The Econometrix

I think that the President should go out and give a speech much like the following:

The debt ceiling debate was created because of an inconsistency in the laws of this Nation.  Prior to this, Congress had always extended the debt ceiling to cover the spending and taxing decisions that it had already made. This time, by failing to raise the debt ceiling in a timely manner, they brought in to clear focus the legal conflict between the debt ceiling and the appropriations process, which results in a government budget law.

Thus, every option that we were forced to consider if the Treasury ran out of money was illegal.

Every option violated either an appropriations bill, the debt ceiling, or the US Constitution.

I will not allow this to happen again.

I pledge that I will not sign an appropriations bill that does not have an appropriate increase in the debt ceiling attached to it.

• Annual appropriations must contain sufficient room in the debt ceiling to cover that year’s appropriations, plus wiggle room for unexpectedly bad economic outcomes.
• Extensions of tax cuts that are not offset by revenue increases, must include an increase in the debt ceiling sufficient to cover all expected revenue shortfalls over the lifetime of the tax cut.
• Spending bills, even emergency spending bills, and continuing resolutions, will have to include an appropriate debt ceiling extension.

I would rather shut down the government because of lack of spending authorization than ever have the full faith and credit of the U.S. Government called into question again. 

Congress tied appropriations to raising the debt ceiling, I’m going to tie raising the debt ceiling to appropriations.  Let’s be honest with the American people about where the debt comes from; it comes from the spending and taxing decisions made by Congress.

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He could even say that to do so would be unconstitutional.  If a spending bill comes with a deficit spending obligation that is not covered by an authority to borrow, it may well be unconstitutional.

I have decided to use behavioral economics to improve my welfare.  There is a concept called costly commitment.  Where you set up a system that costs you money if you don’t do what said you were going to do.  Now, most of the time you have costly commitment, the enforcement is handled by someone else (say a deposit on an apartment rental).  But I’m going to try a bit of self-enforcement. 

*ahem*

I am going to put $5 in a kitty for the benefit of WAMU (the local NPR station) every day I do not work out in the month of August (starting yesterday).

 (Announcing my costly commitment mechanism supplements the “cost” of not adhering to my workout commitment by adding embarrassment.) 

I am actually going to see if I can draw in some co-workers, and make it so that he/she that does the best at their commitment activity, gets to choose the charity to which we all contribute out costly commitment money.  I think the competitive factor (and the public nature of having others looking over my shoulder) would help.

But if it just me, or just me this month, then I’ll bundle it up and send it to WAMU. I’ve been meaning to contribute to them anyway.

Some random thoughts on subject…

My first thought is that the Tea Party successfully cut off the country’s economic nose.

The country is teetering on a double dip recession.  This is the wrong time to have manufactured consumer and business uncertainty out of nothing.  It is hard to imagine that not knowing if the government was going to be forced to stop paying bills didn’t affect a lot of decisions all over the country, both business decisions and consumer decisions.

The possibility of a double dip recession also makes it a bad time to start cutting government spending, particularly subsidies to cash-strapped state and local governments and the social safety net.

If we get downgraded, it won’t actually be because of long run debt projections, regardless of what the rating agencies say, it will be because the unthinkable has now become a possibility that people will have to consider when they buy American debt.

Obama needs a backbone supplement.

The best thing for the country and the debt rating would have been to say,  

“Anyone can see that these laws, the debt ceiling and the most recent appropriations bill, are in conflict. As you, Congress, handed me a budget more recently than the debt ceiling legislation, that is the law that I am legally required to enforce. Because the more recent appropriations legislation supersedes the debt ceiling legislation, if you want the debt ceiling to be binding, you will have to pass it subsequent to the budget, and with a list of things that I am not to pay, if we run out of money. If you don’t agree with me, let’s ask the Supreme Court which of two conflicting laws I should follow.  I’m sure they will agree with me.  Thus, if you want to continue to have a legislative limit on the amount of debt that Treasury can issue, you had better have something on my desk by May 16^th, 2011.”

Now that this particular position is not longer a credible option, he should never again sign another appropriation bill that does not have the debt ceiling increase to go with it.  The Bush tax cut extension bill would have been the perfect place for a debt limit extension.  Shutting down the government because of a lack of an appropriations bill is a better option than facing another possible default.

Calculated Risk has a post today about institutions trying to maneuver to protect themselves from a possible default. 

I must confess that I had expected this to happen earlier.   The markets have been eerily unconcerned.   At this point, I think that the markets are going to have to react in a big way before Congress has the ability to move, and I would like that to be before, rather than after, Treasury bounces a few checks.

the government dump a bunch of gold onto the market. It would be a "two birds with one stone" kinda thing. It would signal that the time is short and default is near, so Congress you had better get serious. It would hold off actual default. And it would let the gold-bugs, who are many of the same people who think default would be a useful belt-tightening exercise, know that that there might be outcomes that they had not thought of.

The problem with holding gold as a portfolio asset is that the gold reserves of sovereign nations and the IMF are vastly larger than the size of the transaction market for gold.

But I think everyone can agree that the government should start selling assets, which it can legally do, before it starts illegally withholding payment on any number of activities for which Congress has directed it to pay.