I decided to revisit my conceptions on the inevitable DOOM! scheduled to arrive next Wednesday, and I’ve got bones to pick with, and promptly bat about the heads of, everybody. This is a bit longer than a typical Captain Tenneal monologue at the start of “MXC”, so if your ox hasn’t been gored, keep reading and it will be.
First things first, I’m still of the opinion that House Speaker John Boehner royally misplayed things. He really should have walked away once “Cut”, Cap and Balance (there’s a reason why one of those words is in scare quotes; more in a bit) got tabled in the Senate. However, had he felt the need to put a Plan B out there before either Senate Democrat Leader Harry Reid or President Barack Obama put a Plan A up in legislative form, here’s what he should have said (in more-diplomatic terms, of course):
You don’t want a Balanced Budget Amendment? Fine; we plan on getting enough conservatives here and across the Routunda to send it out to the states in 2013. You don’t want to deal with this again until 2013? Here’s how that’s going to happen. You pass our budget and the appropriations based on it, and we’ll pass a $2.0 trillion debt increase to get this into 2013. If you don’t like that, lots of luck, gentlemen. By the way, that means instead of spending $29 billion more than the CBO baseline adjusted for the effects of the current continuing resolution and beginning the wind-down of the Global War on Terror, we’ll be spending $98 billion less.
I suppose it’s time to do the lengthy side note on why HR 2560 is “Cut”, Cap and Balance, with “Cut” in scare quotes. Nobody actually asked the CBO to score CCB, so that devolves to me. We start with the $1,225 billion limit on outlays for discretionary spending other than that on the Global War on Terror. The outlays on the GWOT, based on the $127 billion in budget authority for the same in both the President’s budget and the House budget, would be $118 billion. The “uncapped” portion of direct spending (what is often misleadingly-labelled “mandatory spending”), which consist of the majority of Social Security, Medicare, veterans benefits, and net interest, would come to $1,632 billion. The “capped” portion of direct spending is $681 billion. Add all that up, and it comes to $3,656 billion in total spending. Unfortunately, once the effects of the final FY2011 continuing resolution and the agreed-to-by-everybody GWOT spending are put into the March 2011 CBO baseline (or a net -$12 billion), the CBO baseline comes to $3,627 billion. That’s neither exactly Hertz nor exactly a cut.
On the other hand, the Cap part adopts as the spending ceiling the percentage of GDP the House budget would spend that year beginning with FY2013, that would a significant and immediate reduction of debt compared to the adjusted CBO baseline. In fact, the “short-term” FY2012-FY2013 deficit reduction would be somewhere north of $125 billion versus Boehner 1.0.2’s $63 billion, and be almost indisguishable to the House budget total 10-year deficit of $5.1 trillion, or a solid $1.5 trillion less than the $6.6 trillion in deficit spending indicated by said adjusted CBO baseline.
You may have noticed that is nowhere near the “$4 trillion in deficit reduction” the credit rating agencies want from an unspecified baseline, or even $2.5 trillion-$2.8 trillion in deficit reduction that a 1-to-1 ratio of debt-ceiling hikes to spending cuts call for. If you think that it’s possible to get the 10-year deficit from $6.6 trillion to $2.6 trillion, I wish you the best of luck, and then point you over to Wisconsin, Greece, France, and Portugal, where a whole lot of the populace (and in the case of the foreign countries, a majority of said populace) has been in a non-stop temper tantrum over far less cutting measures of austerity. It is, however, well over $4 trillion less in deficit spending than Obama’s budget, which envisions $9.5 trillion in deficit spending.
Back to the here-and-now beatings. I will, for the point of this post, ignore the fact that Boehner and McConnell were all-too-willing to return to permanent minority status before Obama decided he wanted it all, and go to Boehner 1.0.x. The first version was an unqualified disaster; even Reid’s all-defense-cuts plan, which won’t even be voted on until Boehner 1.0.3 receives the same cement burial that the House budget and CCB received, managed to create more scoreable cuts, and the scored cuts were less than the first phase in debt-ceiling increase. The second version was a minimum effort to beat Reid on the spending score, and it barely did both that and hit the 1-to-1 hikes-to-cuts ratio (against the toughest scorecard the CBO has in its files, no less) at the cost of the caucus and any semblance of bipartisanship, which “C”CB had. Of course, since it doesn’t automatically absolve Obama and Reid of having to deal with the debt ceiling again next year, it’s been declared dead-on-arrival, with Reid promising a tabling in 30 minutes (or the next one’s free). It also represented, even though it wasn’t voted on, the “ceiling” the House Republicans can possibly get.
At that point, Boehner had a choice of either bringing back the “Cap” or bringing back the “Balance”. He chose poorly from the negotiating standpoint – the BBA is a singular take-it-or-leave-it item, while the additional $1.4 trillion in identifiable deficit reduction in “Cap” is far more negotiable. At least Boehner managed to raise the ceiling a little bit, and probably more important, get the caucus back together.
One more thing – if we had a rational actor in charge of deciding which bills get paid once 8/3 rolls around without additional borrowing authority, I would be marginally less worried about the expansion of the default situation. That’s right; once Treasury Secretary Timothy Geithner had to start juggling accounts around and stop fully-funding the federal employees retirement system, we were in a default situation. The saving grace is that since there is enough cash available to pay all the actual bills, there was no real pain felt.
That will change soon, and can change at the drop of the hat (or in this case, the utterance of an order). Once that shell game is insufficient to keep the cash flowing, there is going to no longer be enough money to pay all the actual bills. While technically Geithner could likely keep up the shell game for a week or so beyond August 2, for political reasons, that is the drop-dead date.
The bad news is this is not a lack-of-appropriation shutdown, so beyond the Constitutionally-mandated servicing of the public debt, the entirety of the payments on federal obligations is up to the sole discretion of the executive branch. Yes, this includes the servicing of intragovernmental debt, which, if not fully-serviced, would be a technical default.
The ugly news is that the decision of whether or not to escalate the default situation is no longer in the hands of anybody in Congress. Once the calendar flipped over to 7/22, Obama gained the ability to bury any bill sent to him by Congress until after the 8/2 DOOM! date. The fact that he walked away from a deal that he and all four leaders of Congress had that would have given him almost every economic, and every political, element he could possibly want on that date tells me just about everything I didn’t want to know about how next week will play out.
As Monty over at Ace of Spades HQ is fond of saying, we’re boned.