Weekly Pulse: GOP Plays Chicken with the Debt Ceiling
By Lindsay Beyerstein, Media Consortium blogger
Sen. Jim DeMint (R-SC) is calling for a "big showdown" over the upcoming vote to raise the nation's debt ceiling to $14.3 trillion from $13.9 trillion. The debt ceiling is simply the maximum amount the government can borrow.
Several weeks ago, the House Financial Services Committee approved an amendment that would quite negatively impact our economy's future well-being. If passed, this change could hamper GDP growth for decades to come.
Offered by Congressman Ron Paul, the amendment vastly expands the Congressional Accounting Office's auditing powers over the Federal Reserve. Consequently, the Federal Reserve's cherished independence would be drastically curbed. Every unpopular action the Federal Reserve made could potentially be scrutinized by vote-seeking politicians. This would effectively intertwine politics into the serious business of running the economy - and if the Soviet Union taught us anything, that is a terrible, terrible idea.
This week, the Chinese government announced that China's economy had expanded by a stronger-than-anticipated 10.7 percent in the last quarter of 2009 and that it had grown 8.7 percent for the entire year. This news, however, was not greeted with relief but with the skepticism that has typically met such news emanating from China in recent years. The Wall Street Journal ran a story on its front page with the headline "China Seeks to Tame Boom, Stirs Growth Fears."
Several weeks ago, the House Financial Services Committee approved an amendment that would quite negatively impact our economy's future well-being. If passed, this change could hamper GDP growth for decades to come.
Offered by Congressman Ron Paul, the amendment vastly expands the Congressional Accounting Office's auditing powers over the Federal Reserve. Consequently, the Federal Reserve's cherished independence would be drastically curbed. Every unpopular action the Federal Reserve made could potentially be scrutinized by vote-seeking politicians. This would effectively intertwine politics into the serious business of running the economy - and if the Soviet Union taught us anything, that is a terrible, terrible idea.
Imagine, for example, if this policy had been in place three decades ago - during the 70s and 80s. The great economic challenge of those decades was stagflation, a ruinous combination of high inflation, high unemployment, and stagnant economic growth initiated by oil shocks. Presidents from Nixon to Carter attempted to combat the demon, instituting policies that ranged from price controls to handing out WIN (Whip Inflation Now) buttons.
The problem with stagflation, however, was that defeating it required extremely unpopular action - action no poll-reading politician was willing to take.
by Zach Carter, Media Consortium MediaWire Blogger
Now that Treasury Secretary Timothy Geithner isn't going to impose pay restrictions on bailed out Wall Street executives, it's critical to remember that severe economic inequality was a major factor in the financial meltdown. Our tax code funnels money into the hands of our wealthiest citizens, which means that our financial system protects the interests of the affluent—not the the average citizen. The broad divergence between our core democratic values and the existing U.S. economic structure must become part of the public debate over financial reform.
One of the main pillars of Republican thought is that LBJ's spending on social programs and his relatively modest federal deficits caused the hyperinflation and economic stagnation of the 1970s and early 1980s. The problem with this theory which largely goes unopposed is that the much larger deficits of Ronald Reagan in the 1980s and Georhe W. Bush stubbornly failed to cause inflation. LBJ managed to produce a b udget surplus in his last year in office, as well. I f federal deficits cause inflation, this record makes no sense.
In fact, I patiently waited for Regan's deficits to run into hyper inflation and lo and behold, we never had it. The same thing held with George W. Bush. Were larger Republican deficits kept in check by complicit bankers and Wall Street types or was there something else at work here. Well, it turns out that price inflation remarkably correlates with rise in oil prices rather than with federal deficits. Following the Arab-Israeli War OPEC applied an oil embargo to countries considered friendly to Israel. prices zoomed from $3 a barrel in 1971 to over $12 a barrel and the prices at the gas station went above $1 per gallon. A scond shock followed with the Iranian Revolution (1979-80) and the Iraq-Iran War which mostly cut off Iranian exports until Iran started winning in late 1981 or 1982. By 1981, oil prices rose to $35 a barrel.
Reagan exacerabated hyperinflation and stagnation by secretly supporting Iraq as retaliation of the hostage crisis. It was Dick Cheney who first armed Saddam Hussein while working for reagan. But Reagan got the politically credit by deliberately engineering a steep recession (10 straight months with unemployment over 10%) which broke the back of both our own economy and oil demand. Future deficits, which were huge, were paired with falling oil prices (and therefore) falling or stable cost of living stats. This economic malpractice tranferred the blame from the Nixon-Ford era to LBJ and "social programs." Social programs were tarred and feathered semi permanently while the Reagan and George W. Bush tax cuts were deified. Only the tax cuts really didn't produce much growth and the social spending does not appear to be the real cause of infalation. Nonetheless, this is politically effective and has seeped into conventional wisdom.
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