Tag Archives: debt

Fiscal anxieties, the potential for sequester, BCA 2011

In one of the posts I made in the review discussion I wrote a bit about sequestration (the current version, scheduled for Jan. 2), which originates in the Budget Control Act of 2011 (which in turn reactivates GRH I (1985) in some portions).  The potential for real consequences of the type envisioned in GRH I and II has never been as likely at such a scale.  As soon as the elections are over, you can anticipate hearing a lot more in the news about last-ditch efforts to address this looming deadline and other tax/spending deadlines that happen to overlap with it.  I would say you were fortunate to be taking this class in such interesting budgetary times, if we didn’t also have to live through them.

Here are some more backgrounders/perspectives  on upcoming budgetary and fiscal policy issues:

More general: Brookings Institution – The “Fiscal Cliff” issue – includes not only the sequester deadline but also other tax and spending policies of various partisan origins which have critical dates at the end of this year (AMT tinkering deadline; Bush tax cut expiration; Affordable Care Act coming into play; expiration of payroll tax cuts) – all coming on top of a weak economy barely recovering from the Great Recession:  http://www.brookings.edu/research/opinions/2012/09/26-fiscal-cliff-frenzel

Specific to sequester:

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NASBO on debt ceiling negotiations

NASBO update on debt ceiling negotiations. No matter your partisan orientation, you may want to seek out credible information on the consequences of our elected representatives’ (of various parties) lack of ability to communicate with each other productively, despite the fact that that is what we pay them to do. Those of you in TN might direct your attention to the info about our state contained several paragraphs in.

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NASBO on debt ceiling information

NASBO update on debt ceiling negotiations. No matter your partisan orientation, you may want to seek out credible information on the consequences of our elected representatives’ (of various parties) lack of ability to communicate with each other productively, despite the fact that that is what we pay them to do. Those of you in TN might direct your attention to the info about our state contained several paragraphs in.

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A rather significant announcement from S&P on US debt outlook

Photo of bond page in newspaperJust in time for our focus on public debt and bond rating agencies, Standard & Poor’s has obliged by downgrading the long-term outlook (NOT the rating itself) on US creditworthiness from stable to negative; the rating remains AAA, while Moody’s remains more positive on our chances.  You can read the actual S&P rating announcement here if you are willing to register (free) with S&P; or you can read about it in the press outlet of your choice (WSJ and HousingWire on the S&P vs. Moody’s difference; NYtimes on the S&P move; WSJ on changes in the cost of insuring US debt through credit default swaps in response to the S&P announcement; Google news on S&P).

In considering the S&P rating outlook change, note how the rating agency looks at the ratio of debt to GDP of the sovereign in question relative to its peers in making a determination; also how the functioning of our institutions – not just the strength or weakness of our economy – is a critical factor.  A large and diversified economy with weak institutional functioning (for as long as those two conditions can exist simultaneously) may still not inspire confidence in the debt market.  You can learn more about their sovereign ratings using the primer if desired, there is a great table summarizing factors considered  (this is FYI, not required for the course; I think you need to have done the free registration process to view this resource).  On the other hand (remember, economists have a lot of hands), Moody’s takes a more sanguine view of prospects for US deficit reduction.

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Discussion on reconciling different works on state debt and fiscal institutions

Here is a link to the material I used in last night’s discussion of the question Marie brought up last week in class, for those who left at “half-time.”

http://prezi.com/nv1g5bgk2ic7/cw1995-v-p1995/

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Cities in distress look upward…

We have discussed the idea that evaluating the fiscal health with respect to debt of a particular jurisdiction also depends on the debt of its “dependents” and the situation of other jurisdictions which tax the same base to some extent (see discussion in Clingermayer and Wood (1995)). This NYT article discusses how cities risking bankruptcy may appeal instead to the state for support. What is the potential impact on the incentives facing cities regarding financial management?

Cities in debt turn to states, adding strain
http://www.nytimes.com/2010/10/05/business/05cities.html?_r=1

Clingermayer, JC and BD Wood. 1995. Disentangling Patterns of State Debt Financing. The American Political Science Review 89, no. 1 (March): 108-120.

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