AuthorTopic: Debt Ceiling Political Crisis  (Read 12044 times)

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Re: Debt Ceiling Political Crisis
« Reply #45 on: April 12, 2017, 03:40:50 PM »
Double butter on the popcorn please.  :icon_mrgreen:
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Debt Ceiling Political Crisis / Bill Holter-US Government Will Default
« Reply #46 on: April 23, 2017, 07:05:21 PM »
<a href="http://www.youtube.com/v/iqatg5WNIvc&fs=1" target="_blank" class="new_win">http://www.youtube.com/v/iqatg5WNIvc&fs=1</a>
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Re: Debt Ceiling Political Crisis
« Reply #47 on: April 26, 2017, 04:55:39 AM »
2017-04-24 - 11 facts that prove that the US economy in 2017 is in far worse shape than it was in 2016:
http://theeconomiccollapseblog.com/archives/11-facts-that-prove-that-the-u-s-economy-in-2017-is-in-far-worse-shape-than-it-was-in-2016
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11 New Signs Of The Imminent Economic Collapse Of America 2017
« Reply #48 on: April 27, 2017, 12:17:34 AM »
<a href="http://www.youtube.com/v/8L7BHIJbO5k" target="_blank" class="new_win">http://www.youtube.com/v/8L7BHIJbO5k</a>
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Steve Keen's Econ 101 in a nutshell.

RE

https://www.opendemocracy.net/neweconomics/the-ten-graphs-which-show-how-britain-became-a-wholly-owned-subsiduary-of-the-city-of-london-and-what-we-can-do-about-it/

The ten graphs which show how Britain became a wholly owned subsidiary of the City of London (and what we can do about it)

The ten graphs which show how Britain became a wholly owned subsidiary of the City of London (and what we can do about it)

Of all the charts I produced for my new book Can we avoid another financial crisis? (Keen 2017), the one that surprised me the most was the one showing British private sector debt relative to GDP.

The American data showed a perennial tendency for private debt to grow faster than GDP, followed by financial crises in which debt was written off, only for the process to repeat itself later on. Figure 1 shows the level of private debt as a percentage of GDP in red, and credit – which is the annual change in debt—in blue. There were regular occurrences of negative credit, and therefore a falling ratio of debt to GDP, but the apparently inexorable trend in the USA was for debt to rise relative to GDP until a serious crash occurred.

I expected a similar pattern for the UK. Instead, I saw the pattern in Figure 2. There was no trend in UK private debt to GDP until shortly after the election of Margaret Thatcher. Then, under both her rule and Tony Blair’s, the private debt to GDP ratio more than trebled in less than 30 years.

Figure 2: Private debt and credit in the UK since 1880

Private debt never exceeded 72% of GDP in the century from 1880 (when the Bank of England’s time series begins) till 1980, and its average value was 57% of GDP. By 2010, when it peaked, private debt had risen from under 60% of GDP to almost 200%. If any chart lets us date when Britain’s economy started to become seriously unbalanced, this is it. The decline in manufacturing had commenced much earlier, but the unconstrained ascendance of finance began in 1981. This was the date on which Britain started to become a fully owned subsidiary of the City of London.

This growth in debt gave The City immense power over the rest of the country, in a Faustian bargain that delivered ever growing demand from credit (which is equal in magnitude to the annual increase in private debt) in return for an ever-growing claim by The City on the assets and incomes of the rest of the country.

For a while, this bargain felt win-win for both sides: as the Bank of England recently acknowledged, bank lending creates money at the same time as it creates debt (McLeay, Radia et al. 2014). This money is then spent, either to buy assets, or goods and services. It therefore adds to total demand, and to incomes and capital gains. So, as banks created “money from nothing”, and the UK private sector spent that money that it got for doing nothing, prosperity seemed to abound. The rising credit-based demand substituted for the decline in demand from actually producing goods and services, and the additional financial claims against the UK’s physical resources grew from a relatively low level. The decline in manufacturing employment was offset by a rise in employment in finance, where the main output was not goods but credit-based money and its Siamese twin, debt. While the debt continued to grow, it boosted both economic activity (see Figure 3) and asset prices (see Figure 4).

Figure 3: As private debt grew, employment in Britain became more dependent on credit

But you can’t have very high levels of credit-based demand without the corollary of an ever-increasing level of debt relative to income. More and more of income is required to service this debt, cutting into spending on goods and services. The turnover of existing money slows down, reducing aggregate demand from actual work, while increasing the dependence on credit.

This dependence is all the more dangerous when that money is used not to finance consumption or investment (both of which at least to some extent generate a greater capacity to service debt by increasing demand, and, in the case of investment, also increasing productive capacity) but to finance speculation on asset prices. That, overwhelmingly, is the use to which most of this additional money has been put. This can lead to gains by individual borrowers if asset prices rise sufficiently to mean they can sell their debt-purchased assets for a profit. But it doesn’t increase the productive capacity of the economy one iota: a more expensive house doesn’t produce more intelligent children, and a higher share price doesn’t boost a company’s productivity (though it can indirectly boost its capacity to raise funds for investment).

Debt-financed asset purchases are thus fundamentally a Ponzi activity: though initially the income stream from a debt-financed speculative purchase may exceed the debt-service costs, the increase in debt isn’t matched by any increase in productive capacity. The trend, as debt to GDP rises, is for the debt servicing costs to overtake the income earning capacity of the asset, so that ultimately the only means of profit for the borrower is to sell the asset on a rising market. Between sales, the borrower is losing money, as the cash flow from the asset is less than the servicing costs on the debt that was used to finance it.

There are not one but two Faustian catches to this deal with the devil of debt. The trickier catch is that the rise in asset prices that sucks people into Ponzi borrowing in the first place is actually driven by the borrowing itself. In the housing market, new mortgage debt is by far the major source of monetary demand for housing, so that there is a link between the new mortgage debt and the level of house prices. This leads to a causal link between the change in new mortgages and the change in house prices (see Figure 4). So it’s not the level of mortgage debt that affects house prices, nor even its rate of change (which is equivalent to net new mortgages), but the rate at which that rate of change is changing: its rate of acceleration.

Even though we experience it all the time while driving, riding in trains, or flying, acceleration is a tricky thing for mere mortals to comprehend. It’s quite possible for acceleration to be falling while velocity is still rising, and for acceleration to be rising while velocity is falling (see Figure 4 for an illustration).

Figure 4: Relationships between level of debt, credit & change of credit

The same can and does happen with mortgage debt: it can decelerate while the change in mortgage debt is still rising, and it can accelerate while the change in mortgage debt is falling.

This trick starts the house price/debt spiral: a boom can commence even when mortgage debt is falling relative to GDP, because it is falling more slowly and therefore accelerating. But it then traps us at the other end, since mortgage debt can decelerate even though it is still rising.

Figure 5: The major determinant of changes in house prices is the change in mortgage credit (Correlation 0.8)

Confused? That’s the point. This mechanism is so confusing that it’s easier for policy makers to not even think about it, and blame rising house prices on tight supply alone. But in fact, it’s rising mortgage credit (which is accelerating mortgage debt) that drives prices, as Figure 5 illustrates using US data. The deceleration of mortgage debt also necessarily precedes the decline in credit, crashing asset markets before the economy itself tanks.

Figure 6: Asset markets crash before the economy does because debt acceleration declines before credit does

So why can’t debt keep accelerating forever, and keep the house price bubble and the economy going? This is where Faust’s second catch comes in: ultimately, there is a limit to just how much debt individuals and corporations can take on – even with low interest rates. For most economies, apart from tiny and tax-dodge-dependent states like Luxembourg (population 300,000), Ireland (5 million) and Hong Kong (7 million), that limit appears to be about 2.5 times GDP – see Figure 6. Japan peaked at 220% in 1993 and has since fallen to 150%, Spain hit 220% in 2010 and is now at 170%, while the USA peaked at 170% in 2008 versus 150% now. The Netherlands, the absolute private debt to GDP record holder amongst economies with more than 10 million people, peaked at 247% of GDP in 2010 and is now at 236%. The UK’s peak was 192% in 2010, and it is now 164%. The borrowing ultimately stops.

Figure 7: Private debt to GDP levels in September 2016. BIS Data

Then credit-based demand not only drops, it can turn negative when debt is very high relative to GDP, thus suddenly reducing demand rather than increasing it. This is why the 2008 crisis was so severe compared to our post-WWII experience. For the USA, it was the first time that credit had been negative since WWII ended (see Figure 7); it was the third such event for the UK, but the first in over 50 years, and much larger and longer than the downturns in 1952 and 1966 (see Figure 8).

Figure 8: Credit demand was regularly negative before WWII, rarely so afterwards

Faust’s final trap after the crisis is that, with private debt still so high relative to incomes, the capacity to generate more demand through credit is severely restricted. Though private debt today is about 30% of GDP below the peak reached in 2009, it is still close to three times the pre-unbalancing average. At that level, credit-based demand can’t expand greatly without returning the UK to its peak level. So, credit-based demand can never reach its previous highs, and the economy remains mired in a slump.

The crunch for the UK economy came in September 2008, when credit-based demand started to fall, from 12.4% of GDP then to minus 5% of GDP in 2010. Here the malaise finally afflicts the Doctors of Debt themselves: with anaemic credit-based demand, the capacity of the finance sector to profit from expanding debt diminishes rapidly.

Table 1: Credit demand after the 2008 slump is the lowest it’s ever been in peacetime in the UK

Time Period Debt % GDP Average Credit % GDP
1880 till Great Depression (End of 1929) 70.1 Maximum 1.6
1930 till 1945 71.4 Maximum 0.4
1945 till June 1981 66.7 Maximum 5.3
June 1981 till Great Recession (September 2008) 191.9 Maximum 10.8
Great Recession till Now 164.3 Current 1.1

The internal finance-sector gambling that was a positive sum game for all participants as debt rose becomes a zero-sum game, or close to it. If the parasite almost kills the host, the parasite suffers too. Only QE kept The City afloat as government policy witlessly rescued the parasite in the belief that this would help revive the host.

Figure 9: Credit demand was regularly negative before WWII, rarely so afterwards

It did to some extent: the initial £200 billion in QE probably boosted actual GDP by about one-fifth that much, as capital gains from a QE-fuelled stock market were poured mainly into yet more housing speculation and a tiny amount of consumption by stockholders. But this policy has maintained all the imbalances that expanding credit created in the first place: finance sector employment is far larger than it needs to be, assets remain over-valued compared to incomes, and the private debt burden that caused these imbalances remains far too high.

A fundamental pre-requisite to rebalancing the economy is to return the private debt to GDP level to where it used to be before belief in the false prophets of Neoliberalism led us into this debt trap. That could be done by “QE for the People” modified by the requirement that QE recipients must first pay down their debts. Much more is needed, but if that isn’t done then many other remedies – such as trying to boost UK manufacturing via a lower exchange rate – are likely to fail.

Figure 10: Both households and corporates have driven the debt binge

Postscript: The wanton ignorance of mainstream economists

Conventional economists like Paul Krugman continue to deny that there is any link between credit and economic activity, arguing that any increase in spending power for debtors out of credit must be offset by a decline in purchasing power by those who lend to them, so that in the aggregate credit has very little impact on the macroeconomy:

But, but, you say — that’s not where the debt comes from. It comes from people spending more than they earn. And that’s true — debtors get there by spending more than they take in. But creditors get there by spending less than they take in. (Krugman 2015)

The problem with private debt is that we have good reason to believe that in very wide-open financial systems people get irrationally exuberant, lending and borrowing to an extent that they eventually realize was excessive — and that there are huge negative externalities when everyone tries to deleverage at once. This is a very big problem, but it’s not about generalized excess consumption. (Krugman 2015)

This belief could be excused when the literature on banks creating money “out of nothing” lived in the underground of economics. But after the Bank of England explicitly rejected this “Loanable Funds” model of banking as a fantasy, the days when mainstream economists could hide behind it disappeared. But still they continue to do so.

The fallacy in their thinking is easily demonstrated by looking at the two types of lending – from one non-bank agent to another (Loanable Funds or LF) and by a bank to a non-bank (Bank Originated Money or BOM as an accountant might call it).

A “Loanable Funds” loan simply shuffles existing money from one person’s bank account to another: no new money is created (row 1 in Table 2). A “Bank Originated Money” loan creates a new asset for the Bank, and creates new money as well – which the recipient then spends.

Table 2: Comparing Loanable Funds and Bank Originated Money

Action Assets Liabilities (Deposit Accounts) Change in Money
  Bank Loans Saver Borrower  
1. Loanable Funds   -LF +LF No change
2. Bank Originated Money +BOM   +BOM +BOM

The former operation doesn’t create any additional demand, as Krugman asserts. But the second operation does – and this is what he is now wilfully ignoring by failing to comprehend the macroeconomic implications of Bank of England’s clear statement of real world banking (Krugman 2014).

Figure 10: Krugman’s blog where he fails to comprehend the macroeconomic implications of “Money Creation in the Modern Economy”

Nobel prizes should be harder to earn than that.

 

References

Keen, S. (2017). Can We Avoid Another Financial Crisis? (The Future of Capitalism). London, Polity Press.

Krugman, P. (2014). “A Monetary Puzzle.” The Conscience of a Liberal http://krugman.blogs.nytimes.com/2014/04/28/a-monetary-puzzle/.

Krugman, P. (2015). “Debt Is Money We Owe To Ourselves.” New York Times [url=https://krugman.blogs.nytimes.com/2015/02/06/debt-is-money-we-owe-to-ourselves/?_r=0]https://krugman.blogs.nytimes.com/2015/02/06/debt-is-money-we-owe-to-ourselves/?_r=0[/url].

Krugman, P. (2015). “Debt: A Thought Experiment.” New York Times [url=https://krugman.blogs.nytimes.com/2015/02/06/debt-a-thought-experiment/]https://krugman.blogs.nytimes.com/2015/02/06/debt-a-thought-experiment/[/url].

McLeay, M., A. Radia and R. Thomas (2014). “Money creation in the modern economy.” Bank of England Quarterly Bulletin 2014 Q1: 14-27. http://www.bankofengland.co.uk/publications/Pages/quarterlybulletin/2014/qb14q1.aspx.
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Debt: Michael Hudson reviews Steve Keen
« Reply #50 on: May 03, 2017, 01:12:17 AM »
http://www.counterpunch.org/2017/05/02/the-economics-of-the-future/

May 2, 2017
The Economics of the Future

by Michael Hudson


At first glance Steve Keen’s new book Can We Avoid Another Financial Crisis? seems too small-sized at 147 pages. But like a well-made atom-bomb, it is compactly designed for maximum reverberation to blow up its intended target.

Explaining why today’s debt residue has turned the United States, Britain and southern Europe into zombie economies, Steve Keen shows how ignoring debt the blind spot of neoliberal economics – basically the old neoclassical just-pretend view of the world. Its glib mathiness is a gloss for its unscientific “don’t worry about debt” message. Blame for today’s U.S., British and southern European inability to achieve economic recovery thus rests on the economic mainstream and its refusal to recognize that debt matters.

Mainstream models are unable to forecast or explain a depression. That is because depressions are essentially financial in character. The business cycle itself is a financial cycle – that is, a cycle of the buildup and collapse of debt.

Keen’s “Minsky” model traces this to what he has called “endogenous money creation,” that is, bank credit mainly to buyers of real estate, companies and other assets. He recently suggested a more catchy moniker: “Bank Originated Money and Debt” (BOMD). That seems easier to remember.

The concept is more accessible than the dry academic terminology usually coined. It is simple enough to show that the mathematics of compound interest lead the volume of debt to exceed the rate of GDP growth, thereby diverting more and more income to the financial sector as debt service. Keen traces this view back to Irving Fisher’s famous 1933 article on debt deflation – the residue from unpaid debt. Such payments to creditors leave less available to spend on goods and services.

In explaining the mathematical dynamics underlying his “Minsky” model, Keen links financial dynamics to employment. If private debt grows faster than GDP, the debt/GDP ratio will rise. This stifles markets, and hence employment. Wages fall as a share of GDP.

This is precisely what is happening. But mainstream models ignore the overgrowth of debt, as if the economy operates on a barter basis. Keen calls this “the barter illusion,” and reviews his wonderful exchange with Paul Krugman (who plays the role of an intellectual Bambi to Keen’s Godzilla), who insists that banks do not create credit but merely recycle savings – as if they are savings banks, not commercial banks. It is the old logic that debt doesn’t matter because “we” owe the debt to “ourselves.”

The “We” are the 99%, the “ourselves” are the 1%. Krugman calls them “patient” savers vs “impatient” keenavoidborrowers, blaming the malstructured economy on personal psychology of indebted victims having to work for a living and spend their working lives paying off the debt needed to obtain debt-leveraged homes of their own, debt-leveraged education and other basic living costs.

By being so compact, this book is able to concentrate attention on the easy-to-understand mathematical principles that underlie the “junk economics” mainstream. Keen explains why, mathematically, the Great Moderation leading up to the 2008 crash was not an anomaly, but is inherent in a basic principle: Economies can prolong the debt-financed boom and delay a crash simply by providing more and more credit, Australia-style. The effect is to make the ensuing crash worse, more long-lasting and more difficult to extricate. For this, he blames mainly Margaret Thatcher and Alan Greenspan as, in effect, bank lobbyists. But behind them is the whole edifice of neoliberal economic brainwashing.

Keen attacks this “neoclassical” methodology by pointing that the logical fallacy of trying to explain society by looking only at “the individual.” That approach and its related “series of plausible but false propositions” blinds economics graduates from seeing the obvious. Their discipline is the product of ideological desire not to blame banks or creditors, wrapped in a libertarian antagonism toward government’s role as economic regulator, money creator, and financer of basic infrastructure.

Keen’s exposition undercuts the most basic and fundamental assumptions of neoclassical (that is, anti-government, anti-socialist) economics by showing that instead of personifying economic classes as “individuals” (Krugman’s “prudent” individuals with their inherited fortunes and insider dealings vs. spendthrift individuals too economically squeezed to afford to buy houses free of mortgage debt) it is easier to start with basic economic categories – creditors, wage earners, employers, governments running deficits (to provide the economy with money) or surpluses (to suck out money and force reliance on commercial banks).

His Figure 16 shows how stable UK private debt/GDP was for a century, until Margaret Thatcher deranged the economy. Debt soared, and mainstream economists applauded the boom. (He suggests calling this new wave of neoliberal policy “deform,” in contrast to “reform.” We certainly need a new vocabulary to counter the soporific euphemisms used by the fake economic news media.) Privatization of Council Housing and basic infrastructure forced the population deeply into debt to afford their basic needs. The financial City of London ended up the big winners, while industry or labor have suffered a debt squeeze.

Keen’s model shows that a long debt buildup can give the appearance of prosperity, until the crash comes. But when it comes, voters blame the party in power, not the earlier promoters of nationwide debt peonage. Along with Thatcher, Keen places the blame the pied piper of Wall Street deregulation Alan Greenspan, whom he calls “a maestro of delusion, not of insight.” He also cites Larry Summers as an example of the learned ignorance beclouding economic discussion – which of course is just why the Clintons and Obama were told by their Donor Class to anoint him.

This book enables the non-mathematician to pierce the shell of mathiness in which today’s economic mainstream wraps its lobbying effort for the big banks and their product, debt. The needed escape from the debt deflation they have caused is a debt writedown.

The problem is that the public is brainwashed to imagine that it is the banks that need saving, not the indebted economy. Keen proposes a “Modern Debt Jubilee” that is essentially a swap of equity for debt. The intellectual pedigree for this policy to keep debt within the ability to pay was laid two centuries ago by Saint-Simon in France. His solution was for banks to take an equity position in their clients, so that payments to backers could rise or fall in keeping with the fortunes of the enterprise. Keen urges that this become the basis for future banking.

As a transition from todays debt stagnation, he suggests that the central banks create a lump sum to put into everyone’s account. Debtors would be required to use their gift to pay down the debt. Non-debtors would keep the transfer payment – so as not to let demagogic political opponents accuse this plan of rewarding the profligate.

If this solution is not taken, debtors will continue to lumber on under debt and tax conditions where only about a third of their nominal wages are available to spend on the goods and services that labor produces. The circular flow between producers and consumers will shrink – being siphoned off by debt service and government taxes to bail out bankers instead of their victims.

This should be what today’s politics is all about. It should be the politics of the future. But that requires an Economics of the Future – that is, Reality Economics.

Toward this end, Keen’s pamphlet should be basic reading for placing debt at the center of today’s political debate and replacing mainstream “barter” economics with a more reality-based discipline.
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Michael Hudson is the author of Killing the Host (published in e-format by CounterPunch Books and in print by Islet). His new book is J is For Junk Economics.  He can be reached at mh@michael-hudson.com
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Congress Reaches Deal To Keep Government Open Through September
« Reply #51 on: May 03, 2017, 05:07:33 AM »
Zero Hedge

Update: Senate Democratic Leader Chuck Schumer seems very positive on the bipartisan agreement too (but can’t resist a few jabs at President Trump)…

    “This agreement is a good agreement for the American people, and takes the threat of a government shutdown off the table.

     

    The Bill “ensures taxpayer dollars aren’t used to fund an ineffective border wall, excludes poison pill riders, and increases investments in programs that the middle-class relies on, like medical research, education, and infrastructure”

     

    “Early on in this debate, Democrats clearly laid out our principles..” and the deal “reflects those principles.”

*  *  *

As we detailed eariler, one of the biggest political overhangs facing the market may have just been removed, when moments ago AP and other newswires reported that House Democrats and Republicans are said to have reached a $1 trillion spending deal to keep the government – which is currently operating thanks to a last minute one-week stopgap measure enacted on Friday – open until October 1.

    BREAKING: Congressional Republicans, Democrats reach agreement on $1T measure to fund government until Oct. 1.

    — AP Politics (@AP_Politics) May 1, 2017

According to Washington Post, negotiators from both parties reached an agreement on a spending package to fund the government through the end of September, alleviating fears of a government shutdown later this week. Congress is expected to vote early this week on the package, with the bipartisan agreement expected to include increases for military spending and border security, a major priority for GOP leaders in Congress.

Several other important White House initiatives were rejected by the Republican and Democratic negotiators, including money for a wall on the U.S.-Mexico border that Trump has argued is needed to stop illegal immigrants and drugs. Instead, congressional negotiators settled on $1.5 billion more for border security, including more money for new technology and repairing existing infrastructure, the aide said.

The Trump administration had earlier backed away from a threat to end federal subsidies for low-income people to get health insurance through Obamacare, the program that Trump had pledged to repeal. Puerto Rico would get an emergency injection of $295 million in additional funding for its Medicaid health insurance program for the poor, according to the aide who asked not to be identified. The impoverished island, which is a U.S. territory, is facing a severe Medicaid funding shortfall. Democrats also fended off potential cuts to women’s healthcare provider Planned Parenthood, while House Democratic leader Nancy Pelosi applauded a nearly $2 billion hike in funds for the National Institutes of Health this year.

Coal miners and their families facing the loss of health insurance next month would get a permanent renewal under the spending bill.

* * *

There is a non-trivial chance the Sunday night announcement is merely a trial balloon, because as the WaPo adds “the details of the agreement were not yet clear on Sunday night” which would suggest that there is a high likelihood that whatever tentative deal was reached, ultimately falls through.

For now, however, this is good news, and it has sent both the pound and yen sliding, and the dollar rising on hopes that politics will not be a major risk factor for at least 5 months.

House Republicans have struggled in recent weeks to keep their members focused on spending as White House officials and conservatives pressed leaders to revive plans for a vote on health-care legislation. The health-care fight became tangled last week with the spending talks as leaders worried that forcing a vote to repeal the Affordable Care Act risked angering Democrats whose votes are necessary to avoid a government shutdown.

Another possible threat is that the GOP pushes on with Obamacare repeal, a gambit which may prompt Democrats to withdraw any support they voiced for Sunday’s “deal.”

    GOP leaders worked last week to determine if there are enough votes in the House to pass a revised health-care bill brokered by the White House, the head of the conservative House Freedom Caucus and a top member of the moderate Tuesday Group. House Speaker Paul D. Ryan (R-Wis.) and his top lieutenants announced Thursday that they did not have sufficient votes to be sure the health-care bill would pass but vowed to press on.

     

    “We’re still educating members,” House Majority Leader Kevin McCarthy (R-Calif.) told reporters after a late-night health care meeting last week. “We’ve been making great progress. As soon as we have the votes, we’ll vote on it.”

And now, in the spirit of trial balloons everywhere, we await the denial from yet other “unnamed sources.”
Trump: US “Needs A Good Shutdown In September To Fix This Mess”
Zero Hedge

With Congress poised this week to approve a deal to fund the government through September, the first major bipartisan legislation of Trump’s presidency, after lengthy negotiations (which have appeared to signal numerous ‘folds’ by President Trump), apparently frustrated by the lack of tryannical powers that a simple majority grants him, President Trump has lashed out this morning at disagreeable Democrats, and in particular Senate Democrats.

    The reason for the plan negotiated between the Republicans and Democrats is that we need 60 votes in the Senate which are not there! We….

    — Donald J. Trump (@realDonaldTrump) May 2, 2017

But Trump has a solution.

    either elect more Republican Senators in 2018 or change the rules now to 51%. Our country needs a good “shutdown” in September to fix mess!

    — Donald J. Trump (@realDonaldTrump) May 2, 2017

As a reminder, the proposed government funding deal does not include funding for Trump’s proposed wall along the U.S.-Mexico border or include language stripping federal money from so-called sanctuary cities, both of which the White House demanded at the outset of negotiations.  In fact, as we reported yesterday, the bill has been seen widely as a victory for Democrats, something which has been panned by the conservative press.  While the White House also backed off a threat to withhold ObamaCare subsidy payments to insurance companies, Trump did secure increased military spending in the 2017 budget deal.

According to the Hill, the comments are likely irk top Republican lawmakers, who have been frustrated by Trump’s repeated attempts to intervene in the legislative process.  The businessman-turned-president, in turn, has vented frustration with the slow pace of work on Capitol Hill.

“I’m disappointed that it doesn’t go quicker,” Trump told Fox News last week when asked about the Republican effort to repeal and replace ObamaCare.

Commenting on Trump’s tweets, Citi asks rhetorically whether “this could be a case of cutting one’s nose to spit one’s face? – Potentially problematic when the nose in question is attached to the current administration… It seems counterintuitive that a sitting president would want a shutdown, unless he was to blame it on the opposition in order to force through reform/encourage a voter backlash.”

    Bloomberg reports that “The message appeared to encourage the Republican-controlled Senate to change rules that now require 60 votes to end a filibuster of legislation. Republicans reduced the threshold to 51 votes for Supreme Court nominees this year and could do the same for legislation with a simple majority vote.”

     

    USD does not seem to have reacted to the President’s tweet (it can’t every time, after all), which may just be more political manoeuvring rather than a signal of intent.

In any case, we’re not so sure there is such a thing as a “good” shutdown of the US government – and with what will be over $20 trillion in debt and a declining GDP by that time, one wonders which ratings agency will have the balls to downgrade the world’s reserve currency this time?

Meanwhile, it did not take long for Trump to get a response. Democratic Re. Eric Swalwell responded that “our country needs a White House shutdown” following President Trump’s call for a “good shutdown” of the government.

    Nope. Our country needs a White House shutdown. Working on it.
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Are American Debt Slaves Getting in Trouble Again?
« Reply #52 on: May 04, 2017, 03:05:02 AM »
http://wolfstreet.com/2017/05/01/are-american-debt-slaves-getting-in-trouble-again/

Are American Debt Slaves Getting in Trouble Again?
by Wolf Richter • May 1, 2017 • 152 Comments   


The economy depends on them, but they’re cracking.

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up?

Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.

Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves

In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.

Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.

Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”

This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse.
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Re: Are American Debt Slaves Getting in Trouble Again?
« Reply #53 on: May 04, 2017, 08:13:08 AM »
http://wolfstreet.com/2017/05/01/are-american-debt-slaves-getting-in-trouble-again/

Are American Debt Slaves Getting in Trouble Again?
by Wolf Richter • May 1, 2017 • 152 Comments   


The economy depends on them, but they’re cracking.

American consumers are holding $1 trillion in revolving credit, mostly in credit card debt. So how well is this segment of consumer debt holding up?

Synchrony Financial – GE’s spin-off that issues credit cards for Walmart and Amazon – disclosed on Friday that, despite assurances to the contrary just three months ago, net charge-off would rise to at least 5% this year. Its shares plunged 16% and are down 27% year-to-date.

Credit-card specialist Capital One disclosed in its Q1 earnings report last week that provisions for credit losses rose to $2 billion, with net charge-offs jumping 28% year-over-year to $1.5 billion.

Synchrony, Capital One, and Discover – a gauge of how well over-indebted consumers are managing to hang on – have together increased their Q1 provisions for bad loans by 36% year-over-year. So this is happening.

Other worries about consumer debt in the US are piling up. The $1.4 trillion in student loans are already in crisis, though the government backs them, and they cannot be charged off in bankruptcy. Mortgage debt is still hanging in there, given the surge in home prices that make defaults unlikely. But of the $1.1 trillion in auto loans, subprime loans packaged into asset backed securities are getting crushed by net charge-off rates that are worse than during the Financial Crisis.

The US economy is fueled by credit. Americans turning themselves into debt slaves makes it tick. Take it away, and what little growth there is – nearly zero in the first quarter – will dissipate into ambient air altogether. So it’s time to take the pulse of our American debt slaves

In a new study, life insurer and financial services provider Northwestern Mutual found that 45% of Americans that have debt spend “up to half of their monthly income on debt repayment.” Those are the true debt slaves.

Excluding mortgage debt, American carry an average debt of $37,000. Of them, 47% carry $25,000 or more, and more than 10% carry $100,000 or more in debt, excluding mortgage debt.

Most of them expect to get out of debt before they die, but 14% expect to be in debt “for the rest of their lives.”

This debt adds stress. About 40% said that debt has a “substantial” or “moderate” impact on their financial security; and about as many consider debt a “high” or “moderate” source of anxiety. Given the rising defaults, this is likely to get worse.

Yep, that's me, guilty as charged!  It started this last winter.  Let me back up a bit.

It started around 2013.  I started getting credit cards while I was unemployed.  I ended up with around 10 cards with limits of up to 9 grand, some were around 2.  I was unemployed when I got all of them, and that should have never happened.  Why did I get them?  I guess because I could?  It was a horrible idea, and one who's lesson I learned already when I was in my early 20's.  The credit card game is a losing game for the card holder.  With interest rates on average of around 27% it's damn near usury.  Minimum payments do nothing to pay down the debt.  Once you get enough cards with high enough balances on them, all you can do is pay the minimum payment.  At that point they have you.  You spend the rest of your days trying to get enough money to pay minimum payments.  I did that for a couple of years, all while continuing to use the cards and the minimum payments went up. 

I was delusional for a couple of years about this.  It was a blind spot in my intellect.  I knew I was being stupid and reckless, but I kept on swiping anyways.  Sometimes out of necessity.  Twice I paid our property taxes ($1000 a year) on credit because we did not have the money and I did not want to lose our property.  I spent 5k when we had a catastrophic failure of water pipes beneath the house which required all new pipes...that's a long story.  I took the family to California to visit my side of the family the winter of 2014.  That trip lasted about two months.  Then I bought a trailer for 2k as well as another couple thousand on various other equipment.  I took us out to eat, bought groceries, gas, and even beer.  It was stupid and reckless and I imagine a story that is repeated a million fold with other Americans. 

It's unsecured debt.

So, last winter, my business being mostly seasonal, and my savings being only enough to pay my truck payment and our insurances, I began triaging off credit cards.  I began not paying the minimum payment.  Now, this started mainly because I paid a credit card bill too early one month.  So unbeknownst to me, they applied both payments to one month.  The next month I didn't pay because I had already paid.  They hit me with ridiculous late fees and refused to reimburse me, even after I explained what had happened.  I told them to get fucked and quit paying the bill.  On top of this my credit score had gone from the high 700's to the mid 600's and why?  Because I had too many cards with balances that were too high.  All while I was getting 10 credit card offers in the mail every month.  The more cards you get, and use, the more your credit score goes down, and this even when you are paying them all on time every month.  WTF is that about?  All while the credit card companies are offering you as many cards as you want. 

I played the 0% transfer game for a while trying to stay on top of it. 

Finally my credit score started dropping, and I got hit with that late payment for being too prompt on paying, and I said fuck it at that point. 

Now they can all kiss my ass.  It's all I can do to stay on top of my business overhead what with buying new tires, and brakes, and servicing equipment, and paying for gas and insurance and all of the other expenses that come with operating a business.  I'm at the point now where I just about can't take on any new clients, and so I can't grow much more to make more money without taking some steps back and trying to higher employees.  I wouldn't even be able to be in business for myself if it weren't for the fact that we are living with a relative in a paid for house and so no mortgage.  I guess that is why I figured I could take on credit card debt. 

Now I'm servicing maybe 20% of that credit card debt.  I stopped paying on a few and my credit score dropped even more.  It hit the 500's and at that point I lost the motivation to keep trying...so I stopped trying.  Now the only credit debt I'm servicing is the debt I accrued for my business and that's it.  My credit score is in the 400's now.  With a low score like that...what's the point in worrying about paying any of them? 

I never intended to not pay the debt back.  But then we "elected" a president who went bankrupt 4 times, and I was like..."well, I'll just follow the leader."  We're collapsing anyways so why struggle?  If I had never taken on credit cards I suppose I would have found another way?  Maybe we would have lost our property and not had water in the house for a while?  Maybe I wouldn't have a business?  Who knows. 

I'm not the only one.  Fiat currency by it's very nature is a ponzi scheme.  Debt is built into money creation, and the people are always left holding the bag.  The TBTF banks get bailed out and the criminals running those rackets get hundreds of millions of dollars in severance packages.  We elect a 1% bankruptcy professional as POTUS.  The Merikan goobermint creates trillions of dollars of debt that the tax payers are on the hook for.  The entire system is corrupt and the top 1% gets paid bonuses for continuing the corruption.  I'm supposed to suffer and get a second job to pay credit card debt back.  Fuck that shit. 

If I'm somehow morally corrupt for falling into this trap then so be it because so our our leaders.  I'm just following our presidents example.  It's sort of the modern day equivalency of robbing a bank I guess.  Nobody gets hurt because I'm not paying those cards back.  The debt didn't even exist before I swiped the debt into existence.  They expect all of us working class grunts to hold the debt bag...fuck that.  I'm just taking notes from our POTUS. 

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Re: Debt Ceiling Political Crisis
« Reply #54 on: May 05, 2017, 06:26:54 PM »
When I started as a mature student in Australia, the banks were giving out credit cards freely, so I got 2.  I was always careful to pay the minimum.  The banks loved it, and rewarded me with more credit, with only a "sign the enclosed slip and post back in the reply paid envelope" - no scrutiny of my circumstances at all.  Vet's bills, beer, and new secondhand cars when necessary.  When it had obviously gotten out of control, I spoke with a bankruptcy counselor and he agreed I was probably insolvent, but said if I could still make the monthly payments, I could keep going.  More credit was offered and accepted.  Eventually it reached the point where I couldn't make the minimum payment without moving funds over from the other card, and then I declared bankruptcy.  Both cards were immediately withdrawn, but there was no nastiness at all.  Having no assets, they couldn't take anything off me (you are allowed a car with value up to $7,000, which was more than I have ever paid for a car, and household effects.) 

The bankruptcy form had a box to tick if you felt it was due to the banks' predatory lending - tick.  I reckon I have done my bit to bring down the financial system, and they didn't bat an eyelid.
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Re: Debt Ceiling Political Crisis
« Reply #55 on: May 05, 2017, 07:16:09 PM »
When I started as a mature student in Australia, the banks were giving out credit cards freely, so I got 2.  I was always careful to pay the minimum.  The banks loved it, and rewarded me with more credit, with only a "sign the enclosed slip and post back in the reply paid envelope" - no scrutiny of my circumstances at all.  Vet's bills, beer, and new secondhand cars when necessary.  When it had obviously gotten out of control, I spoke with a bankruptcy counselor and he agreed I was probably insolvent, but said if I could still make the monthly payments, I could keep going.  More credit was offered and accepted.  Eventually it reached the point where I couldn't make the minimum payment without moving funds over from the other card, and then I declared bankruptcy.  Both cards were immediately withdrawn, but there was no nastiness at all.  Having no assets, they couldn't take anything off me (you are allowed a car with value up to $7,000, which was more than I have ever paid for a car, and household effects.) 

The bankruptcy form had a box to tick if you felt it was due to the banks' predatory lending - tick.  I reckon I have done my bit to bring down the financial system, and they didn't bat an eyelid.

I pulled basically the same stunt in the 1990s, with the same results you had.  The banksters didn't even show up for the hearing.  15 minutes in the courtroom, I was out from under and a FREE MAN:icon_sunny:  I never went into debt again after that, or even got a credit card, though after 7 years the offers started coming in again.  I have a terrible credit rating now, but not because I don't pay my bills, but because I never buy anything on credit.

I ran up my CCs when my union went on strike and my income was reduced to about half for 6 months.  I never could get out from under it.  So when I decided to file Chapter 7 BK, I took what remaining credit I had and charged up the last of my student loan bills, so they went to unsecured credit.  I had $0 in the bank and no assets.  My car was a 10 year old Toyota Tercel 4WD Wagon, book value at the time under $1000.  There was nothing they could take.

Best decision financially I ever made in my life.

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Stockman on the Trumpsky Tax Plan
« Reply #56 on: May 12, 2017, 03:13:02 AM »
Why do we need taxes at all?  Just raise the debt ceiling!  :icon_sunny:

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Goobermint Shutdown
« Reply #57 on: June 02, 2017, 01:00:42 AM »
https://dollarvigilante.com/blog/2017/04/05/debt-ceiling-shutdown-what-would-happen-if-the-us-government-shut-down-for-good.html


It’s that time of year again where the US government acts like it will “shut down” and argues about nonsensical things to try to make people believe they are somehow necessary.

In 2015, Congress suspended the ceiling, which let the government borrow as much as it wanted through March 15, 2017. On that date, the total national debt was $19.846 trillion, and the government can't exceed that limit without approval from Congress.

In the meantime, the government uses all kinds of accounting tricks to shuffle the chairs around on the Titanic and all manner of vultures will be fighting over who gets the bounty of stolen funds extorted from Americans.

This type of thing has been going on for nearly a century.

The very first “debt ceiling” was put in place exactly 100 years ago, in 1917, and nearly every year since then a group of parasites working for stolen money (taxes) gets together in a place called the opposite of progress, Congress, to act like they would ever shut down the very thing that employs them.

It’s an exercise in stupidity, but it does lead to the question, what would happen if the US federal government shut down for good?

In other words, what if the United State(s) actually was the United States… and not the United State.

First, all of the countless wars and occupations undertaken by the Department of Offense would cease. It’d be hard to imagine that the states of Texas, Vermont, and Idaho would feel the need to protect their particular interests in Syria and pay directly for the costs. In fact, it sounds silly, doesn’t it? Could you imagine hearing the news that Idaho had just accidentally blown up a school full of 200 children in Syria while fighting the CIA’s ISIS?

It seems silly because it would be. It’s only through decades of government schooling, pledges of allegiances and hundreds of pro-war propaganda films out of Hollywood every year that makes anyone think the US government occupying half of the Middle East is anything but a massive crime against humanity.

So, with no US federal government, there’d be almost no more war in the world. That alone is a good enough reason to get rid of it.

What else would we lose if the federal government were to shut down for good?

Well, actually, very little else. You see, the US federal government takes almost all the money it extorts US tax slaves for every year and spends it on conducting terrorism (war) and much of the other expenses are just to keep all of its Ponzi schemes running.

The two biggest Ponzi schemes are Socialist Insecurity… or what they call Social Security… and Medicare. These two systems are so bankrupt that they soak in most of the tax revenue and take up much of what is called “mandatory spending” in the budget.


In the “discretionary spending” piece of the pie, the military accounts for a massive part of that expenditure.


And much of the rest goes to alphabet agencies that, for the most part, produce or do nothing and are just massive money pits of communist style, central planning bureaurats. Yes, I spelled bureaurats correctly.

For example, because of the Tenth Amendment, most education policy is decided at the state and local levels, meaning that really, all the Department of Education does is redistribute taxpayer wealth in the form of student loans and government grants. Essentially, they siphon public money and after paying their 4000  parasitic employees, the rest of the collected money - around 70% - goes toward making loans and grants that should be made in the private market.

Or you could take for example the “Department of Health and Human Services” (HHS) which actually is a major disservice to the American people.

The Department of HHS includes the FDA, CDC, and the National Institutes of Health. And as many now know, the FDA has approved prescription and over-the-counter drugs that knowingly have killed hundreds of thousands of people annually, has allowed an increase in irradiation of the food supply, and to top it off, has covered up the dangers of vaccinations. Not surprisingly, the FDA has ties to companies like Monsanto and Bayer.

And pretty much every other agency of the federal government is similar… either doing nothing that needs to be done or making things worse than they already are.

So, as you can see, if the federal government were to “shut down” for good, all that would really happen is most of the wars in the world would end… which is obviously a wonderful thing… and a ton of communist style central planning agencies would cease to exist freeing up not only the marketplace but a lot of capital that is wasted on these boondoggles.

And, of course, about 2.7 million people with absolutely no skills or capabilities in the free market, former federal employees, would have to find something of value to do for their fellow man.

There would be one massive issue, however. If the US government were to shut down and to renege on its $20 trillion in debt it would cause a worldwide economic and financial collapse and depression that would make the 1929 Great Depression look like the glory days. It would forever be known as the Greatest Depression and people would warn forever more into the future to never allow government to grow to the size of the US government for the devastation it brings when it all inevitably collapses.

Fortunately, the US government reneging or defaulting on its debt is going to happen whether the US government shuts down now or not. It is already past the point of no return.

And that’s why you should be preparing for that eventuality. Whether it happens now, which is unlikely, or happens quite soon, which is 100% guaranteed, you should be preparing for it.

For this reason, we are offering our ebook, Getting Your Gold Out of Dodge completely free. It normally retails for $44.95, but we are offering it for free to help as many as possible prepare for what is coming.

If the US federal government were to shut down and never reappear it would be one of the most wonderful moments in human history. Wars would cease and millions of people currently held in concentration camps in the US for “victimless crimes” would be freed. And trillions in funds would no longer be wasted and could be put to productive use which would cause a worldwide boom unlike any seen before.

But, before that happens we’d have to see a collapse of biblical proportions. Those who are prepared for it, such as TDV subscribers (see more here) stand to not only survive through the collapse, but to profit immensely afterward as they will be some of the very few who make it through the collapse with their assets intact.

In the meantime, the next time someone tells you that they heard the US federal government might “shut down”, tell them, “Good!”

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About the Author

Anarcho-Capitalist.  Libertarian.  Freedom fighter against mankind’s two biggest enemies, the State and the Central Banks.  Jeff Berwick is the founder of The Dollar Vigilante and host of the popular video podcast, Anarchast.  Jeff is a prominent speaker at many of the world’s freedom, investment and cryptocurrency conferences including his own, Anarchapulco, as well as regularly in the media including CNBC, Bloomberg and Fox Business.  Jeff also posts exclusive content daily to the new blockchain based social media network, Steemit.
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Steven Mnuchin, Trump’s treasury secretary, is hurtling toward his first fiasco

 July 17 at 7:27 PM 

Shortly before he was sworn in as treasury secretary, Steven Mnuchin spoke with his predecessor to get some advice. 

Pay attention to the debt problems in Puerto Rico, Treasury Secretary Jack Lew warned Mnuchin, and remember that China’s currency issues are more complex than the incoming president, Donald Trump, had suggested during the campaign, according to two people briefed on the exchange who spoke on the condition of anonymity to reveal private discussions. 

And in pointed remarks, Lew told Mnuchin to take the debt ceiling seriously — or face a potential financial crisis. 

Months later, Mnuchin is hurtling toward his first fiasco, unable to get Congress, let alone his colleagues in the Trump administration, on board with a strategy to raise the federal limit on governmental borrowing.

 
During a hearing before the House Ways and Means Committee on May 24, Treasury Secretary Steven Mnuchin asked Congress to raise the debt ceiling before the summer. (House Ways and Means Committee)

His struggles are casting doubt on whether the political neophyte, who made his name on Wall Street, has the stature in Washington to press through a vote on a measure that former treasury secretaries of both parties have said is critical to preserving the nation’s reputation for financial stability.

“We’re going to get the debt ceiling right,” Mnuchin said in an interview Monday. “I don’t think there is any question that the debt ceiling will be raised. I don’t think there is anybody who intends to put the government’s ability to pay its bills at risk.”

Sensing there could be resistance on Capitol Hill to raising the debt ceiling quickly, he reviewed past debt-ceiling fights. He also holds a weekly meeting with advisers about the government’s cash balance and debt issues.

One former Treasury official, speaking on the condition of anonymity to discuss sensitive agency deliberations, said officials are now “brushing up on options in the ‘crazy drawer.’ ”

In past administrations, Treasury officials have designed plans to prioritize payments to government bondholders so that if the government runs short on cash it could, in at least a technical sense, avoid defaulting on U.S. debt.

Such a scenario would be very difficult to manage because some bills would either be delayed or not paid — but it could be necessary to prevent an actual default. Still, prioritizing payments this way could lead to a spike in interest rates and a stock market crash, analysts have said.

 The coming months promise to test Mnuchin, a former Goldman Sachs banker and Hollywood producer who joined the administration as a Trump loyalist, with no experience in government but plenty of experience by the president’s side, serving as campaign finance chairman. 

Trump attended Mnuchin’s wedding in June, and on the wall beside Mnuchin’s desk is a news clipping announcing his appointment, signed by Trump along with — in black Sharpie — “I’m very proud of you.” 

Beyond the tax code and the debt limit, Mnuchin’s portfolio includes blocking terrorist financing, easing regulations and conveying Trump’s nationalist economic policy at home and abroad.

“My preference is to get it clean,” he said Monday. “My preference is to get it done, and my preference is to get it done sooner rather than later.” 

But Mnuchin’s push on the debt ceiling was undermined from the start within the White House by Mick Mulvaney, the director of the Office of Management and Budget. Mulvaney is a former Republican congressman and founding member of the House Freedom Caucus who was brought into the White House, in part, to help influence how conservatives would vote on key issues.

Mulvaney publicly questioned Mnuchin’s call for a clean vote, saying that he would prefer spending cuts or other budget changes as part of any proposal to increase the debt ceiling. Some White House and Treasury officials were incensed to see Mulvaney break ranks, said several people involved in internal deliberations who spoke on the condition of anonymity. 

Treasury officials complained to the West Wing that Mnuchin’s credibility was being undermined, and Trump told a gathering of Senate Republicans that they should work with Mnuchin, and no one else, on the debt ceiling.

But Mulvaney had sufficiently muddied the administration’s message. And even though Trump told lawmakers that Mnuchin was his point person on the debt limit, the White House still has not publicly come out in favor of a no-strings-attached vote. Top administration officials have now conveyed to Congress that they will support combining an increase in the debt ceiling with other budget changes, as long as Congress works it out soon.

Asked about his relationship with Mulvaney, Mnuchin said, “Mick and I have a very good relationship. I think the press made that out to be more than it is.”

Rep. Mike Quigley (D-Ill.) pressed Mulvaney during a hearing June 21 to explain the conflicting signals from Mnuchin and Mulvaney.

“These two are working against each other,” Quigley said. “It sends mixed messages.”

He added, “It’s also a dangerous message that you don’t have to fulfill your obligations.”

Mulvaney has tried to downplay the rifts but has suggested that his approach was more politically astute.

“It would be foolish of us to come up with a policy devoid of having talked to the Hill,” Mulvaney said to reporters in June.

Lawmakers and congressional aides who have met with Mnuchin describe an earnestness that they viewed as refreshing but also easily outmaneuvered by experienced political hands.

“He’s certainly in the minority in the administration,” said Rep. Mark Meadows (R-N.C.), chairman of the House Freedom Caucus. “The problem is, yes, you could get a clean debt-ceiling, but it would be 180 Democrats in the House with 40 or 50 Republicans, and that’s not a good way to start.”

Meadows said that he recently attended a meeting of eight of the most conservative Senate and House lawmakers about how to handle the debt ceiling and that not once did they consider the idea of backing Mnuchin’s proposal for a clean debt-ceiling increase.

Mnuchin has struggled to give the public an accurate read of how long the Treasury could pay bills before Congress has to act, alternating — sometimes within a matter of minutes — on whether the true deadline is the beginning or end of September. 

A Treasury official later clarified that it had sufficient funds to pay all of the government’s bills through September. The Congressional Budget Office, meanwhile, has projected that Treasury should be able to pay all of its bills through early to mid-October.

Senate Majority Leader Mitch McConnell (R-Ky.) recently said that he would hold the Senate open for two weeks in August to take care of unfinished business — namely the health-care bill. It’s unclear whether they’ll tackle the debt limit or whether the House, where the odds of raising the debt limit are even more remote, will remain open.

One of Mnuchin’s challenges is that he still lacks the Washington alliances many Treasury chiefs enjoy.

He has stayed in close contact with friends and former colleagues from the world of finance, such as Blackstone chief executive Stephen Schwarzman and Brian Brooks, who was his vice chairman at OneWest Bank, which Mnuchin ran after acquiring IndyMac’s assets during the financial crisis in 2008. He has also reached out to former treasury secretary Henry M. Paulson Jr. and recently met with other former secretaries, including Lawrence H. Summers and Robert Rubin. And he has discussed the debt ceiling and other issues with Glenn Hubbard, a top Bush administration economic adviser, who came away impressed.

“He has an unassuming manner, but he should not be underestimated,” Hubbard said.

But although Brooks has been nominated as deputy treasury secretary, that role and many other senior Treasury posts remain unfilled. And many Washington conservatives who have spent years backstopping Republican cabinet members know little of Mnuchin’s goals or tactics. 

“The guy is literally a name to me and a cipher beyond that,” said Douglas Holtz-Eakin, a longtime Washington GOP economic adviser and former director of the Congressional Budget Office. 

Although Mnuchin may be struggling to learn the ways of Washington, he does have an important patron: Trump.

In a way, they share the same pedigree. Both were born into wealth (Mnuchin drove a Porsche in college) and generated even more during their careers.

Trump’s background was in real estate and Mnuchin’s was in banking, but both had a hankering for entertainment and celebrity that drew them close. Even while on Trump’s campaign, Mnuchin remained an active Hollywood producer.

During the campaign, the two traveled together extensively, and Mnuchin surprised a number of Trump’s other aides when he took a front-and-center policy role during the transition into the White House, helping design tax and infrastructure programs that were to be the centerpiece of Trump’s presidency.

People who have met with him at Treasury describe him as polite and curious, with an unabashed affection for Trump that can cloud his message.

During a speech early in his term, Mnuchin said that Trump had “superhuman” health. At a news conference in Canada, Mnuchin criticized former FBI director James B. Comey for leaking details of conversations with Trump. Typically, Treasury chiefs avoid getting dragged into news-of-the-day politics at all costs. And Mnuchin recently said the president “handled it brilliantly” when meeting with Russian President Vladi­mir Putin.

To be sure, Mnuchin appears to be enjoying the trappings of being a cabinet secretary. He meets weekly with Federal Reserve Board Chair Janet L. Yellen, often for breakfast or lunch, to discuss a variety of financial market issues.

His wife, actress Louise Linton, has accompanied him to at least two congressional hearings, an unusual occurrence.

Whereas Lew seemed to eschew all the security and publicity — he once stood alone at night in Union Station waiting for his wife to get off a train — Mnuchin travels differently. He was recently seen leaving a Washington custom tailor shop in the middle of a workday with a group of Secret Service agents. His wife gave an interview to Town & Country magazine detailing all the types of diamonds and pearls she would wear at their June wedding.

Mnuchin has made clear that a tax overhaul is a focus of the president, tied to a broader goal of growing the economy at a rate of 3 percent a year, compared with 1.6 percent last year.

Economists say that is unlikely in any sustainable way — and roundly agree that, if the debt limit isn’t increased, the economy will begin contracting, not expanding. 

But on the signed news clipping in Mnuchin’s office, Trump made clear that even growing the economy at a moderately faster pace would not be sufficient. Right after he wrote how proud he was of Mnuchin, he added, “5% GDP.”

 

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The US Is Staring Down A Technical Default - 5 Scenarios of Debt Ceiling
« Reply #59 on: August 04, 2017, 01:28:16 PM »
http://www.zerohedge.com/news/2017-08-03/us-facing-technical-default-here-are-five-debt-ceiling-scenarios



“The US Is Staring Down A Technical Default” – Here Are The Five Debt Ceiling Scenarios

Aug 3, 2017

In a note released on Monday commenting on the looming US debt ceiling showdown and the growing threat of a government shutdown and technical default by the US, Compass Point analyst Isaac Boltansky said he is becoming increasingly concerned that fall deadlines for federal government funding and the debt ceiling will prove tougher than the market currently expects, resulting in “markets roiled heading into 4Q and Fed’s policy normalization trajectory facing complications.” He adds that the increasingly fragmented legislative landscape may be set to “transition from inaction to dysfunction”, citing such factors as:

    Lawmakers return in Sept. with no clear strategy
    GOP leaders will likely be forced to rely on sizable contingents of Democrats
    Current spending caps for FY2018 are “despised” by both Democrats, Republicans, but for wholly different reasons
    White House’s position remains unclear as Treasury Sec. Steven Mnuchin has repeatedly called for a clean debt ceiling increase, but over the weekend President Donald Trump and OMB Director Mick Mulvaney suggested putting legislative activity on hold until health care is addressed

As a result, Boltansky sees odds of govt shutdown as materially higher than the likelihood of reaching debt ceiling as core components of spending fight (including border wall funding) are “meaningfully more politically complicated” than raising debt ceiling; his base case is for the federal government to face a brief shutdown in early October.

While that may be a little extreme, the reality is that with Congress critically fragmented, and with increasingly more politicians chosing to ignore anything that comes out of the mouth of the president, a happy ending is by no means assured and, as Boltansky suggests, “market event” may be necessary to spur Congress into action, similar to the passage of the TARP bill.

For a more nuanced look we go to SocGen’s Stephen Gallagher which lays out the debt ceiling events over the next 2 motnh, as well as the 5 scenarios on how the debt ceiling drama, 2017 edition, will play out:

Debt limit divisions & decisions

The House is in recess until early September, but lawmakers will return with just 12 legislative calendar days in which to raise the debt limit or risk a technical default, . Unlike the 2011 and 2013 episodes, however, this time is indeed different, with Republicans in charge of Congress and the White House. Nevertheless, intraparty politics are still fraught with dangers. Here are some of the details of the debt limit, as well as the political dynamics involved in getting a deal done. In addition, we look at how politically-induced volatility could impact rates.

Debt limit background

As part of the negotiations that produced the Bipartisan Budget Act of 2015, which was signed into law in early November 2015, the debt limit was suspended at $18.1 trillion until March 2017. The suspension allowed the Treasury to borrow whatever it needed in the interim so that it could continue to make payments and meet its obligations. In March, the debt limit was reset higher to account for the additional amount Treasury had borrowed, at the new level of $19.8 trillion. However, the reset did not allow Treasury to exceed that limit. Treasury resorted to a tactic, known as “extraordinary measures,” that it has used in the past to continue issuing new debt to pay for existing bills. However, these extraordinary measures only provide temporary relief for the Treasury. If Congress does not either suspend the debt limit until some future date, or raise the level of the debt limit, Treasury will have far less cash on hand than needed to meet its obligations on time, an outcome that ratings agencies in the past have said would amount to a technical default.


Where we stand today on the debt limit

On Friday, Treasury Secretary Mnuchin sent a letter to Congress informing lawmakers that he currently expects that Treasury will exhaust the extraordinary measures by September 29, so Congress must address the debt limit prior to that date. Meanwhile, the CBO recently indicated that Treasury would have enough cash on hand to pay its bills until early-to-mid October. In either case, the House is currently on recess until early September. When lawmakers return, they will have 12 legislative days before September 29 in which to raise the debt limit.

In recent years, raising or suspending the debt limit has become a partisan weapon. During the Obama presidency, conservative Republicans threatened not to raise the debt limit on several occasions unless the increase was accompanied by substantial cuts in domestic spending, or unless the President agreed to scale back or repeal the Affordable Care Act. This brinksmanship led to the downgrade of the creditworthiness of US sovereign debt in 2011, played a role in the episode that resulted in the 2013 government shutdown, and was also at the center of negotiations that resulted in the Bipartisan Budget Act of 2015.

However, this time is indeed different. Republicans control both chambers of Congress and the White House. In theory, that should make it easier for them to tackle the debt limit. Instead, intraparty infighting over how to address the debt limit has already raised concerns that a resolution will come down to the very last minute, a scenario that has the potential to roil markets.

Fiscal deadlines collide

Treasury Secretary Mnuchin has indicated that the White House wants to see the debt limit increased with no strings attached. However, the so-called Freedom Caucus, a group of approximately 30-40 conservative Republicans who consistently voted against debt ceiling increases during the Obama years, have vowed to oppose an increase without deep spending cuts. Republican leaders in the House cannot afford to lose more than about two dozen votes, so if the Freedom Caucus withholds its votes, Speaker Ryan would need to pivot to get support from Democrats, who will likely demand something in return, as the GOP did during the 2011, 2013, and 2015 debt limit standoffs. As if those were not already difficult enough dynamics, further complicating matters are two other important, and related, issues, both of which will require help from Democrats in the Senate.

First, the government must pass a new budget for Fiscal Year 2018 by the end of September or risk a government shutdown that begins on October 1. Republicans remember that they were largely blamed by the public for the 2013 shutdown, so leadership will be keen to avoid a repeat, especially in light of their failure to advance a health care bill.

Second, Republicans passed four of twelve appropriations bills in the House recently. One of those bills increased outlays on the military by $70 billion. However, if spending at that level makes its way into a final bill in Congress, it would put military spending above agreed-upon spending caps that were part of the Budget Control Act of 2011 (BCA). Any change to the caps will require the aid of Democrats in the Senate, as it will need 60 votes to pass. Democrats will be unwilling to boost military spending without a corresponding rise in non-defense discretionary spending (an agreement to raise caps on both areas was actually accomplished in the Bipartisan Budget Act of 2015, but it was only for two years). Additionally, the House-passed bills include money for the border wall, something that Democrats have long opposed

What might Congress do?

The House needs to get to 218 votes on the debt limit, and the Senate will need 60 votes to find a resolution. Of course, the problem for Republicans in recent years has been that a compromise in the Senate that garnered 60 votes on fiscal issues alienated a number of conservatives in the House and required the help of a substantial number of House Democrats to pass. Indeed, when the Freedom Caucus consistently voted against prior debt limit deals, former Speaker Boehner relied on votes from Democrats to reach the magic number. Below, we provide a few scenarios for passing the debt limit and place (admittedly subjective) probabilities on them. We caution that these scenarios are by no means exhaustive. Negotiations between the two parties will likely only get underway in earnest in a few weeks, so the situation remains very fluid.

    Scenario 1: Raising the caps on both defense and non-defense spending (35%)

Under this scenario, the debt limit would be increased as part of a budget deal that raised both defense and non-defense spending by equal amounts, similar to what occurred as part of the Bipartisan Budget Act of 2015. It would almost certainly be opposed by the Freedom Caucus, but it will likely garner the support of Democrats in both chambers. Those negotiations could still be imperilled by poison pills (e.g. money for the border wall), but if the result is an increase in non-defense spending, Democrats may be willing to go along. The 2015 Act could serve as a blueprint, both parties would get the types of increased spending they desire, and most importantly, it could allow the GOP to move past these fiscal issues and focus their energy on getting tax reform passed in both chambers before the end of the year.

    Scenario 2: Kicking the can down the road (25%)

Passing a continuing resolution (CR) that extends funding for the government at current levels and also suspends/increases the debt limit for some time may be an appealing option for both parties if no resolution to the issue seems likely. However, the length of the CR is up for debate. On the one hand, Democrats may be unwilling to offer Republicans a reprieve of several months, fearing that it may give the GOP enough time in which to pass their top legislative priority and score a “win.” On the flip side, Republicans are unlikely to be held hostage to short-term increases in the debt limit. Still, a short-term CR (e.g. one month) could provide some breathing room to reach a broader deal on the budget anddebt limit that mirrors Scenario 1.

    Scenario 3: A straight increase with no strings attached (20%)

This may be the easiest approach, but it also relies on Republicans needing only eight votes from Democrats in the Senate. A no strings attached bill to increase the debt limit would be politically unpalatable to the Freedom Caucus, but it could garner the support of Democrats in the House who we suspect may not want to be seen as playing politics with the health of the economy and financial markets, something that they continually chastised Republicans for during prior debt limit negotiations. That is also true of the number of Senate Democrats at risk in the 2018 mid-terms. Additionally, it would allow Democrats to claim that they can work in a bipartisan manner, and it would also allow them to focus their firepower on the budget negotiations, where they have leverage.

All that being said, if it becomes clear that a substantial number of votes from Democrats are needed, they may unite in opposing a straight increase unless they get something in return. As Minority Leader Pelosi noted in early June, “I don’t have any intention of supporting a lifting of the debt ceiling to enable the Republicans to give another tax break to the wealthy in our country.” The margin of error for Republicans here will be key.

    Scenario 4: Attaching a debt-limit amendment to must-pass legislation (15%)

This scenario is currently being contemplated in the Senate, which will likely take the lead on the debt limit given that the Senate is in session until mid-August while the House is away until early September. Majority Leader McConnell has floated the idea of tying a debt limit increase to a must-pass bill like the Veterans Choice program. That piece of legislation was enacted in response to long wait times at Veterans hospitals, and the program may run out of funding this fall. It would create a difficult vote for Democrats in the Senate, but they could balk it given the partisan nature of the move.

    Scenario 5: A budget resolution that allows for a simple majority to raise the limit (5%)

Had the House passed a budget resolution, the Senate could have attached a debt limit increase to it and passed it with a simple majority vote. As of now, there is no budget resolution as House Republicans continue to wrangle over cuts to mandatory programs. The House is in recess now, but if they are able to agree on a budget resolution and pass one when they return in September, it could allow the Senate to pass a debt limit increase with just 50 votes (with Vice President Pence casting a tie-breaking vote). Given the divisions in the House on what exactly the budget resolution should contain, we place low odds on this scenario.

In any case, all of these scenarios are likely to become clearer over the next two weeks, as the Senate could move on scenario 3 before mid-August. If it fails, then it would increase the odds of the first two scenarios being the likely vehicle for a debt limit increase. Regardless, as has been the case in recent years, it could become a volatile time for markets.


She was supposed to have won....

BAH HAHAHAHAHAH

 

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