thing.

The Fed will not allow interest rates to rise significantly unless and until the employment situation really improves. The political focus now should not be on reducing the deficit but on reducing unemployment, which will reduce the deficit automatically.

That is all.

The Fed will not allow interest rates to rise significantly unless and until the employment situation really improves. The political focus now should not be on reducing the deficit but on reducing unemployment, which will reduce the deficit automatically.

@Yas . . . thank you very much for being sane.  And succinct.

Given that the knock to our credit rating came per Standard & Poors, exactly because of the debt ceiling shenanigans, I worry a little more about default than rising interest rates because I have more faith in the competence of the Fed than our derpy political discourse. I wonder (not actually wonder, I guess) why we don’t fixate a little more rationally on the idea of revenue enhancement.

Yes; excellent summary, Yas!

I wonder (not actually wonder, I guess) why we don’t fixate a little more rationally on the idea of revenue enhancement.

@Vixen I didn’t realize that we were still allowed to say the “R”-word.

But, of course, that’s the rational solution . . .

@Yas, mea culpa!  You are absolutely right about my misuse of debt and deficit and also fiscal/financial…  maybe I should engage my limited brain before I post on the fly. 

I also agree with you that rising employment would help solve the problem.  However, as you obviously know, when interest rates become high enough, businesses cannot afford to take out loans.  Housing buyers cannot afford to purchase houses, construction projects have to be put aside; the guy down the street has to stop re-tiling his swimming pool.

When you get into an inflationary spirals, economic activity is suppressed, and that means more unemployment.  And naturally, less employment does not rescue us.

@Vixen, you may be right that a default could ultimately be threatened.  At the moment, a more likely threat is that we would continue to be down-rated to BB which would mean that the United States would only be selling junk bonds. We do have some downward steps before that horrible specter would occur.

there is another factor that might keep foreign governments buying our increasingly degraded bonds. 

The United States is the only economy in the world that is large enough for foreign governments to place their money without causing huge inflation. If everyone in the world who wants to buy bonds suddenly purchased Australian bonds, for example, it would cause that economy to be so inflated that they could not sustain.

This offers some measure of protection, but some bond ratings services have already cautioned the US that a further denigration could occur. And Bernanke has signaled that the economy is firming up enough so that there could be a change in quantitative easing. This discouraged the stock market a couple of times recently, but right now we have recovered.

We simply cannot allow a 17 trillion dollar liability to sit there demanding that we service it, and somehow the right and left need to stop screaming and spinning long enough to figure out a serious, realistic solution.

The thing that’s most exceptional about Americans, IMO, is that they are literally fearless about appearing stupid.  If they don’t understand something, they’ll never admit it—they’ll pretend they have advanced degrees in whatever it is and demonstrate their ignorance in a thoroughly American, thoroughly dramatic way.

@Formerly Amherst thank you for illustrating my point so elegantly . . .

@Bette, right back at you. Great post as usual. Also you have one of the best nyms in the business if I’ve never said so before. @Vixen, isn’t it weird how we old lefties have learned to trust the Fed? What a world!!

I came her looking for a recipe for rump roast but will linger to offer my opinion.

Things that cannot go on forever , don’t .

You might reflect on that bit of wisdom as you confidently assert that debts can never be repaid. Well people don’t loan to those who can never repay them and keep borrowing more and more anyway. And that is just where we are today. No one is buying our bonds, Foreigners are dumping them . The fed is forced into buying almost all treasury bonds offered so the auctions don’t fail and interest rates head for the moon. in simple terms we are monetizing our deficits, sort of like Zimbabwe.

So while your comment is correct - that a percentage of Americans are f**king stupid your identification of which group that was as incorrect as the rest of your ignorant screed.

@mr burns,

Are you the Mr. Burns who ran the Federal Reserve in the Nixon Administration? How nice that you’re still alive and kicking, cooking a little rump roast for yourself! I advise marinating it for a LONG time and cooking it very fast. London broil. And it needs to be sliced thin, especially if you wear dentures.

I think you’ll find you’re mistaken about the demand for bonds, for which prices have just hit the highest levels in two years. Inflation is far from Zimbabwe levels. What newspapers do you read?

Indeed, inflation in Zimbabwe itself has stopped since they adopted U.S. currency in 2009.

Oh, Yas, you can’t fault Burns for believing we’re on the horns of Triffin’s dilemma—it’s seems to be a perennial bear of the debt-scare woods. And I won’t dismiss his claims as entirely without merit; the conservative vs the liberal approach to the debt/deficit issue is why we find ourselves talking at cross-purposes concerning long vs short-range crises.

It seems to me that the central issue to discussing the budget is a matter of management. Conservatives worry that libs lose sight of the long-range debt via day-to-day spending and mean to trim deficits by nickel-and-diming down the expenditures until the economy flattens (with predictable effect on revenue). Libs tend to believe by spending on regular small crises of state, we avoid massively expensive clusterfucks later on and delay the eventual collapse by not fuxxoring the health of the economy. Which may be why deficits bloom under GOP presidents, and are reduced under Democrats.

Or that’s been my general experience of it.

@mr burns, refreshing!

One year ago the bellweather 10-year T=bill was at 1.64, a month ago 2.62, today 2.92. Obviously, interest rates are rising at an extremely rapid pace.

Advisors wiser than I have suggested that Bernanke is about to shrink the $85 billion per month to $75 billion per month.

To me this suggests that the Fed is trying to act with incremental wisdom once you allow for the fact that we are already living on Neptune.

My supposition is that he will continue to ratchet down quantitative easing, and we should begin to see a fairly consistent rise in interest rates.  However, we’ll have to wait and see.

@vixen, I checked out your other blogs, and particularly appreciated your poetry blog. I am worried, however, because you’re starting to sound reasonable to me, and I’m uncertain how dangerous that may be!

If you and I were hypothetically able to sit down together to discuss the matter, we could probably come up with a more reasonable plan for dealing with the problem (if we had the power, which neither of us does… ).

@bette, you are quite correct. All of my edjumacation many years ago was in the liberal arts.  Despite this I have had to somehow try and make a living, which included a tenure in the financial world from the point of view of trying to help clients manage risk and maximize profits.

“...and somehow the right and left need to stop screaming and spinning long enough to figure out a serious, realistic solution.”

Nope, it’s mostly just the right that’s the problem, false equivalences here will get you called out faster than Taylor Swift at a Kanye West concert.

@Vixen yes, yes, yes, and yes. I realize interest rates will go up eventually and indeed are going up as we speak. Soon it will be too late to do the spending that needs to be done and another GOP clusterfuck will be on its way.

Great to have you joining in the self-medication (worse than alcohol) at [url=]http://www.[/url]. Follow her, people, she has wisdom.

(I made a mistake above, it’s only the 6-month notes that are at extraordinary lows).

I mean @vixenstrangely.

..Whenever a person begins with.. the deficit ...the national debt .. or mentions the word Bond..I get out my three card monty deck and prepare to make some easy money..I’m not a member of the Federal Reserve Board or career employee of the US Treasury…and I don’t play them in the bloggy media..but I will give you a haircut…

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