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

[Remodeling Maidiac]

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.

 

[Remodeling Maidiac]

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.

 

[hortysir]

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

We would still have $2.17 trillion dollars in revenue coming from taxes.
That money could be used for debt payments ($205 billion) and paying Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion),
What lawmakers don't like is that they would only be left with $395 billion for other programs. That means they would have to cut programs including defense which this year alone is $719 billion. That does not include the cost of Veterans' care, which totals another $124 billion.
Here's what you need to know.
We are adding 3 billion dollars a day to our debt which is now larger than the entire economies of China, the United Kingdom and Australia combined.
The bottom line is that we have to stop borrowing money to pay for borrowed money. You and I can't live that way in our households, and our nation can't live that way either.


Sources:
RealClearPolitics - The Truth About the Debt Ceiling and Default
RUGY & FICHTNER: Don't raise the debt ceiling - Washington Times
Voters Underestimate How Much U.S. Spends on Defense - Rasmussen Reports™
Kirk warns Congress may punt on debt ceiling - POLITICO Live - POLITICO.com

 

[Remodeling Maidiac]

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

We would still have $2.17 trillion dollars in revenue coming from taxes.
That money could be used for debt payments ($205 billion) and paying Social Security ($741 billion), Medicare ($488 billion), and Medicaid ($276 billion),
What lawmakers don't like is that they would only be left with $395 billion for other programs. That means they would have to cut programs including defense which this year alone is $719 billion. That does not include the cost of Veterans' care, which totals another $124 billion.
Here's what you need to know.
We are adding 3 billion dollars a day to our debt which is now larger than the entire economies of China, the United Kingdom and Australia combined.
The bottom line is that we have to stop borrowing money to pay for borrowed money. You and I can't live that way in our households, and our nation can't live that way either.


Sources:
RealClearPolitics - The Truth About the Debt Ceiling and Default
RUGY & FICHTNER: Don't raise the debt ceiling - Washington Times
Voters Underestimate How Much U.S. Spends on Defense - Rasmussen Reports™
Kirk warns Congress may punt on debt ceiling - POLITICO Live - POLITICO.com

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?

 

[cbirch2]

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.

 

[hellofromwarsaw]

ANOTHER Pub Great Recession.

 

[cbirch2]

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.

 

[Remodeling Maidiac]

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.

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?

 

[cbirch2]

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.

 

[cbirch2]

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.

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?

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

 

[cbirch2]

And i cant speak for daily government revenues. It varies more than i could ever know.

But what i do know is that one day the amount of money we owe different lenders that day is going to be greater than the money the government takes in that day. And on that day the government will have defaulted on its obligations.

Theres a lot of talk about prioritizing debt payments, and thats possible. Only again it wont matter because the lenders arent going to let the treasury just pick who gets paid in what order. Thats the same thing as a default, because the lenders didnt get the money owed to them in the time agreed.

 

[hellofromwarsaw]

It's already stopped small business hiring. Great job, Pubbies....

 

[Remodeling Maidiac]

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.

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?

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

Triple A to D? That seems a bit archaic. Is there a chance that is nothing more than bluster? How do you go from the top to the bottom in one move? Would they not see the efforts of the US to right their ship rather than those who never pay their debts to begin with? Is it not possible they are just calling our bluff as many creditors do in an attempt to get what they can while they can?

Am I just completely ignorant on the subject? I mean I try to apply common sense and life experience to the subject but then it seems like I'm in left field when I listen to others.

I have no economic degree but I do run a small business and I can't run my business like this.

 

[SwingVoter]

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.

there's a difference between willingness to pay and ability to pay, if it's just the former, credit markets are usually more forgiving - notice how treasury rates have barely moved during this "crisis"

additionally, the supply of bonds will become more limited than it would be if we kept going with the Bush-Obama spending spree, ultimately forcing up prices for US debt and lowering interest rates

 

[Remodeling Maidiac]

It's already stopped small business hiring. Great job, Pubbies....

I've in-ignored you 3 times today. You should just stop posting and try a video game forum or something. Nothing you ever say is relevant to the subject at hand. Maybe Elmo has a forum you could fit into. Sorry but that's how I feel.

 

[cbirch2]

Its a default. The united states has never defaulted before. It will rebound but any nation that defaults has to go to D. A default means the government doesnt currently have the ability to pay those that finance its debt. A ratings agency has no choice but to at least temporarily lower a rating to D if the government isnt making payments.

What exactly would happen after a default depends on the specific monetary situation of the united states as it relates to other currencies. But there will be some pain if it happens, the end result would be hard to predict even for a financial guru. It would correct in time. A default for no reason is pointless, thats why it wont happen. For all the blustering and boldness neither side will default.

 

[Remodeling Maidiac]

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.

there's a difference between willingness to pay and ability to pay, if it's just the former, credit markets are usually more forgiving - notice how treasury rates have barely moved during this "crisis"

additionally, the supply of bonds will become more limited than it would be if we kept going with the Bush-Obama spending spree, ultimately forcing up prices for US debt and lowering interest rates

This is what I wanted to say but I've been drinking and what little elaboration skills I had went right out the window 2 drinks ago.

What are your feelings on the debt? Raise it, or no or yes but with caviots?

Ps. My spelling left 3 drinks ago

 

[cbirch2]

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.

there's a difference between willingness to pay and ability to pay, if it's just the former, credit markets are usually more forgiving - notice how treasury rates have barely moved during this "crisis"

additionally, the supply of bonds will become more limited than it would be if we kept going with the Bush-Obama spending spree, ultimately forcing up prices for US debt and lowering interest rates

Acknowledged. But why would you even risk a large abrupt shock to the economy. Surely you dont think the former is totally harmless. Credit will slow and interest rates will rise, maybe for just a short time. But why would you do that? The recession was largely kicked off by a similar few days in 2008.

 

[Remodeling Maidiac]

Its a default. The united states has never defaulted before. It will rebound but any nation that defaults has to go to D. A default means the government doesnt currently have the ability to pay those that finance its debt. A ratings agency has no choice but to at least temporarily lower a rating to D if the government isnt making payments.

What exactly would happen after a default depends on the specific monetary situation of the united states as it relates to other currencies. But there will be months of pain if it happens, the end result would be hard to predict even for a financial guru. A default for no reason is pointless, thats why it wont happen. For all the blustering and boldness neither side will default.

Thanks for contributing.

I would take months or even a year or so of pain if it ment that we could end this lunacy. But I understand their are those that can't take another hit without drowning.

 

[cbirch2]

Its a default. The united states has never defaulted before. It will rebound but any nation that defaults has to go to D. A default means the government doesnt currently have the ability to pay those that finance its debt. A ratings agency has no choice but to at least temporarily lower a rating to D if the government isnt making payments.

What exactly would happen after a default depends on the specific monetary situation of the united states as it relates to other currencies. But there will be months of pain if it happens, the end result would be hard to predict even for a financial guru. A default for no reason is pointless, thats why it wont happen. For all the blustering and boldness neither side will default.

Thanks for contributing.

I would take months or even a year or so of pain if it ment that we could end this lunacy. But I understand their are those that can't take another hit without drowning.

What are you talking about. its like you think a default is necessary to bring down our debt. Its counter productive. When you have debts, wouldnt the responsible thing to do be to pay off your debts?

Republicans want $2 trillion in cuts to the debt or they wont raise the debt limit. Obama wants $4 trillion in cuts to the debt and wants to raise it. How is his proposal not better...?