‘Line’ Items: Greek Tragedy Edition

From Sophisticated to Sophocles – The untangling of the complex web of financial manipulation and deceit arising from the “hidden debts” controversy in Greece has exposed the mythology of its finances and is now playing out like something written by the ancient playwright, Sophocles. As the Greek economy becomes the latest tragic tale to emerge from that country, many are wondering if the woe will spread elsewhere and what lessons the U.S. can learn from the drama. The Bottom Line explored some morals to the story in posts today and Friday. A timely CRFB conference last week examined how a fiscal crisis could play out in the U.S. and a subsequent statement warned that the Thursday stock plunge could foreshadow trouble for the U.S. because of mounting debt and called for policymakers to develop a credible fiscal plan now. Meanwhile CRFB board member David Walker argued in testimony before the House Financial Services Oversight and Investigations Subcommittee that we must learn the lessons of Greece so that we don’t repeat them. In the same hearing, Federal Reserve Bank of Kansas City President Thomas Hoenig echoed statements that he made before a Peterson-Pew Commission on Budget Reform conference in February that he fears if action isn’t taken to reduce the debt, there will be increasing pressure on the Federal Reserve to monetize it, causing hyperinflation. Will warnings from experts and Moody’s be enough for the U.S. to avoid its own tragedy?

Titans of Business Fear Debt Above All – Even as they see reasons for optimism about economic growth, a poll last week from the Business Council and the Conference Board found that top CEOs see the federal budget deficit as the most important policy issue facing the U.S. Caterpillar CEO Jim Owens said the country is in for “a train wreck” if nothing is done.

Gates Calls for Herculean Task at DOD – Defense Secretary Robert Gates over the weekend called for restraint in the Pentagon budget, saying that it is growing at an “unsustainable” rate. While acknowledging that efforts to find savings of 2-3 percent of the budget would anger powerful interests, he said that "Given America's difficult economic circumstances and parlous fiscal condition, military spending on things large and small can and should expect closer, harsher scrutiny." We applaud Secretary Gates for his courageous stand and hope others will follow him into this battle.

House Agrees to Pay for Cash for Caulkers – While Congress has avoided offsetting the costs of stimulus bills as if they were Medusa’s gaze, a small victory was achieved last week. Before passing the Home Star Energy Retrofit Act, House leaders agreed to Republican demands that the program not go forward unless appropriators pay for it. The “cash for caulkers” legislation is designed to spur the economy by providing rebates to homeowners who improve their homes to make them more energy efficient.

Feingold Seeks to Preserve PAYGO – While not quite the quest for the Golden Fleece, Senator Russell Feingold (D-WI) has set off to protect Senate PAYGO rules. In the “Minority Views” document that accompanied the Senate Budget Committee’s report on the FY 2011 Budget Resolution it passed, Feingold -- the lone Democrat to vote against the budget blueprint in committee -- argues against a provision that would drop Senate PAYGO rules in favor of statutory PAYGO requirements that contain huge exemptions for policies such as the Medicare “Doc fix” and extension of the 2001/2003 tax cuts for the middle class. He states, “As we start the difficult task of cleaning up the fiscal mess left to us by the last Administration, weakening our budget rules is precisely the wrong thing to do.” He’s right; PAYGO must be strengthened, not weakened.

Congress Looks to Pass Tax Extenders Before Memorial Day – Before succumbing to the Siren call of recess and campaigning, legislators want to pass a large package of extensions for tax breaks and social programs until the end of the year. Many of the policies are exempt from PAYGO requirements and lawmakers in both chambers are haggling over how to pay for the rest. In a statement last week CRFB called for longer-term offsets so that the legislation does not add to the long-term debt.