Thursday, October 17, 2013
Responsible Leadership Averts Default
My last post on the debt debacle showed that as a result of extreme politics regarding the debt limit and funding the government the US economy: 1) has lost $150 billion in foregone output; 2) suffered employment losses totaling 900,000 jobs; and 3) must now pay up to $15 billion in additional interest payments per annum on our debt. Why?
Well, its hard to get a better source than the credit rating agencies. The Fitch credit rating agency put the US on negative watch on October 15, 2013 for "political brinksmanship" on the budget and debt limit. Here is the direct quote from Fitch regarding the primary reason for its action:
"The U.S. authorities have not raised the federal debt ceiling in a timely manner before the Treasury exhausts extraordinary measures. The U.S. Treasury Secretary has said that extraordinary measures will be exhausted by 17 October, leaving cash reserves of just USD30bn. Although Fitch continues to believe that the debt ceiling will be raised soon, the political brinkmanship and reduced financing flexibility could increase the risk of a U.S. default."
This harkens back to the Standard & Poors downgrade of 2011, also reported on this blog:
"The political brinksmanship of recent months highlights what we see as America's governance and policymaking becoming less stable, less effective, and less predictable than what we previously believed. The statutory debt ceiling and the threat of default have become political bargaining chips in the debate over fiscal policy … [This] weakens the government's ability to manage public finances."
I want to focus first on the those who stood up and made sure that the US Government did not default on its obligations. Speaker John Boehner, for example, deserves credit for keeping his word--that he would not permit default--and taking the bill raising the debt limit to the floor of the House last night. In defying extremist pressure from the far right extremists in his party Boehner displayed exemplary leadership. The same holds true for the 87 GOP representatives in the House who voted against default.
Senators Murkowski, Collins and Ayotte also deserve huge kudos for forging a bi-partisan coalition against default in the Senate. They too took a powerful stand in favor of keeping America strong and safe along with 24 other GOP Senators.
Similarly, the Business Roundtable, the lobbying group for American CEOs, (not usually a fan) deserves credit for clarifying the economic stakes of the default vote. Here is their statement:
"Now that the U.S. Senate has passed a bipartisan agreement to end the government shutdown and raise the federal debt ceiling, America’s business leaders strongly urge the House to follow suit immediately. The government shutdown and flirtation with default have dealt a severe and entirely avoidable blow to America’s reputation around the world while harming economic growth and job creation."
Finally, President Obama must be applauded for essentially refusing to buckle to extra-Constitutional mechanisms to thwart the normal lawmaking processes of the US Government.
In my next post, I will discuss the reckless and irresponsible individuals and organizations that wanted a costly, anti-American, and unpatriotic default.