China owns America, according to the Tea Party. Although the recent rumor that China possesses a larger percentage of government bonds than the American government itself has been busted, the idea has sparked debate over the future of the global financial market.

China, the 3rd largest country (by landmass) with the second leading economy in the world, does in fact own the largest single share of foreign-owned American Treasury securities (36 percent), some $1.16 trillion. That’s 16 percent of total U.S. debt.

Back in 2006, it was calculated that China added $30 million to its reserves of foreign currencies every hour (Bonner, Bill: “China’s Dollar Reserves, America’s Debt”). China’s pool of reserves had topped $1 trillion, approximately 20 percent of all dollars worldwide. This immense cache is the result of a large current-account surplus, significant inward foreign direct investment, and big inflows of speculative capital.

Though this influx of foreign currency would theoretically have dramatically increased the worth of the Yuan, the Chinese government instead resisted this increase, keeping labor and exports dirt cheap for foreign investors.Thus, China has expressed concern over the security of its vast holdings.

Realistically, any nation should control assets denominated by several currencies, commodities, and direct overseas investments in order to avoid the sharp depreciation of any one type of asset. “We hope the U.S. government concretely takes responsible policy measures to increase the confidence of international financial markets and respects and safeguards investors’ interests,” the State Administration of Foreign Exchange said in a statement.

In an e-mail in August, Yu Yongding, a former advisor to China’s central bank, remarked that the U.S. Treasuries fail to provide safety or liquidity in managing China’s foreign-exchange reserves, worth $2.45 trillion. He went further to say that, in order to help lessen demand for the securities, China needs to curb the growth of its foreign reserves by pulling out of the currency market.

As a result, in the 12 month period ending in July, China has cut its holdings by about to 10 percent to $846.7 billion, according to the U.S. Treasury Department. Additionally, China and Russia came to an agreement in 2010 following the global recession.

In the agreement, they would use their own currencies for bilateral trade rather the commonly used American Dollar and other similar Western currencies. They may not be outright denouncing the dollar in this act, but they are certainly challenging its rule.

Image Courtesy of  http://www.flickr.com/photos/nznationalparty/

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With the recent near-default of the American government, we are forced to take a closer look at the dark rabbit hole that has become the federal budget. A short plunge into history will surface in a debate of the politics of the current financial crisis: Over the past century, the world has changed dramatically, contributing to and resulting from globalization.

Like the domino effect, once science reached a certain point of innovation, the world population exploded, creating a systematic and uncontrollable increase in both processes over the following years. The U.S. government reflects a clear example of this incredulous expansion. The 20^th century saw America transform from an infant nation into the leading nation of efficiency, compassion, and modernity.

At the helm of the 1900’s, the U.S. government consumed merely 6.9 percent of Gross Domestic Product (GDP, a minority of which was due to federal spending. However, World War I brought a kick to spending, and culminating at about 12 percent of GDP in the 1920s.

President Roosevelt and the New Deal brought spending up to 20 percent during the Great Depression, but it was during World War II that government spending peaked to 53 percent of GDP in 1945. In terms of government spending, the post -World War II era marked itself as the Golden Age, despite President Clinton’s 1995 declaration that big government spending has finally come to an end.

Immediately after WWII, spending dropped to 21 percent, but by the recession of 1980-82, hit a peak of 36 percent. Government spending averaged 32 percent of GDP until the disastrous recession of 2008, in which spending surged to wartime-like spending, 45 percent, thanks to bank and automotive industry bailouts.

      VS.    

The federal budget for the 2011 fiscal year outlines exactly what the enormous percentage of the GDP amounts to. As seen in the pie chart below, courtesy of usgovernmentspending.com, the $3.8 trillion in expenditures is divided into 5 categories, in descending order of dollars spent: defense, healthcare, pensions, “other”, and welfare.

Defense, 25 percent of the budget, plunders a whopping one trillion dollars. Health follows at a close second with $0.9 trillion, or 23 percent. Pensions, at 21 percent, translate to $0.8 trillion. Welfare constitutes 13 percent of the budget with $0.5 trillion, with the remaining 18 percent pulling $0.6 trillion – including, but not limited to, education.

According to USA Today, the national debt has mounted to such a number that, to repay it entirely, each American household would have to fork over a whopping $668,621. In other words, with absolutely 0% interest, the most manageable payment plan would involve a $13,364 annual payment for the next 50 years per household, or approximately the annual tuition rate for a state-subsidized public American university.

To clarify, this number is only the amount of debt as it stands today, not the additional debt of next year, the year after, etc.

The level of debt has become so outrageous that, last month, the United States government was forced to raise its debt ceiling or face default. The latter decision would have crippled the government, rendering it incapable of basic function and placing the civil population into very real danger.

Welfare and public education would eventually become inaccessible, and troops abroad would be marooned without funding. Additionally, a debt default would have led to an enormous depreciation of the dollar and possible another global recession, due to a reduction in worth of all dollar-back assets worldwide.

Luckily, the Senate cobbled together a last minute compromise that left much to be desired. This heartbreaking piece of work was the result of months of partisan bickering and head-butting. As a result, the DJIA drop 1500 points in little over a week, and the S&P graciously downgraded U.S. debt for the first time in history.

How this will affect the American economy remains to be seen, but the future surely is not bright. Think the government can tighten their belts and spend within their limits? If it means we all must draw back a little bit, then here’s a rally towards a healthy economy in the unfortunately far off future.
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Rep. Gabrielle Giffords (D-AZ) made an unexpected return to Congress on Monday to vote on the debt ceiling bill. Seven months after being shot in the head in Tucson, Arizona, Giffords recovery has astounded doctors.

House Minority Speaker Nancy Pelosi (D-CA) introduced Giffords to thunderous applause and a standing ovation. Colleagues shook Giffords hand and welcomed her back to her job for the first time since she was critically injured during a political event that left six dead.

“I have closely followed the debate over our debt ceiling and have been deeply disappointed at what’s going on in Washington,” Giffords said, in a statement from her office. “After weeks of failed debate in Washington, I was pleased to see a solution to this crisis emerge.

I strongly believe that crossing the aisle for the good of the American people is more important than party politics. I had to be here for this vote. I could not take the chance that my absence could crash our economy.”

Giffords voted in favor of raising the debt ceiling which passed through House by a margin of 269 to 161. Her office, in a statement, noted that in December 2009 and again in February 2010, she had objected to raising the nation’s debt limit. This vote, the statement added, “was substantially different, with the strength of the U.S. economy hanging in the balance.”

After the vote was cast, Giffords received multiple additional rounds of applause, as Pelosi called her “the personification of courage.”

“Her presence here in the chamber as well as her service throughout her career in Congress, brings honor to this chamber,” Pelosi said. “Thank you, Gabby.”

Assistant Democratic Leader James Clyburn (D-S.C.) said he found out that Giffords would show for the vote when he saw her, hinting that Pelosi and others in the know played it close to the vest.  ”I just said, ‘I love you, glad to have you back, great to see you,’” he said. “I only found out when I saw her. [It was] a little emotional.”

Jared Lee Loughner, of Tucson, has been charged in the shootings that injured Giffords and others.

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Sarah Palin and GOP presidential hopeful Michele Bachmann are outraged over a comment that vice president Joe Biden made during the excruciating long and dragged out debt ceiling negotiations.  According to Polico, Biden suggested that Tea Party-backed lawmakers “acted like terrorists” during the debate over the debt ceiling. This comment caused Bachmann and Palin to begin huffing and puffing.

Of course, you should note the context of the comment. Of course, Palin and Bachmann should too. Rep. Mike Doyle of Pennsylvania, who apparently asserted that “[w]e have negotiated with terrorists” during a closed-door meeting with House Democrats about the deal to raise the debt limit. Biden’s response; “They have acted like terrorists.”

Palin appeared on Fox News’ “Hannity” on Tuesday night to showcase the mock outrage. “If we were real domestic terrorists,” Palin explained to host Sean Hannity, “President Obama would be wanting to pal around with us, wouldn’t he? He didn’t have a problem palling around with Bill Ayers back in the day when he kicked off his political career.”

Although Palin has tried to connect Obama to Bill Ayers, a 1960s Weather Underground member, no serious connection exists. Obama did not “pal” around with Ayers, according to the Associated Press.  They worked on community boards and Ayers hosted a political event at the beginning of Obama’s career .

Palin went on to defend the tea party. “I’m not just going to roll over with a sticker plastered on my forehead that says, hit me baby one more time, call me a terrorist again, call me a racist. Those things that Tea Party patriots have been being called over these months. It is unfair, it’s hypocritical of the other side doing that. And enough is enough. And I’m going stand up for those fiscally conservative patriotic independent Americans who wants the best for this country.”

Really, Palin? Being called something is unfair? And while you are complaining about being called something, you are implying that Obama is friends with a terrorist. I am not sure you understand the definition of hypocritical, but look in the mirror and you will get it. Your party brought up the whole calling the other side terrorists. If you want to criticize someone, start with Rep. Doyle.

Bachmann responded to the comments in an e-mail on Monday night, “Only in the bizarro world of Washington is fiscal responsibility sometimes defined as terrorism.” And only in bizarro world is fiscal responsibility linked to a refusal to increase revenue.

Jeffery Stone / Shutterstock.com

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The debt ceiling was raised in the last possible moment in a deal that has no one really satisfied. The debt ceiling was raised along with a creation of a “secret super committee” that will dramatically slash spending.

Democrats in the Senate supported the bill despite the huge spending cuts. Forty-five voted “yes” on the bill and six voted “no.” Meanwhile 28 Republicans voted in favor of the bill and 19 opposed it. Sen. Joe Lieberman (I-Conn.) and Bernie Sanders (I-Vt.) voted “yes” and “no,” respectively.

The compromise allows Obama to increase the borrowing limit by $400 billion immediately but also mandates $917 billion in cuts over the next decade. The bill also sets up a committee of 12 lawmakers that will find another $1.5 trillion cuts over the next decade.  The bill “puts in place a powerful committee that will ensure further much-needed reform,” said Senate Minority Leader Mitch McConnell (R-Ky.)

“There must be a sharing of sacrifice,” Majority Leader Harry Reid (D-NV) said. “It’s very unfair for millionaires and billionaires not to be contributing.”

Very few lawmakers had positive reactions to the deal.

“This compromise that we reached is not perfect,” said Reid. “We settled for less than we wanted, but so did my friend [McConnell].”

He also complained that the country was forced to such an impasse because of the “very, very disconcerting” impact of the Tea Party.

McConnell was more satisfied with the outcome. “It was a debate that Washington very much needed to have,” he said. “The American people agree with us on the nature of the problem … if you’re spending yourself into oblivion, the solution isn’t to spend more, it’s to spend less.”

“The bill doesn’t solve the problem, but it forces us to admit we have one,” McConnell added.

Other tea-party backed Republicans were less optimistic over the outcome. “To me it comes close to violating our oath of office,” said Sen. Jon Kyl (R-Ariz.) about the potential cuts to military spending.

Economists also have mixed reactions about the deal. Raising the debt ceiling provides some stability in an already fragile economy however the huge spending cuts will continue to slow the economy.

“The federal government spends huge amounts of money, and to the extent, in the short-term, that it’s not spending that amount of money, there will be an impact to the economy,” said Ernie Patrikis, a banking partner at White & Case and former vice president of the New York Federal Reserve. He said that while he thought the stability would encourage more investment, “the impact on unemployment is not terribly helpful.”

“It’s definitely a drag — the only question is how much,” said Dean Baker, co-director of the Center for Economic and Policy Research. “We’re going backward when we desperately need to go forward.”

According to the Huffington Post, the Democrats began the debate stating that the hike in the debt ceiling be “clean” and not tied to spending cuts. They gave ground continually for months, and McConnell happily pointed out that the White House once labeled any linkage to future spending “insane.”

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A new low has been reached for the Republicans in Congress. Before the last second debt ceiling deal, Rep. Doug Lamborn (R-CO) referred to President Obama as a “tar baby” prompting immediate backlash.

“Even if some people say, well the Republicans should have done this or they should have done that, they will hold the President responsible,” said Lamborn said Friday during an interview on a Denver radio station. “Now I don’t want to even have to be associated with him. It’s like touching a tar baby and you get, you get it, you know… you are stuck and you are part of the problem now and you can’t get away.”

“I don’t want that to happen to us, but if it does or not, he’ll still get, properly so, the blame because his policies for four years will have failed the American people,” he added.

The term “tar baby” is a reference to 19th-century Uncle Remus stories about Br’er Rabbit but has taken on a negative connotation towards African-Americans. Lamborn spokeswoman Catherine Mortensen said the comments were a misunderstanding and he apologizes. “Congressman Lamborn regrets any misunderstanding. He simply meant to refer to a sticky situation or quagmire,” she said.

The White House has not given any comment on Rep. Lamborn’s remarks. However, many others have expressed outrage over Lamborn’s comments. His voicemail quickly filled up to capacity as people around the United States called the congressman’s office over the offensive statement.

The congressman is not the first politician to be caught using the phrase. Senator John McCain, R-Ariz., used the term on the campaign trail in 2007 and former Massachusetts Governor Mitt Romney made the mistake in 2006 when referencing a troubled infrastructure project. Both presidential hopefuls apologized for their remarks.

Congressman Lamborn told a local Colorado station that he didn’t mean to offend anyone with his comment. He said that a letter has been sent to the President to offer an apology.

“When I said ‘tar baby’, I was talking economic quagmire that our country is finding ourselves in because of poor economic policy from the White House. I could have used a better term,” said Lamborn, from his D.C. office.

Kjersten Forseth, the Executive Director Of ProgressNow Colorado said she was surprised by the congressman’s comments.”You can use the term to refer to a sticky situation. Where I have concerns is that he’s specifically talking about the president.”

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With the prospect of a debt default looming just over the horizon, the House of Representatives tonight passed compromise legislation to raise the debt ceiling.

The House voted in favor of the bill by a margin of 269-161 after a dramatic day of legislative wrangling on Capitol Hill. Although the compromise was announced last night, the leaders of both parties had to spend much of today trying to win over their respective caucuses.

The bill is essentially a modified version of John Boehner’s (R-OH) plan, which passed the House last week. It would immediately raise the debt ceiling by $400 billion, while allowing President Obama to order a $500 billion increase in the fall, unless both houses of Congress vote to block it. It also imposes spending cuts of $1 trillion by setting ten-year caps on the budgets of Cabinet agencies.

A further debt ceiling increase of up to $1.5 trillion will be granted if Congress can offset it through additional spending cuts. A special bipartisan committee of both houses will be responsible for proposing these cuts, but if the committee cannot agree or Congress does not enact their proposals, the White House will be empowered to order across-the-board cuts, including reductions in defense spending and farm subsidies. However, the debt ceiling increase could still go through if Congress approves a balanced-budget amendment to the Constitution and sends it to the states for ratification.

Neither side ended up truly winning the day. While Obama and the Democrats got their wish for a debt ceiling increase that will see them through the 2012 election, they will not be able to raise taxes on the wealthy in order to reduce the debt. And while the Republicans succeeded in wringing deep spending cuts from the Democrats, the agreed-upon cuts are not as deep as the ones the House passed last week. It is also far from certain that a balanced-budget amendment will actually go to the states since it is no longer required in order to raise the debt ceiling.

Like most compromises, this one was not to everyone’s liking. Presidential hopeful Rep. Michele Bachmann (R-MN) announced her intention to vote against the bill, claiming that it did not cut spending enough. “Someone has to say no, I will,” she said.

At the other end of the political spectrum, the co-chair of the Congressional Progressive Caucus, Rep. Raúl M. Grijalva (D-AZ), also lambasted the bill. “This deal weakens the Democratic Party as badly as it weakens the country. We have given much and received nothing in return,” he said.

The Senate will likely take up the bill tomorrow, where it is almost certain to pass, given the bipartisan show of support in the House and the fact that a debt default could be just around the corner if they balk.

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In an interesting turn of events, the Congressional Budget Office rating Senator Harry Reid (D-NV)’s debt ceiling plan. Just one day after the CBO scored Speaker John Boehner’s plan, the non partisan congressional scorekeeper released their findings on Reid’s plan.

On Tuesday, the CBO stated that the Speaker’s plan would save $850 billion over the course of 10 years. Reid’s plan would reduce the deficit by $2.2 trillion over the next decade, the nonpartisan Congressional Budget Office said. The Speaker was already forced to pull his bill over the low score from the CBO and stated that he was going to “rework” it. Reid’s plan also included no tax hikes or increases in revenue, a demand of the Republican Party.

Two major differences account for the conflicting scores. In Reid’s plan, the very expensive wars in Iraq and Afghanistan will completely end. Also, Boehner’s plan only raised the debt ceiling by one trillion dollars and was only trying to find a trillion cuts to match the amount of raising the debt ceiling. Under Reid’s plan, the debt ceiling would be raised until 2013.

Rep. Boehner defends his plan, calling the CBO results “misleading.” Boeher spokesman Michael Steele explained why the report was misleading.

This report shows the Senate plan for what it is: a grab-bag of gimmicks that gives the President a blank check. In contrast to the bill House Republicans have offered, the Senate Democratic bill counts as ‘savings’ a trillion dollars in war money that would never have been spent — and on top of that, slashes the defense budget in a manner that would hurt our men and women in uniform in a time of war.

It relies on smoke and mirrors for half of its ‘savings,’ yet still cuts $500 billion less than promised. In reality, the Reid plan would only save taxpayers about $1 trillion while giving the President the largest debt limit increase in history. Despite previous claims, it significantly falls short of the requirement that we cut more than we increase in the debt limit.

President Obama and other Democrat leaders are supporting Reid’s plan. Reid has hinted that Congress may be working on a compromise. “Magic things can happen here in Congress in a very short period of time under the right circumstances,” said Reid, the Senate majority leader.
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If there is any doubt that Republicans are choosing politics over country, erase it with the words of Donald Trump. Monday, Trump urged Republican lawmakers to reject any debt ceiling deal in an effort to ensure that President Obama is a one-term president. Despite economists and administration officials warnings that defaulting on our nation’s debt could mean dire consequences for the country, Trump still believes that the risk is worth it. Politics over country.

“Frankly the Republicans would be crazy unless they get 100 percent of the deal that they want right now to make any deal,” Trump said on “Fox and Friends” Monday. “If this happens, for instance if this stuff is going on prior to an election, he can’t get reelected. He possibly can’t get elected anyway. …

The fact is, unless the Republicans get 100% of what they want, and that may include getting rid of Obamacare, which is a total disaster, then they should not make a deal other than a minor extension which would take you before the election which would ensure Obama doesn’t get elected, which would be a great thing.”

Host Brian Kilmead pointed out that Americans currently blame Republicans more than Obama for the debt ceiling crisis, but Trump responded that, in the long run, the blame will fall on Obama, not Republicans. “I don’t care about polls,” Trump said. “When it comes time to default, they’re not going to remember any of the Republicans’ names. They are going to remember in history books one name, and that’s Obama.”

According to a new Washington Post-ABC News poll, Americans disapprove of Republicans’ and Obama’s economic policies in roughly equal measure, but 65 percent disapprove of the GOP’s handling of jobs, compared to 52 percent for Obama.

In an interview with Newsmax, Trump stated that Obama is trying to create a crisis. “Monday of this week, everything was supposed to crash in Asia and it didn’t,” said the Trump, who earlier this year mulled running for the Republican nomination for president.
“It was supposed to crash throughout the world but it didn’t.

“That threat is highly overblown, and August 2 is no longer the date. There’s plenty of funds to keep it going quite a bit longer. That’s just a date that Geithner came up with mysteriously, so August 2 is not a real threat at all.”

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As the nation anxiously awaits for a vote on a debt deal, Senate Majority Leader Mitch McConnell tells CNN on Sunday that both parties are “very close” to reaching a compromise.

After Senate Republicans shot down Senate Majority Leader Harry Reid’s bill, negotiations continued between President Obama and McConnell.

The three trillion dollar deal would allow leaders to avoid a default, which would begin August 2, this Tuesday. In order for this to occur, Congress must raise the current $14.3 trillion debt ceiling.

In addition to the $3 trillion cut in spending, this deal would extend the debt limit through 2012, a crucial time in Washington, as it would be an election year.

The cuts would come in two waves, the first including $1 trillion in reductions, and a second round of cuts would be determined by Thanksgiving 2011 according to CBS news.

Negotiations between Obama and McConnell would include the discussion of “trigger” cuts that would occur automatically if a congressional stalemate was to occur during the second round of cuts. In order for the democrats to support the plan, Democratic Senator Chuck Schumer D-New York says, the trigger cuts would need to be equally difficult for both parties. The Democrats do not want to lose the ability to send middle class kids to college, and the Republicans believe the trigger should have revenues.

According to Fox News, an official has made it clear that one certainly is that neither extreme will be satisfied with the deal. Tea Party lawmakers might disagree with the new changes, and liberal groups are having issues with the possibility of entitlement cuts.

A few senators are stating that a vote is expected sometime on Monday. Another democratic senator has said that there will be no automatic cuts to Medicare beneficiaries.

A key player in these talks is House Speaker John Boehner who walked out of a meeting with President Obama a few days ago. While progress has been made since that time, the Obama administration is still negotiating on difficult, but crucial issues.

If unable to raise the debt ceiling, Congress would be responsible for rising interest rates, a declining dollar and many other problems for millions of Americans. Additionally, Obama has said that he cannot guarantee timely Social Security checks.

The United States Treasury has said recently that after Tuesday, without a lift in the ceiling, the nation would no longer have the cash to pay its bills.

Many Americans are also worried because of the quickly approaching deadline especially since bills have been shot down left and right in the past week. On Friday night the Senate voted against the House Republicans’ proposal, then voted against Reid’s counterproposal by ten votes.

However, the progress made this past weekend could save the country. Harry Reid admits to being “cautiously optimistic” even though the agreement has not been made yet.

Despite the positive attitude, many Americans are still frustrated with Washington’s lack of ability to come together at a time of desperate need.

Image by Gage Skidmore

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The House of Representatives has passed the Budget Control Act proposed by their Speaker, John Boehner (R-OH), by a vote of 218-210.

The bill passed without any support from the Democrats and, despite an intensive lobbying effort by Boehner and the rest of the House GOP leadership, twenty-two Republicans broke ranks to vote against it as well.

Speaking in support of his bill, Boehner said that he “stuck my neck out a mile trying to get an agreement with the president of the United States. I stuck my neck out a mile. And I put revenues on the table in order to try to come to an agreement to avert us being where we are.”

“But a lot of people in this town can never say yes. This house has acted and it is time for this administration to put something on the table, tell us where you are,” he continued.

The House was originally supposed to vote on the bill last Thursday, but Boehner abruptly postponed the vote at the last minute when it became apparent that he did not have enough support. Another round of intensive arm-twisting ensued, and Boehner agreed to tweak the bill to make it more palatable to the Tea Party faction of his caucus.

The original bill called for a $900 billion increase in the debt ceiling and spending cuts worth $917 billion. This increase would only tide the government over until 2012, at which point the issue would have to be revisited. However, Boehner’s legislation contained provisions for a bipartisan committee to come up with further spending cuts, at which point the debt ceiling could be raised again. As a result of pressure from the Tea Partiers, Boehner agreed to a further amendment that would require Congress to pass a balanced budget amendment to the Constitution and send it to the states for ratification before the debt ceiling could be raised a second time.

Once the bill arrived in the Senate, Democratic Majority Leader Harry Reid (D-NV) moved to ‘table’ (i.e. kill) it. That motion was agreed to by a vote of 59-41 that saw several Republican senators join the Democrats in opposing Boehner’s plan. Now the Senate will likely turn its attention to Reid’s own proposal to solve the debt ceiling crisis, with a final vote likely to occur sometime during the early hours of Sunday morning. But it is almost certain to receive a chilly welcome from the House, and, with only days to go before the August 2^nd deadline, a solution to the debt crisis seems as remote as ever.

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While the nation is in disarray over the debt ceiling, the Republican Party in particular is in shambles. The Tea Party is warning the Speaker John Boehner and other Republican leaders to “hold the line,” while elders in the Republican Party and Republican business donors are urging the party to raise the debt ceiling to prevent an economic downfall.

The Tea Party and American Grassroots Coalition organized a rally on Wednesday in the capital. Seventy-five supporters and featured GOP Reps. Louie Gohmert (R-Texas) and Joe Walsh (R-Ill.), and Sens. Jim DeMint (R-S.C.), Rand Paul (R-Ky.) and Mike Lee (R-Utah).  The supporters at the rally want the Republican leadership to bring back the “Cut, Cap and Balance” bill that the House passed, but failed in the Senate. The Act would raise the debt ceiling before August 2^nd deadline.

The Tea Party and many GOP lawmakers do not support Speaker Boehner’s plan, criticizing that it cuts too little. Boehner reportedly held a closed-door meeting on Wednesday and told Republicans to “get your ass in line.”

“This is the bill,” Boehner stated. “I can’t do this job unless you’re behind me.”

Boehner’s plan would temporarily raise the debt ceiling until the end of the year. The plan would also make spending cuts, although not as deep as many in the party would like.  Credit raters along with Bank of America have described the Speaker’s plan as insufficient and would not prevent an economic fallout.

The normally Republican-leaning National Association of Manufacturers is insisting that Congress raise the debt ceiling, again. In part, the statement read:

During the current uncertain economic times, Americans desperately need jobs. It is unreasonable for our government to stand by idly and allow interest rates to increase for families and businesses. Doing nothing also will result in a decrease in foreign investments in the United States and a general hit on the economy.

This is the time for leadership in Washington. The White House and Congress must act to raise the debt ceiling to ensure our country’s fiscal and economic well-being. To do otherwise is wholly irresponsible and ignores grave consequences and fiscal responsibility.

Senator John McCain (R-AZ) criticized the tea party republicans on the Senate floor on Wednesday. “What is really amazing about this is that some members are believing that we can pass a balanced budget amendment to the Constitution in this body with its present representation — and that is foolish,” said McCain on the Senate floor, according to The Hill.

“That is worse than foolish. That is deceiving many of our constituents.” The Arizona senator regarded the situation unfolding as “unfair” and “bizarre.”

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Despite some Democratic leaders prompting, President Barack Obama has stated that he will not utilize the 14^th amendment in order to bypass congress and raise the debt ceiling. The little known 14^th amendment is vaguely worded and legal scholars differ on the whether the amendment would allow the president to continue to borrow or could pose a legal challenge.

On Tuesday, Obama’s spokesman, Jay Carney, seems to dismiss the possibility. “The Constitution makes clear that Congress has the authority, not the president, to borrow money and only Congress can increase the statutory debt ceiling. That is just a reality,” Carney told reporters.

However, House leaders emerged from a caucus on Wednesday and urged Obama to raise the debt ceiling any way possible. If Congress can’t reach a deal on a long-term debt limit increase by Aug. 2, Obama should “sign an executive order invoking the 14th Amendment,” said Assistant Minority Leader James Cyburn (D-S.C.).

“I am convinced that whatever discussions about the legality of that can continue,” Clyburn said. “But I believe that something like this will bring calm to the American people and will bring needed stability to our financial markets.”

House Democratic Caucus Chairman John Larson (D-Conn.) stated that Obama has previously expressed doubts about his legal authority to unilaterally raise the debt limit. But circumstances have changed, Larson said, and “we just want to let him know that his caucus is prepared to stand behind him” if Congress fails to pass a longterm deal.

“We have to have a fail-safe mechanism,” Larson said. “We believe that fail-safe mechanism is the 14th Amendment and the president of the United States.”

Former President Bill Clinton argued last week that the 14th Amendment that states the “validity” of government debt ”shall not be questioned” means that Obama could simply ignore the congressionally imposed debt ceiling and go on borrowing.

A handful of Democrats plan to hold a press conference on Thursday in the capital. The Democrats want to encourage the president to “invoke the 14th Amendment in the absence of a bipartisan agreement to raise the debt ceiling and avoid national default,” according to their press release.

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The Congressional Budget Office, the non-partisan group that provides cost and data analysis for legislation, released its findings on House Speaker John Boehner’s debt plan. According to the CBO, the Budget Control Act of 2011 would save roughly $850 billion over the course of ten years and just $1 billion in 2012.The findings disappointed Speaker Boehner who said he rewrite the bill in order to save more money.

These savings will not satisfy Boehner’s conservative and tea party base. House Republicans have demanded immediate cuts, however under Boehner’s plan the cuts would not be felt for a few years.

“Americans deserve immediate spending cuts that demonstrate that we are charting a swift path toward a balanced budget. We must implement discretionary and mandatory spending reductions that would cut the deficit in half next year,” read a May 2011 letter from the conservative Republican Study Committee.

“Any move to raise the debt limit must be accompanied by immediate spending cuts and binding reforms so that we don’t continue to push our country down the road to bankruptcy,” House Majority Leader Eric Cantor (R-Va.) said in early May.

Boehner has also made similar statements. Early this month, he rejected a suggestion by Democrats that the majority of cuts be concentrated in future years. But, his new proposal does find the immediate cuts that Boehner himself demanded. Because programs already have budgets and operating costs, spending cuts that take effect immediately are nearly impossible to achieve. A simple fact that Boehner and others from the tea party seem to forget.

“We’re here to change Washington – no more smoke-and-mirrors, no more ‘phantom cuts.’ We promised that we will cut spending more than we increase the debt limit – with no tax hikes – and we will keep that promise,” Boehner spokesperson Michael Steel said in a statement after the CBO analysis was released.

“As we speak, Congressional staff are looking at options to re-write the legislation to meet our pledge. This is what can happen when you have an actual plan and submit it for independent review – which the Democrats who run Washington have refused to do.”

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Senator Bernie Sanders (I-VT) is not known for biting his tongue about his feelings. And the disastrous debt ceiling debate is no different. Sanders released a statement on Wednesday with biting sarcasm about the so-called “Gang of Six” and their compromise.

Sanders congratulated the GOP members of the Gang of Six on their “very significant victory in negotiating a deficit-reduction plan which achieves their long-term goal of dismantling every major social program relevant to working families.”

The Gang of Six is the moniker given to six Republican senators that are working with Democrats to create a compromise in order to raise the debt ceiling. Among the cuts, the gang of six will cut social security and Medicare.

“While I am sure that they did not get everything that they wanted, I think it’s fair to say they won about 80 percent to 90 percent of what they fought for,” Sanders said. “Despite President Obama’s campaign promise not to cut Social Security benefits, the Gang of Six plan, which he apparently embraced, calls for massive cuts in that vitally important program.”

According to Sanders, the negotiations involve a new formula for calculating cost-of-living adjustments for social security recipients. The new plan would cut a typical 75-year-old’s yearly benefits in 10 years by $560. The proposal also cuts Medicare by $298 billion over 10 years and makes massive cuts to Medicaid.

“At a time when the wealthiest people in this country are becoming wealthier and are paying the lowest effective tax rates in modern history, when corporations are making billions of dollars and making nothing in taxes at all,” Sanders said in his statement, “at least half of a deficit reduction package should come from ending tax breaks and tax loopholes for the wealthy and large corporations.  With military spending having nearly tripled since 1997, we must take a hard look at cutting unnecessary and outdated military programs.”

In his statement, Sanders warned specifically of the danger higher taxes on the middle class could pose, saying, “there is reason to expect that some of the areas that the House and Senate will be looking at include the home mortgage deduction for middle-class families, taxes on health care benefits, and increased taxes on retirement programs such as 401(k)s and IRAs.”

Appearing Wednesday afternoon on MSNBC’s “The Dylan Ratigan Show,” Sanders reiterated his criticism of the plan’s revenue raising provisions saying, “in terms of revenue, it is very very vague as to where this revenue is going to come from.

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As the deadline for the debt ceiling draws near, the insane and pointless debate continues. Dragging out the inevitable raising of the debt ceiling is extremely dangerous. Never before has the U.S. economy come so close to reaching the debt ceiling. Never before have politicians played this game of chicken with the debt in order to get their way. The latest GOP plan asks for huge and immediate spending cuts in all discretionary spending in exchange for only a six-month debt ceiling increase.  That is insane by anyone’s measures.

Furthermore, spending cuts during a recession is asinine. Every other economic slump that America has been in has been solved by government spending. The government operates differently than a household budget so let’s stop making that comparison. Yes, if I am in debt I will reduce my spending. But, I am not responsible for 300 million citizens. I reduce my spending and it only affects me, my husband and pets. If American utilizes these big spending cuts that BOTH parties are now entertaining, it will increase unemployment further draining states’ economies.  When states cut services, as many already have, like unemployment and food stamps, people are homeless, hungry and aren’t spending money. The economic recession that we have been struggling to get out of for years quickly becomes a depression with spending cuts. When average families do not have money to spend, businesses will lay off people. Factories will close. The tax revenue that the United States gets will decrease even further as less and less people are working. Houses will not sell. The economy will come to a complete stand still. Don’t believe me? Nobel Prize winner economist Robert Reich states the same thing.

Not raising the debt ceiling is stupid. I cannot figure out why, in this fragile economy, the Republicans want to mess with this. The GOP was elected last November with their vague promises of creating “jobs, jobs jobs.” Nothing will cause jobs to disappear faster than this plan of raising the debt ceiling for six months while cutting spending and hurting average Americans. If the debt reduction is so important, there is no plausible explanation on why taxes aren’t being raised. I don’t want to pay more taxes, but if the GOP wants to reduce the deficit, you really have to increase taxes. It is just common sense. The Republicans state that raising taxes on the wealthy will somehow make the economy tank. But, that is the ass backwards trickle down crap that has never, ever worked. The rich people spend the same amount of money whether their tax rate is 35 percent or 50 percent. The average family though will not spend money if they are unemployed. But, they certainly will spend if they have money which will increase the economy leading business owners to hire. Business owners do not add employees just because they have extra money. THAT IS THE STUPIDEST THING I HAVE EVER HEARD. Employees are only hired if there is a DEMAND. No demand if people don’t have money. This is so simple it makes me want to scream.

Hopefully, the voters will figure out simple economics and encourage their representatives to take a crash course before the U.S. falls off the cliff. Once we default on our loans, there is no turning back. The end results will be disastrous for everyone involved.  We are in a barrel and Niagara Falls is coming up quickly.

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House Speaker John Boehner (R-OH) addressed the nation in a televised speech following the president’s remarks on the debt ceiling. Boehner accused Obama of creating a “crisis atmosphere.” He asked the president to sign the newly unveiled GOP plan that would temporary increase the debt ceiling.

“Obviously, I expect that bill can and will pass the Senate and be sent to the president for a signature,” Boehner said. “If the president signs it, the crisis atmosphere he has created will simply disappear.”

“You see, there’s no stalemate in Congress,” Boehner argued. “The House passed a bill to raise the debt limit with bipartisan support, and this week while the Senate is struggling to pass a bill filled with phony accounting and Washington gimmicks, we’re going to pass another bill, one developed in support of the Washington leadership of the U.S. Senate.”

John Boehner is referring to the “Cut, Cap and Balance” Act that would require deep cuts in Medicare and Social Security. The legislation is highly unlikely to pass the Democrat-controlled Senate and Obama has already stated that he would veto the proposal.

“The sad truth is the president wanted a blank check six months ago and wants a blank check today,” Boehner added. “That is just not going to happen.”

John Boehner said in his remarks that “the United States cannot default on its debt obligations,” agreeing with President Obama and Democrats’ insistence that the debt limit be raised. But he stated that the Democrats are unwilling to compromise by passing the House GOP legislation, saying “the president would not take yes for an answer.”

“Even when we thought we might be close on an agreement, the president’s demands changed,” Boehner said, a likely reference to Obama’s call for greater revenues as part of a “grand bargain” deal that would have reduced the deficit by up to $4 trillion. Boehner walked away from that effort Friday.

The new Republican plan that was released earlier on Monday would require immediate cuts in discretionary spending, touted as saving $1.2 trillion over a decade. In exchange, the debt ceiling would be raised by less than $1 trillion, a six month temporary plan. The GOP plan would also create a “Joint Committee of Congress” that would identify $1.6 to $1.8 trillion in deficit reduction over the next decade.

Democrats call the House Republican plan a “non-starter” because it would require another debt limit fight before the end of next year. “Does anyone think it would be a good idea to do this all over again in six months?” Sen. Charles Schumer of New York said Monday.

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As the United States is hurling closer to the point of no return on the debt ceiling, President Obama addressed the nation on Monday evening calling the partisan politics a “dangerous game.” Obama criticized the temporary Republicans plan and urged Congress to raise the debt ceiling before the quickly-approaching August 2^nd deadline.

“The American people may have voted for divided government, but they didn’t vote for a dysfunctional government,” the president said in a hastily arranged prime-time speech. He appealed to the public to contact lawmakers and demand “a balanced approach” to reducing federal deficits. “It is a dangerous game we’ve never played before,” Obama said, “and we can’t afford to play it now.”

Obama discussed the importance of raising the debt ceiling and the consequences if the ceiling is not raised in time. “Republican House members have essentially said that the only way they’ll vote to prevent America’s first-ever default is if the rest of us agree to their deep, spending cuts-only approach,” Obama said. “If that happens, and we default, we would not have enough money to pay all of our bills – bills that include monthly Social Security checks, veterans’ benefits, and the government contracts we’ve signed with thousands of businesses.”

The president suggested that Republicans consider raising taxes on the wealthiest Americans. He pointed out that it is not fair to ask for average American families to deal with deep spending cuts while the wealthiest Americans get off scot-free. “Most Americans, regardless of political party, don’t understand how we can ask a senior citizen to pay more for her Medicare before we ask corporate jet owners and oil companies to give up tax breaks that other companies don’t get,” the President stated.

“How can we ask a student to pay more for college before we ask hedge fund managers to stop paying taxes at a lower rate than their secretaries? How can we slash funding for education and clean energy before we ask people like me to give up tax breaks we don’t need and didn’t ask for?”

Arguing that Republican leaders were acting outside of the interests of their constituents, President Obama called on voters to “make your voice heard.”

Speaker of the House John Boehner (R-OH) unveiled a plan earlier on Monday that would raise the debt ceiling temporarily for six months. Obama addressed the plan stating, “In other words, it doesn’t solve the problem,” he said. Speaker Boehner issued his own rebuttal speech immediately following Obama’s address.

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The Republicans “Cut, Cap and Balance” plan will get nowhere. President Obama has vowed to veto the plan if it makes it to his desk. The plan would condition a debt ceiling hike on a constitutional amendment requiring the federal government to balance its balance each year. The proposal would also demand significant spending cuts and a spending cap in order to raise the debt ceiling.

President Obama released a statement on Monday threatening to veto the bill. “Neither setting arbitrary spending levels nor amending the Constitution is necessary to restore fiscal responsibility,” reads the statement released by the White House. “The bill … would set unrealistic spending caps that could result in significant cuts to education, research and development, and other programs critical to growing our economy and winning the future. It could also lead to severe cuts in Medicare and Social Security, which are growing to accommodate the retirement of the baby boomers, and put at risk the retirement security for tens of millions of Americans.”

The proposal also “sets out a false and unacceptable choice between the Federal Government defaulting on its obligations now or, alternatively, passing a Balanced Budget Amendment that, in the years ahead, will likely leave the Nation unable to meet its core commitment of ensuring dignity in retirement,” the statement continues.

Ultimately, the bill “is inconsistent with this responsible framework to restore fiscal responsibility and is not an appropriate method of reducing the Nation’s deficits and debt,” it concludes.

The White House and Congress continue to try to find a compromise in order to raise the debt ceiling by the fast approaching deadline. Republicans are using this opportunity to try to force Obama and the Democrats to make drastic cuts to spending while refusing to raise taxes on the wealthy. A strange position to be in, for sure. The Republicans don’t see it that way though. Incredulously.

House Speaker John Boehner (R-Ohio) said Obama’s veto threat is “disappointing.”
“While American families have to set priorities and balance their books, this White House obviously isn’t serious about making the same tough choices,” Boehner said in a statement. “This unfortunate veto threat should make clear that the issue is not congressional inaction, but rather the President’s unwillingness to cut spending and restrain the future growth of our government.”

“The House will proceed as planned with its vote on the Cut, Cap and Balance Act,” Boehner added.

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On Wednesday afternoon, debt ceiling talks between leaders of Congress and the President broke down, causing frustration and fear to reverberate throughout the country.   House Majority Leader Eric Cantor (R-Va.) repeatedly pushed President Obama to accept a temporary resolution to the debt ceiling according to multiple sources that were present at the meeting.

“Eric don’t call my bluff. I’m going to the American people on this,” the president said, according to both Cantor and another attendee. “This process is confirming what the American people think is the worst about Washington: that everyone is more interested in posturing, political positioning, and protecting their base, than in resolving real problems.”

Cantor, speaking to reporters after the meeting, said that the president “abruptly” walked off after offering his scolding. “I know why he lost his temper. He’s frustrated. We’re all frustrated,” the Virginia Republican said.

Democratic officials report things went a little differently than Cantor is reporting. “The meeting ended with Cantor being dressed down while sitting in silence,” one official said in an email. “[The president] said Cantor could not have it both ways of insisting on dollar-for-dollar and still not being open to revenues.”

The president said he would be willing to sign off on over $1.5 trillion in discretionary spending and mandatory spending cuts. With additional negotiations, he added, he could move that figure up to $1.7 trillion, and with a willingness to consider revenue increases and tax loophole closures, he added, lawmakers could get to over $2 trillion. His preference, he said, was to continue to push for the biggest package possible, so long as it was balanced. Apparently this concession was not large enough for Cantor.

Cantor, who has taken over as the chief Republican negotiator from Speaker John Boehner (R-Ohio), responded by insisting that revenues were off the table. Without steeper cuts, he stated that the votes didn’t exist except to pass a smaller short-term resolution.

“It is easy to get to a higher number when you are not asking anything difficult from yourself,” Obama retorted. Cantor continued to press negotiators to cut $2.5 trillion. The president pointed out that Cantor was just looking for a way to say, “No.”

“Talk about arbitrary,” he said of Cantor’s figure, according to a Democratic attendee. “I am totally willing to do the hard stuff to get well above what you need and you won’t do it because you can’t put one penny of revenue on the table.”

“At least Mitch McConnell, to his credit, was willing to work for a solution,” the president added, acknowledging the proposal by the Senate Minority Leader to, essentially, give him the authority to lift the debt ceiling without passing commensurate cuts.

“I have reached the point where I say enough,” Obama concluded, according to Reuters. “Would Ronald Reagan be sitting here? I’ve reached my limit. This may bring my presidency down, but I will not yield on this.”

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The disastrous debt ceiling debate is not going well for anyone. Eric Cantor looks like a spoiled brat; President Obama appears like he cannot force Congress to get this simple thing done and the rest of Congress looks relatively incompetent as well. However, the debt ceiling debacle is helping out Obama’s image with one highly sought after group-independent voters. And Obama knows this.

“It’s important for the American people that everybody in this town set politics aside, that everybody in this town set our individual interests aside, and we try to do some tough stuff. And I’ve already taken some heat from my party for being willing to compromise,” Obama said Friday as he delivered a message to Republicans worried about angering the GOP’s right flank. “My expectation and hope is, is that everybody, in the coming days, is going to be willing to compromise,” he said pointedly.

Over the past week or so, Obama has continually pointed out that he is willing to compromise to solve the debt ceiling debate, even offering up Medicare and Social Security as sacrificial lambs, angering the progressives.

Republicans have been insisting on no tax increases at all as part of a debt-and-spending deal. Critics call it an extreme position, noting that U.S. tax revenues are at near-historic lows as a share of the overall economy. Meanwhile, top Democrats have opposed Obama’s proposal to scale back cost-of-living increases for Social Security recipients, among other changes to entitlement programs.

People following the debate know that Obama “has been more than willing to make hard sacrifices to reach a compromise,” said Matt Bennett of Third Way, a Democratic-leaning group that pushes for bipartisan accords and moderate policies. Although Obama will take some of the blame if a debt crisis occurs, independent voters will be more likely to side with Obama. “They say polarization is bad for the country,” Bennett said, “and extreme ideology is a road to nowhere.”

Polling by the Pew Research Center suggests that independent voters are more concerned about the inability to raise the debt ceiling by the deadline. This could serve to help Obama next year for re-election, especially when compared against the Republican field of candidates who offer no solution on the debt ceiling.

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As the politicians play chicken with the debt ceiling, credit rating agencies are beginning to downgrade America’s credit, a move that could have far-reaching implications. On Thursday, Standard & Poor warned America that there is a one-in-two chance it could cut the United States’ prized triple-A rating unless a deal on the government’s debt ceiling is worked out soon.

“Today’s CreditWatch placement signals our view that, owing to the dynamics of the political debate on the debt ceiling, there is at least a one-in-two likelihood that we could lower the long-term rating on the U.S. within the next 90 days,” the agency said in a statement on Thursday.

Although the deadline to raise the ceiling is August 2^nd, it could come before that date depending on interest rates and a variety of other factors.

“We have also placed our short-term rating on the U.S. on CreditWatch negative, reflecting our view that the current situation presents such significant uncertainty to the U.S.’ creditworthiness,” the statement read.

“If an agreement is reached, but we do not believe that it likely will stabilize the U.S.’ debt dynamics, we, again all other things unchanged, would expect to lower the long-term ‘AAA’ rating, affirm the ‘A-1+’ short-term rating, and assign a negative outlook on the long-term rating,” said S&P.

Republicans refuse to raise the debt ceiling unless they get some real meaningful cuts. Even though one does not really have much to do with another. Even though, under the last president, the debt ceiling was raised seven times and no Republican objected over spending cuts or other nonsense then.

Speaker John Boehner (R-Ohio), meanwhile, reiterated his position that the administration’s approach was insufficient for resolving the nation’s debt problem. “He continued to press the White House to get serious about reducing spending in a meaningful way,” a Republican aide said.

Treasury Secretary Timothy Geithner has warned lawmakers that the government was “running out of time” to negotiate. Office of Management and Budget committee chair Jacob Lew, along with top economic adviser Gene Sperling “walked through proposals for getting savings out of health care entitlement programs, tax expenditures and budget process changes,” according to a Democratic official familiar with the talks.

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The Republicans argument over the debt ceiling is becoming increasingly ridiculous. And apparently, asking for millionaires to share some of the sacrifice is pathetic, at least according to Sen. Jeff Sessions, a Republican from Alabama.

The top Republican on the Senate Budget Committee called the idea “pathetic” after Senate Majority Leader Harry Reid (D-Nev.) proposed a measure. The non-binding resolution states: “It is the sense of the Senate that any agreement to reduce the budget deficit should require that those earning $1,000,000 or more per year make a more meaningful contribution to the deficit reduction effort.”

Reid’s measure includes how the income gap continues to grow. He cited statistics that state the median income of S&P 500 companies chief financial officers jumped $2.9 million last year alone, even though the “median family income has declined by more than $2,500″ in the last 10 years. The resolution also notes that 20 percent all income goes to the top 1 percent, and 80 percent of the nation’s income growth over the last quarter century has also gone to the top 1 percent.

Sessions and his colleagues did not express any interest in the growing income disparity in the United States, stating only delays getting around to major cuts. “It’s a sense of the Senate,” Sessions scoffed. “We’re supposed to have legislation in place by Aug. 2 to deal with raising the debt limit — and that’s got to be real numbers and real figures.”

“So I guess we can say we’re beginning to talk about something with this rather pathetic response from the majority leader,” he said. “I’m not happy about that.”

Sen. Bob Corker (R-Tenn) was also not impressed with the resolution, but suggested it was a sign Democrats were getting ready to listen to the GOP. “While today, obviously, we’re not going to have anything really serious to talk about — it’s just a sense of the Senate — my sense is that very quickly we’re going to have something before us that actually is real,” Corker said.

Reid spokesman Adam Jentleson commented on the GOP statements: “Apparently, nothing irritates Republicans more than the prospect that millionaires and billionaires might be asked to share in the burden of deficit reduction.”

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