Wednesday, May 16, 2012

Senator Coburn Talks Turkey...

by: Les Carpenter
Rational Nation USA
Liberty -vs- Tyranny

Sen. Tom Coburn (R-Okla, who served on the Simpson-Bowles commission, and is a member of the Gang of Six has a new book out entitled The Debt Bomb: A Bold Plan to Stop Washington from Bankrupting America . Senator Coburn recently was interviewed by Ezra Klein of The Washington Post To discuss the nation's growing debt and economic growth problems. The following excerpts are from the first of what is to be a two part series. The second part will be coming out later this week. For those truly interested in solutions to our crushing fiscal problems this is a series you will want to follow. While you may not agree with everything the Senator has to say it is difficult to find a more reasonable, and reasoned voice amidst today's super heated rhetoric.

Ezra Klein: So ‘taxmageddon’ is coming at the end of the year. Depending on how you look at it, it’s an opportunity for Congress to trigger a massive and unnecessary fiscal crisis, or to actually get some serious legislating done on our long-term fiscal issues. Are you optimistic about the outcome?

Tom Coburn: No. But it depends on what the mix is. If President Obama is still president and we’re in control of the Senate, I think you’ll see significant attempts to get something done. But I don’t think they’ll be much more successful than what we saw in August. And I wouldn’t consider that very successful. If Romney wins and we win control in the Senate, we have to send a signal that we’re going to fix it in order to take away all that potential risk to the economy. You have to say we’ll work all over the Christmas holidays to get it fixed.

EK: When you look at the Romney scenario, it seems Republicans have spent a few years now learning how to take tough votes on the budget, particularly on the Ryan plan. So if Republicans control the House and Senate, it seems to me that you’d see quite dramatic action on those issues, as they can be passed with 51 votes through budget reconciliation.

TC: Well, you can. Ryan has a good plan. I don’t think it goes fast enough. But the fact is he’s got a plan. The president won’t put out a plan. The Senate Democrats won’t put out a plan. It’s kind of like boxing with a shadow. You can’t ever hit it. But it doesn’t matter if you’re Democrat or Republican. The pain will get worse every year we don’t fix these things. And there will come a time when it won’t matter if you’re a Republican or Democrat. And I don’t have much faith right now that we’re up to the task of coming to agreement to fix this.

EK: I want to come back to the question of the plans in a second,. But your book opens by imagining a very dire fiscal crisis in 2014. And this goes to your contention that Ryan’s plan doesn’t bring down the debt fast enough. Where do you get the urgency of your schedule? I look at Treasuries and they’re selling with very low yields. So you can say that’s just the Federal Reserve manipulating prices. So then I look at credit default swaps on the United States, and there are no alarm bells there, either. I look at countries like Japan and England that have carried on with very high debt levels for a very long time. We’ve seen other countries that control their own currency manage very high debt levels throughout the 20th Century.

TC: Well, you need to go study Japan. They’re going to crash.

EK: People have been saying that for 20 years.

TC: You have two things coming together. This is the first year they’ll be a net issuer of debt outside their country. They’ve totally financed all their debt internally. We haven’t. That’s one big difference. They also have a much lower birth rate. Seven births for every 1,000 people. So their population is shrinking and their demographic shift is much worse than ours. And this year, the postal system there that runs all their retirement accounts will not be buying any government debt. Zero. So the Japanese government, for the first time, is going into the international market. And the yen’s value is going to decline against every major currency. Whether that happens this year or next year or in three years, it’s going to happen. And they’ve now had almost two decades of no real GDP growth. So Japan isn’t going to make it. The reason they haven’t had any problems is they haven’t asked anyone else in the world to buy their debt. Now they’re going to have to.

The same thing ultimately will happen to us, but we’ll be the last person it happens to. The world still views this as the safest place. You see Greece, which will probably be out of the euro by the end of this year. Then you look at Spain and Italy and Portugal and Ireland. Europe is going to print money just like Ben Bernanke is printing money. And what’s the end result of that? Inflation.

EK Well, it depends how you manage it.

TC: How do you sterilize $3 trillion worth of debt?

EK: The difficulty for me when you say that is I’m a market-oriented guy. I trust the markets, more or less. And if you look at the market’s inflation expectations, they’re not high. They don’t think what the Fed has done will lead to inflation.

TC: They don’t now. But nobody ever does when you print money like that. If you study [Carmen] Reinhart and [Kenneth] Rogoff and what they said, they know what’s coming. Every country that’s ever been with a debt crisis and has printed money has ended up with an intentional inflation problem. Think for a minute that you’re Ben Bernanke. You’re trying to control inflation, jumpstart the economy, and improve the unemployment rate. What do you think his long-term answer for this is?

EK: At the moment, I don’t think he has one.

TC: His long-term answer is inflation.

EK: Not only do I think that would be an okay answer, but Reinhart and Rogoff do, too. Rogoff has been arguing for higher inflation for a long time. But Bernanke says he won’t permit that. And I don’t see a reason he would allow inflation later but oppose it now, when it could really help. In fact, what he’s been saying is he won’t do the monetary stimulus many want now specifically because he doesn’t want to deanchor inflation expectations later.

TC: But 10 years from now, our bonds won’t be two percent. So what percentage of the total budget do interest costs become if you normalize back to the historical average? If you do that today, you add $650 billion to our annual interest costs. How long do you think he can keep two percent inflation? If he does, then we’ll continue to have two percent growth. In other words, if we start getting the growth, then we’ll see the inflation. The reason there’s no inflation now is there’s no velocity to the money. We’ve got $2 trillion sitting on the sidelines with corporations in this country. Another few trillion in personal bank accounts. And the reason is no one has confidence in the future. And it’s not so much the details of the plan to fix it as the psychological confidence it will get fixed. And that’s why I voted for Bowles-Simpson.

EK: When Bowles-Simpson went before the House, it was rejected by a huge bipartisan majority. Do you see there as being any possibility that one outcome of the taxmageddon period could, be a grand bargain in the Gang of Six/Simpson-Bowles vein?

TC: I don’t know the answer to that, frankly. My hope would be we reach a grand compromise. But the vote in the House proves what I said in the book. You had a vote in the House on a plan that could solve our problems and the Democrats didn’t vote for it because it touches Social Security and Republicans vote against it because of revenues. Both sides accentuated their differences rather than sending a signal to the international community that we could get together and cut $4.5 trillion over the next 10 years. Which raises the question: Why are they here? If you’re here just to get reelected, you’re worthless to the country.

EK: You’re searingly critical of Congress in the book. So let me ask you: How do you fix the Senate?

TC: Let the Senate operate the way it’s supposed to. put stuff through committees. bring it up in regular order. Have an open amendment process. I’m the number one amendment offerer in the Senate in the last few years.

EK: Congratulations. {Read More}

One thing is for certain, we either address the debt issue or it WILL bring this once great and powerful economic Goliath to his knees. Watch for the second installment.

Via: Memeorandum


  1. Excellent interview. Ezra Klein is one of my favorite liberals. I give him big props for being a sincere, intellectually-honest critic. He's also a smart guy.

    Tom Coburn is just about my favorite politician. I fear we won't wake up until it all crashes down.

  2. I saw Coburn on C-Span talking about his new book, and it strikes me as a little over-the-top. Coburn seems comfortable with some revenue increases, though, and that's a start. Yes, we do have a serious debt problem, but this notion, "it's a spending, not a revenue, problem," is misplaced. After all, what's the spending on? Rarely do we hear any politician say, "We have an investment and planning for the future problem, not a debt problem."

    The service of the debt is surprising easy. We have historically low interest rates. That service rate is historically low - lower than it's been since before Reagan, who had about double the debt service rates. As well, our economy is larger than our debt - sort of like a person who makes 50k a year and owes 45k on their mortgage, not a bad place to be. Unfortunately, to make our analogy complete, we'd have to acknowledge that our person has practically no retirement savings.

    So, we really don't have any choice but to keep up with entitlements, as the per capita debt is beyond our earnings and has been for some time now. The stagnant wealth of the working class, the lack of upward mobility, is a real problem here. And there can be no doubt that the Milton Friedman school of economics, as practiced ever since Jimmy Carter, and put on steroids by succeeding presidents, is at fault. Therefore, unless we sustain our entitlements - SS, Medicare, housing and food assistance - we will have millions of elderly poor with no younger generation wealthy enough to care for them personally. We'll have to pool our resources, as we do with these programs.

    We also, therefore, must start investing in the future, to turn around the stagnant mobility of the working class and shrinking of middle class. How? Roads, highways, rails, wires, water and sewer projects, bridges, parks, schools, hospitals, etc.

    Austerity and conservative fiscal policy will fail. The proof is that it obviously has for a long time now.

    Reaganism is a failure.

    We have to get back to at least a modicum of progressivism if we are going to turn things around.


    1. We have a debt problem that will come crashing down on use sooner rather than later. The nation like individuals cannot live on borrowed money forever increasing the service on the dept.

      The revenue problem is miniscule if we actually realign our spending priorities and cut the waste and duplicity we all know exits.

      That is just the quick response. I know (at least I think I do from your remarks) you are a Keynesian advocate. Good luck as the ship sinks.

    2. @ Jersey:"Reaganism is a failure."

      What an idiotic, historically-ignorant statement. We had a great economy until bad loans crashed it. Granted, we've always spent too much, thanks to progressive pie-in-the sky schemes. That is the failure.

  3. One of the biggest mistakes that the President made, in my opinion (the progressives and Keynesians will obviously disagree), was not to more firmly embrace (at least as a starting point) the findings of his own damned debt commission. My suspicion is that he felt that he could simply kick the can down the road and that the stimulus would lead to stronger growth. Now, and in the famous words of Dwight Yoakam in "Slingblade", all that the fellow can utter is f--k me."

  4. Les, why did you ignore my argument that our debt is actually less than our productivity? Does it not fit in with your's? Does it not prove that the vast majority are far more productive than the rationally self-interested few?


    1. jmj, think of it this way, debt is relative to revenue. It has nothing to do with productivity which is a measurement of efficiency and as such a barometer of competitiveness.

      Now, lets assume for a moment we are talking about a (or) individual(s), okay?

      The individual for the sake of argument has a net income of 50,000 dollars in 2011. But for whatever reason, legitimate or frivolous he spends 55,000 dollars thus he or she finances 5,000 dollars creating debt that has a caring cost associated with it called interest.

      Now in 2012 this individual making the the same net income after adjustments for inflation, for whatever reasons legitimate or frivolous spends 55,000 dollars (adjusted for inflation) thus creating additional debt with the additional carrying charges called interest.

      Continue the scenario over a prolonged period of time and I believe even you can see the ultimate crises that will become this individuals reality.

      Now, with respect to a nation. Whether it be one individual managing his own income to debt ratio or whether it is a nation managing its debt to revenue ratio if allowed to get out of hand (ut of control) the results will be exactly the same. Of course the same is true of businesses, which by the way take all the risks as opposed to employes who stand to gain only benefits. Whatever the level may be.

      I agree the USA in terms of raw productivity, which means "output per man hour for any given unit of production", the US is the worlds most productive. But exactly what the hell will that matter when global competition can produce the same product at a lower rate of productivity but sell it on the market for a less expensive price tag?

      So jmj, if you want a more in depth explanation, please send me a personal e-mail and I will most assuredly educate you further.

  5. Very fascinating interview. I fear that Coburn's predictions will come to pass.

    1. As do I. Given that approximately 50% plus agree with jmj the long term outlook ain't so good.


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