Debt Ceiling Chicken

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In 30 days, on August 2nd, the US government will officially run out of money unless the Congress raises the debt ceiling, allowing the government to borrow more money. This is pretty damned serious in that we won't have enough money to service our existing debt and we would be in default. That, of course, would be financial Armageddon.

The Republicans, driven by the Tea Party, are insisting that the #1 issue in America right now isn't the economy or unemployment, but the debt and deficit. They are positioning the raising of the debt ceiling as the worst thing we can do, conveniently ignoring that they did it ten times over the last decade when they controlled Congress. One plan is to draw a line in the sand and not raise the debt ceiling until an equal amount of spending cuts are extracted--about $2.4 trillion worth. Another is to not raise the debt ceiling and simply prioritize debt payments. This option would force Congress reduce spending by a third, immediately, and would still throw the debt markets into panic.

The Democrats are saying that the #1 issue in America is, in fact, the economy, that deficit spending is perfectly OK during an economic downturn, and the debt can best be reduced when the economy is growing. While it seems they've already conceded to some spending cuts, they've recently begun insisting on several hundred billion of tax increases, mostly targeted to the businesses and the wealthy, which, of course, is anathema to Republicans.

So now we're set for a month of political wrangling that will still fail to address the core issues of our budgetary problems: we spend too much *and* we need to take in more revenue if we really want to reduce reduce our debt. Given how poorly Britain's and Greece's economies reacted to the austerity measures they implemented last year, I'm not sure that now is exactly the time to be slashing government spending by trillions.

I this is all just more bluster and rhetoric from the right on this issue. They seem to be operating under the "make everything as hard as possible for Obama" doctrine. It doesn't seem to matter what the issue nor how outlandish the position, if it makes Obama miserable then take that stance.

I wonder, if they refuse to raise the debt ceiling, does that mean they immediately shut down their offices, lose their pay, health benefits and all will be forced to fly home on their own dime?

The Republicans seem to have learned that the best way to win a game of chicken is to convince everyone you're crazy enough to crash the car... and the've been very convincing indeed.

Hey come on, threatening to quit paying our bills is the best way to show people we're serious about financial responsibility.

clover wrote:

Hey come on, threatening to quit paying our bills is the best way to show people we're serious about financial responsibility.

In fairness, I'm sure that it worked for a lot of those representatives. They stopped paying their bills and their parents stepped up and paid them for them.

If the ceiling were not raised by the deadline (and the deadline not extended again) how soon would the defaults follow? Would the consequences be effectively instantaneous or would it be years down the road?

Boehner, Cantor, Kyl, and McConnell all voted for increases in the debt limite 19 times under Dubya. They never insisted on a single cut on a single program during that time.

Can you say "hypocrites"?

I knew you could.

krev82 wrote:

If the ceiling were not raised by the deadline (and the deadline not extended again) how soon would the defaults follow? Would the consequences be effectively instantaneous or would it be years down the road?

The deadline is when the Treasury reports it will run out of money. We're at the debt ceiling already, we're just shuffling accounts to keep the lights on right now, metaphorically speaking.

The only way to move the deadline is to put money into the treasury, or cut payments coming out of the treasury.

To fix our problems we would need a party that is willing to take a good pragmatic look at things including but not limited to:

1. Lowering the FICA tax but removing the income cap.
2. Means testing for social security receipts (transforming it into the welfare retirement program it really is)
3. Cutting tax rates, but removing nearly all deductions
4. Adding a progressive "millionaire+" tax bracket at 45%
5. State reform of public pension systems, making it illegal for public employee unions to bribe... I mean donate to candidates that vote on their contracts, sitting on both sides of the table.
5b. Perhaps a "buy out" of pensions for employees X years from retirement replacing it with a 401k + match.
6. Cutting the military spending to a percent of GDP more or less equal to our NATO allies.

You'd go from deficit to surplus overnight if anyone had the cajones to do it.

krev82 wrote:

If the ceiling were not raised by the deadline (and the deadline not extended again) how soon would the defaults follow? Would the consequences be effectively instantaneous or would it be years down the road?

The worlds reserve currency and the baseline for "risk free investment", the US treasury would suddenly not be that anymore. Besides an instant hammering of a lot of countries that use the treasury notes as a currency peg and or inflation control, you may end up with a situation where many debt holders will in the future look elsewhere for safe investments. This would greatly increase the cost of American borrowing which would compound the problem we have with our debt since future interest payments would be an order of magnitude higher.

There's a lot of debate on what will actually happen if we default, but the debate is more on the sorta bad to disastrous scale. I tend to side more on the disaster part. I tend to lean right, but God as my witness if the Republicans do this I will never vote R again. Ever.

/Not that I like the other side either.

bandit0013 wrote:

To fix our problems we would need a party that is willing to take a good pragmatic look at things including but not limited to:

1. Lowering the FICA tax but removing the income cap. (i.e. Taxing the rich)
2. Means testing for social security receipts (transforming it into the welfare retirement program it really is) (i.e.: Taxing the rich)
3. Cutting tax rates, but removing nearly all deductions (i.e.: Taxing the rich)
4. Adding a progressive "millionaire+" tax bracket at 45% (i.e.: Taxing the rich)
5. State reform of public pension systems, making it illegal for public employee unions to bribe... I mean donate to candidates that vote on their contracts, sitting on both sides of the table. (i.e.: taxing the unions)
5b. Perhaps a "buy out" of pensions for employees X years from retirement replacing it with a 401k + match.
6. Cutting the military spending to a percent of GDP more or less equal to our NATO allies. (i.e.: being soft on terrorism)

You'd go from deficit to surplus overnight if anyone had the cajones to do it.

My snarky comments in bold.

Seriously though, I don't have any major objections to any of the above, but must state that lowering our military spending to 1% more than our NATO allies would necessitate our giving up on the idea of having global power projection. I'm not married to the idea of GPP, but many Americans are. Some would even say that most Americans are. We are not, for instance, willing to accept the idea of a foreign attack on our soil combined with the inability to muster an immediate military response as a political reality. If American teenagers are held hostage in Buttpokeastan, we want to be able to scramble the fairies.

Paleocon wrote:
bandit0013 wrote:

To fix our problems we would need a party that is willing to take a good pragmatic look at things including but not limited to:

1. Lowering the FICA tax but removing the income cap. (i.e. Taxing the rich)
2. Means testing for social security receipts (transforming it into the welfare retirement program it really is) (i.e.: Taxing the rich)
3. Cutting tax rates, but removing nearly all deductions (i.e.: Taxing the rich)
4. Adding a progressive "millionaire+" tax bracket at 45% (i.e.: Taxing the rich)
5. State reform of public pension systems, making it illegal for public employee unions to bribe... I mean donate to candidates that vote on their contracts, sitting on both sides of the table. (i.e.: taxing the unions)
5b. Perhaps a "buy out" of pensions for employees X years from retirement replacing it with a 401k + match.
6. Cutting the military spending to a percent of GDP more or less equal to our NATO allies. (i.e.: being soft on terrorism)

You'd go from deficit to surplus overnight if anyone had the cajones to do it.

My snarky comments in bold.

Seriously though, I don't have any major objections to any of the above, but must state that lowering our military spending to 1% more than our NATO allies would necessitate our giving up on the idea of having global power projection. I'm not married to the idea of GPP, but many Americans are. Some would even say that most Americans are. We are not, for instance, willing to accept the idea of a foreign attack on our soil combined with the inability to muster an immediate military response as a political reality. If American teenagers are held hostage in Buttpokeastan, we want to be able to scramble the fairies.

Thing is, we have missile tech, nukes, etc. The threat of invasion by a power like Russia or China is nil. Even if they did happen to defeat the military, I do believe with all the whackjob rednecks etc they'd have an insurgency that wouldn't make it worth the effort. Our threat is more the agile terror style organizations. We should slow down spending on billion dollar jets, military bases all over the globe (like Germany, why?), and overall "soldiers on the ground" manpower.

Instead we should continue to work on military intelligence, unmanned drones, and quick strike teams like the ones that got Bin Ladin. Then if some terrorist guy is stirring up crap, we quietly turn his head into a canoe. Problem solved.

Overall we need less GPP. We should be forging close ties with countries like Turkey, Egypt, India, Israel, etc and making them police their own backyards while providing intelligence support. Or look at what's going on in Libya where some of our NATO allies can't (or won't) pony up troops and resources for the mission. Maybe NATO should be changed such that those countries can just pay a very large consulting fee for us to do everything for them.

As for the taxing the rich, if you removed all the deductions, you could conceivably go to a flat or flatter tax rate. I don't see why someone making $75-$100k/yr should have the same tax burden as someone making $500k just because the $500k guy has the resources and clever accounting tricks to get their tax paid down. I'd rather see all that stuff go away and have them both paying a similar rate.

Remember, though, tax deductions *are* useful to manipulate the economy. The problem is that a myriad of exemptions have become permanent, or at best outlived their stimulative purposes, and live on as pork. That's the low-hanging financial fruit. Unfortunately, it's highly poisonous to politicians; even Michelle Bachmann and her family suck at the teat of socialist handouts, to the tune of more than I make every year just for her.

Another reason the Tea Party is not to be trusted.

It's sort of like SimCity isn't it.

Who hasn't gotten stuck in that downward spiral - expenses are too high, so you borrow, then you have to pay the debt, so you raise taxes, which reduces growth, which reduces revenue, which increases expenses and away and around you go until your city is dead.

At some point you gotta bulldoze some neighborhoods and shut down public services or your whole city will go down.

Also, Greece is a pretty good example of exactly what happens when social 'security' falls apart (as it inevitably will do when consumers > producers).

We're in really deep sh*t, because the Federal budget deficit is 10% of our entire economy. If we just bring things back to balance, we're going to see the economy crash; it will shrink by at least 20%, probably more.

We have been living beyond our means for 20 years. And it's mostly the Republicans that have done it to us. Now we're getting to the point that we're running out of options.

All the debt that we've been issuing has really f*cked up the economy. It has grown, but it's grown wrong. It's been growing wrong since about 1995. Ultimately, a very great deal of the economy that's been built since about 1995, when Alan Greenspan started us down the path of fiscal accommodation of the wild excess of both the financial markets and Congress, will need to dry up and blow away.

People are going to die from these adjustments. We are in a f*cking GIGANTIC HOLE, the biggest hole in human history. We owe the world more than we can possibly repay; we've been taking their stuff for most of a generation, and giving them promises in exchange. We can't keep those promises.

This is what bubbles do. This is why they must be prevented. No matter what course the government takes, there's eventually going to be a huge crash. It can happen now, or it can happen later. If it happens later, it'll be worse, because the bailout measures they'll take will dig the hole deeper.

We have to pay for what we use. There is no escaping this. The piper will be paid. And all of this, all of this pain, comes down to fiscal irresponsibility by the Federal Reserve and the congressional Republicans. Clinton also f*cked us up in a big way; on his watch, Congress looted Social Security, incurring a vast obligation, but then blew that real wealth on useless sh*t. The 'balanced budget' during the Clinton years was an absolute lie.

@malor

The boomer generation is ultimately responsible for this crap. Look at my Grandfather, pension, SSI, double dipping. He routinely brags to his family that he's making more money being retired than he ever did working, not to mention is medicare etc he's getting really good health care on top of everything else. Now we have a political class that consists of many boomers and is afraid to do what needs to be done because if you "touch their medicare" or social security you're going to get voted out, and we all know that these 20-30 year career politicians will do anything not to get voted out.

I am so for term limits. No one should be in office more than 12 years. At least then people on the way out might vote to do the right thing once in a while instead of pandering.

Wow, I'm depressed now.

bandit0013 wrote:

I am so for term limits. No one should be in office more than 12 years. At least then people on the way out might vote to do the right thing once in a while instead of pandering.

I wish this were true. But from what I've seen, it's more likely they'll sell out at the end so they can start a cushy executive job working for the highest special interest bidder when they get out.

Mixolyde wrote:
bandit0013 wrote:

I am so for term limits. No one should be in office more than 12 years. At least then people on the way out might vote to do the right thing once in a while instead of pandering.

I wish this were true. But from what I've seen, it's more likely they'll sell out at the end so they can start a cushy executive job working for the highest special interest bidder when they get out.

Pretty much.

I've seen a far greater degree of professionalism and commitment to service out of "career politicians" than I have from the typical ideologues that came in on the waves of "term limit" anti-incumbancy.

Paleocon wrote:
Mixolyde wrote:
bandit0013 wrote:

I am so for term limits. No one should be in office more than 12 years. At least then people on the way out might vote to do the right thing once in a while instead of pandering.

I wish this were true. But from what I've seen, it's more likely they'll sell out at the end so they can start a cushy executive job working for the highest special interest bidder when they get out.

Pretty much.

I've seen a far greater degree of professionalism and commitment to service out of "career politicians" than I have from the typical ideologues that came in on the waves of "term limit" anti-incumbancy.

That's why a benevolent monarchy is probably the best form of government. The key is maintaining the benevolent part.

Don't get me started with special interests though. I think elections should be publicly financed and any member of government that receives any perks for time in office should be sent to PMITA prison along with the person who offered it.

bandit0013 wrote:
Paleocon wrote:
Mixolyde wrote:
bandit0013 wrote:

I am so for term limits. No one should be in office more than 12 years. At least then people on the way out might vote to do the right thing once in a while instead of pandering.

I wish this were true. But from what I've seen, it's more likely they'll sell out at the end so they can start a cushy executive job working for the highest special interest bidder when they get out.

Pretty much.

I've seen a far greater degree of professionalism and commitment to service out of "career politicians" than I have from the typical ideologues that came in on the waves of "term limit" anti-incumbancy.

That's why a benevolent monarchy is probably the best form of government. The key is maintaining the benevolent part.

Don't get me started with special interests though. I think elections should be publicly financed and any member of government that receives any perks for time in office should be sent to PMITA prison along with the person who offered it.

There was talk a while back about instituting a ban on working as a lobbyist for 2 years after leaving office, but I'm pretty sure that was struck down as a violation of the First Amendment. Good luck getting that one past the two headed Scaliasaur.

gewy wrote:

Wow, I'm depressed now.

No lie. Whenever I see a thread like this pop up, and Malor has more than one post in it ... well let's just say it makes me think of -

NSFW

I have said, on more than one occasion, that if Alan Greenspan had personally visited your house, piled half of everything you own on the lawn, and set it on fire, he'd have done less damage to you than he did during his tenure at the Federal Reserve.

See what I mean?

Heretk wrote:

See what I mean? :)

HAHAH! I'm the EXACT same way. I always make the mistake of reading Malor's posts right before bed.

gewy wrote:

Wow, I'm depressed now.

f*ck, I'm not even in the same country and I'm depressed too

No matter how deep we sink, no matter how hard the economy crashes, we'll always have oogaba.

On a personal note, what's really frustrating about all this is that I've seen this coming for 10+ years now. I thought we'd be mostly through the pain by now. I had been SO looking forward to being the relentless chirpy optimist when everyone else was convinced the world was ending. But they just keep f*cking things up worse and worse.

We really should have crashed in 2001-2002, but we had 9/11, and that gave the Fed the excuse to pump the system full of ridiculous amounts of money, and then keep interest rates low for ages.... which did "rescue" the economy at the time, but just set off the housing and debt bubbles. And now the massive intervention in 2008 has set us up for an even more spectacular crash when the government finance bubble pops.

I don't know when it'll happen; they've shown an amazing ability to keep the system running when it shouldn't. But we are on a minecart, plunging into the abyss. The only way to not die is to derail the cart, which will cause massive injuries.... so the politicians and bankers do their best to keep us on the track, hurtling at ever-accelerating speed toward the rocks at the bottom.

We should have been having the debt conversation in the late 90s, and the fact that many of the same Republicans that are squawking about deficit reduction now were cheering on the massive expansion of Medicare in 2004, to win a few votes from old people, shows how transparently self-serving they are.

In talks led by Vice President Joe Biden, negotiators had agreed to reduce discretionary spending, which covers everything from space exploration to pollution control, by between $900 billion and $1.7 trillion over 10 years.

Link. As we're making these cuts, we'll keep spending $600 billion a year on weapons and troops to use in making the middle east more American.

Funkenpants wrote:

In talks led by Vice President Joe Biden, negotiators had agreed to reduce discretionary spending, which covers everything from space exploration to pollution control, by between $900 billion and $1.7 trillion over 10 years.

Link. As we're making these cuts, we'll keep spending $600 billion a year on weapons and troops to use in making the middle east more American.

Talk about having messed up priorities. Christ on a pogo stick, are they really that shortsighted?

Rallick wrote:

Talk about having messed up priorities. Christ on a pogo stick, are they really that shortsighted?

It's not that they're short sighted, it's that they're bought and paid for. The mass of the defense industry & their lobby is so massive it's developing it's own gravitational field. I love our military and I whole-heartedly support our troops but it's time to shut this nonsense down. We aren't "Americanizing" Iraq and Afghanistan is a perpetual sh*thole no matter how many billions you pump into it.

Shutting down things like space exploration so we can extend tax breaks to the uber rich is certifiable insanity. We're literally having a debate about what's more important, buying a sixth house, an eleventh car or upgrading from a 50 foot yacht to a 75 foot yacht? Fortunately, everything has a breaking point and Washington is getting preciously close to the sanity breaking point.

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