The U.S. Government Debt Negotiations in Crisis
This is our third attempt at this article. We want to talk to you about the federal government debt and budget crisis. Maybe by the time you are reading this commentary, concrete decisions will have been made by Congressional leaders and the President, and the imminent threats of default, downgrade and disorder will have passed. We hope so.
Back in April we wrote about this situation here because Standard & Poor's, the credit rating company, had red-flagged U.S. Government debt for their "credit-watch", the period of doubt and concern that would precede a downgrade. Since then, talks have been held and plans have been proposed, but up to now, just 10 days before the Treasury predicts it will run out of cash, officials on both sides of the political aisle have refused to make even modest concessions on basic principles which are needed to bring an agreement in the middle. Everyone who seems about to do so is immediately branded as a traitor who is selling out, and then either the President or the Speaker of the House stomps out of the meeting room in disgust.
This is clearly no way to run a country.
We like the Gang of Six plan, which was announced Tuesday. We have misgivings about some of its items, but it's a fine and firm step in the right direction. Three fairly liberal Democratic Senators and three fairly conservative Republican Senators crafted a seven-page statement of concrete steps they agree on, which can be taken to cut spending and enhance revenues. Some parts of the their plan simplify the tax code, also a benefit. The President has said he would agree on a short-term increase in the Debt Ceiling so that the associated formal legislation could be drafted and enacted. This sounds reasonable to us. But who are we and what do we know?
What we do know is that the FAA yesterday announced its contingency plans if it has to shut down because its funding disappears next week. Air-traffic controllers are deemed "essential" and would be kept on, but other personnel would be furloughed as early as this coming Friday. This is just the first of such specific, detailed arrangements among government departments that will have to be made rapidly until we hear that the negotiations have achieved some kind of truce.
We know that the U.S. Conference of Mayors, meeting this weekend in Los Angeles, is expressing dismay and discouragement over the budget cuts they have to make, even as Washington "dithers", to quote one of them. Mayors from both political parties and from both small towns and big cities all face the same circumstances: they have already made sizable layoffs and their uncertainty grows with every day there is no federal budget agreement.
We know that financial markets haven't a clue what will happen if this unprecedented debt situation is not resolved quickly. We cannot say enough about what a key role U.S. Government debt has in everyone's finances. Rates on Treasury notes and bonds form the base for interest rate levels for many types of assets and credits around the world and in your own town. Companies keep amounts of cash on hand to pay various bills and expenses; a consulting firm that helps companies manage this cash prudently and flexibly has said that they aren't sure what to advise. The rules companies follow tend to let them keep unlimited amounts of their cash in Treasury securities. No one ever dreamed that the U.S. Government would default or be late with interest or bond payments, or that the debt would have anything other than the very highest credit rating. Banks want to know if the Federal Reserve will demand extra collateral for routine loans the Fed makes to them, if Treasury securities no longer have the highest rating. We know only that the Treasury and Federal Reserve officials began to meet just in the last few days to draft their contingency actions.
If this turmoil is still going on by the time you read this article, contact your Congressional Representative and your Senators. Tell them how important it is to come to an agreement. The gains some leaders think they are holding out for could well be eaten up by the chaos that will ensue in the financial system if this controversy is not settled – yesterday.
Back in April we wrote about this situation here because Standard & Poor's, the credit rating company, had red-flagged U.S. Government debt for their "credit-watch", the period of doubt and concern that would precede a downgrade. Since then, talks have been held and plans have been proposed, but up to now, just 10 days before the Treasury predicts it will run out of cash, officials on both sides of the political aisle have refused to make even modest concessions on basic principles which are needed to bring an agreement in the middle. Everyone who seems about to do so is immediately branded as a traitor who is selling out, and then either the President or the Speaker of the House stomps out of the meeting room in disgust.
This is clearly no way to run a country.
We like the Gang of Six plan, which was announced Tuesday. We have misgivings about some of its items, but it's a fine and firm step in the right direction. Three fairly liberal Democratic Senators and three fairly conservative Republican Senators crafted a seven-page statement of concrete steps they agree on, which can be taken to cut spending and enhance revenues. Some parts of the their plan simplify the tax code, also a benefit. The President has said he would agree on a short-term increase in the Debt Ceiling so that the associated formal legislation could be drafted and enacted. This sounds reasonable to us. But who are we and what do we know?
What we do know is that the FAA yesterday announced its contingency plans if it has to shut down because its funding disappears next week. Air-traffic controllers are deemed "essential" and would be kept on, but other personnel would be furloughed as early as this coming Friday. This is just the first of such specific, detailed arrangements among government departments that will have to be made rapidly until we hear that the negotiations have achieved some kind of truce.
We know that the U.S. Conference of Mayors, meeting this weekend in Los Angeles, is expressing dismay and discouragement over the budget cuts they have to make, even as Washington "dithers", to quote one of them. Mayors from both political parties and from both small towns and big cities all face the same circumstances: they have already made sizable layoffs and their uncertainty grows with every day there is no federal budget agreement.
We know that financial markets haven't a clue what will happen if this unprecedented debt situation is not resolved quickly. We cannot say enough about what a key role U.S. Government debt has in everyone's finances. Rates on Treasury notes and bonds form the base for interest rate levels for many types of assets and credits around the world and in your own town. Companies keep amounts of cash on hand to pay various bills and expenses; a consulting firm that helps companies manage this cash prudently and flexibly has said that they aren't sure what to advise. The rules companies follow tend to let them keep unlimited amounts of their cash in Treasury securities. No one ever dreamed that the U.S. Government would default or be late with interest or bond payments, or that the debt would have anything other than the very highest credit rating. Banks want to know if the Federal Reserve will demand extra collateral for routine loans the Fed makes to them, if Treasury securities no longer have the highest rating. We know only that the Treasury and Federal Reserve officials began to meet just in the last few days to draft their contingency actions.
If this turmoil is still going on by the time you read this article, contact your Congressional Representative and your Senators. Tell them how important it is to come to an agreement. The gains some leaders think they are holding out for could well be eaten up by the chaos that will ensue in the financial system if this controversy is not settled – yesterday.
posted by Carol S. | 7/23/2011 11:46:00 AM
2 Comments:
And pray.
Pray without ceasing that God will soften the hearts of our congress people so that they can put aside their personal ideologies, can hear one another and work together as intelligent adults to reconcile the debt crisis and avoid default on U.S.debt.
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