Tag Archives: default

Economy

“…Shall Not Perish From This Earth.”

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It has been a tough news weekend for the United States.

I’ve been blocking out news coverage today and cringing every time I hear a partisan or pundit prognosticate about the decline of America, or our supposed shuffle closer to doomsday.

My heart breaks hard every time I think about the selfless men and women we lost in Afghanistan this weekend. Brothers and sisters alike, it seems almost trivial to sit here tonight and type–a freedom they have won for me–while so many are facing grim realities and long, tense moments of combat half a world away.

It’s easy to lose focus of who you are and what you stand for in times like these.

Tonight, I’m reminded of a famous speech given by a wartime American president from Illinois (emphasis added):

“It is for us the living, rather, to be dedicated here to the unfinished work which they who fought here have thus far so nobly advanced. It is rather for us to be here dedicated to the great task remaining before us — that from these honored dead we take increased devotion to that cause for which they gave the last full measure of devotion — that we here highly resolve that these dead shall not have died in vain — that this nation, under God, shall have a new birth of freedom — and that government of the people, by the people, for the people, shall not perish from the earth.”

It is easy to cower in the face of disappointment or unspeakable tragedy, to cave to the demands of those playing the temporary game of political opportunism. In these times, we should not forget who we are:

We believe “that government of the people, by the people, for the people” shall reflect the values and humanity of those people. We believe that our markets and our people come together every day, and that their tenacity and innovation are our greatest national assets. Government can’t solve all of our problems, and neither can unchecked greed: We believe that both free markets and free people are essential for a free country and a prosperous posterity. And we are reminded that our young men and women shouldn’t have to die to prove their country’s greatness, but rather, should serve as living proof.

Military might is not the only measure of national strength; private doubts about our financial acuity do not change the reality of our economic strength. The media and Super PACs may reap a windfall from tripping up the United States of America–that’s their freedom, in this country we call home.

You cannot quantify, cannot put a premium on the resilience, the grittiness, the resolve of the American people. Whether we’re facing down the British redcoats or the regulars of financial speculation, our country sets a consistent standard: triumph. That’s something even opinionated talking-heads can’t thwart.

You cannot keep us down. You cannot convince us that our lot is anything less than exceptional. It is a birthright we will give to our children and innumerable generations beyond.

This country and her ideals shall never perish from this earth.

We are so resolved.



(Cross-posted from The Journeying Progressive. Join The Journeying Progressive for long runs, legendary musings and an insatiable quest for knowledge.)

Budget

Lockyer: Default ‘balderdash’

Treasurer Bill Lockyer has been going all around the nation to sell California debt. And suffice it to say he was not one bit pleased with the so-called prediction of debt default.

The state Treasurer’s Office came down hard this afternoon on a prediction from California Lutheran University economists that the state could default on some of its debt, calling the warning “balderdash” that is “nothing more than irresponsible fear-mongering with no basis in reality, only roots in ignorance.” (SacBee)

I guess he’s a bit shy today.

Uncategorized

Will California Be The Next Argentina?

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In some respects the battle over the May 19 propositions is overblown. It’s important to kill the spending cap in Prop 1A, and Props 1C-1E represent some dangerous one-time budget solutions that will probably cause more problems than they solve.

But none of these propositions will change the fact that on May 20, California will again be facing a multibillion dollar budget shortfall. And in turn that raises the specter of default. California cannot go “bankrupt”, but we can find ourselves without enough money to pay those we owe. The state flirted with that possibility in February, and although John Chiang is confident that we will have enough money to last through the summer, the ongoing collapse of the global economy and its kneecapping of our state’s revenue have already caused our bond ratings to sink to the lowest in the nation.

We’re only able to keep the lights on through continued borrowing, and that has been helped by federal hints and proposals to guarantee some or all of our debt. But that may not be enough to resolve growing concerns among bond buyers about California debt, and as a result a high-stakes standoff appears to be developing, as Felix Salmon explains:

The more interesting response was, basically, “my moral hazard trumps your moral hazard”. In other words, it’s true that because California has insured itself against default, there’s moral hazard there: whenever anybody is insured against anything, the likelihood of that thing happening goes up. But at the same time, there’s a bigger moral hazard at play: the federal government will never let California default, it’s too big to fail. And so when push comes to shove, California will get a federal bailout before it defaults on its bondholders.

I suspect, however, that the moral hazard seniority works the other way around: the fact that California’s bondholders are insured means that it’s not too big to fail, and that in fact a payment default by the state would have very little in the way of in-state systemic consequences. (I have no idea what it might do to the monolines, but if they can’t cope with a single credit defaulting, they really shouldn’t be in the business they’re in.) The federal government might step in to mediate the negotiations between the monolines and the state, but it’s not even obvious why it would want to do that.

The basic issue here is what exactly would happen if California defaulted – who blinks first, who has to accept getting less than they are owed. As I see it the possible outcomes look like this, in order of increasing regressivity:

  1. Federal government steps in to provide operating capital to California in order to both pay what the bondholders are owed and prevent the state from having to make crippling cuts. This is essentially what has been done with the big banks, and a solid argument could be made for doing it with CA – if we have to close schools or hospitals, the economic downturn WILL become a Depression.
  2. Federal government makes the bondholders whole but demands California implement crippling budget cuts in order to repay the feds for the cost of helping insure the bondholders. This could be ameliorated with some form of cramming down the bondholders, but folks like you and I would get crammed down even more.
  3. The feds take the Gerald Ford route and tell California “drop dead” – CA under law cannot fail to pay the bondholders, so we’re on our own. We could try and negotiate with them, or pay outright. This basically turns California into a Latin American IMF client, having to cramdown working people so the bondholders get paid.

It’s worth noting just how important that last point is. As David Harvey explained in A Brief History of Neoliberalism, the 1975 New York City default was a major turning point in economic history. Ford’s Nixonian advisers argued that NYC shouldn’t be bailed out in order to hit liberals and unions. As a result NYC had to negotiate with the bondholders and was forced to make massive spending cuts, reversing 40 years of policy of increasing services to help working people in the city.

Once the NYC strategy was rolled out and shown to be a success, it became the seed of the IMF’s “Washington Consensus” moves in the 1980s and 1990s to impose right-wing economics on nations that needed their aid. NYC was thus one of the earliest victims of the shock doctrine – California may well be next.

Someone is going to have to pay more to solve this mess. The question before Californians is whether the low- and middle-income will be the ones to pay, as we have been in the recent budget deals, as we have been in Asia and Africa and Latin America – or whether the federal government will do the right thing and protect our public services and those who depend on them.

Which is why the Zombie Death Cult is so insistent on forcing the state to go over a cliff. They’re salivating at the chance to shock doctrine this state, always have been.