Can someone please explain to me "why not raising the debt limit" is catastrophic

Discussion in 'Politics' started by Grampa Murked U, Jul 11, 2011.

  1. Grampa Murked U
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    Grampa Murked U Diamond Member

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    I consider myself fairly involved with most politics. But this debt limit thing has me really confused. This is not a joke thread or a political ploy. I really don't get why we can't just say no and force ourselves to live within our means.

    I've heard the talking points of all sides involved so I'm not interested in one liners. Please be realistic and level headed with your responses.

    My thinking is we will still have all of our regular revenue coming in. We can pay interest only on the debt to keep it from growing while the "country debates what, where and how to cut" to find the extra cash we need to start paying the principle down. There are lots of areas where we, both republicans and democrats, could sacrifice to get back to a balanced budget. I might even go so far as to say minor across the board (every tax payer) temporary tax increases could be considered as long as serious, permanent and MASSIVE cuts are included. End loopholes, all subsidies and most non life threatening foreign aid. Institute a flat tax or a vat tax to even the contributions to the treasury among ALL Americans.

    These are not my core beliefs or desires but they are things I would consider reasonable IF WE DIDN'T RAISE THE DEBT LIMIT and intended to do what's right.

    Who is right? I don't know who to believe because nearly everyone plays politics with this situation. Bush had me convinced Tarp was right but now I feel it was mostly a complete waste.

    HONESTLY CAN WE RIGHT THIS SHIP WITHOUT GOING DEEPER IN DEBT?

    For those that respond seriously, thank you.
     
  2. Grampa Murked U
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    Grampa Murked U Diamond Member

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    Come on guys. You consider yourselves savy. I've seen many of you rail on this subject. Or do you just do that to "look cool" to your peers on here?

    I really want to understand the risks.
     
  3. hortysir
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    hortysir In Memorial of 47

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    I found this a short while back and found it helpful.
    But it doesn't explain why I keep hearing. "The sky is falling" from both sides, nowadays



     
  4. Grampa Murked U
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    Grampa Murked U Diamond Member

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    That does make it look bleak but that's with no cuts right? I also noticed no discretionary spending.

    Any one else care to opine or is everyone all hot air and no substance?
     
  5. cbirch2
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    cbirch2 Active Member

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    The amount of money coming into the government is highly volatile, trying to make payments using the day to day income that the government receives isnt going to work. No one really thinks it will.

    The problem is that this isnt new spending. Its money that has already been spent. Not raising the debt limit basically means operating for the rest of the year on a surplus, something thats completely impossible. Not only next year but every year after that. Its simply not realistic, its not even possible.

    The problem is that if the market perceives that US debt is no longer a safe investment it will become harder for banks to borrow, therefore harder for us to borrow. Banks will raise interest rates and everything will become more expensive.
     
  6. hellofromwarsaw
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    hellofromwarsaw BANNED

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    ANOTHER Pub Great Recession.
     
  7. cbirch2
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    cbirch2 Active Member

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    I just read your whole post and no, thats not how it works.

    Just paying the interest on the debt is pointless. That just keeps us from automatically going over our debt limit, but thats not what matters. What matters is if the lenders get their payments. If we just pay the interest and dont make the agreed payments thats a default. The debt limit is an abstract limit that markets dont care about, lenders just want their money.

    Defaulting doesnt mean going over our debt limit. The debt limit is a totally abstract notion. Defaulting means our lenders dont get the money owed to them. They dont care if our congress doesnt want to spend more than a certain amount, they care that we pay the money we owe them.
     
  8. Grampa Murked U
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    Grampa Murked U Diamond Member

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    I understand that were upside down so to speak. Kinda like a lot of homeowners now. But tax revenues are fairly steady are they not? Besides the losses because of the unemployed anyhow.

    And yes interest rates may rise but isn't that the price of foolish spending? If I become a risk for lending my rates rise. But that rate is not permanent. I can fix my credit through good stewardship of my outstanding debt so why can't the USA?

    If we simply keep borrowing to pay debt with politicians that can never give up the cuts necessary to balance the budget how do we ever get ahead?
     
  9. cbirch2
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    cbirch2 Active Member

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    And tarp worked fairly well. In terms of freeing credit TARP worked pretty much perfectly.

    Think about what was happening in late 2008, if you really paid attention. The entire american financial system was on the verge of collapse. Banks commonly lend to each other, with massive amounts of money on a daily basis. That completely stopped. You could have seen the collapse of Bear Stearns, Lehman Brothers, AIG, JP Morgan, meryll Lynch, morgan stanley, citigroup, and B of A all within a few days.

    GE was on the verge of bankruptcy. It used credit to finance its day to day operations and it flow of credit dried up. If banks wont lend to the largest corporation in america something is seriously wrong. All that, and it was contained fairly quickly. I call that success.
     
  10. cbirch2
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    cbirch2 Active Member

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    Last week S&P said if the US fails to raise its debt limit its going to cut our credit rating to D. Thats the lowest level. Theyre going to cut it from AAA to D. Do you think people are going to buy bonds that are rated D? Maybe because theyre american. but not right away and the initial shock would be big.

    Why would you want that? Why would you cut our credit rating to D, even for one day, when everyone acknowledges that the debt ceiling has to be raised in the coming months anyways? Surely you dont think the government can just run for an entire year on a day by day basis...

    Im just not sure why you would want to freeze credit for any time at all in a recession caused by just a few day span of frozen credit 3 years ago. It makes no sense. It has to be raised im just not sure why you would add economic shock to an economy for no reason. i dont get the logic
     

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