Unnamed White House and U.S. Treasury sources told MoneyNews.com that options to handle the government’s debts in the event no debt ceiling deal is reached are being explored, despite official protestations to the contrary.
Mary Miller, Assistant Secretary for Financial Markets, is in charge of paying the government’s bills, and on June 21 she repeated the party line in London to bankers holding substantial American debt that there is no "Plan B," assuring them that the debt limit would be raised before August 2. Official Treasury spokeswoman Colleen Murray expressed practically the same thing:
It is hard to understand politics if you are hung up on reality. Politicians leave reality to others. What matters in politics is what you can get the voters to believe, whether it bears any resemblance to reality or not.
Not only among politicians, but also among much of the media, and even among some of the public, the quest is not for truth about reality but for talking points that fit a vision or advance an agenda. Some seem to see it as a personal contest about who is best at fencing with words.
The current controversy over whether to deal with our massive national debt by cutting spending, or whether instead to raise tax rates on "the rich," is a classic example of talking points versus reality.
Americans know the term "stagflation"; the decline in economic activity accompanied by an artificially inflated money supply is what Europe is presently experiencing. On Thursday, European Central Bank President Jean-Claude Trichet announced that the ECB had raised its interest rates 1.5 points and suggested that this action, intended to contract the money supply, might be pursued more aggressively in the future — even though the so-called "PIGS" nations of Europe (Portugal, Ireland, Greece, and Spain) need influxes of money in order to prevent default.
While Trichet recognized that this hike in interest rates might slow down the world economy, he stated that controlling inflation remained the bank’s most important task at present. He hinted that another raise might be in store in future months, noting that the bank would “monitor very closely” price developments, which has been a code for suggesting that interest rates would not be raised the next month. “Our monetary policy stance remains accommodative," he assured. "It is essential [that] recent price developments do not give rise to broad based inflation pressures over the medium term.” Marc Ostvald, an market strategist at Monument Securities, advised: "A further quarter point rate hike probably in October or November still appears to be the central scenario."
Seemingly unaware of the nation’s debt crisis, the federal government is attempting to revamp its foreclosure-prevention program to make it easier for out-of-work homeowners to keep their homes.
On August 1, the Federal Housing Administration plans to extend the amount of time homeowners will be permitted to miss mortgage payments from four months or less to a full year. At that point, the full foreclosure process would begin, if necessary.
The foreclosure program began in 2009 to assist those at risk of foreclosure by reducing their monthly payments. Borrowers were permitted to make lower payments on a trial basis, but thus far, the program has been unable to convert them into permanent loan modifications. In the beginning, nearly two million homeowners were receiving the trial modifications, but since then, a large majority of the homeowners dropped out of the program entirely.
In 2009, in the middle of the automobile industry bailout controversy, White House advisor Ron Bloom, then “car czar,” told reporters, “I did this all for the unions.” When asked to clarify that statement recently, Bloom denied ever making it. Unfortunately for Bloom, however, credible sources indicate that the remark was in fact made by him.
On June 22, the Congressional Oversight Committee held a hearing to address a number of concerns regarding the controversial auto bailout. In the process of the bailout, Bloom apparently took “money from bondholders and handed it directly to the unions,” and also elected to cut salaried employee benefits while “giving strangely deferential benefits to the Unions in the middle of a bankruptcy," reports The Blaze.
The city council of tiny Alto, Texas — population 1,200, about 140 miles southeast of Dallas — shuttered its police department on June 15 because of a budget shortfall. In order to make up a $185,000 deficit, the council furloughed the four police officers and Chief Charles Barron for six months.
According to CBS News, Barron said,
They put a bulls-eye target on law enforcement — police department — and police department only. There have been accusations that the police department is not generating enough revenue. Well, police departments are not revenue generators.
President Obama's press conference July 5 reveals his thinking on the statutory debt limit, spending and taxes ... if you can read in between the lines.
The Obama administration continues to take on the food industry, this time pressuring food companies to discontinue advertising junk food for children, while Republicans have come forward in support of the food companies, helping them to resist federal pressures.
The Blaze reports:
Some food companies say the government is going too far with guidelines proposed earlier this year by several government agencies. The voluntary guidelines would attempt to shield children from ads for sugary and fatty foods — think colorful characters on cereal boxes – on television, in stores and on the Internet. Companies would be urged to market foods to children ages 2 through 17 only if they contain specific healthy ingredients and are low in fats, sugars and sodium.
President Obama made a press statement July 5 explaining his position on the budget and the debt limit increase, but that statement needs to be translated into what he really means. So here's my best effort to interpret Obama's words from that press conference:
Obama: Now, I’ve heard reports that there may be some in Congress who want to do just enough to make sure that America avoids defaulting on our debt in the short term, but then wants to kick the can down the road when it comes to solving the larger problem of our deficit.
Obama interpreted: Here, by "the larger problem of our deficit," Obama means that Congress is thinking about passing only a one-year increase of the national debt, or shorter, and not the unlimited increase Obama demands that would take the nation to beyond the next election in 2012. That's what he means by kicking the can down the road: another pesky congressional vote before the 2012 general election.
Wednesday, the financial crisis which is threatening all Europe deepened, as the rates for Portuguese government debt instruments jumped higher based upon a decision by Moody’s rating service to reduce those bonds four levels to "junk" status. The drop was from Baa1 to Ba2 on long-term Portuguese bond ratings.
The effect upon Portugal was immediate — but more ominously, in nearby Spain (the fourth of the so-called "PIGS" nations, the others being Portugal, Italy, and Greece), the stock market dropped 1.5 percent and the amount of interest required by bond purchasers rose. Spain's economy is significantly larger than that of the other PIGS — and only somewhat smaller than the economy of France. Even worse, stocks dropped 2 percent in Italy, affected not only by the ripple of the PIGS but also because spending cuts have not seemed to help its huge national debt.