The market prices in expected inflation when setting the interest rate. Inflation has been low and will likely stay low for some time, so I'm really not sure what you're worrying about. It's not like the proposal is to drive inflation to 15% and see what happens. We're operating below typical inflation levels right now.

So your goal here is to raise interest rates during a slow recovery from a recession? By artificially creating a credit crisis? Please lay out your model for how that will be good for us.

Some less-than-quadrillion dollar coins would probably work, though, given that the Fed is running below its inflation target. It would have prevented a cashflow crisis and, if controlled, bumped inflation up into a region a little closer to what theory tells us it should be. Win win. Just kind of kooky behavior.

People like to point to the broken window fallacy in these cases, but cutting government spending too fast is a real problem. The economy doesn't adjust instantly to these types of changes. We could certainly cut the military by a huge percentage and be OK, but you'd have to do it slowly. Why? The same reason it would be bad if the Feds sold off all of the gold at Fort Knox in one day. The market can't absorb the new resources fast enough at the current prices, so prices crash and cause all manner of secondary and tertiary effects.

So what resources does the military industrial complex consume? Prime labor-age literate men, engineers, oil, raw manufacutring materials and factory equipment and personnel. It would be great if we could free those resources up to do something useful, but you also don't want to see what an overnight glut in all of those markets does to the economy as a whole. I'd be totally up for a 10-20 year plan to eliminate most of our military spending. Cutting it by causing, say, a debt limit crisis and dumping all of those resources into markets that aren't ready to handle them? Not so much.

In the short term, there is a potential for deflation; where the currency is worthless, AND hard money such as gold lose buying power, because the entire economy is grinding towards a halt -------- You can't use gold to buy and sell things, if you don't have partners to trade with, because they've all ceased economic activity.

Most economists would call what you just described "inflation" plus "stagnation" not deflation. Stagflation, if you want to use the popular term from the 70s. By most definitions, deflation would involve prices (as denominated in at least one form of currency) dropping.

If they actually had the authority to pick and choose which creditors they'd pay, the debt ceiling nonsense would be a non-issue. Just pay the bondholders and anybody who doesn't reside in John Boehner's district. You'd have a vote on a clean ceiling increase on the floor as soon as the first Social Security or farm subsidy checks didn't make it.

Oh, you mean they wanted a bunch of magic flexibility added to the system so that Obama could prioritize payments the way they want them? Screw that. Pass a law.

Yes, i am saying the government went and said everyone who doesn't have insurance has to get it or pay a fine and those with insurance who lose it because the laws add on made it to expensive or for whatever reason has to do the same.

"Having to buy insurance" is not analogous to "suddenly being paid less than market wage AND having to buy insurance."

I have also said that if you want to raise their wages, then fucking raise them instead of sneaking subsidies in to bypass the intent and spirit of the law.

All the law said was that they weren't to be on the federal health plan any more. It didn't specify what to do with the money they saved in the process. In private industry, most, if not all of that money will eventually end up being used to pay wages, so it makes perfect sense to do the same thing in this case. It's a pretty reasonable interpretation of the Republican claim a they want to mirror the private market experience.

I never said don't address the issue of lost pay...

So you're coming out against the Republican position, which says "We explicitly don't want to address the pay issue and are making it illegal to do so"?

As you mentioned, labor is a market force and if congress and the staffers do not like the deal being handed to them by law, they are free to seek employment elsewhere. Plenty of qualified people will be more than happy to replace them and be within the confines of law.

Supply curves slope up, demand curves slope down. Shift your demand curve left and you'll have fewer people in the same market. You don't get the same thing at the new lower price.

This isn't a major tragedy--lots of these staffers have serious careers ahead of them and are already taking a big pay cut to work with Congress to get on the corruption gravy train. Cut their wages too far and they'll leave, and Congress will simply have to adjust their pay back to return to equilibrium or accept the fact that they won't be able to hire from the same labor pool. That's why this is a stupid law. Not a criminally evil one, just an economically illiterate illogical mess. Par for the course.

What amazes me is that the Republican leadership are sociopathic enough to use their own staffs' wages as a tool for political grandstanding. Normally politicians only screw people they don't meet every day. This is a new one.

The republican specifically said, if we cannot stop it, they want it enforced as passed into law. If the law was going to force the citizens to do something, congress and the people behind it should be forced to do the same.

"The same thing" everybody else is experiencing? Are you saying that the government went to your employer and said, "Cancel everybody's health insurance, and don't raise their wages to compensate?" That's bizarre. I don't think that happened anywhere else.

Look, the simple fact is that markets set wages. If your labor is worth $X per year, you either get $X in cash or $A in cash plus $B in something else, but $A + $B has to equal $X. The idea that you can dump the $B in healthcare and leave $A alone is just silly. Markets don't work that way. They'll figure that out if they get their way and try to run that experiment.

But today we do not have a rapidly expanding population/workforce and half the developed world does not need rebuilding.

Rebuilding the developed world isn't really a good recipe for success. The correct way to look at it marcoeconomically is, "our trading partners were in ruins." There's a common myth that having Europe sitting as a smoking pile of wreckage was good for us. Most economists would disagree.

As a further black mark, the "normal" GPD growth rate has been moved down a few notches due to over regulation. . .The mis/over management and socialism of Argentina resulted in just a sightly lower normal gdp growth rate.

Yep. Overregulation. That's the ticket. It's not like it could be much more complex than that.

Just to be clear, the debt obligation could have been met. without raising the debt ceiling, it is that sort of misinformation that really bothers me (not directed at you, I mean the media reporting and rhetoric from both sides).

That's a very optimistic way of looking at it. The logistical and legal issues with the Treasury picking and choosing which of our creditors gets paid are enormous. But that's only if you consider "debt" to be bonds and not other obligations like payments owed to contractors and employees. And even that assumes that the payment schedule is such that cashflows can always be managed so that an unimportant payment earlier on doesn't leave you unable to make a more important payment later in the month. And even more importantly, what do the credit markets think of that kind of insane behavior? An abrupt drop in the value of US government debt could trigger a major financial crisis.

I like your 2014 senerio, I would support the president's and the senates rights to do that, if they believed it was that important. These are the rules they govern under.

I suspect that you're a rare bird. For me, the highest principle isn't whatever piddling issue Congress is fighting over today, or even the damage that would be done by a default. The issue for me is that if you start bargaining this way, you abdicate government to whoever is most willing to inflict damage on the country without flinching. The scary question is, what if they don't "believe it was that important"? What if they just know that you are too sane to risk letting them go through with it, so now they can extract whatever they want? What if Obama said he'd tank the military if we didn't send some pork back to his old neighborhood? Rewarding that kind of behavior just encourages more of it, and the final equilibrium is that policy will be made by the craziest and most reckless. It's the proverbial "negotiating with terrorists" problem.

As for the shutdown, I'm a little more sympathetic. At least the continuing resolution is *peripherally* related to broader government funding questions. A shutdown is a good way to make government spending "real" by doing away with it and seeing who screams. But the debt ceiling game was seriously poking at the doomsday button, and only dangerous idealogues and idiots do that. Those aren't the types of people who should be given the keys to the kingdom.

Some people believe the Congress did push a major unilateral policy change, in ACA, that is what this debate was about this week.

I'm not sure what you mean by "unilateral" given that the ACA was passed by the majority of both houses, signed by the President and then survived its first Supreme Court review. That's pretty much how the constitution lays out our democratic process. And that's after the party campaigning for it gained the White House and a majority in both houses. You may not have liked it, but it was hardly a hijacking by a fringe minority. I realize that people do crazy things when they feel like their voices aren't being heard, but the GOP had plenty of time to shape the ACA (or any health care bill in the 15+ years since they killed the previous reform effort with promises to come up with a better solution), and sometimes when you're in the minority, you don't get your way. Threatening to let it all burn is not an adult response to that situation.

I want our government to do a better job with it, and I was glad to see a healthy debate, and get a more clear picture or where are elected representatives stand on the issue of fiscal responsibility.

I really don't consider threatening to create an artificial financial crisis "healthy debate" over policy. Maybe there are people who genuinely believe that a mild, mostly private semi-public health insurance system is the worst thing since Hitler or slavery or whatever. I'm fine with having serious policy discussions with those people. But they have to put the gun down first.

You seem to think three things:

1) That the Treasury has the power to pick and choose who gets paid.
2) That the payments are made all at the same time so we don't have cashflow issues for different payment dates.
3) That telling people other than bondholders, "Yes, we agreed to pay you, but we're not going to," is something other than a default and that the credit markets would see this as A-OK.

I don't think that any of these things are true, and even if some are, it seems pretty unlikely that all of them are true.

Since the US is so outrageously in debt and has no way to reduce it without selling the rest of the government assets, there's going to be plenty more opportunities for a global financial catastrophy.

Our debt to GDP ratio has been higher in the past and we brought it back in line without a major crisis. Japan has gone substantially higher without any signs of collapse. These issues can be handled by thinking long term and making long term adjustments.

When the last raising of the ceiling led to a credit rating downgrade...

Correction. Threatening not to raise the debt ceiling lead to a credit rating downgrade. Explicitly saying in public that you're thinking about not honoring your financial obligations does that.

They do have the power to spend (or not) money, under the Constitution, which is what they did offer.

The ACA was already funded by law, though. It didn't need appropriations in this budget, so they weren't witholding their votes from appropriations for the ACA. The shutdown was over other budgeting for the year's discretionary spending. They had the power to stop this year's discretionary spending, but they would need new legislation to defund the ACA, which they couldn't pass without more support. So they used their power to cause problems elsewhere by defunding whatever they could as a threat to extort everybody else into going with their agenda. They also escalated matters by not raising the debt ceiling and threatening default--something they may or may not have the authority to do, but which also amounts to just threatening chaos because they don't have the votes to pass the laws they want.

Imagine the following:

1) It's 2014. Obama is in the White House, but the 2014 elections were a major defeat for the Democrats.
2) Republicans control every seat in the House. 100% of them.
3) Republicans have 66 seats in the Senate.

The Democrats clearly don't have any business pushing major unilateral policy changes, and they certainly couldn't pass any legislation on their own. Suddenly, Obama announces that unless we implement a full single payer health care system, he will veto ALL military spending and allow our military to collapse. The Senate Democratic minority agrees to support him to prevent the veto override.

It's legal. It's constitutional. Should the Republicans give him some policy concessions to prevent disaster? What precedent does it set, and who should get the blame if the Republicans don't negotiate and Obama follows through? Do Republicans deserve all of the blame? Half? I'd argue that all of the blame would be on Obama and those 34 senators who touched off an artificial crisis in order to extort policy concessions.

onsider. Say we tax someone $100. That money originally would have paid say someone's salary, and they would have worked and created wealth. We would have had $110 at the end of the day.

OK, so person A transfers some money to person B and $10 in wealth is created. Person B now has $100 and we are all better off.

But - we taxed them. So now we, the Government, hold $100. That $10 of wealth creation has been forestalled. What do we now do with this $100? we spend it - but not on something which creates wealth. We spend it on providing possibly unnecessary and certainly inefficient Government services, like the patent office.

OK, so now we take money from person A and *give* it to person C who produces absolutely nothing useful in return. The $100 is gone forever! Oh wait, no. Person C now has $100 which he could then use to hire person B to do that same great thing. Or something else equally wealth creating. So it's not the $100 that's the issue.