United Liberty

We’ve been hearing for months that if Congress doesn’t raise the debt ceiling that we’ll default and some sort of economic apocalypse will take place, but a Chinese credit rating firm says that we’re already defaulting on our debt:

A Chinese ratings house has accused the United States of defaulting on its massive debt, state media said Friday, a day after Beijing urged Washington to put its fiscal house in order.

“In our opinion, the United States has already been defaulting,” Guan Jianzhong, president of Dagong Global Credit Rating Co. Ltd., the only Chinese agency that gives sovereign ratings, was quoted by the Global Times saying.

Washington had already defaulted on its loans by allowing the dollar to weaken against other currencies — eroding the wealth of creditors including China, Guan said.
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China is by far the top holder of US debt and has in the past raised worries that the massive US stimulus effort launched to revive the economy would lead to mushrooming debt that erodes the value of the dollar and its Treasury holdings.

Beijing cut its holdings of US Treasury securities for the fifth month in a row to $1.145 trillion in March, down $9.2 billion from February and 2.6 percent less than October’s peak of $1.175 trillion, US data showed last month.

Foreign ministry spokesman Hong Lei on Thursday urged the United States to adopt “effective measures to improve its fiscal situation”.

Earlier today, I noted the importance of Iowa to Tim Pawlenty’s hopes to capture the Republican nomination. And we’re there is going to be a lot of emphasis on that fact over the next two months, it’s worth noting that he had an excellent week last week:

A successful economic speech, one rival’s campaign implosion and another’s decision to skip an influential Iowa straw poll have given Tim Pawlenty a very good week.

His campaign hopes to keep the momentum going, getting the traction its needs to catapult the relatively unknown former Minnesota governor into a top contender for the Republican presidential nomination.

The mass staff resignations from Newt Gingrich’s campaign, combined with former Massachusetts Gov. Mitt Romney’s decision to skip Iowa’s Ames Straw Poll, gives Pawlenty an opening on which his campaign could capitalize.
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The Pawlenty campaign’s gameplan has always relied on seizing moments in the race to help build the Minnesotan’s image and popularity.

Pawlenty was the most immediate beneficiary of the Gingrich implosion. Former Georgia Gov. Sonny Perdue (R), who was Gingrich’s campaign co-chairman, jumped to Pawlenty’s campaign following the mass resignations of the former Speaker’s staff.

Conservatives have also been swooning over Pawlenty after his “Better Deal” speech in Obama’s backyard, at the University of Chicago, on Tuesday. The plan, which would eliminate a number of deductions while slashing the top individual and corporate tax rates, won crucial praise from the right, whose support Pawlenty will need in the primaries.

Even though we’re facing another trillion dollar budget deficit, a $14.3 trillion national debt and $61.6 trillion in unfunded liabilities, President Barack Obama is pushing for another bailout for Greece:

President Barack Obama on Tuesday urged European countries and bondholders to prevent a “disastrous” default by Greece and pledged U.S. support to help tackle the country’s debt crisis.
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After a meeting with German Chancellor Angela Merkel, he stressed the importance of German “leadership” on the issue - a hint that he expects Berlin to help - while expressing sympathy for the political difficulties European Union countries face in helping a struggling member state.

“I’m confident that Germany’s leadership, along with other key actors in Europe, will help us arrive at a path for Greece to return to growth, for this debt to become more manageable,” Obama said.

“But it’s going to require some patience and some time. And we have pledged to cooperate fully in working through these issues, both on a bilateral basis but also through international and financial institutions like the IMF.”

A proposal for a second Greek bailout package worth 80 billion to 100 billion euros over three years was taking shape, euro zone sources said.

Dick Armey and Mitt Kibbe of FreedomWorks are, needless to say, disappointed that the Obama Administration and the International Monetary Fund are again setting up Americans taxpayers to be hit with the burden of more bailouts:

In these troubled economic times, there’s been a stronger movement towards privatizing Social Security than I can recall seeing before.  The most talked about proposal involves people aged 55 and younger being able to invest money instead of being roped into whatever Uncle Sam wants to pay out.  Now, there’s legislation making a move towards privatization of social security:

House Republicans on Friday introduced legislation that would allow workers to partially opt out of Social Security immediately, and fully opt out after 15 years.

Rep. Pete Sessions (R-Texas), who chairs the National Republican Congressional Committee, and several other Republicans introduced the Savings Account for Every American (SAFE) Act. Under the bill, workers would immediately have 6.2 percent of their wages sent to a “SAFE” account each year.

That would take the place of the 6.2 percent the workers now contributed to Social Security.

Another 6.2% is sent to Social Security by employers. Under the Sessions bill, employers would continue to make this matching contribution to Social Security, but after 15 years, employers could also send that amount to the employee’s SAFE account.

Now, I’m still not thrilled about the idea of taking people’s money “for their own good”, which is all either Social Security or these new proposal really are.  However, if it’s going to happen anyways, I’d rather have an opportunity to have some kind of say in the matter and possibly create an even better cushion.  Not everyone seems to think that’s such a good idea (predictable):

While it’s likely that Republicans in Congress will sellout on the debt ceiling, a move that will no doubt anger the tea party and conservative base; the National Taxpayers Union’s Andrew Moylan reports that House Republican leaders also seem to be trying kill the Balanced Budget Amendment:

The fix is in, my friends. Speculation on Capitol Hill runs rampant that House Leadership is actively undermining the prospects for passage of a Balanced Budget Amendment to our Constitution, effectively eliminating the most powerful tool we have to enforce budgeting discipline into the future. While all 47 Senate Republicans co-sponsored a strong BBA that included a spending limit and a supermajority threshold for tax increases, House Leadership has been either ambivalent or subtly hostile towards real structural budget reform. In interviews, House Speaker John Boehner (R-OH) has said he isn’t interested in “gimmicks,” which many regarded as a backhanded comment about a BBA or a statutory spending cap.
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And now word is leaking that Republican House leaders seem to be rushing through a BBA not in order to actually pass it, but to give it a speedy euthanasia and get it out of their hair. Just this morning, I received an email from a House staffer who said “Leadership is planning on bringing H.J. Res. 1 to the floor for a vote sometime over the next two weeks to delegitimize the BBA and separate it from the debt ceiling vote.”

While there are varying estimates on the unfunded liabilities (financial commitments that Congress has made), USA Today put out a sobering reminder yesterday of just how dire our fiscal solvency is:

The government added $5.3 trillion in new financial obligations in 2010, largely for retirement programs such as Medicare and Social Security. That brings to a record $61.6 trillion the total of financial promises not paid for.

This gap between spending commitments and revenue last year equals more than one-third of the nation’s gross domestic product.

Medicare alone took on $1.8 trillion in new liabilities, more than the record deficit prompting heated debate between Congress and the White House over lifting the debt ceiling.

Social Security added $1.4 trillion in obligations, partly reflecting longer life expectancies. Federal and military retirement programs added more to the financial hole, too.
[…]
The $61.6 trillion in unfunded obligations amounts to $527,000 per household. That’s more than five times what Americans have borrowed for everything else — mortgages, car loans and other debt. It reflects the challenge as the number of retirees soars over the next 20 years and seniors try to collect on those spending promises.

Matt Kibbe, president of FreedomWorks, wrote just last week that platitudes and promises of unicorns aren’t going to get us very far; Congress has to deal with entitlements, not by growing them or pushing growth-slowing taxes, but by repealing and reforming:

With voters increasingly blaming President Barack Obama for the nation’s economic woes, Tim Pawlenty, former Governor of Minnesota and a Republican presidential hopeful, hoped to capitalize by laying out his economic plan; making it clear that the policies of the man he hopes to replace are hurting the nation:

Offering a “Better Deal,” a construction in the economic messaging tradition of Democrats beginning with Franklin Roosevelt’s New Deal, Pawlenty will promise a target of 5 percent yearly economic growth, which hasn’t been seen in the United States since the economy expanded at a 7.2 percent clip in 1984. To his benefit and likely no accident, his prescription of how to equal that achievement is similar to the policies of then-President Reagan.

Pawlenty offers a breathtaking series of tax cuts, beginning with a reduction in the corporate tax rate to 15 percent, and an income tax policy that closely mirrors Ryan’s fiscal 2012 budget framework, offering only two rates, 10 percent and 25 percent, for households that make up to and more than $100,000, with a generous minimum exemption for cuts of nearly one-third to individual tax bills. The plan also eliminates taxes on capital gains, dividends, and estates, representing a dramatic reduction in overall revenue.

Over at Reuters, James Pethokoukis notes that the Chinese, who own around 1/4 of our foreign held debt, are more concerned with us getting our fiscal house in order than they are about Congress raising the debt ceiling:

If you listen to Treasury Secretary Timothy Geithner and the rest of Obama administration, failure to raise the debt ceiling by Aug. 2 risks “catastrophic economic and market consequences of a default crisis.”

Funny, the Chinese government — holder of $1.1 trillion in U.S. government debt — doesn’t seem to think so. I recently returned from a fact-finding mission to the Middle Kingdom. And my big takeaway is that Beijing isn’t too bothered by the Washington back-and-forth over raising the debt ceiling — provided the result is a long-term budget fix. For that, even a delayed interest payment might be acceptable. But brinkmanship in Congress that only punts the issue, and shirks from meaningful reform, would quickly turn investors in Beijing and elsewhere off.

A group of conservative House Republicans, mostly members of the Republican Study Committee, are proposed a plan for debt reduction that focuses on three key points; cutting mandatory and discretionary spending, capping federal spending at 18% of GDP, and passing the Balanced Budget Amendment:

103 House Republicans sent a letter to House Republican leadership calling for a solution that could resolve the current debt limit impasse and prevent the bigger, Greece-like debt crisis just over the horizon: Cut, Cap, and Balance.

1.  Cut - We must make discretionary and mandatory spending reductions that would cut the deficit in half next year.

2.  Cap - We need statutory, enforceable caps to align federal spending with average revenues at 18% of Gross Domestic Product (GDP), with automatic spending reductions if the caps are breached.

3.  Balance - We must send to the states a Balanced Budget Amendment (BBA) with strong protections against federal tax increases and a Spending Limitation Amendment (SLA) that aligns spending with average revenues as described above.

This is a funny cartoon (in a sad way) that notes the hypocrisy amongst Republicans and Democrats, including President Barack Obama, in the debate on raising the debt ceiling.

H/T: Outside the Beltway