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#57777 - 07/29/11 05:37 PM Debt Ceiling
Autodidact Offline
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Registered: 01/23/10
Posts: 428
I'm a bit surprised I haven't seen this come up (or maybe it's in a thread I'm not following).

What do you think of the current debt ceiling discussions? Relevant or waste of time? Educational demonstration of power politics or empty posturing being hyped up by the media?
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#57783 - 07/29/11 07:35 PM Re: Debt Ceiling [Re: Autodidact]
Michael A.Aquino Offline
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Registered: 09/28/08
Posts: 2551
Loc: San Francisco, CA, USA
The problem, as usual, is to get behind all the political/partisan hot air. I'd say take a look at Michael Hudson's analysis.
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#57813 - 07/30/11 08:49 AM Re: Debt Ceiling [Re: Michael A.Aquino]
Jason King Offline
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Registered: 10/24/10
Posts: 731
Loc: 65?1%833Q!92A24 (It's a code)
 Originally Posted By: Michael A.Aquino
I'd say take a look at Michael Hudson's analysis.


Although this plays to my fears of a con job, he made at least two factual errors. The first, and most egregious, is that this is a faux crisis. On the contrary, it is quite real as this concerns our relationship to the creditors of our debt - many of whom are foreign countries, but the largest of which is a conglomeration of private banks we collectively call the Federal Reserve. This is way bigger than Wall Street, and even the Gecko's are nervous.

The second error, which is less forgivable, is the claim that $13 trillion was used in financial bailouts since 2008. This is just flatly false. The debt itself is only $14 trillion: $6 trillion pre-GWBush, $6 trillion GWBush, and $2 trillion Obama.

Like the author of this piece, I am a progressive. And like the author of this piece, I find Obama's policies to be a little less progressive than advertised on the campaign trail. But there are three branches of government, and the President is Constitutionally the least powerful by a long shot. Sure, it's an easy target because he's a figurehead, but the real problem lies in the lawmakers (Congress) and the laws they've made. And partly in the Constitution itself, but that's a whole other Can-O-Worms.

JK
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#57814 - 07/30/11 09:56 AM Re: Debt Ceiling [Re: Jason King]
William Wright Offline
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Registered: 10/25/09
Posts: 862
Loc: Nashville
The problem, of course, is that the two parties, which are basically just extensions of their constituencies, face the dilemma of having to compromise while remaining true to their ideology. My guess is that politicians left and right will cave in and compromise at the last minute, which might give them political cover by saying they stood firm as long as possible but in the end had to give in to avoid an economic crisis.

Itíll be interesting to see which way the political winds blow after this is all said and done. Some will certainly see the GOP as having taken the country hostage by holding so strongly to their no new taxes stance, while others will see it as an act of courage. Some will say that Obama A) Gave up too much to the GOP, B) Didnít give up enough to the GOP, C) Needs to accept the lionís share of the blame because heís the president and the buck stops with him. One thing is for sure - the voters will have plenty to say, even if the vast majority of them will have no idea what theyíre talking about.
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#57817 - 07/30/11 11:42 AM Re: Debt Ceiling [Re: William Wright]
Fist Moderator Offline
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Registered: 08/31/07
Posts: 1453
Loc: B'mo Cautious MF
Remember, we heard all of this 'the sky is falling' rhetoric for TARP, the Obama Stimulus, and even Cash for Clunkers. In all cases, the people responsible for the disaster were rewarded for their poor stewardship and outright misdeeds.

In general, I disagree with Progressives/Socialists/Communists/Fascists/Liberals or whatever name they are going by these days. However, the article MAA links to is correct.

There is a saying that goes something like, 'If you owe the bank a million dollars, the bank owns you. If you own the bank a billion dollars you own the bank.'

The above article call our current state of affairs as drifting toward a neo-feudalism. Sure. I have heard this described many ways - feudalism, oligarchy, Crony Capitalism. I think technically, the political scientists would call it Fascism. I like to call it Prison Planet doctrine advancing the Reptilian Agenda.

In any case, here is the game kids, if we do not raise the debt limit, a whole of games and shenanigans that are played with budget will have to end. Some hard choices will have to be made. A lot of Washington cronies may not get paid. Govt contractors will have their contracts terminated and govt employees might actually have to start doing their jobs (horrors!). A lot of very wasteful spending will have to end and the govt might actually have to prioritize spending and spend the people's money more wisely. This will be an uncomfortable phase shift in Washington thinking.

Right now, the Federal Reserve Bank prints money and then loans it to the likes of Citibank, GE, and BOA at an interest rate of less than 1%. These financial institutions then loan that money back to you in the form of mortgages, credit cards, and car loans at a rate ranging from 5-24%. When you hear the Washington Chattering Class talk about how not raising the debt limit will cause a rise in interest rates, this is the interest rate they are talking about. In essence, banks will no longer get free money from The Fed to loan to you at usury interest rates. Given current market conditions, it is very unlikely that the consumer interest market could bear higher rates. In other words, if banks try to pass the hike in interest rates on to you, most people will simply not borrow. Banks will simply have to accept a smaller profit margin. And, there will be an additional side effect, large banks will lose their competitive advantage against small banks. Smaller banks and credit unions cannot borrow the those large sums of cheap money from The Fed. They are much more dependent on the traditional banking practice of lending money based on deposits on hand. Crony Capitalist hate this because their whole business model is based on getting preferred treatment from the govt.
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#57821 - 07/30/11 12:50 PM Re: Debt Ceiling [Re: Fist]
Jason King Offline
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Registered: 10/24/10
Posts: 731
Loc: 65?1%833Q!92A24 (It's a code)
 Originally Posted By: Fist
if we do not raise the debt limit, a whole of games and shenanigans that are played with budget will have to end.


Perhaps. But they will be "played out" on the backs of those least capable of adjusting. Lenders and speculators (read: the uber-rich) will suffer little since they will shift the burden to the borrowers (read: everyone else).

The bigger problem here is that the economy we have in the US is top heavy and has little to no manufacturing strength and very little consumption ability. We are literally teetering on a much larger precipice than is being gamed at the moment.

Consumers drive any real economy, since demand without supply creates supply, whereas supply without demand simply rots in the storehouse. Our policies should therefore be consumer-oriented, yet they are supplier-oriented for some strange reason. And I say strange only because the Richie Riches that are playing this game via the government should know better. Like the slack-jawed poor Southern Republicans, they continue to work against their own best interests.

JK
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#57824 - 07/30/11 01:19 PM Re: Debt Ceiling [Re: Jason King]
Fist Moderator Offline
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Registered: 08/31/07
Posts: 1453
Loc: B'mo Cautious MF
 Quote:

Perhaps. But they will be "played out" on the backs of those least capable of adjusting. Lenders and speculators (read: the uber-rich) will suffer little since they will shift the burden to the borrowers (read: everyone else).


Such as? Please give me your top three or concerns on how not raising the debt limit will hurt "the little people." And perhaps more to the point, how will not raising the debt limit will hurt you.

I ask this because I don't think very many people actually understand monetary policy and basic economics. I think most people have been fed an ideological narrative and fill in the gaps of their knowledge with other people's talking points.

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#57860 - 07/31/11 08:08 AM Re: Debt Ceiling [Re: Fist]
Jason King Offline
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Registered: 10/24/10
Posts: 731
Loc: 65?1%833Q!92A24 (It's a code)
 Originally Posted By: Fist
Please give me your top three or concerns on how not raising the debt limit will hurt "the little people." And perhaps more to the point, how will not raising the debt limit will hurt you.

I ask this because I don't think very many people actually understand monetary policy and basic economics. I think most people have been fed an ideological narrative and fill in the gaps of their knowledge with other people's talking points.


I hate typing and yet you ask me to type, fair enough.

What is the "debt ceiling"? Simply put it is the point at which our incurred debt crosses the line of "we refuse to pay".

Why is debt incurred at the rate it is? Interest on the existing debt.

Why do we have the debt we do? Purposeless wars and inefficient government. Or to be more "fair and balanced," government spending has been outstripping revenue for a long time (each such FY is a deficit year adding to incurred debt).

Why does this happen? Democrats love to spend, Republicans love to reduce revenue. When you get them into a room, House, or Senate together, you have a serious problem.

What would not raising the artificial debt ceiling do actually? It would devalue The United States of America. More specifically it would devalue Treasury securities.

Why does this matter? Unless we're willing to become an isolationist country and repudiate our debts, we are simply a part of the world market, though a vital one. It matters because lenders (such as China, the Fed, Japan, UK, Taiwan, Russia, et al.) will view this as a refusal to repay loans (default).

OK, so why does THAT matter? Like it or not, this is a world economy based on credit. When you don't pay your bills, what happens? Interest rates go up. And when they go up for the USA, they go up for damn near everybody that isn't living in a mud hut somewhere.

So that means what exactly? Everything becomes more expensive (overnight inflation) because producers always pass their costs to consumers. In a US economy with 10% unemployment and a devalued manufacturing base, this will result in minimally, a 12% unemployment and even less productivity (PPF).

How do you make that jump? Every business borrows money. The price of borrowing money just went up. In a bad <real economy> to boot. Sure, Wall Street speculators have seen a "recovery," but a jobless recovery is no recovery.

/dialogue

Let me ask you to consider the following example, much simplified:

Joe Citizen loses his job and so has less dollars to spend in the economy. As a result, company X takes in less of Joe's money and has to lay off Sam Walters. Sam's decreased pocketbook (combined with Joe's) means that companies Y and Z see less business, since both Joe and Sam used to shop at both places.

Now Company Y and Company Z need to downsize due to sales volume decrease, which leads to Matt, Harry, Bill, Tim, Jim, and Ted. And companies A, B, C, and D. And so on.

This is the problem we already had.

Not raising the debt ceiling is like throwing gasoline on this burning fire.

JK
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#57869 - 07/31/11 12:14 PM Re: Debt Ceiling [Re: Jason King]
Fist Moderator Offline
veteran member


Registered: 08/31/07
Posts: 1453
Loc: B'mo Cautious MF
Oh dear, it's worse than I thought...

 Quote:
What is the "debt ceiling"? Simply put it is the point at which our incurred debt crosses the line of "we refuse to pay".


Ah, no. The Federal govt 'borrows' 42 cents of out of every dollar it takes in as taxes. In other words, 42% of the federal budget is financed on credit. The debt ceiling is our credit limit. Only Congress (the House in particular) has the legal authority to say how much money the Federal govt is authorized to borrow.

 Quote:
Why is debt incurred at the rate it is? Interest on the existing debt.


Ah, no. Again, we put 42% of all of our federal spending on the credit card. Imagine if you made $30K a year and then put an additional $13K on your credit card every year. In 10 years you would be sitting on $130K in credit card debt. How long do you think people would keep lending you money? Right the the US is sitting on $14 trillion in debt. How long can we keep this game up?

 Quote:
Why do we have the debt we do? Purposeless wars and inefficient government. Or to be more "fair and balanced," government spending has been outstripping revenue for a long time (each such FY is a deficit year adding to incurred debt).


Yep!

 Quote:
Why does this happen? Democrats love to spend, Republicans love to reduce revenue. When you get them into a room, House, or Senate together, you have a serious problem.


Pretty much, except both parties love to spend money on absolute bullshit. Republicans love to spend money 'defense'. I would argue that about half of all 'defense' spending is pure grade-A bullshit.

On "revenue", remember what we are really talking about is TAXES. Keep in mind that money is 'fluid.' Quite actually, money moves much like a heavy fluid. It is very unlikely that govt will take money out of the 'pool' of available money in the private sector and spend it more efficiently than it would otherwise be spent by individuals looking after their own best interests. It like saying you are going fill up the money pool buy taking money out of one end of the pool and pour it in the other end. In my own personal case, I can guarantee you that I will do more with my own money (spend it more wisely, more efficiently, and on better projects) than the govt will if I give them my money in the form of taxes.

 Quote:
What would not raising the artificial debt ceiling do actually? It would devalue The United States of America. More specifically it would devalue Treasury securities.


What?! Ah, no (again). Actually it is the EXACT opposite! Where are you getting this stuff? Ever heard of Supply and Demand? Printing more money, issuing more debt, and buying more on credit will DEVALUE the US dollar and Treasury securities in general. The reason credit rating agency are talking about downgrading the US credit rating is because a lot of folks are questioning if we will really be able to keep this charade up for much longer.

And the debt ceiling is NOT artificial. It is quite real. Every individual, business, and govt has (whether they know it or not) a credit limit - a limit beyond which no lender will trust them with any more borrowed money. Fortunately, in the US we have our own legally imposed limit. This current political fight is far preferable to just waking up one day and realizing that China will no longer lend us any more money.

 Quote:
Why does this matter? Unless we're willing to become an isolationist country and repudiate our debts, we are simply a part of the world market, though a vital one. It matters because lenders (such as China, the Fed, Japan, UK, Taiwan, Russia, et al.) will view this as a refusal to repay loans (default).


Rest assured, we will pay our creditors first. Remember, we borrow 42 cents on the dollar. That still gives us 58 cents on the dollar of REAL tax dollars to actually pay the bills with. In 2011, interest on the debt is about 5% of the budget. This will use up about 8 cents of that 58 cents of real money that we have. We will then have to make some hard choices as to how we will spend the other 50 cents.

 Quote:
OK, so why does THAT matter? Like it or not, this is a world economy based on credit. When you don't pay your bills, what happens? Interest rates go up. And when they go up for the USA, they go up for damn near everybody that isn't living in a mud hut somewhere.


Like I said, we will pay our creditors first. There is will be no "default". The 'default' word is a boogieman being thrown around to scare people into supporting raising the debt limit. We see this same trick all of the time. Most notably we saw it used to justify the war in Iraq, TARP, and the Obama Stimulus. Don't believe the hype.

And interest rates will go up eventually when our creditors begin to demand a higher interest rate for the risk they are taking by lending us more money that we may eventually not be able to pay back, or when we do pay it back it will be in highly devalued dollars.

 Quote:
So that means what exactly? Everything becomes more expensive (overnight inflation) because producers always pass their costs to consumers. In a US economy with 10% unemployment and a devalued manufacturing base, this will result in minimally, a 12% unemployment and even less productivity (PPF).


We are already devaluing our currency. Have you looked at food and fuel prices lately? That is because we have to buy things on a global commodities market with dollars that are worth less and less each day. Raising the debt limit, printing more money, and buying more things on credit will not strengthen the dollar at all. We have had a 'weak dollar' policy since Greenspan in the 90's and the current group running The Fed and the US Treasury show no signs of turning this around.

 Quote:
How do you make that jump? Every business borrows money. The price of borrowing money just went up. In a bad <real economy> to boot. Sure, Wall Street speculators have seen a "recovery," but a jobless recovery is no recovery.


Oh brother... do you read the paper at all? US business are siting on a fat wad of cash. In fact, Obama brings this up all of the time as a reason to tax. If there is very slow economic activity a business has little reason to borrow cash to expand their business or cover expenses. As I have already stated, the real people who are worried about the debt ceiling are large corporate banks who are quite happy to borrow all of that cheap money from The Fed so they can loan it back to you at a much higher rate. These people are quite happy to crash the US economy because they will get paid either way. Remember, these are the same people who asked the American people to bail them out because they were "too big to fail." Yeah, fool me once shame on you, fool me twice....

 Quote:
...Matt, Harry, Bill, Tim, Jim, and Ted.


Their jobs have already gone to China and India, unless of course they want to work at WalMart. This is why Starbucks has the most highly educated work force in the US - new college grads have an unemployment rate of over 40%. Raising the debt limit will do fuck all to change this economic reality. Would you have me believe that if we raise the debt ceiling the US unemployment rate will go down?
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#57876 - 07/31/11 08:02 PM Re: Debt Ceiling [Re: Fist]
Meph9 Offline
member


Registered: 04/02/11
Posts: 161
Fact of the matter is the debt ceiling has to be increased and it will be. The Federal government does not bring enough money to pay for all the things it spends money which is why we have debt in the first place. The idea that we have enough revenuess to pay all the things the American people want and pay interest on our debt is laughable.

The debt has to be addressed if there ever is any hope of ever creating a balance budget, that means cutting spending and raising taxes at some point in the near future. This debt ceiling debate has highlighted thd lack of mathematic talent and intelligence in general of elected officials. This is just another example of the American people wanting something but not being willing to put up anything to get it.

Sadly the GOP claims that it understands these macroeconomic concept but in reality they have no idea what they are doing.

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#57880 - 08/01/11 11:56 AM Re: Debt Ceiling [Re: Meph9]
6Satan6Archist6 Offline
stalker


Registered: 10/16/08
Posts: 2509
Does anyone else see how stupid this whole debt thing is when considering the fact that money doesn't actually exist? It has no real value and when shit really hits the fan people will see just how useless those pieces of paper and coins are. The same can be said for things like gold and silver. The true worth is found in bullets, alcohol, tobacco, food and water.
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#57895 - 08/01/11 09:28 PM Re: Debt Ceiling [Re: 6Satan6Archist6]
Ophelia Offline
stranger


Registered: 08/01/11
Posts: 9
Loc: Portland, ME
That is actually what is happening in Zimbabawe. For a loaf of bread it costs millions of Zimbabawe money. The weird thing is that the American dollare has more value over there, even if it is just a dollare. In fact, merchants want gold instead of Zimbabawe money, so people are dying and suffering over there.
It really sucks.
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#57904 - 08/02/11 08:19 AM Re: Debt Ceiling [Re: Fist]
Jason King Offline
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Registered: 10/24/10
Posts: 731
Loc: 65?1%833Q!92A24 (It's a code)
 Originally Posted By: Fist
Oh dear, it's worse than I thought...


I expect at least one drink before you start calling me dear ;\)

 Originally Posted By: Fist


 Quote:
What is the "debt ceiling"? Simply put it is the point at which our incurred debt crosses the line of "we refuse to pay".


Ah, no. The Federal govt 'borrows' 42 cents of out of every dollar it takes in as taxes. In other words, 42% of the federal budget is financed on credit. The debt ceiling is our credit limit. Only Congress (the House in particular) has the legal authority to say how much money the Federal govt is authorized to borrow.


Well, you said pretty much the same thing I did, just from a different angle. The debt we are incurring that would have passed us over the "limit" would have continued to accrue even if Congress refused to raise the limit. Those debts would have been legitimate, and Congress' refusal to raise the limit would have been a default.

 Originally Posted By: Fist


 Quote:
Why is debt incurred at the rate it is? Interest on the existing debt.


Ah, no. Again, we put 42% of all of our federal spending on the credit card. Imagine if you made $30K a year and then put an additional $13K on your credit card every year. In 10 years you would be sitting on $130K in credit card debt. How long do you think people would keep lending you money? Right the the US is sitting on $14 trillion in debt. How long can we keep this game up?


We're talking about two different things here, and I considered conceding the point out of laziness. My point was to question how we get halfway through a fiscal year, with budgets already passed, and still hit a "debt limit"? Your point, quite valid in and of itself, is why do we pass these ridiculous budgets in the first place? Point conceded.


 Originally Posted By: Fist

 Quote:
What would not raising the artificial debt ceiling do actually? It would devalue The United States of America. More specifically it would devalue Treasury securities.


What?! Ah, no (again). Actually it is the EXACT opposite! Where are you getting this stuff? Ever heard of Supply and Demand? Printing more money, issuing more debt, and buying more on credit will DEVALUE the US dollar and Treasury securities in general. The reason credit rating agency are talking about downgrading the US credit rating is because a lot of folks are questioning if we will really be able to keep this charade up for much longer.

And the debt ceiling is NOT artificial. It is quite real. Every individual, business, and govt has (whether they know it or not) a credit limit - a limit beyond which no lender will trust them with any more borrowed money. Fortunately, in the US we have our own legally imposed limit. This current political fight is far preferable to just waking up one day and realizing that China will no longer lend us any more money.


The debt limit has been raised some 50+ times in our history as a debtor nation. It had never before been an issue of such political gamesmanship (congrats, Obama, you are weak). And it's not just the amount, although you raise interesting concerns regarding the overall trend.

Let me clip the rest (I believe our strongest disagreements occurred above), and conclude with my personal position on the USA.

We are the best and also the worst nation on Earth. The things we do right (all loosely based in either personal freedom or ingenuity/entrepreneurship) have carried us. The things we do wrong (all loosely based in religion, government, and overall laziness) have made us a junk nation with a vanishing middle class.

I've long been a believer that we need a replacement for the Constitution, and yet I see no realpraxis to get there. A thriving business will completely overhaul its model and even management if necessary to retain and gain market share. We're stuck with a couple of rooms full of talking heads in stuffy suits who are playing a miniaturized version of Risk with our future. Not cool.

JK
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#57906 - 08/02/11 01:11 PM Re: Debt Ceiling [Re: Jason King]
Dimitri Offline
stalker


Registered: 07/13/08
Posts: 3128
General reply

Looks like the debt ceiling has been raised.. not really a surprise in my opinion.

http://www.bbc.co.uk/news/world-us-canada-14379240

 Originally Posted By: BBC
The US Senate has passed a deal struck between Republicans, Democrats and President Barack Obama to increase the US debt ceiling and avert a default.

The bill passed the Senate by 74 votes to 26. Mr Obama is due to speak shortly and then sign the deal into law.
...
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#57919 - 08/02/11 11:51 PM Re: Debt Ceiling [Re: Jason King]
William Wright Offline
active member


Registered: 10/25/09
Posts: 862
Loc: Nashville
 Originally Posted By: Jason King
The debt limit has been raised some 50+ times in our history as a debtor nation. It had never before been an issue of such political gamesmanship (congrats, Obama, you are weak).

Iím not sure any other president couldíve produced a better result given the political climate in Washington today. The GOP was determined to fight Obama every step of the way. He couldíve played nice and given them what they wanted, which wouldíve made him appear weak to his base, or he couldíve held firm to the principles of his party and appeared weak to the general public who expected him to get a deal passed. In the end he, and Congress, compromised, which had to be done but disappointed both the right and the left. This was just ugly.

 Quote:
I've long been a believer that we need a replacement for the Constitution...

How would you change the Constitution? Iíd like to see your rough draft (or a final draft if you have it handy).
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