President Obama: Don’t Count On U.S. Paying Debt Interest First
Published by Wallstreetweather.net
Wall Street completely ignored remarks made by President Obama at a White House press conference Wednesday, along with the letters exchanged between Republican Senators and Treasury Secretary Geithner.
Republicans have proposed prioritizing interest on the federal debt above all other government obligations in the event of a debt ceiling impasse. Treasury Secretary Geithner’s response suggested that no previous administration had prioritized one obligation of the U.S. over any other obligation. The Treasury Secretary emphasized that failure to meet any obligation of the U.S. would lead to a downgrade of all U.S. obligations. Geithner cited precedents of both Republican and Democratic administrations in the past and the ability of previous Congresses to always meet the obligations of the U.S.
President Obama cast further doubt on the Republicans’ prioritization proposal. Republicans should understand that if they refuse to raise the debt ceiling that the President will then have full control over the nation’s spending priorities! Republicans should also realize that the closer August 2 looms, the weaker their negotiating position becomes. Wall St. might want to review the press conference as President Obama alluded to the possibility that he might not continue to pay interest on the debt if the debt ceiling is not raised:
“Moreover, which bills are we going to decide to pay? These guys have said, ‘well, maybe we just pay the interest on -- for bondholders’. So are we really going to start paying interest to the Chinese who hold Treasuries and we’re not going to pay folks their Social Security checks? Or we’re not going to pay to veterans for their disability checks? I mean, which bills, which obligations, are we going to say we don’t have to pay?” (bold emphasis mine)
This is the first time the President has issued a warning to Republicans that he might not share their priorities. Yet does it not make sense that a “socialist” president would prioritize “the people” over “the plutocrats”? The Republicans define a tax increase as ANY elimination or reduction in tax subsidies for the wealthy and corporations. Will senior citizens agree with Republicans that continuing subsidies to oil companies are more important than receiving their Social Security benefit?
President Obama emphatically stated he wants a “balanced approach” to deficit reduction that entails both political parties sacrificing some of their “sacred cows.” Republicans take the credit for getting the Democrats to agree to almost $1 trillion in spending cuts over the next 10 years if they agree to remove tax loopholes that certain businesses enjoy to the exclusion of others. But Republicans consider closing these loopholes to be a tax increase unless Democrats agree to make up for the loss of the loopholes with the equivalent amount of tax cuts.
Having become so accustomed to President Obama acquiescing to their demands on taxes, Republicans were somewhat shocked by the bluntness the President displayed at his press conference. And they were even more surprised Thursday by his refusal to meet with the Senate Republican caucus so they could “educate” him on the importance of preserving tax subsidies for their special interests.
Sen. Pat Roberts said Thursday that President Obama "should take a valium and calm down." This is not surprising coming from the party that is the biggest supporter of the pharmaceutical industry. Just like Wall St. created synthetic CDOs because there were not enough subprime mortgages to go around, big pharma has resorted to making up ailments and pushing drugs when in most instances simple and inexpensive remedies are available.
Neptune is the planetary energy of drugs, addictions, and illusions. Republicans and their supporters would like nothing better if President Obama, the Democrats, and the entire nation for that matter was on pharmaceutically manufactured drugs to make them “comfortably numb” so they can continue to erode the nation’s social safety net, gender inequality, and women’s reproductive freedoms.(1) Born with the Sun (the will) in Leo the sign of the leader challenging Neptune in Scorpio, it is not President Obama’s mission in life to be “comfortably numb.” His constant use of the phrase “let me be clear” is his mantra to cut through Neptune’s fog. With his Sun and Neptune in fixed signs, President Obama possesses the determination to break through the illusions that are meant to conceal what is secretly taking place behind the scenes.
Scorpio is ruled by Pluto, reflecting how the wealthy and corporations manipulate the tax code for their own benefit by donating to politicians who will promote their agenda. Republicans claim that U.S. corporate tax rates are amongst the highest in the world, yet they won’t admit that the effective tax rate (after all deductions, expenditures, credits, and subsidies have been taken) that most corporations actually pay is much lower.
Individual wage earners are taxed at rates up to 35%, yet hedge funds are only taxed at 15%. Closing corporate tax loopholes is not about “class warfare” but tax fairness. Notice that Republicans stopped advocating for a flat tax with no deductions years ago because closing tax loopholes would deprive them (and Democrats) of using the tax code as their main source for campaign contributions. Every tax credit, deduction, or subsidy granted to benefit one group of individuals or corporations equates to a tax INCREASE for everyone else! True free market capitalists would demand that ALL tax breaks for businesses and individuals be removed in exchange for much lower tax rates so everyone “pays their fair share” in proportion to their income.(2)
So why hasn’t what President Obama said sent shockwaves through the financial markets? First and foremost, Wall St. believes an agreement to raise the debt ceiling will be worked out before the Treasury runs out of money to pay $23 billion due to Social Security recipients on August 3. And even if an agreement is not reached in time, Wall St. has automatically assumed the holders of U.S. debt will continue receiving interest payments.
Wall St. might even welcome such an impasse, believing President Obama would then acquiesce to the GOP’s demands to drastically cut spending on Medicare, Medicaid, and other “safety net” programs. Wall St. and their corporate friends would like funding for food, environmental, transportation and other health and safety regulations to be drastically cut. More importantly, Wall St. and corporate America want to use the debt ceiling to slay the beast so the government lacks the money to adequately regulate their industries. Republicans can rant all they want about “burdensome regulation,” but let’s remember how well the financial industry performed under what former Fed Chairman Alan Greenspan called the “survival instinct.”(3)
Speaking of Greenspan, in an interview on CNBC Thursday, the Republican and Ayn Rand devotee made it clear that closing tax loopholes is not a tax increase:
“I think that the Republicans ought to identify a very significant amount of so-called tax expenditures which in fact are misclassified [by the Republicans]. They are expenditures. They are outlays and many of them are subsidies, and subsidies are not the type of thing that you want for an efficient market system. There are a lot of them.”
Unlike President Obama who believes that in the end Republicans will “do the responsible thing” and agree to close the tax loopholes presumably before the U.S. hits the debt limit, Greenspan thinks an agreement will not be reached by August 2. But like Republicans and Wall St., he is convinced the Treasury Secretary will persuade the President to continue to pay interest on the debt and default on everything else for a short time before “we all come to our senses and resolve the issue.”
Greenspan remarked that “As scary as the exercise has been, it may in the long run have actually helped the U.S.” What Greenspan is essentially saying is that some of the most painful and difficult experiences in life usually end up being the most beneficial in the long run.
Saturn is all about learning life’s lessons, and it is appearing more likely the U.S. will learn its lessons the hard way. Whether at the individual or collective level, we can choose whether those lessons will be learned with ease or difficulty. The most intense time of testing occurs about every 29 years when Saturn returns to its natal position. (See my post, “S&P Downgrades U.S. Outlook to Negative For Not Learning Saturn’s Lessons.”)
Saturn represents boundaries and limitations which are evident in all types of structures. Saturn rules the highest point of a structure, government, and represents the status quo. So in August as Saturn in Libra returns to its natal position in the USA chart, it reflects the USA has reached its spending limit unless Congress reaches agreement to raise the ceiling. Saturn in Libra represents all the financial relationships the government has.
Despite the nation’s innate distrust of governmental authorities as reflected in the USA’s Sun square Saturn, the people calling for a government shutdown do not realize the interconnectivity between government payments and virtually all large employers, public and private, national and local. Beyond the obvious such as student loans and military contractors, virtually every large corporation from technology to healthcare receives a significant portion of their revenue from government entities. Not only the federal government, but also state and local governments will not be able to pay their bills when federal funds to the states come to a screeching halt. Large employers have a choice as to whether they continue to maintain their employment and provide services to government entities or begin to cut employment and sever their ties.
Saturn represents the past; Saturn in Venus-ruled Libra indicates the U.S. has to start paying for the past (running a deficit since 2001). President Obama’s call for a “balanced approach” of spending cuts and closing tax loopholes not only reflects his progressed Sun in Libra seeking to broker a balance as the nation’s leader, but aptly describes Saturn’s need to balance Libra’s scales by making cuts that are equitable.
Pluto rules debt and taxes. Pluto in Saturn-ruled Capricorn indicates the debt mountain has reached its highest peak and revenues are inadequate to cover the nation’s expenditures. Pluto opposing the USA’s natal Jupiter in Cancer for the first time since the nation’s founding indicates the deficit has become so large that decisions must be made to curtail its growth but in a way that does not adversely harm economic growth and the general welfare of the nation since Jupiter is the ruler of the USA chart.(4) Reaching these decisions forces the nation to deal with the very deepest and most divisive ideological and philosophical issues of our time.
Pluto presides over bankruptcy, and Pluto in Capricorn (2008-2024) substantially elevates the potential for sovereign debt defaults. Moody’s warned June 29 it would downgrade the U.S. from its AAA credit rating if the U.S. defaulted on its debt, including bonds issued by Fannie (FNM) and Freddie (FRE) along with commercial paper and bonds that were guaranteed by the government under TARP. S&P followed with a warning the following day that it would downgrade the United States from AAA to D if it missed its debt payment on Aug 4.
Since the USA is a Jupiter-ruled nation and Jupiter rules foreign matters, there is no question that such an event would have a huge national and global impact if the U.S. defaulted with no sign in sight of Washington reaching agreement. Venus conjoining Jupiter in the sector of the USA chart representing our relations with other countries indicates the event would definitely reverberate throughout the global financial system.
“Expect the unexpected” is the mantra of Uranus. Uranus in Aries indicates that unexpected shocks and surprises rapidly unfold concerning new developments in an existing situation or something occurs that is completely new altogether. Uranus is currently squaring the USA’s natal Venus and Jupiter, indicating there are more large scale shocks to come affecting the U.S. economy and its financial system in particular.
Many of the surprises that unfold as Uranus transits the USA Venus and Jupiter between now and early 2013 will be quite positive, as new technologies unfold and the U.S. undergoes a manufacturing renaissance. Transitioning to where we need to get to however, is always the most challenging part. Since the financial crisis, fiscal and monetary policies have tried to revive the old economy that was too addicted to financial alchemy and consumer spending through inflating asset prices.
What makes the transits of Saturn, Uranus, and Pluto to the USA chart have even greater impact is that these planets are engaged in challenging relationships to one another in the sky at the same time they impact the U.S. Examining how these planetary influences interact with the luminaries and the other planets can help determine the potential times when an agreement could be reached before August 2 – along with the planetary prospects if the U.S. would no longer be able to meet its obligations.
These planetary alignments occurred for the first time last summer. After falling to lows in early July 2010, the markets sharply rebounded after the Fed signaled it would do a second round of quantitative easing. Markets were also happy that Republicans gained control of the House and many state legislatures in the midterm elections. Expansive Jupiter conjoining Uranus helped fuel the market’s big gains. But that beneficial alignment is over and the Fed is finished expanding its balance sheet.
Eclipses are harbingers of major changes to come. Events and incoming information prior to and in between the eclipses does not begin to be assimilated until the week following the last eclipse. The Solar Eclipse on July 1 at 4:54 AM EDT was the third and final eclipse in the current eclipse cycle that began with June 1 Gemini New Moon. The New Moon in Cancer completes the cross pattern begun by the Sun at the Summer Solstice, squaring Saturn in Libra and Uranus in Aries and opposes Pluto in Capricorn. These planets in action-oriented cardinal signs at the Solar Eclipse which conjoins the U.S. Sun (its identity) indicates the U.S. is about to experience some “firsts.” And defaulting on the debt could be one of them.
The New Moon ruling the sector of the chart representing net worth combined with Mercury (the chart ruler) there in Cancer and Venus in Mercury-ruled Gemini conjoining the Ascendant (rising sign) reflects that financial security is foremost on the nation’s mind. Mercury harmonizing with Uranus (which conjoins the sector representing Congress) indicates the nation expects Congress to work together to reach agreement. Venus harmonizing with Neptune which conjoins and rules the sector representing the Administration describes the majority of the nation tends to resonate more with the President’s position than what the Republicans are advocating. Jupiter in Venus-ruled Taurus in the sector of the chart representing Congress harmonizing with Pluto in Saturn-ruled Capricorn (July 8) and Saturn ruling the sector of the chart representing debt, could be an easier environment for enough stubborn members of Congress to change their mind about not voting to raise the debt ceiling when they realize a no vote could curtail corporate profits.
The challenging alignment between the Sun and Moon in its First Quarter phase July 8 at 2:30 PM EDT (covering the period from July 8-15) stimulates acting on issues that began or reached a new level around the time of the New Moon. The Moon in Venus-ruled Libra conjoins Saturn, exerting pressure on Congress to come to an agreement. Money matters are further emphasized as Venus in Cancer replaces the Sun and Moon on the cardinal cross of action, squaring Saturn and Uranus while opposing Pluto. Venus will exactly oppose Pluto then as Pluto exactly opposes the USA Jupiter for the second time.
Oppositions are akin to a Full Moon which is highly emotional since the light of the Moon makes us aware that something has to give related to these two different yet similar energies. Oppositions and Full Moons represent a culmination point as something has got to give, and since the Democrats have already agreed to make their cuts, it’s now the opposing side’s turn to do so. Venus opposite Pluto represents the dilemma of not enough money coming in to pay past debts. Breaking the standoff requires Republicans to meet the Democrats in the middle by agreeing to close some tax (Pluto) loopholes.
Saturn is moving past its square to Uranus and Pluto now just as the square to Uranus and Pluto reaches its closest approach in early August. The energy of Uranus is particularly pronounced July 7-13 as Uranus appears from Earth’s vantage point to turn retrograde June 9 when the Moon will be in Pluto-ruled Scorpio (until December 10). When the energies of Uranus the great awakener are strong, there is a tendency for sudden reversals. While Uranus turning retrograde could coincide with Republicans beginning to reverse their current stance, it can also motivate the most extreme ideologues of the party to refuse to cooperate.
Uranus retrogrades exactly opposite the USA progressed Moon in Venus-ruled Libra, a further indication the public in general desires a “balanced approach” as President Obama explained as they realize how extreme the Republicans have become. Pluto and Scorpio rule entitlements and it is unlikely that Social Security and Medicare recipients will be out protesting on behalf of corporate jet owners and the oil and gas industries to preserve their tax benefits, eager to have their government benefits temporarily cut or delayed if the debt ceiling is not raised in time.
Uranus is the planet of extremes and uncertainty (or extreme uncertainty). Wall St. and corporate America thought last summer was filled with “uncertainty,” yet the biggest uncertainty of all is if they have lost control over the politicians that they helped to elect! In “May 17, 2011 Scorpio Full Moon Over The Debt Ceiling,” I wrote that business groups were already upset that Congress had not yet reached agreement, but this is what happens when you support candidates with such extreme ideological beliefs.
Uranus is in the sector ruling Congress, squaring Pluto in its “home” sector in the chart for the July 15 Full Moon which occurs at 2:40 AM EDT (influencing the period July 15-29) in the chart set for Washington DC. The Sun in Cancer opposes the Moon in Saturn-ruled Capricorn as Venus squares Saturn. The public (particularly the elderly) are likely to become increasingly concerned if the debt ceiling hasn’t been raised by this point. The Capricorn Full Moon is all about balancing personal (or inner needs) and professional (outer needs) to create greater emotional and physical security. In the case of the debt ceiling, it represents the government’s ability to ensure it has adequate financial resources to provide for the nation’s basic safety and security needs. Venus conjoining the USA Sun and the Sun conjoining the USA Mercury in Cancer indicates President Obama might be engaging in diplomatic efforts to help elevate the concerns of sovereign holders of U.S. debt.
Mars in Mercury-ruled Gemini returns to its natal position in the USA chart July 21 for the first time in two years reinforcing its square to the USA Neptune on July 22. This alignment in the USA chart increases the potential for U.S. military action, increased violence, action over oil, and events that shatter some of America’s biggest myths and illusions such as the “American Dream” of home ownership dependent on government subsidies to keep home prices elevated. This comes on the heels of the July 23 Last Quarter Moon in money sign (Venus-ruled) Taurus. The Taurus Moon harmonizing with Pluto can bring the conscious realization that the internal plumbing of the financial system could spring a major leak if U.S. Treasuries lost even 10% of their value in one day which would amount to about a $1.5 trillion loss based on the $14.29 trillion federal deficit!
Mercury enters its home sign Virgo July 28 and opposes Neptune in Pisces the following day. Financial facts oppose ideological illusion, two opposing energies pervading the atmosphere through September 8 as Mercury turns retrograde on August 2 when the Moon is in Virgo.
During the three weeks three to four times a year that Mercury is retrograde offers an opportunity to slow down the pace of activity and rethink things through. I have written several times before that Mercury rules legislation and since the USA was born with Mercury retrograde, Congress tends to procrastinate on key pieces of legislation and then goes into a frenzy of activity once Mercury is retrograde as they begin to rethink things through. Congress reached agreement on the current fiscal year budget during the last Mercury retrograde cycle on April 8, not long before a midnight deadline with the Moon in Mercury-ruled Gemini and the Sun conjoining Mercury retrograde which always marks the midpoint of Mercury’s retrograde cycle.
Mercury turning retrograde opposite Neptune reflects the true effects of a default would be difficult to quantify. Even the experts are likely to underestimate how interconnected the U.S. government is to global finance and commerce. But as Mars moves into Cancer August 3 and harmonizes with Neptune, the world will find out pretty quickly. Mars in Cancer and the Moon entering Libra then would likely prompt the Fed and other world central banks to assure the markets there is ample liquidity and the Fed would likely temporarily loosen bank capital requirements. The Fed would likely forgo receiving interest payments on its Treasury holdings (since the Fed turns over all profits it earns to the Treasury anyway). The Administration might even succeed in getting China, the UK and other major sovereign creditors to agree to temporarily waive receiving interest payments.
Mars in Cancer until September 18 is a time when people can become highly emotionally charged if they feel their security is threatened in any way. If the Treasury has to scale back or delay Social Security payouts, there is likely going to be a lot of angry seniors! Mercury and Neptune will have retrograded back into Leo and Aquarius respectively when they oppose each other for the second time August 8, as Mars squares Uranus (August 9) and opposes Pluto (August 11). It seems most likely that Congress could reach agreement during the influence of the First Quarter Moon in Scorpio (August 6-12).
The day the Sun returns to its natal position each year is a person’s time to shine as they celebrate their birthday! President Obama celebrates his 50th birthday August 4 and his Sun is strong to begin with since the Sun is in its home sign Leo. His Solar Return will carry the Mercury/Neptune and Mars/Uranus/Pluto energies I’ve described. Mars exactly conjoins his natal Venus which can enhance his popularity with the public as Venus in Leo conjoins his Sun. While the President will be assertive in seeking to broker a compromise whenever possible, he is not likely to be as patient in giving his opponents a lot of time and will be quick to dispel their rhetoric with facts. His actions will be more unpredictable which could throw his opponents off guard as he pushes for more reforms.
So what lessons will the nation learn as it experiences its Saturn return next month? I think America will realize the urgent need for restructuring (Saturn) that radically reforms (Uranus) the tax code (Pluto) with enough revenue to truly cover the expenses the public is demanding. Unfortunately it would likely take a government shutdown for the public to fully understand how their jobs and their states are inextricably tied to the federal government.
Lowering tax rates and eliminating deductions and loopholes will collect more revenue for the government. ALL deductions must be eliminated except for the standard deduction to reflect the minimum cost of living. For example, let’s say the flat tax rate is 20% and the standard deduction is $20,000 with exemptions of $5,000 for each dependent. The tax would be progressive since for a family of four the first $40,000 of income would be tax free and they would pay 20% on the income above that amount. That means the effective tax rate for a family of four earning $80,000 would only be 10%. The higher the family’s income, the closer they come to paying the actual tax rate. If a family of four made $1 million a year, their effective tax rate would be 19.2%. When you get to the level of a family of four making $1 billion a year, their effective tax rate would be 19.9992%. The big difference between having the flat income tax I’ve illustrated vs. keeping the current system is that under the flat tax, the billionaire family would actually pay 20% of their income in taxes because there would be no itemized deductions to reduce what they owe.
Government raising the revenues it needs to provide for the safety and security of the nation through equitable taxation to me is the true definition of the USA Sun in Cancer squaring Saturn in Libra.
(1)To borrow the title of a Pink Floyd song.
(2)President Reagan’s tax reform (with a Democratic Congress no less!) was the closest the U.S. has come to tax reform, yet even he began unraveling his accomplishment before he left office. Politicians who are against even paring back the tax deduction on mortgage interest should consider that when Reagan eliminated the tax deduction on credit card interest, it certainly did not deter people from running up credit card debt at exorbitant interest rates!
(3) Greenspan was a staunch advocate of minimalist regulation, trusting the financial industry’s ability to pretty much self-regulate. He believed the survival instinct would always kick in to prevent firms from taking on too much risk that would jeopardize their survival. And now the world is living with the fallout from that folly.
(4)This is because at the time the USA was born (July 4, 1776 5:10 PM LMT Philadelphia, PA), the sign Sagittarius was the sign rising on the eastern horizon. The rising sign or Ascendant describes the physical characteristics of the nation’s and its outlook. Jupiter/Sagittarius describes the USA is physically large with rich resources. Americans tend to like everything in life to be super-sized; unfortunately many Americans physically reflect Jupiter’s expansive nature. The nation also resonates with the optimistic nature of Sagittarius and Jupiter.
(5)The USA progressed Moon (the public) in Libra transiting the sector of the USA chart ruling the President, together with the fact that President Obama’s natal Venus in Cancer conjoins the USA’s natal Venus factor into why the President’s likeability rating remains consistently high in public opinion polls.
Barack Obama: August 4, 1961 7:24 PM AHST Honolulu, HI
Posted 7/04/2011 05:01:00 PM