America's Debt: Shame on Them

[Modbert]

America's debt: Shame on them | The Economist

IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.

There is no good economic reason why this should be happening. America’s net indebtedness is a perfectly affordable 65% of GDP, and throughout the past three years of recession and tepid recovery investors have been more than happy to go on lending to the federal government. The current problems, rather, are political. Under America’s elaborate separation of powers, Congress must authorise any extension of the debt ceiling, which now stands at $14.3 trillion. Back in May the government bumped up against that limit, but various accounting dodges have been used to keep funds flowing. It is now reckoned that these wheezes will be exhausted by August 2nd.

Now, however, the Republicans are pushing things too far. Talks with the administration ground to a halt last month, despite an offer from the Democrats to cut at least $2 trillion and possibly much more out of the budget over the next ten years. Assuming that the recovery continues, that would be enough to get the deficit back to a prudent level. As The Economist went to press, Mr Obama seemed set to restart the talks.

The sticking-point is not on the spending side. It is because the vast majority of Republicans, driven on by the wilder-eyed members of their party and the cacophony of conservative media, are clinging to the position that not a single cent of deficit reduction must come from a higher tax take. This is economically illiterate and disgracefully cynical.

And the closer you look, the more unprincipled the Republicans look. Earlier this year House Republicans produced a report noting that an 85%-15% split between spending cuts and tax rises was the average for successful fiscal consolidations, according to historical evidence. The White House is offering an 83%-17% split (hardly a huge distance) and a promise that none of the revenue increase will come from higher marginal rates, only from eliminating loopholes. If the Republicans were real tax reformers, they would seize this offer.

Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.

The article sums up the current situation quite well.

 

[CrusaderFrank]

So, wait a second, is running up annual trillion dollar deficits not a good idea?

 

[Trajan]

wasn't this posted in another thread?

and in 3 weeks they will not go into default, they will shuffle the revenue 'ins' to pay the interest 'outs' on debt., and start cutting down on sending checks out to or funding operating budgets.

 

[Trajan]

and another view if the default actually take splace;


What If the U.S. Treasury Defaults?
'People aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order.'

Stanley Druckenmiller, with James Freeman

snip-

He contemplates the possibilities for bond investors if a drawn-out negotiation in Washington creates a short-term problem in servicing the debt but ultimately reduces spending:

"Here are your two options: piece of paper number one—let's just call it a 10-year Treasury. So I own this piece of paper. I get an income stream obviously over 10 years . . . and one of my interest payments is going to be delayed, I don't know, six days, eight days, 15 days, but I know I'm going to get it. There's not a doubt in my mind that it's not going to pay, but it's going to be delayed. But in exchange for that, let's suppose I know I'm going to get massive cuts in entitlements and the government is going to get their house in order so my payments seven, eight, nine, 10 years out are much more assured," he says.

Then there's "piece of paper number two," he says, under a scenario in which the debt limit is quickly raised to avoid any possible disruption in payments. "I don't have to wait six, eight, or 10 days for one of my many payments over 10 years. I get it on time. But we're going to continue to pile up trillions of dollars of debt and I may have a Greek situation on my hands in six or seven years. Now as an owner, which piece of paper do I want to own? To me it's a no-brainer. It's piece of paper number one."

Mr. Druckenmiller says that markets know the difference between a default in which a country will not repay its debts and a technical default, in which investors may have to wait a short period for a particular interest payment. Under the second scenario, he doubts that investors such as the Chinese government would sell their Treasury debt and take losses on the way out—"because I'll guarantee you people like me will buy it immediately."

Now suppose, Mr. Druckenmiller adds, that he's wrong. If the market implodes on day two of the technical default, Mr. Obama and Congress would be motivated to finally come to agreement. But he doesn't expect such market chaos. "My guess is that the bond market would rally as long as it believed the ultimate outcome was going to be genuine entitlement reform—that we wouldn't even have to find out about a meltdown because it wouldn't happen. And I have some history on my side here."

And the scars to prove it. In 1995, Bill Clinton was threatening to veto budget cuts advanced by the Republican House. In return, congressional leaders threatened not to increase the federal debt ceiling. Back then, before Americans knew what a real government spending crisis was, the debt stood at less than $5 trillion. (It has nearly tripled since then and is poised to race some $10 trillion higher in the next decade.)

Mr. Druckenmiller had already recognized that the government had embarked on a long-term march to financial ruin. So he publicly opposed the hysterical warnings from financial eminences, similar to those we hear today. He recalls that then-Secretary of the Treasury Robert Rubin warned that if the political stand-off forced the government to delay a debt payment, the Treasury bond market would be impaired for 20 years.

"Excuse me? Russia had a real default and two or three years later they had all-time low interest rates," says Mr. Druckenmiller. In the future, he says, "People aren't going to wonder whether 20 years ago we delayed an interest payment for six days. They're going to wonder whether we got our house in order."

more at-

The Weekend Interview with Stanley Druckenmiller: What If the U.S. Treasury Defaults? - WSJ.com

 

[CrusaderFrank]

"There is no good economic reason why this should be happening. America’s net indebtedness is a perfectly affordable 65% of GDP..."

Translation: we're ignoring the important $1.6 trillion deficit and draw your attention to a quasi-meaningless statistic.

 

[shintao]

America's debt: Shame on them | The Economist

IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.

The article sums up the current situation quite well.

Thanks for an unbiased assessment! Cutting the military & bringing all our troops home does have a nice economic ring to it.

 

[shintao]

wasn't this posted in another thread?

Hmm, and the answer is,...........I HOPE THE FUCK IT WAS!!!! lol!

 

[Modbert]

wasn't this posted in another thread?

and in 3 weeks they will not go into default, they will shuffle the revenue 'ins' to pay the interest 'outs' on debt., and start cutting down on sending checks out to or funding operating budgets.

From the opening paragraph:

IN THREE weeks, if there is no political deal, the American government will go into default. Not, one must pray, on its sovereign debt. But the country will have to stop paying someone: perhaps pensioners, or government suppliers, or soldiers. That would be damaging enough at a time of economic fragility. And the longer such a default went on, the greater the risk of provoking a genuine bond crisis would become.

 

[DontBeStupid]

I still have yet to see any GOP "Leaders" explain why our having debt is a bad thing. So bad, that we need to risk default in order to stop it.

 

[Remodeling Maidiac]

Funny, blame republicans and leave out the fact that you just blew a trillion dollars. That money could have kept us afloat if we went beyond the so called deadline.

When I get into financial trouble the solution I always turn to is spending more money.

 

[Remodeling Maidiac]

Funny, blame republicans and leave out the fact that you just blew a trillion dollars. That money could have kept us afloat if we went beyond the so called deadline.

When I get into financial trouble the solution I always turn to is spending more money.

 

[DontBeStupid]

When I get into financial trouble the solution I always turn to is spending more money.

How would you raise the value of your house without spending money on home improvements? It's the same with the economy.

 

[iamwhatiseem]

The OP is, again, drinking Kool-aid.
The government will not default. That is laughably inaccurate - but as usual simpletons buy into the hysteria.
They will still have 70% of their income coming in without pause.
In reality the left is in horror at the thought of cutting government spending because, like the OP, they are hard wired to believe that government spending solves everything.

The truth is - a refusal to raise the debt ceiling will force the government to take a look at its house of cards that it has been building for 30 years - AND ACTUALLY DO SOMETHING ABOUT IT.

 

[DontBeStupid]

The OP is, again, drinking Kool-aid.
The government will not default. That is laughably inaccurate - but as usual simpletons buy into the hysteria.
They will still have 70% of their income coming in without pause.
In reality the left is in horror at the thought of cutting government spending because, like the OP, they are hard wired to believe that government spending solves everything.

The truth is - a refusal to raise the debt ceiling will force the government to take a look at its house of cards that it has been building for 30 years - AND ACTUALLY DO SOMETHING ABOUT IT.

I think revenue is closer to 60% but why quibble. The more important part you left out is that revenue is not a constant steady stream into the government over the course of the year. There are some months when the government brings in less and some months more. If August is a low month, that makes the problem even worse.

The government defaults if it doesn't pay legally obligated bills. Any of them. If we bring in only 60% or less, we will default.

 

[Modbert]

The OP is, again, drinking Kool-aid.
The government will not default. That is laughably inaccurate - but as usual simpletons buy into the hysteria.
They will still have 70% of their income coming in without pause.
In reality the left is in horror at the thought of cutting government spending because, like the OP, they are hard wired to believe that government spending solves everything.

The truth is - a refusal to raise the debt ceiling will force the government to take a look at its house of cards that it has been building for 30 years - AND ACTUALLY DO SOMETHING ABOUT IT.

Except the President has already put a offer on the table and has even made discussions about cutting both Social Security and Medicare. Also as The Economist points out, the deal being offered right now is pretty much what the GOP wanted.

Furthermore, you seem to think that having only 70% of their income coming in would be a good thing even for the short term. Any reason you decided to ignore warnings from say S&P that will drop our credit rating to a D if we don't raise the debt ceiling?

 

[Wiseacre]

Isn't it the least bit odd that every other developed country that is faced with similar debt problems are ALL cutting taxes and spending? NOBODY is raising taxes, NOBODY. Must be a buncha fools I guess.

 

[iamwhatiseem]

The OP is, again, drinking Kool-aid.
The government will not default. That is laughably inaccurate - but as usual simpletons buy into the hysteria.
They will still have 70% of their income coming in without pause.
In reality the left is in horror at the thought of cutting government spending because, like the OP, they are hard wired to believe that government spending solves everything.

The truth is - a refusal to raise the debt ceiling will force the government to take a look at its house of cards that it has been building for 30 years - AND ACTUALLY DO SOMETHING ABOUT IT.

Except the President has already put a offer on the table and has even made discussions about cutting both Social Security and Medicare. Also as The Economist points out, the deal being offered right now is pretty much what the GOP wanted.

Furthermore, you seem to think that having only 70% of their income coming in would be a good thing even for the short term. Any reason you decided to ignore warnings from say S&P that will drop our credit rating to a D if we don't raise the debt ceiling?

And when the next debt ceiling is met VERY shortly...then what?
Right - we raise it again and again and again.
It has to stop. It HAS to stop.
Everyone can agree on one thing - unfunded Social Security, medicare/aid obligations will reach 100% of GDP in our lifetime or our childrens lifetime.
And THEN we can talk default. THEN we will default for sure.

Personally, I am 100% OK with dealing with significant pain in the next 5-10 years if it means this country will reverse it's gross irresponsible spending habits and get our financial house back in order.

or - we can ignore our unsustainable spending (again) and face dire circumstances that everyone knows is coming.

 

[DontBeStupid]

Isn't it the least bit odd that every other developed country that is faced with similar debt problems are ALL cutting taxes and spending? NOBODY is raising taxes, NOBODY. Must be a buncha fools I guess.

Actually, yes, yes they are.

 

[LordBrownTrout]

I maxed out a cc in college, asked for a higher limit, was denied, and then I continued to pay off my debt. I never defaulted. I'm just not getting all this trumped up end of the world, armageddon stuff if we don't raise the limit. If anything, it will show that we're serious that we're gonna STOP racking up debt.

 

[code1211]

America's debt: Shame on them | The Economist

<snip>

Both parties have in recent months been guilty of fiscal recklessness. Right now, though, the blame falls clearly on the Republicans. Independent voters should take note.

The article sums up the current situation quite well.

There have been various promises of reduced spending in the past.

Please demonstrate the reductions year to year in any sonce 1970.

Links are welcome.

The problem is that the promises to reduce spending are all empty and are in truth deliberate lies. You know it. I know it. Every politician in Washington knows it. We are racking up added debt at the rate of more than a Trillion every year. The solution to reduce spending over ten years by rate of increase for about one year means that the debt continues to grow at a break neck pace.

Your article does not sum up the situation well.

It sums up the Democrat argument well and ignors the fact that the spending BY BOTH PARTIES has brought us to a situation that is no longer sustainable.

It's time to fix the problem. Your article shows that the Dems are bent on not fixing the problem.

The lack of seriousness is why politicians of principle are drawing a line in the sand.

The FACT that the negotiations are going on behind closed doors is proof that the theives are at work and the people are about to get screwed again.