Economy & Budget

Debt limit vote declares serious reforms are coming

On May 31, the House rejected legislation to raise the federal debt ceiling without any accompanying spending cuts or reforms by a strong bipartisan vote of 97 to 318. This vote should prove to the President once and for all that he must agree to House Republicans’ demand that we rein in wasteful Washington spending wherever it is occurring.

Raising the debt ceiling without simultaneously incorporating enforceable spending cuts and serious reforms will only burden our future generations with outrageous debt. We must not raise the debt ceiling by $1 without simultaneously making deep cuts in spending and taking real steps towards a balanced budget.


Principal reduction is no lifeline

The nation’s housing markets continue to struggle and underwater mortgages are a big deal. According to recent estimates by CoreLogic, 23.1 percent of mortgage borrowers currently owe more on their mortgage than the appraised or estimated value of their homes and approximately 10 percent owe more than 125 percent of the value of their home. Nationwide, mortgaged homes are over $750 billion underwater.

So it was of interest that the Financial Times reported that “U.S. officials investigating improper foreclosure practices have rebuffed a $5bn offer from the largest banks to settle claims as far too low, a person familiar with the discussions said.” Instead, state attorneys-general and federal regulators are reported to be seeking $20 billion.


The unintended consequences of indemnification

For all the key goals that Congress hopes to achieve in financial reform, a little known or understood provision of the Dodd-Frank Act has the potential to derail efforts to increase market transparency and mitigate risk in the over-the-counter (OTC) derivatives marketplace. 

The obstacle is a requirement that U.S.-based swap data repositories (SDRs) obtain indemnification agreements from foreign regulators prior to sharing critical market data with them – a subject highlighted during today’s subcommittee hearing of the House Agriculture Committee.


The WTO dispute: Is it a case of odd man out?

After seven years, the World Trade Organization has finally ruled on two of the most important cases brought before them, one filed by the United States on behalf of Boeing and a countersuit by the European Union on behalf of Airbus.

The verdicts are in. Both sides have been found guilty of doing what they have been openly doing for decades: using government support to develop aircraft.

Results of the first of two final WTO Appellate Body reports just released constitute the final blow to the Boeing-sponsored myth that government support to Airbus somehow caused harm to Boeing. An expected win-win has turned into a lose-lose. The WTO’s appeals process hopefully ends a steady stream of propaganda regarding massive illegal subsidies to Airbus.


Broadening competition for US government contracts would save money

In most debates around the country's looming fiscal crisis, "shared sacrifice" is the prevailing theme. 

But as policymakers consider the options on the table, not every potential budget cut must be painful or risk damaging the recovery. In fact, policymakers are currently overlooking an idea that could painlessly save U.S. taxpayers billions of dollars a year while at the same time promote job opportunities for Americans.

The simple idea? Broaden competition for U.S. defense and government contracting. In particular, drastically reduce the number of “sole sourced” contracts awarded without soliciting bids from multiple suppliers.


Time to put our fiscal house in order

Rep. Hoyer gave the following remarks at the Bipartisan Policy Center on the country's fiscal future:

If the United States fails to pay the bills it has incurred, it ‘would be a financial disaster not only for our country, but for the world economy.’ Those are the words of Speaker Boehner in January.

In fact, to quote another leader, ‘the full consequences of a default—or even the serious prospect of default—by the United States are impossible to predict and awesome to contemplate. Denigration of the full faith and credit of the United States would have substantial effects on the domestic financial markets and the value of the dollar.’ Those were Ronald Reagan’s words in 1983.

That’s why it’s so disappointing that Republicans like Speaker Boehner are threatening just such an economic ‘disaster’ if Congress fails to pass their fiscal policies.


Stop raising the debt ceiling

The federal government once again has reached the limit of its legal ability to borrow money, meaning it cannot issue new Treasury debt without action by Congress to increase the debt ceiling limit. As of this month, our “official” national debt - which doesn’t include the staggering future payments promised to Social Security and Medicare beneficiaries - stands at $14.2 trillion.

The debt ceiling law, passed in 1917, enables Congress to place a statutory cap on the total amount of government debt rather than having to approve each individual Treasury bond offering. It also, however, forces Congress into an open and presumably somewhat shameful vote to approve more borrowing. If the new Republican majority in the House of Representatives gives in to establishment pressure by voting to increase the debt ceiling once again, you will know that the status quo has prevailed. You will know that the simple notion of balancing the budget, by limiting federal spending to federal revenue, remains a shallow and laughable campaign platitude.

It is predictable that Congress will once again merely delay the inevitable and raise the debt ceiling, after the usual rhetoric about controlling spending, making cuts, and yes, raising taxes. We have heard endless warnings about how irresponsible it would be to “shut down the government.” The implication is that sober, rational, mature pundits and politicians understand reality, while those who oppose raising the debt ceiling limit are reckless ideologues who will harm the economy just to make a point.


Include the public in the budget debate

Last week's collapse of the Senate's "Gang of Six" debt-reduction talks, and talk of a "Gang of Five," will deepen the public's distaste for the process and substance of the budget debates in Washington. Voters across the country resent being left out of these increasingly elite deliberations.

As much as the politicians argue, they don't seem to hear the good sense of the American people. The many closed-door meetings in Washington to decide on America's future are filled, instead, with esoteric and magical formulas purporting to close the deficit. 


Trade: An opportunity about to be lost?

After a few quiet years for trade policy, the Obama administration and Congress are on the brink of a major breakthrough. Three new FTAs and an extension of Trade Adjustment Assistance (TAA) are logically and politically linked and are ready to move through Congress together. Unfortunately, shortsighted thinking threatens to grasp defeat from the jaws of victory.

The three FTAs with important trading partners were negotiated by the Bush administration. The Obama administration fine-tuned the agreements, but is now ready to endorse them. After almost a decade of negotiations, the agreements are on track for final approval.


The costs of Dodd-Frank? Even the Feds don’t know

Dodd-Frank is the largest regulatory overhaul in generations and yet businesses and consumers know little about the actual costs of the law. The federal government, notably the Commodity Futures Trading Commission (CFTC), hasn’t helped by politicizing the implementation of the law to hide its costs. 

Lost in the uproar over the Continuing Resolution and the debt-limit hike are the forgotten budgetary (roughly $27 billion over ten years) and supposedly incalculable economic costs of financial reform.