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Who Gets Stiffed When The Debt Limit Isn’t Raised?

Karl Smith says it’s not a default when a government fails to meet contractual obligations to soldiers:

Contra to Neal Wolin, if bondholders needed sign that under no state of affairs will any credit losses on US bonds ever be allowed, then prioritizing debt payments over the men and women who have shed blood for their country would do it.

If seniors across America start having their chemo cancelled so that Arab Sheik’s get their bond payments on time then US creditworthiness will go through the roof.

This seems like a bit of a metaphysical dispute, but it’s a useful opportunity to shift ground to the question of what actually would happen in case of us reaching the debt ceiling.

This would amount, basically, to the federal government facing a temporary cash flow problem. Markets are willing to buy US debt at interest rates that make it perfectly possible for the Treasury to stay solvent, but congress won’t let Treasury sell the debts. Under the circumstances, incoming cash is insufficient to meet all scheduled obligations. But it’s not zero. And presumably Tim Geithner will keep paying creditors. Social Security has its dedicated funding stream.

How about the rest of the government? Well the real issue here, I think, is what happens if the President tells you that you can’t get paid just now because congress is being difficult, but he’d like you to keep on keeping on anyway. Soldiers in the field aren’t going to mutiny, the Pentagon will just keep track of what back pay they’re owed and families back home will complain to their members of congress. Similarly, the firms the Pentagon contracts with will recognize that the long-term viability of their contracting business is at stake and will keep fulfilling the terms of their contracts in exchange for IOUs. So nobody’s going to run out of bullets. And it seems to me that if you really wanted to, you could generally keep things more-or-less going on this basis. Instead of selling bonds to investors to get the cash needed to finance the government, you could de facto borrow money by giving IOUs to service providers. Financial institutions should be willing to buy the IOUs from their recipients, and then Wall Street will find itself lobbying congress to pay the government’s debts.

Climate Progress

Investing in clean energy technologies by the numbers

President Barack Obama, in his State of the Union, proposed ending $4 billion in tax subsidies for major oil companies and using that money to invest in clean energy technologies and projects focused on R&D and deployment.

In this cross-post, CAP’s Emily Bischof lists some of the clean energy programs President Obama proposed during his speech that we could invest in.  These programs would make our country more globally competitive, create jobs, and reduce pollution.
Read more

Security

Will The West Endorse Human Rights Violator Omar Suleiman To Be Egypt’s Transitional President?

On January 29, five days into massive pro-democracy protests that shook the nation of Egypt, Egyptian president Hosni Mubarak appointed his “close personal friend and confidante” Omar Suleiman as his vice president, the first in the nation’s modern history. While Suleiman’s appointment likely was an attempt to appease the protest movement, demonstrations did not cease, as many saw the move as little more than a reshuffling of the old government.

There are now signs, including statements by Secretary of State Hillary Clinton, that point to Washington and other Western capitals endorsing Suleiman as a possible transitional president to replace Mubarak and broker a compromise with protesters that could possibly lead to democratic reforms.

While there may be a number of benefits to having Suleiman lead the transition — such as his stature as a high-level military official and history of negotiation with foreign powers — there are also a number of troubling facts about his history as Egypt’s intelligence chief, particularly related to his complicity in human rights abuses.

As Egyptian Intelligence Director, Suleiman headed up the feared Egyptian intelligence agencies. In this capacity, he also served as the country’s chief liaison to the American CIA’s rendition program, which shuttled terror suspects to countries, such as Egypt, where they could be tortured. Australian journalist Richard Neville recounts the story of how, in the case of detainee Mamdouh Habib, an Australian citizen, Suleiman ordered brutal torture:

Habib was interrogated by the country’s Intelligence Director, General Omar Suleiman. … Suleiman took a personal interest in anyone suspected of links with Al Qaeda. As Habib had visited Afghanistan shortly before 9/11, he was under suspicion. Habib was repeatedly zapped with high-voltage electricity, immersed in water up to his nostrils, beaten, his fingers were broken and he was hung from metal hooks. [...]

To loosen Habib’s tongue, Suleiman ordered a guard to murder a gruesomely shackled Turkistan prisoner in front of Habib – and he did, with a vicious karate kick.

While the reaction in Washington to Suleiman’s ascension has been somewhat positive — Sen. Jeanne Shaheen (D-NH) called him a “charming man” — the reaction amongst Egyptian civil society has been much less positive. Former IAEA chief and Nobel Laureate Mohamed ElBaradei said it would be a “major setback” if Suleiman or Mubarak were tasked with leading a transitional government, and said that it would “come down like lead on the people who have been demonstrating” if the United States and the rest of the international community were to endorse Suleiman to lead the transition. “Mubarak and Suleiman are the same person,” said Emile Nakhleh, a CIA analyst. “They are not two different people in terms of ideology and reform.”

The position of opposition groups in the country on Suleiman being a transitional leader is mixed. Some groups, like the Muslim Brotherhood, have opened themselves up to talks with the Egyptian vice president. Others are calling for a new constitution to be written by parliament before any such talks begin.

Whatever one’s opinion of Suleiman is, it is important to view him in light of his entire record, which includes complicity in a whole host of human rights abuses. If he is to serve as a transitional leader, the millions of Egyptians who have marched in the streets will likely not rest until the transition is complete and those, like Suleiman, who were a key part of Mubarak’s regime, would only remain in power if a free and fair election put them there.

Update

On CNN’s Fareed Zakaria GPS today, ElBaradei said that he is in favor of creating a temporary “presidential council of three people, with — Suleiman or somebody from the army would be one member; the other should be civilian.” The council would usher in “a year of transition or a government of national unity, of caretaker government that prepares properly for free and fair election.” ElBaradei added, “I think any election in the next coming of months before the right people establish parties and engage, it will be again a fake — a fake democracy.”

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