Debt Deal: ”It’s like Curing a Drunk with Vodka”

By David Lawder
Reuters
August 1, 2011

The tentative deal to avoid a crushing debt default is at best a mild relief for the U.S. economy that nearly stalled in the first half of the year and has yet to show signs of any realistic pickup.

The plan for $2.4 trillion in spending cuts over a decade, if backed by lawmakers, would help lift some of the uncertainty that has weighed on investors, businesses and consumers unsettled by talk about a possible new and deep U.S. financial meltdown.

Still, it does not decisively remove the threat that the nation’s AAA credit rating could be downgraded, an action that would raise borrowing costs across the board, and the prospect of further cuts ahead will cut short any celebrating.

“This will have minimal impact on the economy. The cuts are not there for the first couple of years, which really makes you wonder if they’re really going to happen at all,” said Peter Morici, an economics professor at the University of Maryland.

The prospect of spending cuts is the last thing the U.S. economy needs right now, many commentators say.

Economists were stunned on Friday when data showed the U.S. economy grew just 0.4 percent in the first three months of this year — perilously close to contraction — and picked up unimpressively to 1.3 percent in the second quarter.

Against the backdrop of the weak economic recovery, the divided political parties in Congress appear to have agreed on one thing early on in their dispute over how to raise the U.S. debt ceiling: that spending cuts to narrow the deficit should be phased in slowly. They will be phased in from 2013.

President Barack Obama told reporters on Sunday that the initial discretionary cuts, expected to be about $917 billion, “wouldn’t happen so abruptly that they’d be a drag on a fragile economy.” He added that “job-creating” investments in education and research would be preserved.

But the bulk of the austerity has yet to be defined.

About $1.5 trillion of the planned savings will be decided by a bipartisan congressional commission, leaving unanswered the question as to whether the United States has the political will to tame the country’s growing debt pile once and for all.

Troy Davig, U.S. economist at Barclays Capital, estimated that the deal would only cut $25-30 billion from government spending in the first year, which could shave about a tenth of a percentage point off economic growth.

“It’s not a major drag on growth but when the economy is only growing a point and a half, a lot of economists feel that this is not the right time to be finding fiscal restraint. We will be shifting from massive stimulus to massive restraint.”

Steeper and faster spending cuts could have dealt a knockout blow to an economy reeling from high fuel prices, bad weather, Japan’s earthquake and a depressed housing market, plus a labor market that shows few signs of recovery.

LITTLE SCOPE FOR STIMULUS

Proposals discussed just a week ago included possible new fiscal stimulus measures, such as extending payroll tax cuts for employees and offering them to employers as well.

There appeared to be no room for them in Sunday’s preliminary deal which is expected to be voted on in the Senate on Monday and sent to the House of Representatives for approval. The bipartisan panel, which must draft more cuts by November, could revisit the issue.

There could be some relief among U.S. employers and consumers that taxes won’t rise under the new, hard-fought deal and that the worst-case scenario has been avoided.

The talks have been punctuated by warnings from the Obama administration that financial chaos would ensue if the $14.3 trillion federal borrowing limit is not raised by Tuesday.

That angst has added to a pile of worries slowing consumer spending decisions such as car purchases, according to Detroit executives. Existing home sales in June fell sharply due a big jump in canceled sales contracts.

Obama, too, said he has been concerned about the debt limit battle’s impact on consumer and business confidence. He said he hoped Sunday’s deal “will begin to lift the cloud of debt and the cloud of uncertainty that hangs over our economy.”

Any relief, however, is likely to be short-lived. U.S. jobs data on Friday will probably prove another reminder of the weak U.S. economy. Unemployment is expected to remain at 9.2 percent, according to a Reuters poll.

The budget deal “does nothing to restore household and corporate confidence,” said Mohammed El-Erian, chief executive of bond fund investment giant PIMCO.

“So unemployment will be higher than it would have been otherwise, growth will be lower than it would be otherwise, and inequality will be worse than it would be otherwise,” El-Erian told ABC’s This Week with Christiane Amanpour.

Just as Washington’s political leaders have run out of money to throw at the U.S. economy, the Federal Reserve looks lacking in ammunition too.

The U.S. central bank waged an massive experiment in monetary policy over the last few years to prevent the 2007-2009 recession from spiraling into a depression, slashing interest rates to zero and pumping $2.3 trillion into the ailing economy by buying debt,

The Federal Reserve is not expected to rush in to make up for the loss of any stimulus to boost growth.

Atlanta Federal Reserve President Dennis Lockhart said on Friday there would be a “very high bar” for more stimulus.

At least the deal taking shape in Washington would push the scary prospect of a U.S. debt default out until after the 2012 presidential election. But investors worldwide will still worry about the ability of the United States to avoid future downgrades of its debt, a move that would probably push up borrowing costs and act as yet another drag on the economy.

“Talk about kicking the can down the road, this is probably the biggest can that’s ever been kicked — appointing another commission to do the heavy lifting another day,” Yale University economist Stephen Roach told Reuters Insider.

Could the Debt ceiling be a ’cause’ for Power Grab?

Government does not need ideas to become more tyrannical. In fact, this is a scenario government has thought about already.

by Tyler Durden
Zero Hedge
July 31, 2011

Politico’s Ben White has pointed out something interesting, namely that while the 14th Amendment may or may not be practical under the current situation (especially not without a full blown constitutional crisis), one potential loophole that Obama may have comes from none other than former president Bush, in the form of the Homeland Security Presidential Directive-20, one which deals with such trivia as “Catastrophic Emergency”, “Continuity of Government”, “Continuity of Operations”, and lastly, and perhaps somewhat ironically, “Enduring Constitutional Government.” Considering the amount of doom and gloom spun by the government is bigger than anything seen even under Hank Paulson, could this “crisis” be interpreted by the constitutional scholar as one that merits the invocation of Homeland Security privileges? Is America’s maxing out its credit card comparable to a nuclear or terrorist attack on the continent? We may find out in less than 48 hours.

So, for your reading pleasure, here is National Security and Homeland Security Presidential Directive 51/20

NATIONAL SECURITY PRESIDENTIAL DIRECTIVE/NSPD 51

HOMELAND SECURITY PRESIDENTIAL DIRECTIVE/HSPD-20

Subject: National Continuity Policy

Purpose

(1) This directive establishes a comprehensive national policy on the continuity of Federal Government structures and operations and a single National Continuity Coordinator responsible for coordinating the development and implementation of Federal continuity policies. This policy establishes “National Essential Functions,” prescribes continuity requirements for all executive departments and agencies, and provides guidance for State, local, territorial, and tribal governments, and private sector organizations in order to ensure a comprehensive and integrated national continuity program that will enhance the credibility of our national security posture and enable a more rapid and effective response to and recovery from a national emergency.

Definitions

(2) In this directive:

(a) “Category” refers to the categories of executive departments and agencies listed in Annex A to this directive;

(b) “Catastrophic Emergency” means any incident, regardless of location, that results in extraordinary levels of mass casualties, damage, or disruption severely affecting the U.S. population, infrastructure, environment, economy, or government functions;

(c) “Continuity of Government,” or “COG,” means a coordinated effort within the Federal Government’s executive branch to ensure that National Essential Functions continue to be performed during a Catastrophic Emergency;

(d) “Continuity of Operations,” or “COOP,” means an effort within individual executive departments and agencies to ensure that Primary Mission-Essential Functions continue to be performed during a wide range of emergencies, including localized acts of nature, accidents, and technological or attack-related emergencies;

(e) “Enduring Constitutional Government,” or “ECG,” means a cooperative effort among the executive, legislative, and judicial branches of the Federal Government, coordinated by the President, as a matter of comity with respect to the legislative and judicial branches and with proper respect for the constitutional separation of powers among the branches, to preserve the constitutional framework under which the Nation is governed and the capability of all three branches of government to execute constitutional responsibilities and provide for orderly succession, appropriate transition of leadership, and interoperability and support of the National Essential Functions during a catastrophic emergency;

(f) “Executive Departments and Agencies” means the executive departments enumerated in 5 U.S.C. 101, independent establishments as defined by 5 U.S.C. 104(1), Government corporations as defined by 5 U.S.C. 103(1), and the United States Postal Service;

(g) “Government Functions” means the collective functions of the heads of executive departments and agencies as defined by statute, regulation, presidential direction, or other legal authority, and the functions of the legislative and judicial branches;

(h) “National Essential Functions,” or “NEFs,” means that subset of Government Functions that are necessary to lead and sustain the Nation during a catastrophic emergency and that, therefore, must be supported through COOP and COG capabilities; and

(i) “Primary Mission Essential Functions,” or “PMEFs,” means those Government Functions that must be performed in order to support or implement the performance of NEFs before, during, and in the aftermath of an emergency.

Policy

(3) It is the policy of the United States to maintain a comprehensive and effective continuity capability composed of Continuity of Operations and Continuity of Government programs in order to ensure the preservation of our form of government under the Constitution and the continuing performance of National Essential Functions under all conditions.

Implementation Actions

(4) Continuity requirements shall be incorporated into daily operations of all executive departments and agencies. As a result of the asymmetric threat environment, adequate warning of potential emergencies that could pose a significant risk to the homeland might not be available, and therefore all continuity planning shall be based on the assumption that no such warning will be received. Emphasis will be placed upon geographic dispersion of leadership, staff, and infrastructure in order to increase survivability and maintain uninterrupted Government Functions. Risk management principles shall be applied to ensure that appropriate operational readiness decisions are based on the probability of an attack or other incident and its consequences.

(5) The following NEFs are the foundation for all continuity programs and capabilities and represent the overarching responsibilities of the Federal Government to lead and sustain the Nation during a crisis, and therefore sustaining the following NEFs shall be the primary focus of the Federal Government leadership during and in the aftermath of an emergency that adversely affects the performance of Government Functions:

(a) Ensuring the continued functioning of our form of government under the Constitution, including the functioning of the three separate branches of government;

(b) Providing leadership visible to the Nation and the world and maintaining the trust and confidence of the American people;

(c) Defending the Constitution of the United States against all enemies, foreign and domestic, and preventing or interdicting attacks against the United States or its people, property, or interests;

(d) Maintaining and fostering effective relationships with foreign nations;

(e) Protecting against threats to the homeland and bringing to justice perpetrators of crimes or attacks against the United States or its people, property, or interests;

(f) Providing rapid and effective response to and recovery from the domestic consequences of an attack or other incident;

(g) Protecting and stabilizing the Nation’s economy and ensuring public confidence in its financial systems; and

(h) Providing for critical Federal Government services that address the national health, safety, and welfare needs of the United States.

(6) The President shall lead the activities of the Federal Government for ensuring constitutional government. In order to advise and assist the President in that function, the Assistant to the President for Homeland Security and Counterterrorism (APHS/CT) is hereby designated as the National Continuity Coordinator. The National Continuity Coordinator, in coordination with the Assistant to the President for National Security Affairs (APNSA), without exercising directive authority, shall coordinate the development and implementation of continuity policy for executive departments and agencies. The Continuity Policy Coordination Committee (CPCC), chaired by a Senior Director from the Homeland Security Council staff, designated by the National Continuity Coordinator, shall be the main day-to-day forum for such policy coordination.

(7) For continuity purposes, each executive department and agency is assigned to a category in accordance with the nature and characteristics of its national security roles and responsibilities in support of the Federal Government’s ability to sustain the NEFs. The Secretary of Homeland Security shall serve as the President’s lead agent for coordinating overall continuity operations and activities of executive departments and agencies, and in such role shall perform the responsibilities set forth for the Secretary in sections 10 and 16 of this directive.

(8) The National Continuity Coordinator, in consultation with the heads of appropriate executive departments and agencies, will lead the development of a National Continuity Implementation Plan (Plan), which shall include prioritized goals and objectives, a concept of operations, performance metrics by which to measure continuity readiness, procedures for continuity and incident management activities, and clear direction to executive department and agency continuity coordinators, as well as guidance to promote interoperability of Federal Government continuity programs and procedures with State, local, territorial, and tribal governments, and private sector owners and operators of critical infrastructure, as appropriate. The Plan shall be submitted to the President for approval not later than 90 days after the date of this directive.

(9) Recognizing that each branch of the Federal Government is responsible for its own continuity programs, an official designated by the Chief of Staff to the President shall ensure that the executive branch’s COOP and COG policies in support of ECG efforts are appropriately coordinated with those of the legislative and judicial branches in order to ensure interoperability and allocate national assets efficiently to maintain a functioning Federal Government.

(10) Federal Government COOP, COG, and ECG plans and operations shall be appropriately integrated with the emergency plans and capabilities of State, local, territorial, and tribal governments, and private sector owners and operators of critical infrastructure, as appropriate, in order to promote interoperability and to prevent redundancies and conflicting lines of authority. The Secretary of Homeland Security shall coordinate the integration of Federal continuity plans and operations with State, local, territorial, and tribal governments, and private sector owners and operators of critical infrastructure, as appropriate, in order to provide for the delivery of essential services during an emergency.

(11) Continuity requirements for the Executive Office of the President (EOP) and executive departments and agencies shall include the following:

(a) The continuation of the performance of PMEFs during any emergency must be for a period up to 30 days or until normal operations can be resumed, and the capability to be fully operational at alternate sites as soon as possible after the occurrence of an emergency, but not later than 12 hours after COOP activation;

(b) Succession orders and pre-planned devolution of authorities that ensure the emergency delegation of authority must be planned and documented in advance in accordance with applicable law;

(c) Vital resources, facilities, and records must be safeguarded, and official access to them must be provided;

(d) Provision must be made for the acquisition of the resources necessary for continuity operations on an emergency basis;

(e) Provision must be made for the availability and redundancy of critical communications capabilities at alternate sites in order to support connectivity between and among key government leadership, internal elements, other executive departments and agencies, critical partners, and the public;

(f) Provision must be made for reconstitution capabilities that allow for recovery from a catastrophic emergency and resumption of normal operations; and

(g) Provision must be made for the identification, training, and preparedness of personnel capable of relocating to alternate facilities to support the continuation of the performance of PMEFs.

(12) In order to provide a coordinated response to escalating threat levels or actual emergencies, the Continuity of Government Readiness Conditions (COGCON) system establishes executive branch continuity program readiness levels, focusing on possible threats to the National Capital Region. The President will determine and issue the COGCON Level. Executive departments and agencies shall comply with the requirements and assigned responsibilities under the COGCON program. During COOP activation, executive departments and agencies shall report their readiness status to the Secretary of Homeland Security or the Secretary’s designee.

(13) The Director of the Office of Management and Budget shall:

(a) Conduct an annual assessment of executive department and agency continuity funding requests and performance data that are submitted by executive departments and agencies as part of the annual budget request process, in order to monitor progress in the implementation of the Plan and the execution of continuity budgets;

(b) In coordination with the National Continuity Coordinator, issue annual continuity planning guidance for the development of continuity budget requests; and

(c) Ensure that heads of executive departments and agencies prioritize budget resources for continuity capabilities, consistent with this directive.

(14) The Director of the Office of Science and Technology Policy shall:

(a) Define and issue minimum requirements for continuity communications for executive departments and agencies, in consultation with the APHS/CT, the APNSA, the Director of the Office of Management and Budget, and the Chief of Staff to the President;

(b) Establish requirements for, and monitor the development, implementation, and maintenance of, a comprehensive communications architecture to integrate continuity components, in consultation with the APHS/CT, the APNSA, the Director of the Office of Management and Budget, and the Chief of Staff to the President; and

(c) Review quarterly and annual assessments of continuity communications capabilities, as prepared pursuant to section 16(d) of this directive or otherwise, and report the results and recommended remedial actions to the National Continuity Coordinator.

(15) An official designated by the Chief of Staff to the President shall:

(a) Advise the President, the Chief of Staff to the President, the APHS/CT, and the APNSA on COGCON operational execution options; and

(b) Consult with the Secretary of Homeland Security in order to ensure synchronization and integration of continuity activities among the four categories of executive departments and agencies.

(16) The Secretary of Homeland Security shall:

(a) Coordinate the implementation, execution, and assessment of continuity operations and activities;

(b) Develop and promulgate Federal Continuity Directives in order to establish continuity planning requirements for executive departments and agencies;

(c) Conduct biennial assessments of individual department and agency continuity capabilities as prescribed by the Plan and report the results to the President through the APHS/CT;

(d) Conduct quarterly and annual assessments of continuity communications capabilities in consultation with an official designated by the Chief of Staff to the President;

(e) Develop, lead, and conduct a Federal continuity training and exercise program, which shall be incorporated into the National Exercise Program developed pursuant to Homeland Security Presidential Directive-8 of December 17, 2003 (“National Preparedness”), in consultation with an official designated by the Chief of Staff to the President;

(f) Develop and promulgate continuity planning guidance to State, local, territorial, and tribal governments, and private sector critical infrastructure owners and operators;

(g) Make available continuity planning and exercise funding, in the form of grants as provided by law, to State, local, territorial, and tribal governments, and private sector critical infrastructure owners and operators; and

(h) As Executive Agent of the National Communications System, develop, implement, and maintain a comprehensive continuity communications architecture.

(17) The Director of National Intelligence, in coordination with the Attorney General and the Secretary of Homeland Security, shall produce a biennial assessment of the foreign and domestic threats to the Nation’s continuity of government.

(18) The Secretary of Defense, in coordination with the Secretary of Homeland Security, shall provide secure, integrated, Continuity of Government communications to the President, the Vice President, and, at a minimum, Category I executive departments and agencies.

(19) Heads of executive departments and agencies shall execute their respective department or agency COOP plans in response to a localized emergency and shall:

(a) Appoint a senior accountable official, at the Assistant Secretary level, as the Continuity Coordinator for the department or agency;

(b) Identify and submit to the National Continuity Coordinator the list of PMEFs for the department or agency and develop continuity plans in support of the NEFs and the continuation of essential functions under all conditions;

(c) Plan, program, and budget for continuity capabilities consistent with this directive;

(d) Plan, conduct, and support annual tests and training, in consultation with the Secretary of Homeland Security, in order to evaluate program readiness and ensure adequacy and viability of continuity plans and communications systems; and

(e) Support other continuity requirements, as assigned by category, in accordance with the nature and characteristics of its national security roles and responsibilities.

General Provisions

(20) This directive shall be implemented in a manner that is consistent with, and facilitates effective implementation of, provisions of the Constitution concerning succession to the Presidency or the exercise of its powers, and the Presidential Succession Act of 1947 (3 U.S.C. 19), with consultation of the Vice President and, as appropriate, others involved. Heads of executive departments and agencies shall ensure that appropriate support is available to the Vice President and others involved as necessary to be prepared at all times to implement those provisions.

(21) This directive:

(a) Shall be implemented consistent with applicable law and the authorities of agencies, or heads of agencies, vested by law, and subject to the availability of appropriations;

(b) Shall not be construed to impair or otherwise affect (i) the functions of the Director of the Office of Management and Budget relating to budget, administrative, and legislative proposals, or (ii) the authority of the Secretary of Defense over the Department of Defense, including the chain of command for military forces from the President, to the Secretary of Defense, to the commander of military forces, or military command and control procedures; and

(c) Is not intended to, and does not, create any rights or benefits, substantive or procedural, enforceable at law or in equity by a party against the United States, its agencies, instrumentalities, or entities, its officers, employees, or agents, or any other person.

(22) Revocation. Presidential Decision Directive 67 of October 21, 1998 (“Enduring Constitutional Government and Continuity of Government Operations”), including all Annexes thereto, is hereby revoked.

(23) Annex A and the classified Continuity Annexes, attached hereto, are hereby incorporated into and made a part of this directive.

(24) Security. This directive and the information contained herein shall be protected from unauthorized disclosure, provided that, except for Annex A, the Annexes attached to this directive are classified and shall be accorded appropriate handling, consistent with applicable Executive Orders.