[Economics] If Obama actually gives us the VSP Grand Bargain

[Grek]

89-9? There's only 100 seats.

[John Magnum]

89 + 9 = 98

[Grek]

Herpaderp. I am stupid.

[name_here]

Apparently the deal was ending the tax cuts on people with over $400,000 per year and delaying doing anything else for a few months.

[Kaelik]

Apparently the deal was ending the tax cuts on people with over $400,000 per year and delaying doing anything else for a few months.

Actually, the deal is ending the tax increases, IE forever cementing the tax cuts. Because the Fisical Cliff was going to increase taxes, and now it won't.

So the Democrats give up tax increases on rich people, and get two months of no spending cuts or tax increases on poor people.

Just fucking end me.

[Lago PARANOIA]

I really don't know why the left is flipping out so much about this. The Democrats got everything they wanted except a guarantee to debt ceiling hostage taking and got negotiated upwards from 250K to 400K on the Bush tax cuts.

Personally, I consider this a pretty ballsy tactical move. Apparently the Democrats think that they'll have a stronger hand for the debt ceiling fight; which is why they delayed the sequester for exactly two months. In the meantime though the austerity bomb aimed at the poor/middle class is mostly defused for the time being. I don't know how March is going to go, but apparently Obama and friends had more guts than I gave them credit for.


ED: WTF, no extension of the payroll tax cut? I thought that was part of the deal. I'm much more disappoint now.

[Kaelik]

The Democrats . . . got negotiated upwards from 250K to 400K on the Bush tax cuts.

This part makes no sense.

[Lago PARANOIA]

This part makes no sense.

Obama originally campaigned on ending the Bush tax cuts for incomes over 250K. The fiscal cliff curb deal ends the Bush tax cuts for incomes over 400K. Which isn't what he originally promised, but, it could've gone a fuckton worse.

If you wanted the Bush tax cuts gone period over all income strata, well, I don't quite agree with the point of view. Even if you buy Frank's analysis that tax cuts don't really change anything economically -- even for the poor/middle-class, which I strenuously doubt -- the fact of the matter is that a tax increase right after a Presidential inauguration is just bad politics.

[Kaelik]

Obama originally campaigned on ending the Bush tax cuts for incomes over 250K. The fiscal cliff curb deal ends the Bush tax cuts for incomes over 400K. Which isn't what he originally promised, but, it could've gone a fuckton worse..

One of us is living in bizzaro world. Everything I can find very explicitly says that they ended tax increases on the over 400,000. Meaning they made the Bush Tax Cuts permanent only on those over 400,000.

That is literally the exact opposite of what you are saying happened.

[Username17]

The deal makes the Bush tax cuts permanent on people who make $400k or less, and allow them to expire for everyone making more. It doesn't extend the payroll tax cut, so working people got a 2% tax increase anyway. Capital gains taxes go up, but only to 20% and there are still some loopholes I don't understand, and dividends get to still be taxed as capital gains rather than income like in the Bush years. Something happened to estate taxes, but I don't get it - I think they went up slightly but not as much as they were going to.

The sequester's cuts to social services are delayed for two months to be dealt with alongside the debt ceiling at that time. The unemployment insurance got extended for a year. The farm bill was extended for nine months (we were going to default to 1948 agriculture rules and the price of milk was expected to rise by about $5 a gallon). No giveaways in entitlement spending were there.

So on the spending side, we got everything we needed, but only for two months. The tax side is dumb, but not nearly as dumb as what some people were suggesting. The biggest flaw with this is that while the economy is not being spiked right now, the Republicans get to try to take it hostage again in two months when they have 12 less votes in the House. If Obama is planning to whip his dick out and use the platinum coin option in two months, it's brilliant. If Oabama is planning on giving more concessions to the republicans every two months forever in a rolling hostage crisis that never ends, we're doomed.

-Username17

[Lago PARANOIA]

I think that this whole debacle shows us that while the Tea Party and the rest of the insane wing of the GOP is entrenched as fuck, they're nowhere near as strong and unified as many people on the left think.

I mean, seriously, Boehner couldn't get Plan B passed in the House. Yet many more Republicans voted for the current, much less favorable deal when the chips were down. It's that not a sign of Republican weakness I don't know what is. The Democrats may seriously not even have to resort to the platinum coin option. Boehner also totally punked the Tea Party by passing a clean bill after promising to allow a chance to hold vote on some additional poison pill amendments.

I also guess that this was a bust on deciding the question of Obama: Center-Right Plutocrat Whore or Center-Left 11-Dimensional Chessmaster? Guess we'll find out in a couple of months. This time for reals.

But FrankTrollman was right: John Boehner sure knows how to fight dirty. If the Teatards weren't so, well, teatarded things could've gone a lot fucking worse.

[RobbyPants]

If Obama is planning to whip his dick out and use the platinum coin option in two months, it's brilliant.

I thought that was one of those things he could do, but that would have consequences worse than if he didn't.

[Lago PARANOIA]

I thought that was one of those things he could do, but that would have consequences worse than if he didn't.

The United States is monetarily sovereign, so from a strict technical or economic perspective the platinum coin won't in of itself cause any harm. Hell, it'd be a hugely beneficial economic coup. Just to give you an idea of what would happen: it'd chain the Federal Reserve to the Treasury department. I got chills just typing that.

From a political perspective the consequences are uncertain. People herp and derp about 'government finances = household budget' crap all of the damn time. I can understand Obama not wanting to resort to that option before election because the entire centrist wing, the vast majority of the conservative wing, and many leftists would screech like howler monkeys at Obama's unilateral pulling of the curtain for several months.

In the long run showing the man behind the curtain would be a huge benefit,, but I could see why Obama didn't want to resort to that fight. If Obama is who I hope he is the next two months are going to be the most important for United States' economic growth ever. Even more than Nixon taking us off of the gold standard. Because the platinum coin, among stopping the United States from defaulting, would also completely destroy conservative economic myths.

I look forward to March with great interest.

[sabs]

Can I ask a stupid question.
What's the platinum coin?

[name_here]

Obama originally campaigned on ending the Bush tax cuts for incomes over 250K. The fiscal cliff curb deal ends the Bush tax cuts for incomes over 400K. Which isn't what he originally promised, but, it could've gone a fuckton worse..

One of us is living in bizzaro world. Everything I can find very explicitly says that they ended tax increases on the over 400,000. Meaning they made the Bush Tax Cuts permanent only on those over 400,000.

That is literally the exact opposite of what you are saying happened.

Everything I've seen agrees with Lago. Tax cuts ended on people making over $400,000, which is higher than the ceiling the Democrats had been demanding but lower than Bohner's plan B and infinity. Also, Obama is apparently demanding spending cuts be matched one-to-one with revenue increases in the future, so the permanency of the Bush tax cuts is uncertain. I think the Democrats eroded the Republican majority in the House, so the fight in March will require fewer people to break party line.

Can I ask a stupid question.
What's the platinum coin?

For some stupidly overcomplicated reason, the Treasury can make coins of any value whatsoever, but not paper bills. So the president could pay off our debts by issuing platinum coins worth 3 trillion dollars via executive order if Congress fails to get its shit together.

[Username17]

There are a couple options for dealing with the budget control act unilaterally from the White House.

• The Constitutional Option
  It goes like this: the Budget Control Act is unconstitutional. Like, totally obviously unconstitutional. Congress makes budgets that the executive branch is constitutionally required to carry out. The budget control act is a law that puts an arbitrary cap on how much the executive branch can pay in carrying out the budgets given to them by congress. Laws do not trump consitutional mandates, and when it comes to a hard choice between a congressional budget requiring a payment and the budget control act requiring nonpayment, the constitution mandates payment. The problem is that doing this would obviously and nearly instantaneously go to the Supreme Court who are currently 5-4 in favor of furniture chewing villainy. The Obama administration has said that they do not consider the Constitutional Option to be an option - but perhaps they are just buying time until they get a fifth friendly voice on the court. Because honestly I can't even imagine how else you'd try to read the language:
  
  "The validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned."
  
  In any other way than to say that the idea of a debt limit that arbitrarily declares the public debt of the United States as authorized by law to be null and void to be unconstitutional.
  
  The Platinum Coin Option
  The printing of bills is highly regulated by congress, but the minting of coins is fairly lax. The treasury department is actually simply obliged to mint coins up to its own discretion. And here is their entire mandate for platinum coins:
  
  "The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time."
  
  Seriously, that's the whole thing. The Secretary of the Treasury is literally and specifically empowered by law to mint into existence as much dollar value worth of platinum coinage as they feel like issuing. Congress might throw a shit fit and take away the ball after they had done that, but if they had minted enough of the damn things they could stay under the debt limit indefinitely. With just four trillion dollar coins, the treasury department could keep the government afloat for as many decades as the CBO bothers to have prognostications for.

Now the obvious advantage to the Constitutional Option is that it leaves the economy unshocked. Absolutely nothing happens to the economy except that everyone breathes a sigh of relief and the Republicans realize that they don't have a hostage. But it requires a sympathetic court and that currently probably doesn't exist. Although if the Republican civil war gets hot enough, Roberts at least will probably vote with the White House in order to keep the Supreme Court from getting tarred with the same brush that is currently tanking approval for the House of Representatives.

With the Platinum Coin Option you get a couple of effects of frankly unknown size.

• Savings Shock By issuing several trillion dollar coins and depositing them in the Federal Reserve account, the United States instantly stops issuing treasury bonds except to replenish the ones currently outstanding. The entire world economy uses US treasury bonds as a default store of wealth, and if you suddenly take the punch bowl away there won't be enough safe places to store savings left. In the world. What happens then? I... don't know. Nobody knows. For starters, competition for treasury bills would get even fiercer, driving the US' borrowing rate even lower, which might not even be possible (interest on inflation protected treasury bills is already negative). Do people spend more? Are people going to invest huge piles of money into Sweden and other "safe" countries? It will be huge. People are expecting to save $3.9 trillion dollars in treasury bills over the next 10 years that they will not be able to, and that money has to go somewhere. Depending on where it goes, you could get a boom, a recession, an asset bubble, runaway inflation, grinding deflation, or all of the above.
  
  A Crisis of Confidence It's pretty facile but nevertheless true that money is not in fact "real". It's not a lump of gold, it's a promise by society that you are entitled to goods and services in the future based on the goods or services that you contributed in the past. By pulling the curtain back and admitting in trillion dollar increments that it's all a house of cards, people could lose their shit. Like, I literally cannot imagine what they would do. You have Austrians ranting about currency debasement all the time, would they try to violently overthrow the government? Would people lose faith in dollars and try to conduct commerce with colorful shells? I don't know. Probably it would work out just like when Nixon took us off the gold standard: lots of wailing and gnashing of teeth, but a slight decrease in unemployment.
  
  An Inflation Spiral? Probably not. While the government would be minting an ass tonne of money, the Federal Reserve would still be in charge of doling out actual dollar bills. Their mandate wouldn't change, so the only thing affecting the money supply at all would be the lack of new treasury bills on the market to buy (which would affect the state of money exactly like a balanced budget would). But when you say "the government fiats trillions of dollars into existence", certain people are certainly going to claim that inflation is going to go through the roof. That could theoretically cause people in general to expect inflation, which would make them request wage increases and raise prices to protect themselves, which would create real inflation. But we sort of went through that with Quantitative Easing, and real inflation never came out of that.

-Username17

[Whatever]

For some stupidly overcomplicated reason, the Treasury can make coins of any value whatsoever, but not paper bills. So the president could pay off our debts by issuing platinum coins worth 3 trillion dollars via executive order if Congress fails to get its shit together.

Not quite. The treasury is fairly constrained in what coins it can produce (see 31 USC § 5112), but those restrictions only apply to generally circulating coins (penny, nickel, dime, quarter, half-dollar, dollar), plus specifications for gold and silver coins. But for platinum coins, they only included subsection k, reproduced here in its entirety:

(k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.

[name_here]

I'd be willing to bet on Roberts siding with the White House on the Constitutional Option. Not willing enough to advise forcing the issue, but if it comes down to it he's already sided with the White House on some pretty damn major issues, and seems entirely too reasonable to blatantly override the Constitution to drag the US government down in flames.

[Pseudo Stupidity]

This tax relief thing is fucked, and not because of the tax side. Allow me to speak from the prospective of my tiny state, New Hampshire.

The defense industry is frozen right now because of this, with all the big suppliers standing around wondering what the hell they're supposed to do with all these employees they probably won't be able to pay and can't even put to work for two months because nothing is happening.

BAE Systems, the single largest manufacturing employer in New Hampshire, which tried and failed to merge with the foreign defense/aerospace company EADs recently (I wonder why?), plans on ditching 1/3rd of its work force if the cuts go through. Right now it looks like they will furlough that third of employees, then hire anyone back that they can. If that happens and the job cuts are even across all branches, NH will suddenly have 1,500 more unemployed people, almost all of them people who live in our only big cities.

That is a lot of people getting laid off all at once, especially since they're all engineers and shit that make plenty of money to dump into the economy. BAE is not only one of our largest employers, but they pay actual wages to people. It's not like we're losing a bunch of shitty jobs, we might be losing a third of the best jobs you can have in this state.

Can Congress please decide what's happening, because it would be great for these big companies to make plans instead of being in limbo.

Also, I wonder what will happen to Manchester's down town if a third of the people with the most disposable income in that area will not have that income anymore. I'm hoping it means more dive bars and better happy hours.

[name_here]

Yeah, I live right near DC. The massive complexes of defense contractors are waiting to find out the vaguest idea of how much money they'll actually have.

[Shatner]

More drama. More flailing. But it looks like Congressional Republicans are worried about Obama minting the coin, so that's something.

[Lago PARANOIA]

The next two and a half months are going to be kind of stressful/interesting, because the wisest political move would be for Obama to strenuously deny using a platinum coin until the very last second.

The savvy reader will note that until the moment of truth comes that behavior is indistinguishable from him preferring to let the U.S. default all along and doing nothing because it 'seems silly'.

[Josh_Kablack]

Another camoflagued FUCK YOU to the working class on top of the FUCK YOU to the working class that was the payroll tax reversion hike.

I can't find stats for percentage of returns usually filed in January, but based on an educated guess, that shift in timing is probably gonna delay something like a quarter of the $~60 billion in EITC payments that go to the working poor with children.....you know those people most likely to spend that money in the local economy and least likely to use it to open another factory in China.

[Maj]

Thank you for posting that, Josh. I was actually filling out my tax forms when you posted it.

[name_here]

It probably has something to do with how the IRS computer system is from the very depths of hell and coded in a confusing combination of assembler, COBOL, and whatever other languages they felt like throwing in. They probably need the extra time to slaughter chickens and burn incense to appease its machine-spirit. Although I think starting this year it no longer has any six-bit code in it (Not a joke).

I don't know what exactly the guy trying to block the Platinum Coin option is thinking. It's obvious veto bait, and if by some magic it obtains enough support to override a veto, there's the obvious option of minting the platinum coins and then signing it afterwards.