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Democratic Senators Rip Corporate Lobby for 'Cheerleading' GOP Default Threat and Tax Cuts
"The American people deserve to understand why you are supporting even more deficit-busting tax giveaways for giant corporations, while also cheerleading Republican demands to inflict painful, job-killing austerity on everyone else."
May 27, 2023
The Republican Party's debt-ceiling hostage scheme has benefited from the support of the United States' largest corporate lobbying organization, which has given its stamp of approval to the GOP's push for major federal spending cuts, punitive new work requirements for aid programs, and permitting changes sought by the fossil fuel industry.
While House Speaker Kevin McCarthy's (R-Calif.) office has reportedly not met with representatives of the U.S. Chamber of Commerce during the debt ceiling standoff, a representative of the powerful business group said earlier this week that such a meeting would be pointless given that the Chamber and the GOP are so closely aligned.
Neil Bradley, the Chamber's chief policy officer, told Politico earlier this week that a meeting with McCarthy would be a "cheerleading session."
"I see the relationship as respectful, so I'm not worried about wasting his time to come in and say, 'Look how much I agree with you,'" said Bradley, who previously served as McCarthy's deputy chief of staff.
In a letter to the Chamber's chief executive on Friday, a trio of Democratic senators led by Sen. Elizabeth Warren (D-Mass.) slammed Bradley's remarks and demanded to know "how the Chamber justifies supporting the Republican agenda of continued tax cuts for the wealthy, while cheerleading for threats to impose a default and austerity for everyone else."
"Instead of pressing the speaker to drop his radical demands and pass a clean debt limit increase, Bradley noted that the Chamber has pressed the White House to come to a bipartisan agreement with McCarthy," the letter reads. "Indeed, Bradley noted that the Chamber is aligned with House Republicans on their debt ceiling demands, including on spending caps, work requirements, and energy permitting."
Warren, joined by Sens. Sheldon Whitehouse (D-R.I.) and Ed Markey (D-Mass.), accused the Chamber of fully backing the GOP's "shameless hypocrisy" by lobbying for tax breaks that Republicans are expected to include in a tax cut package coming sometime next month.
"The American people deserve to understand why you are supporting even more deficit-busting tax giveaways for giant corporations, while also cheerleading Republican demands to inflict painful, job-killing austerity on everyone else in a pretense of 'fiscal responsibility,'" the senators wrote, demanding to know how much the Chamber has spent on tax-related lobbying this year and what discussions the group has had with Republicans on the House's tax-writing committee.
According to OpenSecrets, the Chamber has spent more than $19 million total on federal lobbying so far this year—the most of any organization. The Chamber says it has met with more than 150 Republican and Democratic lawmakers throughout the debt ceiling fight, which GOP Rep. Matt Gaetz (R-Fla.) publicly described as a hostage situation.
The Democratic senators' letter came as Treasury Secretary Janet Yellen warned that the federal government will run out of money to meet its obligations by June 5 if Congress does not raise the debt ceiling.
The Washington Post reported Friday that White House and GOP negotiators are "closing in on an agreement that would raise the debt ceiling by two years—a key priority of the Biden administration—while also essentially freezing government spending on domestic programs and slightly increasing funding for the military and veterans affairs."
When accounting for inflation, keeping non-military spending flat would mean potentially significant real-term cuts to key aid programs, from nutrition assistance to housing.
The Chamber has openly endorsed the GOP push for spending caps and warned President Joe Biden against using his 14th Amendment authority to unilaterally prevent a default, claiming such a move would be "as economically calamitous as a default."
On Friday, a top Treasury Department official said the White House will not invoke its 14th Amendment authority to continue paying the nation's bills if talks with the GOP collapse.
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Other Nations Baffled, Horrified by Very Idea of a Debt Ceiling as GOP Pushes US Toward Default
"We are an example to the world," wrote one American economist. "An example of what not to do."
May 19, 2023
Nations around the world are looking on with a mixture of alarm and bafflement as the United States hurtles toward an economy-wrecking default, with the Republican Party refusing to raise the country's globally unique debt limit without massive, harmful spending cuts.
The possibility of a U.S. default—a failure to pay the government's obligations—has already rattled global markets and prompted grave warnings from major institutions such as the International Monetary Fund, which said last week that a default would have "severe repercussions" for a world economy already facing the prospect of a central bank-induced recession.
The Washington Post reported Friday that the finance ministers of G7 nations have privately asked U.S. Treasury Secretary Janet Yellen for "updates on the status of negotiations between the White House and House Republicans" as officials from the rich countries gather in Hiroshima for their annual summit.
Finance ministers have also voiced their concerns publicly. German finance chief Christian Lindner said last week that he hopes "an adult decision will be made with regard to the development of American government finances and the associated effects on the global economy."
Kazuo Ueda, governor of the Bank of Japan, cautioned that a U.S. default could become a "big problem" that the Federal Reserve "may not be able to counteract."
"The United States is one among the few polities that have adopted and retained debt limits."
The U.S. debt limit, which currently sits at $31.4 trillion, is a "global outlier," the Atlantic Council's Mrugank Bhusari wrote in March, noting that "the United States is one among the few polities that have adopted and retained debt limits."
"Debt limits like the United States'... are not the norm—and they rarely cause major deadlocks in the few countries that have adopted this tool," Bhusari observed. "Like the United States, Denmark also sets its debt limit as a nominal value. But that’s where the similarity ends. The Danish Parliament intentionally sets the ceiling sufficiently high such that it will not be crossed, rendering it no more than a formality."
"Like the United States and Denmark, Kenya also has a nominal debt limit. However, it is under the process of replacing the nominal limit with a limit as a percentage of GDP at 55%," Bhusari continued. "Australia briefly experimented with a debt limit similar to that of the United States, experienced the political infighting that Washington is familiar with, and abolished it soon after."
Citing one Latin America expert, the Post noted Friday that "a debt ceiling like the one that exists in the U.S. stirred debate" in Brazil, where the Lula government is aiming to loosen existing restraints on government spending.
The idea of imposing a strict debt limit "was shot down vehemently, thanks to the U.S. example," the Post reported.
"We are an example to the world," Stephanie Kelton, an American economist, wrote on Twitter. "An example of what not to do."
The international community's reaction to the perilous U.S. debt ceiling standoff comes as President Joe Biden is facing growing pressure from lawmakers at home to end the crisis unilaterally if necessary by invoking the 14th Amendment, which states that "the public debt of the United States... shall not be questioned."
Progressives and legal scholars have long argued that the debt limit, first imposed by Congress in 1917, is unconstitutional and should be abolished—an argument that the National Association of Government Employees makes in a lawsuit filed in federal court 10 days ago.
But as The American Prospect's David Dayen wrote Friday, the plaintiffs "didn’t file a motion for immediate relief," so "the case has sat dormant."
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Why Student Loan Debt Harms Low-Income Students the Most
May 03, 2016
Four years ago, student loan debt in America topped $1 trillion. Today, that number has swelled even further, with some 43 million Americans feeling the enduring gravity of $1.3 trillion in student loan debt.
While student debt may not intuitively register as something that plagues the poor, student debt delinquency and defaults are concentrated in low-income areas, even though lower-income borrowers also tend to have much smaller debts. Defaults and delinquencies among low-income Americans escalated following the Great Recession of 2008, a period when many states disinvested from public colleges and universities. The result was higher costs of college, which has led to larger loans.
Low-income students are often left at a dramatic academic disadvantage in the first place. For example, students who work full-time on top of college classes can't cover the cost of tuition or living expenses, and working while in school can actually shrink the chance of graduating altogether. Moreover, these students are less likely to have access to career counseling or outside financial resources to help them pay for school, making the payoff negligible at best.
The inequity is so crushing that an alarming number of these students--predominantly students of color--are dropping out of school altogether. One-third of low-income student borrowers at public four-year schools drop out, a rate 10 percent higher than the rest of student borrowers overall.
When it comes to for-profit colleges, the story gets even worse. These institutions often target prospective students who are low-income while falsely assuring positive job and economic prospects upon graduating. Many students do end up dropping out, and even those who do graduate do not always receive a quality education that leaves them prepared for success--or with an income that matches up with their monthly loan payments. Their degrees too often cannot compete in the job market, leaving many of these students jobless.
A dream of a higher education shouldn't be a sentence to years--or an entire lifetime--of poverty.
This confluence of factors explains why borrowers who owe the least tend to be lower-income and are the most likely to fall behind or default on their monthly payments. As the Mapping Student Debt project has found, people with more debt are less likely to default on their loan payments because they have the most access to wealth, whether through family money or financial assets or educational degrees. And it's not hard to connect the dots. The biggest borrowers tend to be the biggest earners, so those who take out large loans to pay for graduate or professional school are less likely to default or fall behind because they're in high-earning jobs. The Department of Education estimated that 7 percent of graduate borrowers default versus 22 percent of those who only borrow for undergraduate studies. The default can actually lead to an increase in student loan debt because of late fees and interest, as well as a major decline in credit, ineligibility for additional student aid, and even wage garnishment at the request of the federal government.
Fortunately, there are solutions already in place that can help borrowers get out of default and back on their feet. For borrowers with federal loans, the Department of Education has a number of income-driven repayment programs (IDR) that cap a borrower's monthly payment to as low as 10 percent of their discretionary income. Rather than being saddled with debt and an income that doesn't realistically allow for repayment, borrowers can take advantage of programs such as PAYE, REPAYE, and Income-Based-Repayment to make their monthly loan payments proportional to their income. And some low-income borrowers might even qualify to pay nothing at all if they fall beneath certain income levels.
These plans won't just help borrowers with high debt balances. IDR is especially helpful for borrowers with smaller balances because it reduces the monthly burden while keeping more money in their pockets to cover expenses for food, housing, and other basic needs that borrowers must choose between in the face of overwhelming monthly payments.
Yet woefully few borrowers are aware of these plans, which have the potential to ensure low-income borrowers aren't paying more than they can afford. Fully 51 percent of student loan borrowers nationwide are eligible for these programs, but only 15 percent are enrolled.
A dream of a higher education shouldn't be a sentence to years—or an entire lifetime—of poverty. With federal IDR programs, paying back any amount of student debt can be much less draining of an obligation, especially for our most vulnerable citizens. It's on all of us to ensure those who can benefit the most from IDR are aware of it.
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As Vulture Funds Circle, Puerto Rico Set to Default on Debt
'There are no budget cuts or tax hikes that can solve this crisis'
May 02, 2016
Puerto Rico says it will default on its debt on Monday, escalating the economic crisis on the island that sees no sign of stopping in the face of exploitative hedge funds.
The commonwealth is expected to miss its upcoming $422 million bond payment for its Government Development Bank. The default comes after U.S. Congress failed to act to help the island territory last week, in a decision that followed a concerted lobbying push by hedge funds angling to profit off its debt crisis.
As the International Business Times reports:
Over the last few years, hedge funds and mutual funds have bought up large tranches of Puerto Rico's bonds at cut-rate prices, hoping the island will pay back its debts in full, thereby giving those financial interests a big payout. That gamble, however, has relied in part on the bet that the island will make draconian cuts to social services and worker pensions and use the savings to pay back 100 cents on the dollar to its Wall Street creditors -- a bet, in other words, that Congress will prevent the island from simply erasing some of its debt through the kind of bankruptcy protections that are afforded U.S. cities.
To that end, federal lobbying records show that major banks, bond insurers and hedge funds spent millions last year to try to shape bankruptcy proposals for the island. Two so-called dark money groups linked to the billionaire Koch brothers and Republican strategist Karl Rove are also working to influence the debate over Puerto Rico's debt.
"Faced with the inability to meet the demands of our creditors and the needs of our people, I had to make a choice," Puerto Rico Governor Alejandro Garcia Padilla said during a televised speech on Sunday. "I decided that essential services for the 3.5 million American citizens in Puerto Rico came first."
The Sunlight Foundation reported earlier this month that one of the dark-money groups behind the lobbying push, the Center for Individual Freedom (CFIF), purchased at least $200,000 in ads around Washington, D.C., to influence lawmakers away from passing legislation that would ease the island's debt burden. The Koch-backed American Future Fund also placed ads with Politico and the Wall Street Journal that attacked Garcia Padilla.
Congress continued to drag its feet on legislation that could have eased some of Puerto Rico's debt burden despite efforts by economic justice groups like Jubilee USA, which organized a call-in day of action urging constituents to ask their representatives in the House to pass the Puerto Rico Oversight, Management, and Economic Stability Act (PROMESA), which would have allowed the commonwealth to restructure its debt.
"There are no budget cuts or tax hikes that can solve this crisis," said Jubilee USA executive director Eric LeCompte. "Debt restructuring is a necessity before we can see any economic growth."
The $422 million is only a small chunk of the island's $70 billion debt burden. Its human impact has been enormous, fueling a poverty rate of nearly 45 percent, tens of thousands of public employee layoffs, tax hikes, and widespread school closures. As a result, Puerto Rico is seeing its largest exodus in 50 years, its population dropping nine percent from 2000 to 2015.
Puerto Rico's next payment is due in July. As LeCompte said on Monday, "Congress could have prevented the May default. With even greater consequences around a July default, Congress needs to act quickly."
"Puerto Rico needs to bring its debt back to payable levels," he said. "Any solution must respect the rights of the creditors, Puerto Rico's government and the needs of the island's people. We remain concerned how this fiscal crisis is impacting the poor and vulnerable. 57 percent of Puerto Rico's kids live in poverty. The most important cost to be concerned about is the human cost of this crisis."
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Trumping the Federal Debt without Playing the Default Card
Aug 19, 2015
"The United States can pay any debt it has because we can always print money to do that. So there is zero probability of default." -- Former Fed Chairman Alan Greenspan on Meet the Press, August 2011
In a post on "Sovereign Man" dated August 14th, Simon Black argued that Donald Trump may be the right man for the presidency:
[T]here's one thing that really sets him apart, that, in my opinion, makes him the most qualified person for the job:
Donald Trump is an expert at declaring bankruptcy.
When the going gets tough, Trump stiffs his creditors. He's done it four times!
Candidly, this is precisely what the Land of the Free needs right now: someone who can stop beating around the bush and just get on with it already.
Black says the country is officially bankrupt, with the government's financial statements showing a negative net worth of $17.7 trillion:
Nations that pass the economic point of no return can't rebuild until they hit rock bottom. And the US is way past that point. So let's get on with it already and hit the reset button.
Black recommends doing this by defaulting, preferably on Social Security and Medicare. But that is unlikely to suit this leading Republican candidate. As Trump said on Meet the Press on August 16:
I want people to be taken care of from a healthcare standpoint.... I want to save Social Security without cuts. I want ... a strong country with very little debt.
How can the country remain strong with very little debt, without defaulting on Social Security, Medicare, or the federal debt itself?
There is a way. The government can reduce the debt by buying it - and ripping it up. The debt can be bought either with debt-free US Notes of the sort issued during the Civil War, or with US dollars issued by the Federal Reserve in the form of "quantitative easing."
The vast majority of the money supply today is created by banks when they make loans, as the Bank of England recently acknowledged. Banks create money by "monetizing" debt, turning loans into the digital deposits that make up most of the circulating money supply. The government could push the reset button by monetizing its own debt, turning it into what it should have been all along - debt-free, interest-free dollars. As Thomas Edison observed in 1921:
If the Nation can issue a dollar bond it can issue a dollar bill. The element that makes the bond good makes the bill good also. . . . It is absurd to say our Country can issue bonds and cannot issue currency. Both are promises to pay, but one fattens the usurer and the other helps the People.
That is not just a quaint idea from the 1920s. Credible authorities are making that argument today. In November 2010, Dean Baker, co-director of the Center for Economic and Policy Research in Washington, wrote in response to the debt ceiling crisis:
There is no reason that the Fed can't just buy this debt (as it is largely doing) and hold it indefinitely. If the Fed holds the debt, there is no interest burden for future taxpayers. The Fed refunds its interest earnings to the Treasury every year. Last year the Fed refunded almost $80 billion in interest to the Treasury, nearly 40 percent of the country's net interest burden. And the Fed has other tools to ensure that the expansion of the monetary base required to purchase the debt does not lead to inflation.
In 2011, Republican presidential candidate Ron Paul proposed dealing with the debt ceiling by simply voiding out the $1.7 trillion in federal securities then held by the Fed. As Stephen Gandel explained Paul's solution in Time Magazine, the Treasury pays interest on the securities to the Fed, which returns 90% of these payments to the Treasury. Despite this shell game of payments, the $1.7 trillion in US bonds owned by the Fed is still counted toward the debt ceiling. Paul's plan:
Get the Fed and the Treasury to rip up that debt. It's fake debt anyway. And the Fed is legally allowed to return the debt to the Treasury to be destroyed.
Congressman Alan Grayson, a Democrat, also endorsed this proposal.
In February 2015, financial author Richard Duncan made a strong case for going further than monetizing existing debt. He argued that under current market conditions, the US could rebuild its collapsing infrastructure with quantitative easing without causing price inflation. Prices go up when demand (money) exceeds supply (goods and services); and with automation and the availability of cheap labor in vast global markets today, supply (productivity) can keep up with demand for decades to come. Duncan observed:
Quantitative Easing has only been possible because it has occurred at a time when Globalization is driving down the price of labor and industrial goods. The combination of fiat money and Globalization creates a unique moment in history where the governments of the developed economies can print money on an aggressive scale without causing inflation.
They should take advantage of this once-in-history opportunity to borrow more in order to invest in new industries and technologies, to restructure their economies and to retrain and educate their workforce at the post-graduate level. If they do, they could not only end the global economic crisis, but also ensure that the standard of living in the developed world continues to improve, rather than sinking down to third world levels.
Abraham Lincoln revived the colonial system of government-issued money when he endorsed the printing of $450 million in US Notes or "greenbacks" during the Civil War. The greenbacks not only helped the Union win the war but triggered a period of robust national growth and saved the taxpayers about $14 billion in interest payments (figuring an average of $300 million in outstanding US Notes over 150 years, at an average real interest rate of 2.6% compounded annually). The US federal debt has been growing ever since 1835, when President Andrew Jackson last paid it off and closed down the Second US Bank. If judicious use of US Notes had continued to the present, there might now be no federal debt at all.
The Inflation Snag
In short, the sovereign debt crisis can be solved by issuing sovereign money. But is there really such a thing as a free lunch? Wouldn't buying up the debt with newly-issued money lead to a hyperinflationary disaster?That was the fear when the Federal Reserve began its QE program in 2008. But the Fed has now monetized $4.5 trillion in QE ($2.7 trillion of which consisted of buying back federal securities, and these fears have not materialized. The stock market has gone up, but not apparently from an increased money supply. More likely it is from very low interest rates, making bonds unattractive and facilitating stock buybacks and borrowing to invest. The cost of produce has gone up, but it is largely because of drought in California, which supplies nearly half the country's fruits, vegetables and nuts; and because speculators have moved into foodstuffs. Despite all that, the overall inflation rate remains at manageable levels.
Why didn't $4.5 trillion in QE drive prices into the stratosphere? As financial writer Matthew Kerkhoff explained in a November 2013 article, quantitative easing is just an asset swap:
When the Fed creates $85 billion, it uses this money to buy bonds . . . . When the Fed creates and gives $85 billion in reserves to its member banks, it removes $85 billion worth of assets (bonds) from the balance sheets of those same member banks. The result is that no new net financial assets enter the economy. . . .
It's much more accurate to think of the Fed's QE program as an asset swap. In fact it's even more accurate to think of it as a liquidity swap. . . . In this context liquidity refers to the ease with which money can be used.
Bonds are more cumbersome to spend than cash, but they still represent purchasing power. Government securities that can be quickly converted into cash or that are near maturity are considered a form of "near money." When the Fed buys the bonds, it is simply converting this less-liquid money back into more-liquid money. As Warren Mosler and John Carney explain on CNBC.com:
Quantitative easing is about the Fed buying Treasury securities. When you (voluntarily) sell them to the Fed, at current market prices, the Fed just shifts your dollars from your securities account to your bank's reserve account, all at the Fed. So why should that do anything to the economy? You have the same amount of dollars, and you could have shifted them in the same market place any time you wanted in any case.
The QE liquidity swap does not increase the circulating money supply. The money supply increased when the bonds were issued - when the debt was incurred and the government spent the funds.
Adding to the federal debt beyond its current level (i.e. by funding infrastructure with new QE that is not repaid with taxes) would increase the money competing for goods and services. But the economy actually needs that increased "demand" in order to promote full employment (one of the Fed's mandates). Demand (money) precedes supply (goods and services). The money has to be out there searching for goods and services before employers will add more workers to create this increased supply. Money can be added to the point of full productive capacity (full use of workers, supplies and machines) before adding more will drive up prices. And as Richard Duncan observes, we are a long way from full productive capacity now.
Whether full productive capacity would exhaust the earth's resources is another question, but there are many ways to put people to work that either don't use physical resources (e.g. education, art, social service, environmental cleanup) or that actually make resource use more efficient (investment in improved infrastructure, sustainable energy, research and development).
Time to Reset
Back to Donald Trump. Besides his experience with bankruptcy, Trump, along with Bernie Sanders on the left, is unique in not being beholden to big money. Sanders does not take it, and Trump does not need it. If either candidate makes it to the White House, he will be in a position to stand up to Wall Street and do what is right for the country. And that includes restoring the power to issue the national money supply to the people of the nation through their representative government.
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