I'm Sick of "Debt Ceiling Politics"

[Kilmer17]

I sometimes wonder what would happen if the U.S. just decalred all its debts null and void. It could do that. What could the debtors do? A military response? Halt trade? Twiddle their thumbs and curse at us? Or what would happen if the U.S. declared bankrupsy?

Silly thoughts, but I sometimes wonder about them.

I wonder about that all the time too.

I also wonder why the US doesnt call all of it's International Loans in as well.

[Bliz]

I wonder about that all the time too.

I also wonder why the US doesnt call all of it's International Loans in as well.

I think it's pretty clear what would happen.

We would be effed. Hard.

Among all the myriad financial impacts that are difficult for the average person to predict (what happens when our credit rating is changed, etc.), the easiest to imagine is China basically says, fine, you're not going to pay your debts? Here's a nice healthy trade sanction for you. No more cheap Chinese goods. And many others would do the same. The impact on costs of living alone would be devestating and immediate. Also, the impact would be visited on American citizens as well. You have any treasury bonds? *poof*

Nationalization of American-owned properties abroad, expulsion of diplomats, closed military bases, cats and dogs LIVING TOGETHER, mass hysteria

We don't call in all of our international loans because we have bigger things at stake than only money. We're buying influence, security, and military capability.

[Fergasun]

It's obvious what the framework of a debt ceiling deal looks like.

1) GOP and Democrats agree to the easy amount of cuts over 10 years. I think this is $2T.

2) Debt ceiling raised by that much, not sure we make it to 2012 but it becomes an election issue (argh!)

3) The Democrats allow a vote on the "Balanced Budget Amendment" in both chambers of Congress (this vote fails because of the Senate, but it's a close vote something like 55-45 in favor but can't overcome the filibuster or 48-52 flat out).

4) Both GOP and Democrats try to beat the other party over this in 2012. The GOP can "win" because most Americans are scared and don't want the debt ceiling raised. The Democrats can "win" because independents see how ludicrous it is not to raise the debt ceiling.

As a young person I like the fact the GOP has the Ryan plan. I've seen what the Democrats have proposed in the House and what Obama proposed. Would it be nice to be able to have that type of government stimulus they are proposing? Yes. Do I think that type of stimulus spending is irresponsible? Yes. The only thing I haven't figured out is why doctors, and the chamber-of-commerce haven't realized are the implications of going with GOP budgets. Everyone is poorer because we take that huge GDP hit. The rich are best poised to benefit from the lack of government spending, thus once again they can "win". Government austerity hits the poor and middle class. If we don't do this gradually we become Greece (and there's a chance we get there anyhow.) I'm not talking about "debt riddle Greece" I'm talking about "people pissed off Greece".

[Kilmer17]

I think it's pretty clear what would happen.

We would be effed. Hard.

Among all the myriad financial impacts that are difficult for the average person to predict (what happens when our credit rating is changed, etc.), the easiest to imagine is China basically says, fine, you're not going to pay your debts? Here's a nice healthy trade sanction for you. No more cheap Chinese goods. And many others would do the same. The impact on costs of living alone would be devestating and immediate. Also, the impact would be visited on American citizens as well. You have any treasury bonds? *poof*

Nationalization of American-owned properties abroad, expulsion of diplomats, closed military bases, cats and dogs LIVING TOGETHER, mass hysteria

We don't call in all of our international loans because we have bigger things at stake than only money. We're buying influence, security, and military capability.

I agree.

But at SOME point, the most important thing facing our country will be our explosive debt.

When that time comes, things like International influence, cost of consumer goods etc become miniscule.

[Bliz]

I agree.

But at SOME point, the most important thing facing our country will be our explosive debt.

When that time comes, things like International influence, cost of consumer goods etc become miniscule.

It will become the most important thing facing our country, but there will always be choices of how you deal with it. Simply declining to pay our debts will never be the best solution.

[SnyderShrugged]

I think it's pretty clear what would happen.

We would be effed. Hard.

Among all the myriad financial impacts that are difficult for the average person to predict (what happens when our credit rating is changed, etc.), the easiest to imagine is China basically says, fine, you're not going to pay your debts? Here's a nice healthy trade sanction for you. No more cheap Chinese goods. And many others would do the same. The impact on costs of living alone would be devestating and immediate. Also, the impact would be visited on American citizens as well. You have any treasury bonds? *poof*

Nationalization of American-owned properties abroad, expulsion of diplomats, closed military bases, cats and dogs LIVING TOGETHER, mass hysteria

We don't call in all of our international loans because we have bigger things at stake than only money. We're buying influence, security, and military capability.

what makes you believe that these things wont occur anyway, once the ratings go so low that our debt becomes the factor that ultimately causes them to decide to go there anyway? To me, the risk you outline is inevitable at this point, but the duration of that pain is yet to be determined. Time to rip the bandaid off completely and face facts

[December90]

And watch things get so much worse for the US and watch the spike in interest rates

Of course one could do what most people in debt do, raise revenue and cut out they which is not needed

If your family income is 120K per year but your spouse gives 15K per month to very good charities; what should you do? Should you "earn more" to support your spouses charitable giving or should you tell your spouse to stop supporting charities that you cannot afford.

I will not say that most government social programs are "bad" (some are but that is a different discussion.) I will simply say that we cannot afford to continue to spend money we don't have. Taxing the "Rich" is not the answer because even tripling the cash receipts from the "Rich" would not erase a single years deficit, much less pay down any of the already incurred debt.

Simply put, our Government cannot afford to be all things to all people and we should stop pretending that it can.

Do the American people not realize that interest rates are near historic lows right now? think about it in terms of that introductory interest rate that credit cards offer you - pay 1.99% for the next 12-18 months after that the rates jump to.... What happens when Interest rates double from where they are now? when they triple? Interest on the debt is not yet the biggest single line item on the federal budget, but it doesn't take much understand how it likely will be soon (and not because of "cuts" to the other line items:()

How do we react as a nation when the majority of tax receipts simply go to cover interest for things we have done in the past without funding anything material?

[Stadium-Armory]

Some of the US debt is held by US citizens, you, me, our parents, our grandparents. I own treasuries through my 401k, and many of you probably do too. Most of my grandparents' retirement money is in t-bills because it is (was) considered safe and stable. They live off of the interest. Defaulting on the debt would hurt regular Americans.

What I can't get my head around is how the federal reserve owns close to 50% of the debt. What does that mean?

[SnyderShrugged]

What I can't get my head around is how the federal reserve owns close to 50% of the debt. What does that mean?

In short, they are monetizing the debt through a complex shell game

the US government has record amounts of Treasuries to sell.

Foreign central banks, which have a big pile of agency bonds in their custody account, would like to help but want to keep things somewhat under the radar to avoid scaring the debt markets.

The Federal Reserve does not want to be seen directly buying US government debt at auctions (and in fact is not permitted to, but many rules have been 'bent') because that could upset the whole illusion that there is unlimited demand for US government paper, but it also desperately wants to avoid a failed auction.

The Federal Reserve cannot just up and start buying all the Treasury paper that becomes available in record amounts.

Instead, it uses this three-step shell game to hide what it is doing:

Shell #1: Foreign central banks sell agency debt out of a custody account.

Shell #2: The Federal Reserve buys those agency bonds with money created out of thin air.

Shell #3: Foreign central banks use that very same money to buy Treasuries at the next government auction.

The Federal Reserve is effectively buying government debt at auction. This is exactly, precisely what Zimbabwe did, but with one more step involved, introducing just enough complexity to keep the entire game mostly, but not completely, hidden from sight. They can scramble the shells all they want, but the pea is still there somewhere - the pea is the fact that the Fed is creating money to fund the purchase of US debt.

The shell game that the Fed is currently playing does not change the basic equation: Money is being printed out of thin air so that it can be used to buy US government debt.

[Bliz]

Well here's an interesting twist

http://news.yahoo.com/blogs/ticket/could-obama-ignore-congress-refuse-raise-debt-ceiling-142136726.html

As both major parties debate their conditions for raising the nation's debt ceiling, some Senate Democrats and constitutional scholars are questioning whether the limit is constitutional in the first place.

Delaware Sen. Chris Coons told The Huffington Post this week that he's part of a group of lawmakers now examining whether, in the case that debt negotiations fail, the Treasury could ignore Congress and continue paying its bills on time.

"This is an issue that's been raised in some private debate between senators as to whether in fact we can default, or whether that provision of the Constitution can be held up as preventing default," Coons told Huffington Post reporters Ryan Grim and Samuel Haass. "t's going to get a pretty strong second look as a way of saying, 'Is there some way to save us from ourselves?' "

Critics of the debt limit cite the Fourteenth Amendment to the Constitution, which states: "the validity of the public debt of the United States, authorized by law, including debts incurred for payment of pensions and bounties for services in suppressing insurrection or rebellion, shall not be questioned." (Emphasis ours)

Of course, the Fourteenth Amendment is open to wide, and varying, interpretation and debate. The most basic question here is, does a limit on debt "question" the "validity" of the debt?

Legal scholar Garrett Epps, writing in The Atlantic in April, said that a case could easily made for simply ignoring the congressionally mandated debt limit.

"This provision makes clear that both the monies our nation owes to bondholders, and the sums promised in legislation to those receiving pensions set by law from the federal government, must be paid regardless of the political whims of the current congressional majority," Epps wrote.

In essence, Epps argues that Obama should stand before Congress and say, Tough luck--the Constitution says we can't default. Epps argued that in the event that Congress does not act, Obama should (and could) instruct the Treasury Department to issue "binding debt instruments on the world market sufficient to cover all the current obligations of the United States government, even in default of Congressional action to meet those obligations."

President Obama's own views on the subject, however, are unclear. During his press conference Wednesday, Obama dodged a question about the debt limit's constitutionality, telling NBC's Chuck Todd: "I'm not a Supreme Court justice, so I'm not going to put my constitutional law professor hat on."

Obama understandably didn't want to show his cards by hashing out a plan for how he would act in the event Congress fails to raise the debt ceiling. But some observers have already outlined how he could--and still get away with it.

Writing in the Financial Times in April, Former Reagan adviser and Treasury official Bruce Bartlett said the Obama administration could justify ignoring Congress to ensure the nation pays its debts.

"The president would be justified in taking extreme actions to protect against a debt default. In the event that congressional irresponsibility makes default impossible to avoid, he should order the secretary of the Treasury to simply disregard the debt limit and sell whatever securities are necessary to raise cash to pay the nation's debts. They are protected by the full faith and credit of the United States and preventing default is no less justified than using American military power to protect against an armed invasion without a congressional declaration of war," Bartlett wrote. "Under those circumstances, when default is the only possible alternative, I believe that the president and the Treasury secretary would be justified in taking extraordinary action to prevent it, even if it means violating the debt limit."

more at the link

[DRSmith]

If your family income is 120K per year but your spouse gives 15K per month to very good charities; what should you do? Should you "earn more" to support your spouses charitable giving or should you tell your spouse to stop supporting charities that you cannot afford.

I will not say that most government social programs are "bad" (some are but that is a different discussion.) I will simply say that we cannot afford to continue to spend money we don't have. Taxing the "Rich" is not the answer because even tripling the cash receipts from the "Rich" would not erase a single years deficit, much less pay down any of the already incurred debt.

Simply put, our Government cannot afford to be all things to all people and we should stop pretending that it can.

Do the American people not realize that interest rates are near historic lows right now? think about it in terms of that introductory interest rate that credit cards offer you - pay 1.99% for the next 12-18 months after that the rates jump to.... What happens when Interest rates double from where they are now? when they triple? Interest on the debt is not yet the biggest single line item on the federal budget, but it doesn't take much understand how it likely will be soon (and not because of "cuts" to the other line items:()

How do we react as a nation when the majority of tax receipts simply go to cover interest for things we have done in the past without funding anything material?

You can cut spending heck the two wars are costing dearly and have been for sometime with abosutely no one paying for them

You look at Greece much of their package plan is raising revenues and having the private sector take a loss for their share of the Greek debt

[SnyderShrugged]

You can cut spending heck the two wars are costing dearly and have been for sometime with abosutely no one paying for them

You look at Greece much of their package plan is raising revenues and having the private sector take a loss for their share of the Greek debt

Thats actually resonant of RP's thoughts too. Save money via foreign policy, and allocate it towards a gradual decrease in domestic spending over time to help ease any transition for folks dependent upon it.

[DRSmith]

Thats actually resonant of RP's thoughts too. Save money via foreign policy, and allocate it towards a gradual decrease in domestic spending over time to help ease any transition for folks dependent upon it.

Your economy depends on money being spent in the country by those who recieve government bennies you want to cut domestic spending start means testing it and that way you do not hurt your economy

[SnyderShrugged]

Your economy depends on money being spent in the country by those who recieve government bennies you want to cut domestic spending start means testing it and that way you do not hurt your economy

I'm not sure you read my post, as its not very related to what you just said?:confused:

[December90]

Your economy depends on money being spent in the country by those who recieve government bennies you want to cut domestic spending start means testing it and that way you do not hurt your economy

Our Government has created a "dependent class" We should do whatever we can to ween a majority of those dependents from living off Government handouts and supporting themselves.

Just like the parents of some young adults, time has come for them to fend for themselves. Some may fall and when they do, give them a hand back up to help them on their way to independence. We should stop the mentality of "I see you fell down, just get comfortable down there and we will take care of you"

[LadySkinsFan]

Our Government has created a "dependent class" We should do whatever we can to ween a majority of those dependents from living off Government handouts and supporting themselves.

Just like the parents of some young adults, time has come for them to fend for themselves. Some may fall and when they do, give them a hand back up to help them on their way to independence. We should stop the mentality of "I see you fell down, just get comfortable down there and we will take care of you"

Then I'm guessing you are for cutting all forms of corporate welfare as well. And that is more $$ than any we give out to human beings.

[Larry]

Actually, what I'm admiring is how having government policies that encourage the stagnation and even reduction of the lower and middle class, is referred to as "the government has created a dependent class".

It's like "record numbers of Americans are on welfare" becomes "well, what's wrong here is that welfare exists".

[DRSmith]

Our Government has created a "dependent class" We should do whatever we can to ween a majority of those dependents from living off Government handouts and supporting themselves.

Just like the parents of some young adults, time has come for them to fend for themselves. Some may fall and when they do, give them a hand back up to help them on their way to independence. We should stop the mentality of "I see you fell down, just get comfortable down there and we will take care of you"

Obviously you are talking about those companies that get subsidies and government contracts and need more privatization in order to get that money