Dispelling Some Myths About The Budget Showdown

It's fixin' to get ugly son!

The alarm is ringing and many Americans once too exhausted to face the fact that they were been hoodwinked by 30 years of misinformation and myth into believing the American Dream was within their grasp, have stopped hitting the snooze button.

It’s all their fault, they’ve been told.  If only they work harder, longer hours without ever taking a vacation or day off… they’ll be able to eventually grasp the prosperity those on the upper end of the income ladder have been holding in front of them like a carrot on a stick.

But let’s face it, my fellow Americans.  We’ve been are under attack…  sometimes stealthily, sometimes overtly…  In fact, we are at war.  Class War.

I have mentioned this fact time and time again, often pointing to the views of Warren Buffett, a man I feel is an economic genius (if you doubt me on that, take a look at his remarkable consistency. Few peaks, less valleys, just rock solid results year after year):

“There’s class warfare, all right,” Mr. Buffett said, “but it’s my class, the rich class, that’s making war, and we’re winning.”

“The rich are always going to say that, you know, just give us more money and we’ll go out and spend more and then it will all trickle down to the rest of you. But that has not worked the last 10 years, and I hope the American public is catching on,” Buffett said in the clip from ABC News’ “This Week with Christiane Amanpour.”

“Put simply, the rich pay a lot of taxes as a total percentage of taxes collected, but they don’t pay a lot of taxes as a percentage of what they can afford to pay, or as a percentage of what the government needs to close the deficit gap.”

Hey Government. Keep You're Grubby Hands Off My Medicare!

This fundamental dispute has been an everyday fact of American life ever since Reagan took office in January of 1981.

Another fact of life since then has been the use of continuing budget resolutions and the threat of governmental shutdowns (or the actual termination of government services) due to this ideological disagreement.

So once again, with just hours left for negotiations before the government will shutdown and despite working non-stop this week Congressional Republicans and Democrats have still not come to an agreement for the 2011 Budget.

As I said, this has been an ongoing battle, one that has been fought for 30 years now. So it should come as no surprise that it has led to it’s fair share of myths & urban legends.

I am going to break down some of those myths we hear being recirculated as this budget showdown plays out.

Myth #1: Continuing resolutions & governmental shutdowns are extremely rare.
Reality: The resolutions happen often & we have experienced 17 government shutdowns over the last 100 years.

History’s Musings is quick to point out this is nothing new in the era of Reaganomics:

Prior to the Reagan Administration, however, there was never a large enough clash over spending or the budget to cause a government shutdown. Throughout the 1970s, various agencies have had to shutdown because of budget issues, but never was there a cross government shutdown.

The introduction of Keynesian supply-side economics to the Federal government, differing economic philosophies regarding spending, and an increase of partisanship between Democrats and Republicans accounted for the succession of government shutdowns throughout the 1980s.

During the Reagan administration, the government spent the most time on the brink of government closures. After short closure in 1981, 1984 and 1986, the government again faced similar situations in 1985 and 1987, however, both those times closures were averted.

Anyone? Something D-O-O economics...

This trend continued into the administration of George H.W. Bush, the man who so famously referred to the theory of trickle down economics as “voodoo economics”:

Oct. 6, 1990: President Bush made good on his veto threat; with the budget vetoed and without a continuing resolution agreed upon, the government was shut down throughout the three day Columbus Day weekend.

Both the President and Congress wanted to limit the negative impact of a shutdown, and they agreed the new budget would not include any surtax or tax increases. Over the weekend President Bush then signed a continuance, and government opened on Tuesday morning.

The closure during the holiday weekend limited the impact a three day closure would had on running the government, had it been closed for three days during the week. Bush was however, was forced to agree to tax increases, going against his main campaign pledge.

The President signed the Omnibus Budget Reconciliation Act of 1990 on November 5, 1990 securing a budget for the fiscal year.

This all culminated in the epic governmental shutdown of 1995 we keep hearing referenced lately:

The 1995-1996 shutdowns were the longest amid the most heated battle over the budget between Congress and the President. President Clinton chose to veto several appropriation bills in the 1996 budget, at issue was funding amounts for social programs such as Medicare, Medicaid, public health, education, and the environment, all programs Clinton pledged to maintain to the public, however, the Republicans wanted Clinton to submit a seven year plan for a balanced budget.

The Republican Congress could have voted on a continuance to keep the government operating on the previous fiscal years spending limits. However, the Republican controlled Congress looked to shut down the government hoping the public would blame the Democratic President, leading to a Republican victory in the next year’s Presidential election.

"No really. I loved my country too much, worked too hard for it and THAT caused me to have an affair."

Many believed Gingrich was motivated by revenge as opposed to policy when allowed the shutdown to occur, Senator Tom Delay in his memoir No Retreat, No Surrender wrote, “He told a room full of reporters that he forced the shutdown because Clinton had rudely made him and Bob Dole sit at the back of Air Force One… (After Yizhak Rabin’s funeral, where Clinton refused to discuss the budget as well on the flight) Newt had been careless to say such a thing, and now the whole moral tone of the shutdown had been lost. What had been a noble battle for fiscal sanity began to look like the tirade of a spoiled child. The revolution, I can tell you, was never the same.”

Throughout the shutdown Clinton suffered in the polls, but in the end the backlash was against the Republicans instead, whose popularity waned after the shutdowns, and in the 1996 election they actually lost 5 seats in the Congress to Democrats.

This has been an ongoing battle, one that has been fought for 30 years now, and has accordingly led to it’s fair share of myths & urban legends.

I am going to break down some of those myths we hear being recirculated as this budget showdown plays out.

Myth #2: Fixing Social Security and Medicare will require “tough choices.”
Reality: Social Security and Medicare are not facing a financial crisis.

poll by the Pew Research Center suggests that nearly 80% of Americans don’t trust the federal government. Unfortunately, we appear all-too-willing to trust the government when it tells us that Social Security and Medicare are heading for bankruptcy.

Indeed, the same poll shows that fewer than half of us now hold a favorable opinion of the Social Security Administration (down 13% from a decade ago). No wonder. The drumbeat over the so-called “crisis” facing Social Security and Medicare has reached a fever pitch.

The government’s message is clear: Both programs face significant trouble ahead, due primarily to the aging of our population. In order to deal with the looming problems, we will have to make “tough choices.” Not everyone can have the money they were promised.

If you’ve been around a while, you’ve heard this all before.

Anyone here remember the Greenspan Commission? This is the group that President Reagan appointed to “fix” Social Security in the early 1980s, the last time the system was on the brink of “collapse.”

Thanks to the “reforms” that were enacted in 1983, Americans are working longer (they raised the retirement age) and paying more (they accelerated increases in the payroll tax rate). And now we’re being told it was all for nothing — the system is broken again?

The truth is, the system was never broken in the first place, because the government’s ability to pay benefits does not in any way depend on the balance in the Social Security or Medicare trust funds. Benefit checks come directly from the Treasury, and, as Alan Greenspan has admitted, “[A] government cannot become insolvent with respect to obligations in its own currency.”

Sorry folks! You gotta suffer so we cna get through this.

And so the question is not whether the government needs to make “tough choices” in order to keep these vital programs afloat. The question is, will politicians make the toughest choice of all and tell the American people the truth: Social Security and Medicare face no financial crisis now or in the future.

~Stephanie Kelton, Associate Professor, University of Missouri-Kansas City, Missouri

Myth #3: What we don’t tax we have to borrow from the likes of China for our children to pay back.
Reality: Paying our debt holders back consists of transferring funds between accounts.

One constantly hears that the Chinese (and other external creditors) “fund” our deficit. The folklore is that when China finally sells off its US bond holdings, those yields will sky-rocket. The dollar will then crash, no one else will want the debt, and it will be the end of America as we know it.

To debunk this myth, you need to know two things. First, all foreign governments have checking accounts at the Federal Reserve Bank called “reserve accounts.” Second, US Treasury securities are nothing more than savings accounts at the same Federal Reserve Bank.

How does China get its dollars? It sells things to us. And when China gets paid, those dollars go into China’s checking account at the Federal Reserve Bank.

And when China buys US Treasury securities, what happens? The Fed transfers China’s dollars in its checking account at the Fed to its savings account at the Fed. We call that “borrowing from China” and “going into debt to China.”

But it’s not really “borrowing” in the sense of creating an external constraint whereby we have to defer spending to “pay back” China. The Fed simply pays off China’s “debt” by transferring the dollars, plus interest, back to the holder’s checking account, which it can create at the stroke of a keyboard as the monopoly issuer of dollars.

The dollars are nothing more than data entry on the Fed’s computer. They have no other existence. And it has no impact on the government’s ability to spend as to whether China’s dollars are in their checking account or savings account.

All we owe China is a bank statement that shows them where their dollars are. Sadly, they know this. But they also know that we think we are dependent on them, and take advantage of our error.

~Marshall Auerback, Senior Fellow at the Roosevelt Institute and Warren Mosler, President, Valance Co.

Myth #4: Deficits and government borrowing takes away savings.
Reality: Deficits add to income and savings. To the penny.

The truth is that deficits add to the total monetary savings held outside of government. To the penny. That’s right, if the government deficit was 1 trillion dollars last year, then total net savings of everyone outside of government went up by 1 trillion. Not a penny more or a penny less.

Let’s look at a simple transaction where the government deficit spends $100. Say the government sells US $100 of new treasury securities. We buy them and our bank account goes down by $100 when we pay for them, but we have the $100 of treasury securities we bought. Are we any poorer?

Of course not! In fact, since we bought the securities voluntarily, we probably did it because we think that purchase made us richer. All we did was exchange $100 that was in our checking account for a $100 Treasury security.

After we pay the $100 for the Treasury securities, the next thing that happens is the government then spends $100 by buying something from us. So we now have both the $100 the government just spent and the $100 of Treasury securities we just bought.

So because of the $100 of deficit spending, we got our $100 back in our checking account, and we also have $100 in Treasury securities. Our monetary wealth is now $100 more than it was before.

The deficit spending of $100 added $100 to our savings. Yet all of our leaders insist that deficits take away from our savings.

You can now understand the reason our savings went up so much last year. It was because the government deficit was so much higher. Now you know more about that than anyone on TV.

~Warren Mosler, President, Valance Co.

Myth #5: Democratic failures last year brought us to this point.
Reality: They didn’t have the votes.

We are the Party of "No"

Contrary to what you hear, the Democrats did NOT have the 60 vote super-majority they needed in the Senate to pass any budget legislation.

They held 57 seats, with 2 Independents and 41 Republicans making up the rest of the chamber.  The GOP  filibustered (thus forcing cloture to be invoked) items at a record setting pace. This resulted in the Senate Democrats needing to find 60 votes to pass anything.  ANYTHING.

They simply didn’t have the votes to do so.

Myth #6: Democrats could have used reconciliation, as they did with the Health Care Bill.
Reality: Wasn’t an available option.

Under the arcane rules of the Senate, budget reconciliation can only be used if it was written into the budget rules passed the previous year. With no such thing having occurred because, you guessed it…the GOP threatened to filibuster it, it never landed in the previous year’s full budget, meaning there could be no reconciliation.

For almost a year, every time budget reconciliation showed up in the headlines, Republicans were there to warn that they’ll clog up the process by offering dozens–perhaps hundreds–of amendments on the floor, eating up valuable floor time, and forcing Democrats to take tough votes on controversial issues.

Politico quoted a Republican aide laying out the threat:

“While debate time is limited, the number and content of amendments are not. Democrats haven’t yet focused on is the number of bad votes they’d have to take to get there. Amendments don’t have to be germane (well, they do, and if they’re not, Dems can move to set them aside, but we can move to waive that; either way, there’s a vote).”

Now, in fairness, this isn’t all the GOP’s fault, Pelosi and Reid could have, and SHOULD HAVE, dug their heels in and fought tooth & nail to keep reconciliation an option.  But like Bill Maher said:

“Governing this country with Republicans is like rooming with a Meth addict; you want to address real-life problems, like when the rent is due, and they’re saying, ‘How can you even think of that stuff when there’s police scanner voices coming out of the air conditioner unit?’ “

Nobody gets out of this unscathed.  Democrats, Republicans and their retarded cousins known as Tea Party Patriots all played a role in getting us here. But from this point forward we need to hold them accountable for how they handle it.

Stay tuned, I’m quite sure there will be more to come on this hot topic.

EDIT: It is all coming down to the GOP wishing to defund Planned Parenthood, which leads to….

Myth #7: GOP says “It’s all about money, not ideology”
Reality: Planned Parenthood funds ($317 million) that would be “saved” account for .008% of the Budget.

Yup, it is ALL about the money.  My ass. Eight one thousandths of a percent of the budget is NOT enough to justify a government shutdown.

Don’t buy this fucking lie. God knows I don’t.

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