Nonprofit, nonpartisan journalism. Supported by readers.

Donate

As economists issue dire warnings, Klobuchar says budget deal gaining traction

REUTERS/Joshua Roberts
Sens. Joe Manchin, center, and Amy Klobuchar speaking to reporters during the 14th day of the partial government shut down on Monday.

Economists have warned that a debt default, as is possible if Congress can’t pass a bill in the next couple days, would have dramatic effects on the United States and global economies, and that all Americans would eventually feel its effects. Their most basic warning: If the United States can’t borrow enough money and doesn’t pay its bills, or if those payments go out late, investors will see America as a riskier investment and demand higher interest rates to compensate. Those higher interest rates would hit both businesses and consumers, damaging the economy.

“This has never happened before,” federal budget expert Stan Collender said. “The expectation is that there will be a huge negative market response, and interest rates will start to rise, which will hurt the economy.”

“With the U.S. economy continuing to underperform, the federal government needs to maintain its normal operations pending a successful outcome of broader budgetary reforms,” the letter said, appealing for Congress to prevent a government shutdown as well as a default. “We respectfully urge the Congress to raise the debt ceiling in a timely manner and remove any threat to the full faith and credit of the United States government.”

Sen. Amy Klobuchar was interviewed Tuesday morning on CBS This Morning about helping to craft the deal to end the government shutdown.

 

House GOP reaction is key

That’s why there’s so much riding on any potential debt limit deal that Congress could pass before Thursday.

Politico has details on Monday’s negotiations: Under the emerging Senate plan, the government re-opens and if funded through Jan. 15, the same day a second round of automatic, across-the-board spending cuts kick in, a deadline meant to force Democrats and Republicans to come together on some type of broader government spending scheme. The debt limit is increased through Feb. 7.

The proposal doesn’t do much to President Obama’s health care law, which a failed Republican-led effort to defund led to the government shutdown in the first place. The plan would ask the government to enforce income limits on those receiving health care subsidies, and Politico reports Democrats want to repeal one tax — the so-called “belly button tax” — in exchange.

Update 10:15 a.m.: Members of the House GOP conference responded Tuesday morning with a potential plan of their own, looking to do everything the Senate does, but replacing the “belly-button tax” provision with one delaying the health care law’s tax on medical device manufacturers for two years. Its plan would also end health care subsidies to lawmakers, but not their staffers. Here’s the GOP’s overview of their bill.

You can also learn about all our free newsletter options.

Comments (12)

  1. Submitted by Dennis Tester on 10/15/2013 - 09:15 am.

    Let’s put this in perspective

    The government takes in $30 billion a day.

    That pays for 80% of the cost of government. The increase in the debt limit is to borrow the remaining 20% of the money needed to fund the government.

    If we have to operate on 80% of what is needed, yet “have to delay payments to beneficiaries of government programs like Social Security,” then whoever is making that decision needs to reconsider their priorities.

    Given a pie chart of federal expenditures, I’m sure I could re-define how the 80% should be distributed, while minimizing the harm to the American people.

    In fact, that might be an interesting journalistic exercise. Provide a drag-and-drop pie chart and let the reader decide how to re-allocate the tax revenue that is actually coming in that does the least harm to the people, not the most harm, which is obviously someone’s agenda.

    • Submitted by Jon Kingstad on 10/15/2013 - 11:04 am.

      Anyway you slice it. . . .

      80% of the pie is not the full pie which is a prescription for an unnecessary financial and economic disaster.

      To repeat for the umpteenth time: the deficit is not a problem. The problem is and has been recovery from the 2008 meltdown which hasn’t occurred because of inadequate federal spending. Too many people are overawed by big sounding numbers and confused by wrong comparisons between the federal budget and “my family’s budget.”

      • Submitted by Dennis Tester on 10/15/2013 - 04:40 pm.

        If anything has been gained

        from the last 5 years of Obama at the helm, it’s that Keynesian economics has been discredited for good. It belongs in the museum of quackery alongside the perpetual motion machine.

        Taking money out of the private economy that would otherwise be spent by private citizens, to turn around and let bureaucrats and politicians put some of it back in the private economy, does nothing but delay the recovery.

        • Submitted by Jon Kingstad on 10/15/2013 - 07:17 pm.

          Discredited in whose mind?

          I suppose allowing the Bush tax credits to be renewed must count in your mind as “taking money out of the economy.” By 2008, the rich and their banks had taken all the money out of the economy so the government had to out more money back in which they’ve soaked up yet more. The banks and the corporations have been sitting on piles of cash. Interest rates have been near zero. What are the “job creators” waiting for? (Here’s a clue: the corporations and banks are only good at rewarding their incompetent CEO’s for speculating and moving money around). And you blame Obama for “taking money out of the economy”!

          Keynesian economics has not even been tried by this President who continues to prate about “balancing the budget” while the country goes into its sixth year of Depression. This President has ignored all of the leading Keynesian economists, like Paul Krugman, who has been all over him on this. You can trash Paul Krugman all you like, but don’t confuse his advice with the advice Obama has been receiving and using which have been anything but Keynesian.

          • Submitted by Dennis Tester on 10/15/2013 - 11:03 pm.

            The failed “stimulus”

            of over a trillion dollars and his insistence that big government is the solution to a bad economy are Obama’s failed Keynesian policies. And corporations are sitting on their (yes, *their*) cash because they’re waiting for a free market capitalist to get back in the White House.

            Why would they invest in this economy, that’s being run into the ground by a leftwing political activist who doesn’t have a clue how the economy works?

            And Krugman’s a fraud who’s never held a private sector job or made a payroll. He knows nothing about the real world.

            • Submitted by RB Holbrook on 10/16/2013 - 02:02 pm.

              Calm down

              The stimulus did not “fail.” It was not long enough, or large enough, to produce a real recovery. Its success was in ensuring that the recession did not get worse.

              The inadequate stimulus means the recovery has been sluggish. Capitalists are not investing in this economy because demand continues to be low. By your logic, capitalists would have completely gone Galt during LBJ’s administration, because he was far more to the left than President Obama is. Is that really what happened?

              If memory serves, Professor Krugman teaches at Princeton, which is a private (not public) institution.

    • Submitted by RB Holbrook on 10/16/2013 - 02:03 pm.

      Let’s put this in the real perspective

      I don’t know where you get your numbers (actually, I do know, but I’m far too polite to use expressions like that). The increase in the debt limit is to borrow the money already appropriated.

      Based on estimated revenues for FY2014, the federal government takes in around $8.2 billion per day.

  2. Submitted by jason myron on 10/15/2013 - 01:29 pm.

    Here’s some more perspective …

    “Unfortunately, Congress consistently brings the government to the edge of default before facing its responsibility. This brinkmanship threatens the holders of government bonds and those who rely on Social Security and veterans benefits. Interest rates would skyrocket, instability would occur in financial markets, and the federal deficit would soar. The United States has a special responsibility to itself and the world to meet its obligations. It means we have a well-earned reputation for reliability and credibility — two things that set us apart from much of the world.”…That’s from your God, Reagan. in 1986

    How about some more from the Gipper…

    “This country now possesses the strongest credit in the world,” Reagan wrote. “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 in exchange markets. The Nation can ill afford to allow such a result. The risks, the costs, the disruptions, and the incalculable damage lead me to but one conclusion: the Senate must pass this legislation before the Congress adjourns.”

    Is that enough “perspective” for you?

    • Submitted by Dennis Tester on 10/15/2013 - 04:32 pm.

      Actually, no

      Here’s another one:

      “We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact…The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default…The budget deficit was considerably larger in 2011 than it is currently, so the magnitude of the necessary spending cuts needed after 17 October is lower now than it was then” – Moody’s – Oct 7, 2013

  3. Submitted by jason myron on 10/15/2013 - 06:40 pm.

    It’s the damage it will do to the world market…

    why can’t you people get that through your head? And you have the cajones to criticize Keynesian economics? Unbelievable…no wonder you elect people like Louie Gohmert and Michelle Bachmann to represent you. The depth of their knowledge goes no deeper than the average, pithy GOP bumper sticker.

  4. Submitted by Tom Anderson on 10/15/2013 - 09:21 pm.

    Senator Amy

    Needs to get going if anyone is going to take her seriously as 2016 presidential material. This golden opportunity to show all that bipartisan leadership is slipping away fast.

  5. Submitted by Diane Wiley on 10/15/2013 - 11:23 pm.

    Cost of Shutdowns and Getting Close to the Debt Limit

    In 2011, not passing a bill until days before we hit the Debt Limit cost us $1.9 BILLION. In 1979, these shenanigans cost us $12 BILLION. We’ve lost 900,000 jobs so far in the shutdown. How is this helping the economy?

Leave a Reply