Breaking .. Natural Evolution

CNN is reporting that Larry Summers is leaving the President's economic team, as part of a 'natural evolution,' in the composition of that team.  That leaves only Geithner from the President's original economic team, and he's been receiving quite a few mixed signals.

Maybe Boehner had an effect after all.

Raising the Debt-Ceiling Will Impress Our Lenders?1

On August 5th, I wrote about the three possibilities for Congress to deal with ballooning expenditures and debt: '... there are only three options available to he and to the Congress: cut spending (not going to happen with all the continued spending proposals), allow the debt to balloon to the point where we create long-term stagflation (which will kill any possibility of a second term), or increase income in the form of taxes.' In that same post I also discussed Treasury Secretary Geithner and Larry Summers floating the idea of raising taxes on all but the poor. Now Geithner wants Congress to pick door-number two, requesting that it raise the debt-ceiling from $12.1 trillion (where it was set to accomodate the stimulus package) to an as yet undetermined amount. The annual deficit expanded to $1.3 trillion in the first six months of the year, and is expected to hit $1.8 trillion by October when we also are expected to reach the current debt ceiling.

Geithner's argument? '"It is critically important that Congress act before the limit is reached so that citizens and investors here and around the world can remain confident that the United States will always meet its obligations," Mr. Geithner said in the letter.' This request is already raising a debate about the effectiveness of the debt ceiling and the message we send to our lenders:

'"It's a clear that we've got a sign that we've got a federal government that is out of control from the fiscal standpoint," said Rep. Tom Price (R., Ga.), who leads the conservative Republican Study Committee in the House. "I don't see how anyone can vote in favor of an increase in the debt ceiling and say they're doing it is a responsible way." Robert Bixby, executive director of budget watchdog the Concord Coalition, said the debt ceiling has little practical application in curtailing government spending. "You can't not raise it, because if you do, the Treasury in effect would be defaulting on the debt, which would be crazy," Mr. Bixby said. "It doesn't really provide a whole lot of restraint."'

Continuing down this road of out-of-control deficit-spending may very well force us through both increased taxes and the type of debt cycling we experienced in the late 1970s and 1980s. During that period, deficit loads increased dramatically enough that the nation was forced to print money, devaluing the currency and helping to create stagflation. What a legacy that would be. Further, there is no particular reason why increasing the debt-ceiling while failing to reign in spending will reassure our lenders (particularly China which has expressed increasing concern over our current fiscal policy). Congress and the Obama Administration may be collectively pushing us into a situation from which there is no clear or easy return.

The CBO Continues to Deep-Six Obama Proposals

From the failure of the current 'cap and trade' proposals to do much to either help the environment or limit cost over-runs, to the current health-reform proposals (with analysis sent by request to members of Congress here), to the long-term effects of various budget proposals, the CBO has continued to throw cold-water on Congressional and Administration claims that the stimulus, annual budget, and spending proposals will do much if anything to help the economy. Much of their analyses point to a further increase of both annual deficits as well as the national debt, and to an increase in costs. And yet, Congress and the Administration continue to hawk their proposals as benefiting the overall economy, decreasing the debt and deficit and improving the prospects of middle-America.

Now it seems that there is a serious debate within the Administration about the raising of taxes on the middle class. Timothy Geithner and Larry Summers, both of whom were heavily involved in the current economic meltdown prior to entering the Administration, have floated the idea as a necessity to reduce the deficit. While President Obama certainly doesn't want to look like he's backing out on his version of the 'read my lips pledge,' there are only three options available to he and to the Congress: cut spending (not going to happen with all the continued spending proposals), allow the debt to balloon to the point where we create long-term stagflation (which will kill any possibility of a second term), or increase income in the form of taxes. Given the ambitions and preferences of both the Congressional leadership and the President, it's pretty clear that continued tax hikes for most income levels are in store. Some increases may be hidden (as in the cap and trade package), and some may be open (after all, taxes are our 'patriotic duty' according to VP Biden, who also has declared that the stimulus is a success), but they're going to happen. Another clue: 'Everyone must sacrifice' according to President Obama.

The bribery of Sen. Dodd

The Washington Times has published an article that walks right up to the line of accusing Sen. Dodd of outright bribery and corruption. According to the article:

'As Democrats prepared to take control of Congress after the 2006 elections, a top boss at the insurance giant American International Group Inc. told colleagues that Sen. Christopher J. Dodd was seeking re-election donations and he implored company executives and their spouses to give.
The message in the Nov. 17, 2006, e-mail from Joseph Cassano, AIG Financial Products chief executive, was unmistakable: Mr. Dodd was "next in line" to be chairman of the Senate Banking, Housing and Urban Affairs Committee, which oversees the insurance industry, and he would "have the opportunity to set the committee's agenda on issues critical to the financial services industry.
Now, two years later, Mr. Dodd has emerged as a central figure in the government's decision to let executives at the now-failing AIG collect more than $218 million in bonuses, according to the Connecticut attorney general - even as the company was receiving billions of dollars in assistance from the Troubled Asset Relief Program (TARP). He acknowledged that he slipped a provision into legislation in February that authorized the bonuses, but said the Treasury Department asked him to do it.'

Sounds like bribery to me. Of course, Dodd blames the whole mess on the hapless Treasury Secretary and Larry Summers. Barney Frank likes to say that the AIG executives took bribes by accepting their bonuses. That's rich coming from Frank, who took large amounts from Fannie, Freddie and AIG, but if one accepts it on its face, then demanding re-election funds surely qualifies as a bribe.