Stan Collender's Capital Gains and Games

Is This The Economic Dark Ages In The U.S?

Stan Collender — Wed, 30 May 2012 02:48:21 PDT

My guess is that Paul Krugman thought that this post was one of the more trifling economic-oriented pieces he has written in a while. It was short and probably took little time. It was also seemingly commonplace. After all, it was about a politician who said something inherently and obviously false.

But I found it to be extremely disturbing, not because it was off-the-wall -- it's anything but -- but because it described a behavior -- bald-face lying -- that has become so blatant and commonplace among Republican policymakers on economic issues that any one of them who is even slightly honest and candid now would be both an absolute rarity and a welcome relief.

And the fact that the GOP lying about the economy...and especially the budget...is so accepted and expected means that any Republican who wasn't jump-the-shark ridiculous on these issues wouldn't be allowed to stay in the party much longer.

The obvious frustration that Krugman expresses in the post (not to mention the almost back-of-the-hand way he swats away Governor Chris Christie's one-liner about the strength of the New Jersey economy and in the process makes the governor appear ridiculous to anyone who takes the time to look at the facts) mirrors what I was thinking when I posted this about House Speaker John Boehner (R-OH) last week.

As I noted in the post, Boehner, who easily qualifies as the weakest and least effective Speaker in my lifetime and has to be included on the list of the all-time worst in U.S. history, demonstrated yet again that he'll say and do anything to stay speaker even when what he's saying about the budget can easily be shown to be nonsense and when he knowingly and without giving it a second thought threatens the well-being of the U.S. economy.

I'd say this doesn't bode well for the outcome of this year's federal budget debate, but that's both obvious and an understatement. It actually points to the a period in U.S. history that is very likely to be labeled by historians as its economic dark ages.

The Irresponsibility Of John Boehner

Stan Collender — Tue, 22 May 2012 03:01:20 PDT

There's not much I need to say to introduce my column from today's Roll Call other than that I really felt I had no choice but to write this as directly as I did. A special shout out to Roll Call for not blinking even once when I told them what I wanted to write this week

The Irresponsibility of Speaker John Boehner

May 22, 2012, Midnight

Like most federal budget watchers, I assumed that the extremely negative political reaction to the federal government shutdowns in 1995 and 1996 meant that tactic wasn’t likely to be threatened again, let alone actually used. That changed last year when a shutdown became the favored approach for many on Capitol Hill.

Although the timetable obviously was much more compressed, I thought much the same thing last summer after the extreme negative reaction to the fight over raising the federal debt ceiling also made that look less likely to happen again in the future. Despite the statements made by Senate Minority Leader Mitch McConnell (Ky.) and other Republicans that using the increase in the federal government’s borrowing limit as leverage to win policy changes was now the new standard operating procedure, the downside was so great that the threat seemed to be mere words.

I was sure that was the case because, unlike the situation in 1995 and 1996, the negative response to the 2011 debt ceiling increase debacle was more than political.

Yes, it was a political nightmare: The approval rating for Congress and the White House fell during and immediately after the battle. But the negative reaction was also material because it resulted in the downgrading of U.S. debt by one of the three major rating agencies.

The downgrade occurred not just because of a concern about the government’s capacity to pay the debt, which wasn’t really questioned but because of what Standard & Poor’s said was the growing inability of the U.S. political system to deal with its fiscal problems. The result was a significant hit to the government’s financial reputation. Most analysts I’ve spoken with are convinced that, were it not for the economic woes in Europe, U.S. interest rates would be much higher as a result.

It seemed so clear that not using the debt ceiling as a weapon had become the minimum price elected officials would have to pay to prevent another possible downgrade that I thought there was no way it would happen again.

That’s why the first major activity by a senior elected official on this topic since then — Speaker John Boehner’s (R-Ohio) choreographed events last week in which he repeatedly said he would prevent the debt ceiling increase that will be needed at the end of 2012 or the start of 2013 from happening unless he got what he wanted — was so exceptionally irresponsible.

I’m using the word “irresponsible” very deliberately.

Boehner is more than just a Member of Congress. As Speaker, he is next in line to the presidency after the vice president and the most powerful person in the House. That magnifies the importance of everything he says. Every Boehner pronouncement about an international issue, for example, is closely monitored around the world. Although the executive branch takes the lead in foreign policy, what the Speaker says typically generates an immediate response and, therefore, he usually treads carefully in this area.

I wish the same were true about what the Speaker does in connection with the federal budget. The Constitution gives Congress specific fiscal policy responsibilities — that makes what this or any Speaker says something that makes headlines and is taken very seriously.

Coming on the heels of last year’s downgrade, the very public way Boehner repeatedly issued his debt ceiling threat made it the equivalent of alerting S&P and the other rating agencies that little had changed since last summer. It also was an invitation to again downgrade U.S. debt.

To make matters worse, Boehner’s statements about the debt ceiling might encourage the agencies not to wait until the debate actually occurs to reconsider their ratings. His statements could provide them with all the evidence they need to justify a new review of the situation now. There’s no word for that other than irresponsible.

Boehner’s threat also was irresponsible because the immediate spending cuts he said were the only way he would allow a debt ceiling increase to be considered is the wrong fiscal policy for the current economic situation. At a time when businesses and consumers are still not spending and most state and local governments are continuing to cut back, the federal government is the only major gross domestic product component enhancing growth and creating jobs. Given the current slow recovery, the large spending cuts Boehner is demanding could push the economy back into recession.

It’s not hard to understand the political motivations behind Boehner taking the position he took on the debt ceiling. He needs the support of the House GOP caucus to remain Speaker. All indications are that, as has been the case since the 2010 election, House Republicans are not in a compromising mood on anything having to do with the federal budget.

Threatening another cliffhanger battle as he did last week doesn’t provide the leadership Boehner said was needed to deal with this. Instead of simply complaining that the president had “lost his” courage when it came to the budget, Boehner should have displayed some of his own.

Instead of following his caucus and doing the political equivalent of tying the debt ceiling increase to the track with a train barreling down, the Speaker should have been developing a way to avoid the downgrade and further erosion of confidence in the U.S. political system that, because of his action, is now more likely to happen.

CNBC Blows It On Bowles-Simpson

Stan Collender — Mon, 21 May 2012 03:16:06 PDT

CNBC isn't for everyone. But I've had it on it my office almost since the day it began, have been a frequent guest since it's earliest days, and think highly of a large number of its people in front of and behind the camera.

Which is why this story from Jeff Cox on CNBC.com was such a disappointment. Cox made the same mistake that others have made...or he drank the same Kool Aid the B-S Cult wants everyone to drink...when he said in his story that the commission had agreed to a report to reduce the deficit.

As regular CG&G readers know, the B-S commission did not issue or agree on a report. The two co-chairs recommended something but that wasn't even voted on let alone actually approved. Eleven of the commission's 18 members informally indicated they supported the co-chairs' recommendation, but there was no vote and the recommendation wasn't approved.

What was most disappointing was Cox's reaction when I tried to point out his mistake. His email back to me said that the fact that the recommendation (he called it a "report") didn't get the required votes was "a parliamentary issue" and that I was "overheated" about it not being approved.

No...I'm not overheated. What I am is is tired of B-S supporters claiming that it was a success and implying that the co-chairs' recommendation was accepted when the truth is that it was rejected and the B-S commission failed as badly as the hardly-super committee.

CNBC can do better. There was no B-S report and saying that there was... apparently intentionally...was a mistake that mislead readers.

Budget Cuts Have Consequences: Ask Andrews Air Force Base

Stan Collender — Mon, 21 May 2012 02:47:47 PDT

I can't tell you the number of focus groups I've watched and polls I read where the overwhelming opinion was that federal spending could be cut without any decrease in the quantity and quality of what the government does.

Hell...As I posted about in 2010, even the recommendation from the co-chairs of the Bowles-Simpson commission -- who definitely should have known better -- proposed a reduction in the number of federal employees and the number of consultants but, presumably based on the assumption that the government wouldn't have to stop doing anything it was already doing, didn't suggest any activity be eliminated.

That's why this story in The Washington Post from several days ago caught my eye. The Defense Department has decided that what since the 1950s has been an annual show for the public at Andrews Air Force Base (now officially Joint Base Andrews) in suburban Maryland will now be held every other year. The savings are projected to be $2.1 million a year.

I have no problem with this decision or the many others like it that no doubt will be made as federal discretionary spending continues to be squeezed. I have posted in the past about how, no matter how valuable it may be in some sense, the annual National Book Festival staged by the Library of Congress should not be held at all.

As my Beautiful and Talented Wife (The BTW) can tell you, I have often railed at similar federal activities (military color guards provided free of charge to pro sports teams are especially annoying) because of their cost. Yes...I take great pride in seeing the Blue Angels do maneuvers and have enjoyed military band concerts. But as a budget guy I see little reason to be paying for that rather than better armor and training for those actually doing the fighting.

Anyone want to bet how long it takes before someone on Capital Hill, most likely someone who claims to be a fiscal conservative, proposes to restore the funds so that this show continues to be held each year? My guess is that the decision will be reversed by October 1 when fiscal 2013 begins.

Boehner Debt Ceiling Statement Wasn’t Surprising; Might Have Been A Huge Miscalculation

Stan Collender — Wed, 16 May 2012 08:18:51 PDT

No one should have been surprised that House Speaker John Boehner yesterday said that he was going to go to war this fall with the White House over the debt ceiling.

Boehner simply doesn’t have the freedom from the House Republican caucus to move away from that extreme/take-no-prisoners position at this point in the year. Had he in any way indicated five+ months before the election and 7 months before not raising the debt ceiling will become a critical problem that he was willing to avoid a fight (let alone use the word “compromise’), Boehner would have been immediately slapped down by other House and Senate Republicans and had one or more GOP members announce that they were going to oppose him for Speaker.

Boehner had no choice and his statement on the debt ceiling was totally predictable.

However valuable Boehner’s hard line was with the base, it’s hard to imagine that his position will help the GOP in any way with the independent voters they will need to be successful in November. His statement and hard line position will remind independents of what they felt last August when, in the wake of the cliffhanger ending, the approval rating for Congress fell to single digits.

Bottom line: This simply was a play by Boehner to keep his job and should not be assumed to be an accurate prediction of what’s to come on the budget in the lame duck session.

Last Week's House "Reconciliation" Bill Was A Hoax

Stan Collender — Tue, 15 May 2012 02:16:29 PDT

My column from today's Roll Call explains why the "reconciliation" bill the House passed last week that the GOP leadership was so proud of and wanted everyone to think was a major accomplishment in reality was a scam, sham, and as close to a budget hoax as you can get.

House ‘Reconciliation’ Bill Was Anything But

Unless the House decides to consider another makes-no-sense-and-has-no-effect bill such as the “reconciliation” bill it passed last week, the fiscal 2013 budget process essentially is over and done with until after Americans go to the polls in November.

Yes, action on appropriations will be needed by the time the fiscal year begins Oct. 1. But even if there is some spending Sturm und Drang, the most likely outcome at that point will be a bipartisan shrug of the shoulders and a short-term continuing resolution that avoids a government shutdown before the election.
That will keep federal departments and agencies funded through part or all of the lame-duck session of Congress that now seems 100 percent inevitable.

So why did the House last week debate and pass the Sequester Replacement Reconciliation Act? Not only is the name a complete misnomer, but the bill won’t accomplish anything.

First, it has nothing to do with reconciliation. Reconciliation can only occur pursuant to instructions in a budget resolution conference report approved by both chambers of Congress. With the Senate unwilling to consider a budget resolution this year, there will be no such agreement.

In addition, reconciliation is the procedure the Congressional Budget Act allows to be used to make changes in mandatory spending and revenues. The House-passed bill focuses on appropriations, and those changes are supposed to be implemented in a different way.

That makes use of the reconciliation label and the implication of the bill’s importance both grossly incorrect and substantially overstated to the point of being all hype and spin. It would have been just as accurate to call what the House passed a constitutional amendment as it was to refer to it as reconciliation.

Second, even if the bill were enacted, it wouldn’t actually replace the sequester — the spending cut that will occur Jan. 2 because the anything-but-super committee failed to agree on a deficit reduction plan. It might be an alternative, but it’s definitely not a replacement.

There are two theories as to why the Republican leadership moved ahead with this bill last week even though it wasn’t what it claimed to be and will never be enacted.

The practical theory is that the House passing the “reconciliation” bill in 2012 will make it much easier for the Senate to move quickly in 2013 to do the same if Republicans are in the majority in the next Congress.

That’s procedurally incorrect and, therefore, makes no sense. As with all other legislation considered but not enacted, this bill will die when Congress adjourns at the end of the year. The new Senate won’t be able to expedite the legislative process by simply taking up what the House previously adopted because, technically, the House will not have yet adopted anything and will have to do so again.

In fact, to do reconciliation next year, the House and Senate will both have to agree on a budget resolution conference report, pass their own reconciliation bills, resolve their differences on those bills and then each agree to the compromise — and that assumes they won’t have to deal with a presidential veto.

That’s a process that won’t be expedited by what the House did last week. Indeed, the most likely timetable for that happening is for both chambers to include a 2013 budget resolution with reconciliation instructions for that fiscal year when they debate and pass a 2014 budget resolution, and that most likely won’t start to happen until April or May at the earliest.

That means that, assuming a 2014 budget resolution is adopted next year, reconciliation for 2013 wouldn’t occur until around June 2013 — five months after the Jan. 2 sequester will have gone into effect.

The other theory about why the Republican leadership insisted that the misnamed, misleading and do-nothing bill be debated and passed is that it’s all political. Passing the bill gave the House GOP another way to show its commitment to cutting spending and demonstrated a desire not to go ahead with the Pentagon spending reductions that are part of the sequester.

In other words, it was just an election-year ploy.

This makes far more sense. The bill the House voted on last week will be great for many GOP candidates on the campaign trail because it will allow them to talk about their willingness to cut domestic spending, not cut military spending and move ahead with the budget process.

But recognizing it’s a political effort is an admission that last week’s debate on the bill really has nothing to do with the federal budget debate. The “reconciliation” bill is the best indication yet that those efforts won’t restart until after Nov. 6.

And in other news: The Treasury last week reported that the federal government had a $59 billion surplus in April. Not only was the surplus larger than expected, it was also the mirror image of last April’s more than $40 billion deficit. No matter what the direction, an almost $100 billion turnaround in any month is news.

There was a time when an April surplus wouldn’t have been news. Most Americans pay their individual income taxes in April, and until the past few years, that made a surplus typical. That makes this April’s results noteworthy and worth watching. If it’s the start of a return to budget normality, the overall budget deficit could begin to be much lower compared with previous years.

This Is Why No One In Washington Wants To Talk About Fiscal Policy

Stan Collender — Mon, 14 May 2012 03:11:33 PDT

Even though it actually was relatively big news, it's not at all surprising that last week's announcement from the Treasury that there was a $59 billion surplus in April wasn't hyped in any way.

As I posted about last week, the better-than-expected $59 billion surplus was an almost $100 billion change from the $40 billion deficit recorded in April 2011. That's an astounding reversal.

What makes it even more astounding is that, although April always used to be a surplus month (that is, after all, when most Americans file and pay their individual income taxes) this was the first April surplus in four years. Although one month doesn't make a trend and shouldn't automatically be assumed to be a sign of what's ahead, the April surplus is noteworthy and definitely is worth watching.

So why didn't the April surplus generate more news?

1. The White House doesn't really want to talk about the deficit even when it would be able to talk about a surplus. Doing that would give the GOP a chance to respond on an issue the administration would prefer to avoid. The back-and-forth on a subject that is politically damaging would last through several news cycles.

2. Talking about a monthly surplus would likely generate criticism from many within the Democratic Party who believe that, given the still-tepid recovery, that's the wrong fiscal policy at this time.

3. Talking about a one-month surplus would almost certainly require that the White House, Treasury, or OMB discuss the projected the deficit for all of fiscal 2012. While that's likely to be $200 billion or more less than what was recorded for 2011, the deficit will still be close to $1 trillion and that would be hard to defend.

This is a little-understood part of the federal budget debate. Even if the 2012 deficit was half of what it was in 2011, and even if that reduction were applauded by Wall Street and the economic community, it would still be a painfully difficult political issue. In fact, long after the deficit has fallen to the point where most economists are comfortable with it, the political advantage will still be with those who criticize it.

George Constanza Budgeting

Stan Collender — Fri, 11 May 2012 02:41:32 PDT

You remember "Seinfeld," the hit NBC show that proudly was about nothing?

If the show was still on the air doing original programs (It's obviously still on the air everywhere all the time in reruns), two federal budget-related events from yesterday no doubt would have inspired the writers and been the fodder for future episodes.

The first was the consideration and passage in the House of what was called the "Sequester Replacement Reconciliation Act of 2012." The fact that the bill was adopted by the House means...wait for it...absolutely nothing because it has no chance whatsoever of being enacted. And in spite of its name, it's not a reconciliation bill and even if it were enacted it wouldn't completely replace the spending cut -- the sequester -- that is scheduled to take effect on January 2, 2013.

Other than that it's very meaningful.

For the record, the vote was 218-199 and all of the ayes were Republicans. The no votes included 16 Republicans and 183 Democrats.

Yesterday's second nothing budget event was the surprise announcement by the Treasury that the United States recorded a more than $59 billion surplus in April.

On the one hand, not only was the surplus larger than expected, it was also the mirror image of last April's more than $40 billion deficit so the results could be an indication that the budget situation is changing for the better. This was, after all, the first monthly surplus since September 2008, that is, in close to four years. So even if April used to always be a surplus month, the fact that it was again in 2012 is as noteworthy as when it didn't happen 2009, 2010 or 2011.

On the other hand, a one-time one-month surplus cannot be assumed to be the start of a trend. It may be, but at this point anyone who says that is doing more wishing and hoping than solid analysis.

More important, even after the April surplus the overall fiscal 2012 deficit is projected to be close to $1 trillion and, therefore, is still a political problem.

In other words, it actually changes nothing.

The Cliff: Coming Soon To A Political Theater Near You

Stan Collender — Tue, 08 May 2012 03:58:01 PDT

As I explain in my column from today's Roll Call, if you're not yet angry about The Cliff, you soon will be and what's taking you so long?

Coming to a Political Theater Near You: The Cliff

I only realized how angry I was about the cliff several days ago when I started to outline this week’s Fiscal Fitness. By the time I sat down to write it several days later, I was fit to be tied and needed to avoid anything that included caffeine.

You know what I mean by the “Fiscal Cliff” — Federal Reserve Chairman Ben Bernanke’s ultimate Fed-speak for the budget apocalypse that could occur between Dec. 31 and Jan. 2. That’s when a series of existing federal-budget-related policies will expire and others will be triggered that could result in an economic calamity.

Actually, “could occur” masks the real situation. The truth is that the cliff is already scheduled to happen. It may be a crisis, but it won’t be unexpected: We know what’s ahead, the precise moment when it will occur and how it will happen.

The cliff includes substantial tax increases on most Americans and significant military and domestic spending cuts that will affect most individuals and almost every business. It also includes another debt ceiling cliffhanger that, if nothing else, could further convince lenders and rating agencies that, for political reasons, the United States is not as good a credit risk today as it has been in the past.

All of this will be happening during the most unstable political environment that could possibly exist — a lame-duck session of Congress — when the work of Representatives and Senators not returning to Washington, D.C., the following year typically is, to be charitable, less reliable. And that’s if they and their staffs, who all have to find new jobs, move or otherwise deal with their soon-to-be-dramatically-changed lives, show up at all.

The cliff has the potential to create some of the most incredible political theater this country has ever seen. It will include drama, Shakespearian-like tragedy, suspense and farce. If it happens, it will involve the murder of enough jobs that it will look like a whole season of “Dexter.” It also will rival HBO’s “Game of Thrones” for twists and turns about who is on top and who is aligned with whom. You’ll laugh, you’ll cry, and the suspense will be intense.

But no matter how great the political theater might be, the cliff really needs to be called what it actually is: pathetic policymaking.

Actually, calling it policymaking gives it way too much credit.

The cliff is the result of a steady series of policy breakdowns over the past few years, especially the multiple failed direct negotiations between the most senior executives in the government including the president, vice president, Speaker, and House and Senate Majority and Minority Leaders. It came after the Senate was unable to get enough votes to create its own budget commission and the presidential commission created in response didn’t get adequate support for a plan to move the process forward. Add in the acknowledged failure of the anything-but-super committee and the inability of the Senate’s “gang of six” to generate enough interest in what it wanted to do, and it becomes obvious that policies have been avoided rather than made.

I get it: The decisions on everything having to do with the federal budget are difficult and, if you’re running for re-election, best left until after Election Day. I also understand that, if you’re a Member of Congress, there’s a politically strategic value to wait until you know which party will be in charge of the House and Senate and the size of the majority before making a decision on how to proceed on the various revenue, spending, deficit and debt questions that have been left hanging. After all, you might get more of what you want after the election than before.

But I also understand more than ever before about how angry many outside the Beltway seem to be about the elections somehow being more important than the economy. Over the past two weeks I have spoken to five different groups that cut across the income and political spectrums, and all have expressed not just dissatisfaction but something close to total disdain about this situation. More than six months before it begins, the cliff is causing a great deal of heartburn.

My anger may be even greater than theirs because I don’t see there being enough time, votes, consensus or willingness to compromise for cliff-related agreements to be reached, translated into legislation, debated and enacted.
In addition, everything that has to be determined during the cliff is related in some way to almost everything else that has to be considered. For example, a decision on the sequester or providing 2012 alternative minimum tax relief, let alone on extending the tax cuts, will change the projected deficit and, therefore, the amount the debt ceiling has to be raised. That means that it really won’t be possible for anything to be decided until everything is decided.

It also means that the most likely outcome of the cliff will be “The Cliff 2: The Budget Strikes Back” coming to a theater near you at some point next year. The hype, complete with full-page ads, online commercials and previews in theaters, will begin to appear this fall.

Rosenthal Cartoon

Dan Rosenthal — Mon, 07 May 2012 18:22:41 PDT