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Debt Ceiling of America.

Discussion in 'The Breakroom' started by jeeves3443, Aug 1, 2011.

  1. blacmud8

    blacmud8 Loaded Pockets

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    Some V good explanations in this thread.

    I have a very basic understanding of the situation and don't know enough about US domestic politics to tell you who is to blame and etc. etc.

    My basic understanding is that:

    To prevent another global economic meltdown, the US had to keep investors investing in it
    To keep investors investing it had to keep its credit rating
    To keep its credit rating it had to not miss its next instalment in paying off its big debt
    To not miss its next instalment, it had to borrow some money. No, it had to borrow LOTS and LOTS of money.

    Sounds crazy when put so simply, but I'm sure there are all sorts of complex economic factors involved which I simply do not know.

    Please correct me if I'm wrong, anyone.
     
  2. phill

    phill Loaded Pockets

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    Scribhneoir, you are better than that. There is a huge difference between the reality of a situation and what political football is being punted around. Right now the Republican party is punting such ideas as fiat money is bad because it helps their narrative, but put one in power in 2012 and they will act exactly the same.

    Printing money is an extremely important macro economic tool and its one of the reasons Ireland and Greece are facing big problems, namely they gave up control of their monetary supply which means when they have economic problems they cant ease the effects. Of course both have some very different systemic problems, Greece has one of deeply routed failure to pay tax and general laziness coupled with huge pensions and Ireland basically agreed to cover the banking debt with no idea how huge it would be and got a hugely terrible deal out of it. But while they would be in problems now regardless, being able to print money is a fundamental positive step to buy time and easy pressure in the system.

    Functionally, printing money is just like lowering the interest rate, so given the interest rate is basically zero in America printing creates a new negative interest rate. Where this is controversial is most Austrian subscribe to a savings over consumption concept of how the economy should be built, which isnt wrong but it is the opposite of mainstream thinking.

    This is usually the point Zimbabwe is brought up. Runaway inflation is basically impossible in America for many functional reasons, not least because the people in charge will make sure it doesnt happen.

    There is a term for this, its called "tinkerbell effect". Basically what it says is things only have value because people believe they have value. Gold is one such example of this, though its value has been believed in a lot longer than other things such as fiat money. If there was a true end of world scenario the most valuable thing will always be food and water of course.
     
  3. phill

    phill Loaded Pockets

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    This is mostly correct, but not quite.

    Firstly, the 14th Amendment means the government can default on its debt and it could, in theory, pay its interest payments without borrowing more just off the back of tax collection. But it would mean shutting down the vast majority of government, and not just closing the doors on agencies like the EPA but stop paying social security, stop paying medicare, stop paying soldiers OR in some way pay them in IOU cheques.

    And the problem with the credit rating is that it directly ties to the cost of borrowing. Whilst America in theory cannot literally default on payments, not raising the ceiling sends the message that its theoretically possible, so a AAA rating means there is zero percent chance of default, but dropping to AA means there is a 0.05% chance of default if i remember correctly. Which is so close to zero that it may not make a difference, but its also figured into the interest of borrowing and there was talk of it increasing a couple percentage points, which equals many billions more per year in repayments, wiping out a LOT of the austerity measures the nation had been making.
     
  4. spookysco

    spookysco Loaded Pockets

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  5. Kilted1

    Kilted1 Loaded Pockets

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    Now that the hue and cry has died down the reason becomes clear. Treason! In the past, raising the debt ceiling has been fairly routine, it's just the way the government and our monetary system works. By design, the debt ceiling has to go up from time to time. What's different this time is that so much noise was made about the debt, we didn't notice (or weren't told) what else was in the bill. We now have a "super congress" which is nothing less than a treasonous power grab! A 12 member appointed panel delivers bills to congress for an up or down vote, no debate or modification is allowed, just yes or no. If congress says no, the supercongress can ram it through anyway and the president signs it. 13 people now control everything. We no longer have a Constitution or a recognizable government, we have 13 oligarchs who's orders will be followed. All but 65 members of congress voted for this. All but 65 members of congress are guilty of treason!

    Are we angry yet?!? I sure as #^@% am!
     
  6. scríbhneoir
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    scríbhneoir Uber Prepared
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    Yep, an oligarchy, hidden among the distraction, and a bill that once again, no one had time to read and understand completely before voting. Well, I know two who read it. And realize its unconstitutionality. Google Judge Napolitano, Ron Paul, Neil Cavuto and Super Congress + youtube. Not to mention that the debt bill will not reduce, but actually increase the deficit.
     
  7. phill

    phill Loaded Pockets

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    The super congress was well known. Ive talked about it in this thread and knew about it before the bill was signed.

    Its not treason and it isnt against the constitution. Its a worrying erosion of open government, but it was literally the only option available.

    Basically the tea party pushed the debate so far off center that the only thing passable is a backroom deal that would mostly cut the tea party out of the situation.

    The best analogy is that the debate over the past few weeks was like the tea party was playing chicken with the Dems and mainstream Reps except they aimed their car at the other side, unbolted the steering wheel and threw it out of the window. Their unwillingness to deal means that they had to be given a time out in the corner while the grown ups sort the mess out.
     
  8. scríbhneoir
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    scríbhneoir Uber Prepared
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    Yep. It appears to be political suicide to address reducing entitlements, but soon, those entitlements, though the checks will keep coming, will not buy much. A lot more people have watched this video since it first came out.
     
  9. CatherineM
    • In Omnia Paratus

    CatherineM Loaded Pockets

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    I heard the approval rating for congress is about 18% right now.
     
  10. scríbhneoir
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    scríbhneoir Uber Prepared
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    Yep, and Jefferson's advice, and Washington's advice. $1 trillion overseas, every year.
     
  11. spookysco

    spookysco Loaded Pockets

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  12. scríbhneoir
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    scríbhneoir Uber Prepared
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    I'm not sure to what you are referring, that I am "better than that," but please feel free to take it to PM. The fact is, both parties are the same. We so need to move past the left vs. right, liberals vs. conservatives, Democrats vs. Republicans. The partisan posturing is dividing this country. The two parties are different sides of the same coin. And our representatives are NOT representing the needs of the people they claim to represent, but their lobbyist buddies and re-election campaign fund sources, big corporations.

    Wealth comes from investment of private capital. When private capital cannot earn money, i.e., when you save it (so that you can invest it), it flees. Ours has fled overseas. Why invest here for miniscule returns because of obscenely low interest rates because of a flood of money from a central bank? Those who get that money first, like the banks, get the most use of and return on it. The only thing it does by the time it gets to us, is lose value. More money, less value, increased inflation, and the middle class takes another hit. We should save. We should invest. But businesses don't do business just because it's what they do; they expect to earn a profit from their investment. The government does not and has not created wealth. It cannot create real jobs, because the money comes from us to pay for work that creates nothing. There is no widget. We've lost our manufacturing base. We make very little that we can sell to others. 70% of our economy comes from spending. And we're spending what we don't have, what we've over borrowed. We have to live within our means, or go bankrupt as individuals. If we exceed our credit limit, we can't get more from the bank or credit card company. The government once lived within its means. It no longer does. The Fed acts as the credit card. Take it away from the congress, and they won't be able to spend beyond our means. It's time to reverse mainstream thinking, and get rid of the easy money, and go back to saving.

    Zimbabwe is one extreme example, but Argentina's economic collapse more closely mirrors what is happening here. Gold is money. But you could tie the value of money to any commodity--oil, wheat, whatever. It isn't that gold is worth more, but that the dollar is worth less. Gold is malleable, can be reshaped and broken into bits convenient for transport and use. Wheat or oil is a little tougher to do that with. Not to mention the industrial uses of precious metals. Some countries now have gold vending machines that will allow a person to buy grams of gold. China is encouraging its citizens to buy gold. Why? But a fiat currency will always fail because there is nothing to restrict its quantity, and thus maintain its value. Central banking doesn't work. The dollar is tied to the good faith of the US. That faith is fading fast. Just ask the Chinese who hold so much of our debt, and are reducing their holdings. And the Fed, despite Bernanke's assertion, even says that gold is money in its own publication, that it is and has been a medium of exchange.

    As for the Austrian school, I stand by my comments that they were right, are right, and will be proven right again. When Bernanke insisted the fundamentals of the economy were strong, Austrian followers like Peter Schiff were warning of the bubble bust in real estate, and nailed it. And Bernanke didn't see it coming. Really? Easy money and legislation like the Community Reinvestment Act allowed those who would not, under past banking laws, qualify to buy homes they could not afford. That moral hazard has devastated how many individuals and families? That is pretty cruel. And then to take the value of those bad loans and not mark them down to their true worth--obscene. The moral compass is broken. Returning the dollar to a gold standard (that we never should have left) would be pretty difficult. Why, the true value of gold if we tried it would be, according to many, as high as five figures per ounce, probably more, given the $16 trillion printed to give to national and foreign banks. But a competing currency of precious metals would enable us to move in that direction. And some states, like Utah, are addressing that very idea. But I think we should listen to the Austrians. This article offers just a few examples of their correct, but not prescient, observations. And Judge Napolitano highlights it here.

    As for the debt ceiling agreement, in one day, the government spent 60% of the $400 billion by which they raised the ceiling.
    The markets weren't too happy today. Perhaps the dollar crisis we've been warned about is well on its way. As I said earlier, we will have to agree to disagree.
     
  13. phill

    phill Loaded Pockets

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    Yeah, that 60% figure isnt surprising. The reality is that Apple had more cash on hand than the entire US Government. Basically it was like a car running on empty and the ceiling increase filled the tank.

    And yeah, basically the big three costs of the US government is Defense, Social Security and Health and Human Services (basically healthcare, especially medicare for the old). All three need to be heavily cut back, with Defense being the easiest given just how overly bloated it is and it will be cut back when Afghan withdrawals happen leading to full withdrawal in 2014 iirc, Social Security needs to follow as its future costs are going to mushroom and across the board healthcare reform will be a big part of whoever spends the 12-16 term in charge.

    The big problem however is that cuts=contractions in the economy and furthermore cuts=job losses. As an example shaving a few hundred million out of some useless defense contract to create a new thingymabob on a plane that will never see service means that few hundred million isnt being spent to a company like Boeing, which means they dont have that contract and so probably will lay off staff in some sense. Of course the thingymabob has no real world application beyond getting some generals excited about new ways to vaporise humans, so its morally easy to start cutting there, but it will mean the unemployment rate WILL go up and it will mean the economy WILL suffer in some sense.

    The biggest problem America has is that what will it has to cut funding is being aimed at public broadcasting radio to save a few million and all these billions being spent on defense that arent enhancing the lives of anyone is being ignored.

    Even worse are people who want to cut unemployment. This is literally insane. Here is the thing, unemployment incentivises people to be unemployed. Its basically an economic fact. However the rate at which it does so isnt even close to 100%. Right now America is actually creating a lot of jobs every month, but it takes 90 thousand new jobs created every month JUST to keep pace with the population growth. The best year ever created just over 400 thousand jobs per month if memory serves me.

    So say America has the best recovery ever and makes 590 thousand jobs every month it will take about 28 months to get to full employment. Assume we get to the pretty normal 4.5-5% that will take a little over a year. Keep in mind this is literally impossible.

    America needs to face two hard truths:
    1, unemployment wont drop fast, if at all, for the next decade or two
    2, spending needs to be cut, but not too fast to make unemployment and the recovery worse, but not so slow that the debt bloats beyond the point it can be reasonably paid back

    So basically when you chuck those two realities together its pretty easy to see virtually all Americans just dont get it and they never will. I suspect there will be a lot of four term presidencies in the early part of this century and 80% disapproval of Congress (the worst ever recorded) isnt going to improve much as the realities start to sink in. Basically there is a very real chance American living standards have peaked, especially given energy costs are going to increase over the medium to long term as all indicators are world wide peak oil production either happened or is happening very soon depending who you talk to.
     
  14. CatherineM
    • In Omnia Paratus

    CatherineM Loaded Pockets

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    Saw this quote today:
     
  15. fshram76

    fshram76 Loaded Pockets

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    The sad part is that some of my friends blast the government and politicians for this issue but them selves in the same boat because they have to always go out to eat, go to concerts, go to the movies, buy the latest and greatest televisions, and even cars. Pretty much calling the kettle black but sad that they think it is that simple to fix for the government but can't do it for themselves.
     
  16. DialM

    DialM Loaded Pockets

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    Approximately 42% of filers in 2009 paid zero federal income tax. We could double the tax rates for everyone and still run a deficit. Our two problems are: 1) those with zero skin in the game are approaching half the VOTING population, and 2) spending (if doubling the tax rates doesn't fix the problem, tax rates aren't the problem).

    edit: Actually, assuming that roughly the same percentage of filers still pay zero federal income tax, we may be over 50% depending on how many of the alarming number of unemployed no longer bother to file.
     
  17. bushidomosquito

    bushidomosquito Removed from forum.

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    The politicians, not democrats, not republicans, BOTH sides, give our tax dollars to the people that vote for them. That's the problem. They buy votes with money that's not theirs and since it's not their money they couldn't care less. All of the talks about fixing the problem are really just talks about how to continue with business as usual while keeping us preoccupied with class warfare and issues that don't matter like abortion and gay marriage.
     
  18. bud760
    • In Omnia Paratus

    bud760 Loaded Pockets

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    All the last minute drama didn't do much. S&P downgrades US credit rating to AA plus.

    http://finance.yahoo.com/news/SampP-downgrades-US-credit-apf-2107320979.html

    The credit rating agency on Friday lowered the nation's AAA rating for the first time since granting it in 1917. The move came less than a week after a gridlocked Congress finally agreed to spending cuts that would reduce the debt by more than $2 trillion -- a tumultuous process that contributed to convulsions in financial markets. The promised cuts were not enough to satisfy S&P.