US deficit crisis: the clock ticks

[Mike Rotch]

So, a handful of days to go before the US government defaults on its debt and no thread

My personal view, not being affiliated with any US political leaning, is that all parties involved should hang their heads in shame. As I see, it there are solutions on the table, but the Republicans have an agenda to pursue to shoot down the Democrats solutions (i.e. ensure a short term solution requiring a revisit in election year) and the Democrats clearly want to avoid that to ensure the election is distanced from this issue. Democrats are pursuing higher taxes to fund the bigger deficit, Republicans want to rule out tax hikes and instead slash the new healthcare plan as well as other initiatives. The Tea Partyists seem to want neither higher taxes nor austerity packages.

At the end of the day, if an austerity package is good enough for Greece, Italy, Spain, UK, etc, the US should cop it too if it is required. And before people say “why should be’ screw you”, perhaps consider the implications of defaulting first – it wont make you better off, it will make you worse off. Higher interest payments, less ability to raise funds (more deficit pressures), currency devaluation, higher commodity (gas) prices, carnage on the stock markets….

Now as I understand it, a tenuous common ground was reached overnight, but the Tea Party wants to shoot it down on the basis of ‘it’s not beneficial to the economy in the long run”.

So we are faced with a political showdown potentially ending in financial meltdown for not only the US, but the global economy. Now that may seem dramatic, but the rating agencies are putting on the table that even if a solution is agreed at the 11th hour, it may be too late and a downgrade will occur anyway.

When compared how the EU is bending over backwards to prevent Greece from defaulting, the US situation is quite abhorrent.

I personally don’t think it will come to a default, but I cant help but feel they are playing very high stakes gambling by trying to pressure each other into a politically favourable solution.

 

[Danoff]

The debt ceiling does not need to be raised and should not be raised. We have already amounted a debt that is as much as the entire country works a year to produce - we don't need more. Raising the ceiling only makes things worse.

Higher taxes are not a good long term answer. Spending cuts are the only thing that will get our economic situation back under control. I think that should be clear to everyone at this point.

 

[Villain]

The tax on the rich that was proposed by in the Gang of Six plan is really worse than it sounds. Something like a 15% increase for those making over 200k/year.*

I was talking to my father about it and he said he'd have to pay 30k more than he pays already (while he does very well for himself - he's certainly not a millionaire). The people on TV like to sell these "tax on the richest" as if it's only people who are sitting on mountains of money, when in reality its a tax bracket filled with people in the 200-500k range and small business owners. Increasing the tax burdens on mom&pop shops is not the answer.

*Please enlighten me if you have a more accurate figure.

 

[BrutherSuperior]

Socialism is great until you run out of other people's money...which is what Obama has done.

Increased tax revenues will happen when there's new taxpayers (less unemployment & less on welfare) and lowering taxation/regulation yields economies of scale. Liberals are psychologically incapable of understanding this though...

Default will never happen. The way things are set up, it's impossible.

But a lowering of the US's credit rating? Oh boy...that's bad. I distinctly remember a dark skinned newly appointed president scolding the American public for running up their credit and he's done the same damn thing. But what else would you expect from a Democrat from Chicago? I'm not surprised in the least bit.

 

[Keef]

So, a handful of days to go before the US government defaults on its debt and no thread

That's because there's no reason to make a thread.

The US will not simply "default" on any certain deadline. Numerous correct economists have explained this clearly: our country is in a process of constant default, as the Federal Reserve devalues the dollar.

Here's an example. Imagine you have a $100 debt. Then, imagine you have $100. You could pay off all your debt, but then you wouldn't have any money. What do you do? Well, you print more money, of course. So you print another $100 - now you have $200. Since your debt is written on paper as being $100, you pay off the debt with $100 and bam - because you printed another $100 then by Kenynesian logic you have just paid off your debt without even spending any money. Right?

Wrong. Because now your money is only worth half of what it was because you have doubled the supply. Simply put, that yummy delicious Snickers bar that cost $1 yesterday now costs $2.

It might also occur to you that because you paid your $100 debt with money worth only half its previous value, you technically only paid back a value of $50.

Not only have you failed to pay your debt even though it looks good on paper, but you have also destroyed the value of the currency which makes it increasingly difficult to pay off other debts, resulting in the need to continuously devalue the money in order to trick your debtors into thinking they're getting a square deal.

What central banks around the world - ours in particular since the American dollar is the world's reserve currency - are doing is much, much worse than simply defaulting, or failing to pay their debts. They are actively participating in the annihilation of all the world's economies by way of undermining the currencies they rely on.

The only meaningful thing that might occur is the US losing it's excellent credit rating (which has been bogus for decades anyway), and the scaring off of investors from around the world. Talk about isolationism - there's no better way to isolate yourself than to forge a worthless money market.

The tax on the rich that was proposed by in the Gang of Six plan is really worse than it sounds. Something like a 15% increase for those making over 200k/year.*

I was talking to my father about it and he said he'd have to pay 30k more than he pays already (while he does very well for himself - he's certainly not a millionaire). The people on TV like to sell these "tax on the richest" as if it's only people who are sitting on mountains of money, when in reality its a tax bracket filled with people in the 200-500k range and small business owners. Increasing the tax burdens on mom&pop shops is not the answer.

*Please enlighten me if you have a more accurate figure.

You're definitely right about small business owners. If you increase taxes on the few people who employ lots of people, those business owners suddenly have less money with which to pay their employees. So they lay them off in an effort to save money and keep their business afloat. Unemployment skyrockets. Your main tax base - all the middle-class people who pay the majority of the country's taxes - now have no income to tax and no money with which to pay existing taxes. The government's tax revenue goes down. Their debts goes up. Etc, etc, etc.

What happens if you lower taxes on business owners? A few things could happen, some good, some bad. I'd bet you my own bank account that most reasonable businessmen - the money-making fiends that they are - would use their thicker pocketbooks to make more money. How do you make more money? One way to do it is to expand your business. How do you expand your business? Well, you hire more people, of course. Or, maybe some small companies are quite happy where they are, and instead of hiring more people, they give their current employees raises, or offer them more benefits. Speaking from the government's point of view (eww I feel so dirty now), both of these things are good things in terms of tax revenue. When you have more people working, you have more incomes to tax. When you have people making higher wages, they move up into the next tax bracket. Either way your tax revenue goes up. Etc, etc, etc.

Then of course the Fed lowers interest rates and people make a run on toilet paper and 5 years later the toilet paper market bubble implodes and the whole world is unemployed all over again. John Maynard Keynes was a genius I'm telling you. What a perfect system he devised!

 

[MikeTheHockeyFan]

The debt ceiling does not need to be raised and should not be raised. We have already amounted a debt that is as much as the entire country works a year to produce - we don't need more. Raising the ceiling only makes things worse.

I have a feeling a last minute deal will be done, but at the same time the current crop of Republicans have made it clear that their only goal until 2012 is to get the current Prez out of office, no matter what the cost. Now, they are willing to play chicken with the nation's credit rating in order to make a political play for the next election.

Watch the debt ceiling not be raised, the country default on outstanding debts and take a credit rating hit, and the GOP begin an impeachment procedure against Obama due to that. The party of Lincoln, these guys are not.

Socialism is great until you run out of other people's money...which is what Obama has done.

What legislation passed during this presidential term would you point to as Socialism? The Affordable Care Act? The biggest handout to insurance companies that has come out of legislation in a long, long time? You toe the black and white, hyper-polarized, Fox News / AM radio line very well, sir!

 

[Mike Rotch]

The debt ceiling does not need to be raised and should not be raised. We have already amounted a debt that is as much as the entire country works a year to produce - we don't need more. Raising the ceiling only makes things worse.

I am really indifferent to the solution, as long as there a solution that heads-off what the rating agencies what term a default, and all its associated problems.

That's because there's no reason to make a thread.

In your view But this is the Opinion's forum.

The only meaningful thing that might occur is the US losing it's excellent credit rating (which has been bogus for decades anyway), and the scaring off of investors from around the world.

I wouldn't underestimate the impact this would have not only on the US, but globally. If the US$ slides dramatically, it just gets harder to climb out the debt hole the government finds itself in. And if investors flee the US$, they usually flee to commodities. Oil goes up, which has onflow effects to almost all good and services.

 

[Touring Mars]

Socialism is great until you run out of other people's money...which is what Obama has done.

Let's not forget Messrs. Reagan, Bush Snr. and Bush Jnr., who between them added almost $10 trillion to the national debt... singling out Obama for blame on the debt issue is patently unfair.

The situation that the US faces right now is very serious and it requires people from across the political spectrum to put aside their political differences for the time being and come up with a credible plan to deal with the real problem, the debt, and not merely the debt ceiling. In order to do this, it is necessary for both 'sides' of the political spectrum to recognise the role that they have played in getting themselves into this mess... but I'm not holding my breath. It's clear that the current debt ceiling fight is far more about the 2012 election than what it should be about, which is reigning in the debt.

Default will never happen. The way things are set up, it's impossible.

As Keef has already said, and as Ron Paul has stated elsewhere, the US is effectively defaulting already. And I don't know what gives you the impression that default is 'impossible'... with every extra trillion in debt, it is not merely possible, but practically inevitable.

But a lowering of the US's credit rating? Oh boy...that's bad. I distinctly remember a dark skinned newly appointed president scolding the American public for running up their credit and he's done the same damn thing. But what else would you expect from a Democrat from Chicago? I'm not surprised in the least bit.

Why did you feel the need to remark on the colour of Obama's skin? Second thoughts, don't answer that.

 

[lbsf1]

As Keef has already said, and as Ron Paul has stated elsewhere, the US is effectively defaulting already. And I don't know what gives you the impression that default is 'impossible'... with every extra trillion in debt, it is not merely possible, but practically inevitable.

Yes, however for example if I started defaulting on my debts the balif could be called in and I could end up in court.

However if America starts defaulting, how do you send the balif in? or take them to court, or force payment. You can't.

Also the funds that america owe money too partially rely on the stock market, so if they start forcing america to pay thus causing economic problems they are in turn causing themselves more problems.

 

[MikeTheHockeyFan]

Yes, however for example if I started defaulting on my debts the balif could be called in and I could end up in court.

However if America starts defaulting, how do you send the balif in? or take them to court, or force payment. You can't.

The problem is not really one of enforcement here. If America's credit rating is damaged, the actual problem is that it would become marginally more and more expensive for the country to borrow money. At the scale of international finance, that increase in the cost of borrowing could be very substantial.

Any voter telling you the post-Regan GOP is about fiscal conservatism and responsible spending is a fool, or lying to you.

 

[Keef]

In your view But this is the Opinion's forum.

I wouldn't underestimate the impact this would have not only on the US, but globally. If the US$ slides dramatically, it just gets harder to climb out the debt hole the government finds itself in. And if investors flee the US$, they usually flee to commodities. Oil goes up, which has onflow effects to almost all good and services.

I wasn't attacking your thread, my point was that people are focusing on the wrong problem. The debt ceiling is honestly a meaningless affair, aside from the credit rating.

The more pressing issue is our currency in general. At the moment, inflation is quite a large portion of the very noticeable price increases we Americans have been complaining about for the last couple years.

 

[Crispy]

Why don't they hault the paychecks of the congressmen and all those government officials? You have to be rich anyway to get into that job, why pay them anymore money when they're obviously playing with our money?

 

[DK]

I find it ridiculous that tax increases for the mega-rich are not being considered. *awaits McCarthyist comments* At least, closing off tax loopholes should be considered. The idea of cutting social welfare while around one eighth of the US population is on food stamps is just too to wrap my mind around. Both sides are being selfish in their own way, but the Republicans are even more so. With each day that passes, I think more and more of the Republicans being the party of the rich.

 

[hightyme]

The rich get richer, the poor get poorer

 

[BrutherSuperior]

Let's not forget Messrs. Reagan, Bush Snr. and Bush Jnr., who between them added almost $10 trillion to the national debt... singling out Obama for blame on the debt issue is patently unfair.

Debt, in a sense, doesn't really matter when you have gov't spending under control. The deficit is smoke & mirrors as America has a lot of assets abroad that are left off the balance sheet when figuring out that number. Spending, however, is what Obama does...it's the Chicago way, mang!

The situation that the US faces right now is very serious and it requires people from across the political spectrum to put aside their political differences for the time being and come up with a credible plan to deal with the real problem, the debt, and not merely the debt ceiling.

Tell that to the president. He's more worried about reelection than anything else which is why he will not sign a bill that does not carry over until 2013. He doesn't want to deal with it while he's fundraising & campaigning.

In order to do this, it is necessary for both 'sides' of the political spectrum to recognise the role that they have played in getting themselves into this mess... but I'm not holding my breath. It's clear that the current debt ceiling fight is far more about the 2012 election than what it should be about, which is reigning in the debt.

It's not debt, it's spending that's the problem. You have one side of the political aisle calling for lower taxes, you have the other side of the aisle calling for lower taxes, and you have the president wanting HIGHER taxes.

As Keef has already said, and as Ron Paul has stated elsewhere, the US is effectively defaulting already. And I don't know what gives you the impression that default is 'impossible'... with every extra trillion in debt, it is not merely possible, but practically inevitable.

Default is impossible b/c in the event the US is no longer able to pay it's debts, other assets will be used...like land. Those oil fields in Alaska will be worth a pretty penny won't it? That's what happens when the US defaults; land is exchanged. That's how it's set up and boy or boy is there a lot of federal land, aka; nation reserves, parks, whatever, that can be used as collateral.

That's bad...really bad.

Why did you feel the need to remark on the colour of Obama's skin? Second thoughts, don't answer that.

Well, everyone who speaks poorly or critically of Obama is branded a racist now aren't they? It cannot possibly be b/c his spending, his rhetoric, his leadership, and the direction he's taking the country is bad news? Nah...it's racism.

That's the Chicago way. I've seen all this crap before and it's like Mayor Daley is running the country.

 

[Dotini]

Default is impossible b/c in the event the US is no longer able to pay it's debts, other assets will be used...like land. Those oil fields in Alaska will be worth a pretty penny won't it? That's what happens when the US defaults; land is exchanged. That's how it's set up and boy or boy is there a lot of federal land, aka; nation reserves, parks, whatever, that can be used as collateral.

That's bad...really bad.

Hmmm, maybe the Chinese would take Detroit and fix it up!💡

 

[Touring Mars]

Well, everyone who speaks poorly or critically of Obama is branded a racist now aren't they?

No, they are not. But you specifically had to mention that Obama is "dark skinned", and thereby you brought race into it. By all means criticise the man for his politics, but if race is not an issue, then why did you bring it up?

It's not debt, it's spending that's the problem.

No, debt is the problem. Spending is fine if a) you have money and b) you spend your money wisely. Even running a deficit or holding a manageable debt is not necessarily a bad thing, but incurring huge amounts of debt is. If your spending is out of control and you are running up massive debts, with no credible plan as to how you are going to stop either thing, then you have a massive problem... but on that front, Obama is hardly deserving of sole responsibility. The blame for the debt lies (easily) as much at the feet of the GOP as it does anywhere else.

 

[Dotini]

...debt is the problem. Spending is fine if a) you have money and b) you spend your money wisely. Even running a deficit or holding a manageable debt is not necessarily a bad thing, but incurring huge amounts of debt is. If your spending is out of control and you are running up massive debts, with no credible plan as to how you are going to stop either thing, then you have a massive problem... but on that front, Obama is hardly deserving of sole responsibility. The blame for the debt lies (easily) as much at the feet of the GOP as it does anywhere else.

Yes! Should interest rates start to rise, or goddess forbid skyrocket, then interest payments on the debt grow to unmanageable proportions.

Respectfully submitted,
Steve

 

[Mr. S]

The problem is not really one of enforcement here. If America's credit rating is damaged, the actual problem is that it would become marginally more and more expensive for the country to borrow money. At the scale of international finance, that increase in the cost of borrowing could be very substantial.

Any voter telling you the post-Regan GOP is about fiscal conservatism and responsible spending is a fool, or lying to you.

WHOOOOOOOO, thanks - so I don't have to post it.

It's not like Obama is doing so bad. It's because the Republican Party did so bad...each time they had a chance to.

 

[eSZee]

I'm no politician, I barely know anything about gov't politics but that graph does show that democrats were usually in control of the house. You can't put the blame solely on the Chief.

 

[MikeTheHockeyFan]

I'm no politician, I barely know anything about gov't politics but that graph does show that democrats were usually in control of the house. You can't put the blame solely on the Chief.

Absolutely, both parties are to blame. Remember, however, that the President has veto power at the end of the day.

 

[Touring Mars]

the President has veto power at the end of the day.

A power that this President might even use at the end of this day...

 

[MikeTheHockeyFan]

A power that this President might even use at the end of this day...

Well no need for a veto really, the Senate will kill the Boehner bill when it makes it out of the House, but Obama may end up envoking the 14th Amendment to get the debt ceiling raised. He holds the last card to play.

If the Prez uses the 14th Amendment to raise the debt ceiling, then it will go to a court battle that will probably end up in the Supreme Court.

Dramaaaaaaaa

 

[ROAD_DOGG33J]

Absolutely, both parties are to blame. Remember, however, that the President has veto power at the end of the day.

But that veto power can be overridden, so it's not all gravy.

 

[Danoff]

The problem is not really one of enforcement here. If America's credit rating is damaged, the actual problem is that it would become marginally more and more expensive for the country to borrow money. At the scale of international finance, that increase in the cost of borrowing could be very substantial.

Any voter telling you the post-Regan GOP is about fiscal conservatism and responsible spending is a fool, or lying to you.

 

[BrutherSuperior]

Well no need for a veto really, the Senate will kill the Boehner bill when it makes it out of the House, but Obama may end up envoking the 14th Amendment to get the debt ceiling raised. He holds the last card to play.

If the Prez uses the 14th Amendment to raise the debt ceiling, then it will go to a court battle that will probably end up in the Supreme Court.

Dramaaaaaaaa

Oh, you can bet there will be drama. If a president can spend & do whatever he wishes and invoke whatever Amendment he wishes as a means to their end...well...there goes law & separation of powers. This goes for declarations of war (Libya), economic policy (GM bailout), and the debt ceiling. This is Daley-style governance of which both Obamas (especially Michelle) are a product of. (You really have to live in Chicago for a while to understand how they do things.)

No checks & balances means an oligarchy. Not the change I think people believed in.

 

[keldabest13]

I don't get Politics...

 

[MikeTheHockeyFan]

Oh, you can bet there will be drama. If a president can spend & do whatever he wishes and invoke whatever Amendment he wishes as a means to their end...well...there goes law & separation of powers. This goes for declarations of war (Libya), economic policy (GM bailout), and the debt ceiling. This is Daley-style governance of which both Obamas (especially Michelle) are a product of. (You really have to live in Chicago for a while to understand how they do things.)

No checks & balances means an oligarchy. Not the change I think people believed in.

You're sure enjoying making a big deal out of a very lukewarm oatmeal, much too pragmatic for his own good president.

I am always amused when people hit the panic button with Obama...any President (Dem / GOP would have pushed for the bailouts because politicians are always looking after their own approval ratings with their local constituents. When a recession rolls around, they can never keep their fingers off the economy. That's not a liberal or conservative thing, it's just politicians being politicians.

And who can we thank for the recent precedents of expansions of executive powers? Oh that's right, good old Bush / Cheney, the "Imperial Presidency". Voted Bush twice?

Your Chicago insider point of view is interesting. Got any Rev. Wright jokes?

 

[Tornado]

It's not like Obama is doing so bad. It's because the Republican Party did so bad...each time they had a chance to.

Not quite sure how that chart supports this viewpoint.

 

[niky]

The problem is not really one of enforcement here. If America's credit rating is damaged, the actual problem is that it would become marginally more and more expensive for the country to borrow money. At the scale of international finance, that increase in the cost of borrowing could be very substantial.

Any voter telling you the post-Regan GOP is about fiscal conservatism and responsible spending is a fool, or lying to you.

It's pretty obvious what's needed... A democratic president and a republican house....