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

[shintao]

[ame=http://www.youtube.com/watch?v=yRDOrCFIY4c&feature=related]YouTube - ‪Rainbow Stew - Merle Haggard‬‏[/ame]

 

[cbirch2]

Yea. I just cant imagine why anyone would want a default. No one that actually knows anything about the situation wants it to happen or even thinks its a valid possibility. Not even the repubs in the house.

 

[SwingVoter]

Acknowledged. But why would you even risk a large abrupt shock to the economy. Surely you dont think the former is totally harmless.

even with all the news hype about a "crisis", 90-day T-bills are still yielding 0 percent, meaning anyone buying those bonds today is willing to do so knowing they'll get paid sometime soon after Aug 2, and without interest

no one is worried about the government's ability to pay, although MSNBC, CNN, and FOX will talk about it all day long because the fear gets people to watch for a few minutes in between checking their friends' Facebook statuses - not easy to make money when your news network was designed for 20th century media

not saying default's a good thing, but the insane spending that began as soon as GWB took office, and has kept going with Obama has already created tremendous damage that some kind of meaningful, bold action is necessary

 

[Urkie]

It would create worldwide panic and a definite decline in the value of the dollar. The dollar could even become virtually worthless as people try to get out of it. No one would lend us money and no one in this country would have access to any kind of capital. That would then create a massive depression that could last a long time.

To default would be the worst possible move right now. The best is to raise the debt ceiling and start cutting spending. It's really the only option.

 

[cbirch2]

Acknowledged. But why would you even risk a large abrupt shock to the economy. Surely you dont think the former is totally harmless.

even with all the news hype about a "crisis", 90-day T-bills are still yielding 0 percent, meaning anyone buying those bonds today is willing to do so knowing they'll get paid sometime soon after Aug 2, and without interest

no one is worried about the government's ability to pay, although MSNBC, CNN, and FOX will talk about it all day long because the fear gets people to watch for a few minutes in between checking their friends' Facebook statuses - not easy to make money when your news network was designed for 20th century media

not saying default's a good thing, but the insane spending that began as soon as GWB took office, and has kept going with Obama has already created tremendous damage that some kind of meaningful, bold action is necessary

Right. No one believes the treasury is actually insolvent. The US has plenty of money, were not broke. But the few day span in which credit dries up and our credit rating goes to D is going to cause pan. Interest rates could remain high for a while.

 

[Remodeling Maidiac]

YouTube - ‪Rainbow Stew - Merle Haggard‬‏

I'm not sure what's more insulting. The fact that you insinuating that I'm an idiot or the fact that you knew enough about that song to look it up?

 

[cbirch2]

It would create worldwide panic and a definite decline in the value of the dollar. The dollar could even become virtually worthless as people try to get out of it. No one would lend us money and no one in this country would have access to any kind of capital. That would then create a massive depression that could last a long time.

To default would be the worst possible move right now. The best is to raise the debt ceiling and start cutting spending. It's really the only option.

Again, refer to the conversation we just had. The treasury isnt actually broke and the effect of an artificial default wont be the same as if the united states didnt have enough money to make payments.

I agree, it should be raised. And i agree it would be the worst possible move to not raise it, it would be pointless. But your the-end-is-neigh approach to economics and politics is annoying.

 

[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.

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...?

On the contrary, I'm not convinced that we would automatically default. That's the reason behind my original op. I want to understand.

 

[cbirch2]

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...?

On the contrary, I'm not convinced that we would automatically default. That's the reason behind my original op. I want to understand.

What do you mean we wouldnt default?

You suggested that we can just make payments on interest and not default, but that doesnt even deal with the default. Continuing to pay the interest allows us to not go over the debt limit automatically once we reach it and interest accrues. But thats not what a default is. A default doesnt mean we go over our debt limit, that has nothing to do with it. The debt ceiling is an internal mechanism that only congress cares about. The markets care that we pay our bills. By only paying interest were not making the payments were supposed to so we default.

The united states doesnt have enough revenue coming in on a day to day basis to pay bills, SS, medicare, the army, and interest. Not even if it suspends the entire discretionary part of the budget.

 

[shintao]

YouTube - ‪Rainbow Stew - Merle Haggard‬‏

I'm not sure what's more insulting. The fact that you insinuating that I'm an idiot or the fact that you knew enough about that song to look it up?

Chill Gramps, all was meant in good intentions. If idiocy is based on what we know, we are all idiots, and I am not suggesting we are. I am glad you asked the questions and we are getting some positive feedback from those who know or can speculate on the subject. Pour me a drink & I will stay around and kick the table leg.

 

[cbirch2]

YouTube - ‪Rainbow Stew - Merle Haggard‬‏

I'm not sure what's more insulting. The fact that you insinuating that I'm an idiot or the fact that you knew enough about that song to look it up?

Chill Gramps, all was meant in good intentions. If idiocy is based on what we know, we are all idiots, and I am not suggesting we are. I am glad you asked the questions and we are getting some positive feedback from those who know or can speculate on the subject. Pour me a drink & I will stay around and kick the table leg.

Probably the most civil thing ive ever heard on here. Much congrats. shintao is my USMB idol. + rep.

 

[Remodeling Maidiac]

I'm aware what a default is. And what it would represent. I'm just not sure we can't make sacrifices at home and still not meet our obligations.

I've clearly had too many to drink to continue this conversation and make any sense so with this I'm going to move on to easy non thought provoking subjects that I can handle till I pass out. I finishes a very large project that paid well today so id rather end all serious thought and just go troll with all the other trolls at this point.

Later

 

[Urkie]

It would create worldwide panic and a definite decline in the value of the dollar. The dollar could even become virtually worthless as people try to get out of it. No one would lend us money and no one in this country would have access to any kind of capital. That would then create a massive depression that could last a long time.

To default would be the worst possible move right now. The best is to raise the debt ceiling and start cutting spending. It's really the only option.

Again, refer to the conversation we just had. The treasury isnt actually broke and the effect of an artificial default wont be the same as if the united states didnt have enough money to make payments.

I agree, it should be raised. And i agree it would be the worst possible move to not raise it, it would be pointless. But your the-end-is-neigh approach to economics and politics is annoying.

What do you mean by artificial default? If the treasury isn't making the payments that it's obligated to make (I mean actual payments and not just interest) then that means some of its creditors aren't getting their money back (technically a default). That would create a situation where creditors may no longer believe they will get their money back and they may decide to sell off their dollars. If that happens then the situation I outlined could happen.

 

[Remodeling Maidiac]

YouTube - ‪Rainbow Stew - Merle Haggard‬‏

I'm not sure what's more insulting. The fact that you insinuating that I'm an idiot or the fact that you knew enough about that song to look it up?

Chill Gramps, all was meant in good intentions. If idiocy is based on what we know, we are all idiots, and I am not suggesting we are. I am glad you asked the questions and we are getting some positive feedback from those who know or can speculate on the subject. Pour me a drink & I will stay around and kick the table leg.

Fair enough. Except I think the table leg is kicking me at this point. My apologies for being short.

 

[cbirch2]

What sacrifies do you think we can make?

Are we going to make drastic cuts to military and every entitlement program, implement all those changes in full in two weeks, and then collect enough savings from the time those are implemented until august 2nd to run the government on a budget surplus for the rest of the year?

I can understand not knowing the niceties of it but the general numbers simply make not raising the debt limit impossible. It has to be raised.

 

[cbirch2]

It would create worldwide panic and a definite decline in the value of the dollar. The dollar could even become virtually worthless as people try to get out of it. No one would lend us money and no one in this country would have access to any kind of capital. That would then create a massive depression that could last a long time.

To default would be the worst possible move right now. The best is to raise the debt ceiling and start cutting spending. It's really the only option.

Again, refer to the conversation we just had. The treasury isnt actually broke and the effect of an artificial default wont be the same as if the united states didnt have enough money to make payments.

I agree, it should be raised. And i agree it would be the worst possible move to not raise it, it would be pointless. But your the-end-is-neigh approach to economics and politics is annoying.

What do you mean by artificial default? If the treasury isn't making the payments that it's obligated to make (I mean actual payments and not just interest) then that means some of its creditors aren't getting their money back (technically a default). That would create a situation where creditors may no longer believe they will get their money back and they may decide to sell off their dollars. If that happens then the situation I outlined could happen.

But being unwilling to spend more and being financially insolvent are two totally different things. Our credit rating will drop because the rating agency has to drop it if we default. But creditors and investors know the money is still there and they will be paid in due time. There will still be a shock, but not the same shock as if the treasury was actually broke.

By artificial default i mean one created by our refusal to borrow more rather than our inability to pay and lack of capital. The markets will respond very differently to those two different events. Like the other guy said, 90 day treasury bonds are still yielding 0%. People still think its a safe bet because in reality it is.

 

[Remodeling Maidiac]

What sacrifies do you think we can make?

Are we going to make drastic cuts to military and every entitlement program, implement all those changes in full in two weeks, and then collect enough savings from the time those are implemented until august 2nd to run the government on a budget surplus for the rest of the year?

I can understand not knowing the niceties of it but the general numbers simply make not raising the debt limit impossible. It has to be raised.

It can't be that black n white. If it was we wouldn't have elected officials advocating not raising it.

 

[Urkie]

But being unwilling to spend more and being financially insolvent are two totally different things. Our credit rating will drop because the rating agency has to drop it if we default. But creditors and investors know the money is still there and they will be paid in due time. There will still be a shock, but not the same shock as if the treasury was actually broke.

By artificial default i mean one created by our refusal to borrow more rather than our inability to pay and lack of capital. The markets will respond very differently to those two different events. Like the other guy said, 90 day treasury bonds are still yielding 0%. People still think its a safe bet because in reality it is.

I think I understand what you're saying now. Thanks for helping me understand it.

 

[Remodeling Maidiac]

Again, refer to the conversation we just had. The treasury isnt actually broke and the effect of an artificial default wont be the same as if the united states didnt have enough money to make payments.

I agree, it should be raised. And i agree it would be the worst possible move to not raise it, it would be pointless. But your the-end-is-neigh approach to economics and politics is annoying.

What do you mean by artificial default? If the treasury isn't making the payments that it's obligated to make (I mean actual payments and not just interest) then that means some of its creditors aren't getting their money back (technically a default). That would create a situation where creditors may no longer believe they will get their money back and they may decide to sell off their dollars. If that happens then the situation I outlined could happen.

But being unwilling to spend more and being financially insolvent are two totally different things. Our credit rating will drop because the rating agency has to drop it if we default. But creditors and investors know the money is still there and they will be paid in due time. There will still be a shock, but not the same shock as if the treasury was actually broke.

By artificial default i mean one created by our refusal to borrow more rather than our inability to pay and lack of capital. The markets will respond very differently to those two different events. Like the other guy said, 90 day treasury bonds are still yielding 0%. People still think its a safe bet because in reality it is.

That makes more sense than anything I've read in the last hour. Although if pulled over I bet a cop would say my judgement is impaired. So who the hell knows?
At this point I'd like to offer drinks on the house but the best I cab do is positive rep.

Except for you Warsaw, you idiot.

 

[cbirch2]

What sacrifies do you think we can make?

Are we going to make drastic cuts to military and every entitlement program, implement all those changes in full in two weeks, and then collect enough savings from the time those are implemented until august 2nd to run the government on a budget surplus for the rest of the year?

I can understand not knowing the niceties of it but the general numbers simply make not raising the debt limit impossible. It has to be raised.

It can't be that black n white. If it was we wouldn't have elected officials advocating not raising it.

Do you really think its mathematically possible to not raise the debt limit? its not. The government runs a $1.5 trillion deficit. 40% of our spending is deficit spending. To not raise the debt limit is to immediately operate on surplus. Not only that but to run enough of a surplus to pay interest (which wont work).

Interest on debt is about 5% of our budget. So tack 5% on to that 40% we need to save. So basically, by saying you dont want to raise the debt limit, your saying you want the government to immediately slash all spending by 45% for the rest of the year. Thats the same as totally eliminating social security, medicare, and all other mandatory spending like welfare and unemployment. Its not possible.

Repubs say it because it sounds good and not many people know what it means. But its all rhetoric. When the biden talks started the white house came out and said the repubs had already assured them the debt limit would be raised.