Debt Ceiling Chicken

Get more people paying taxes by employing them and have incomes increase by those already employed.

And I'd like a pony.

johnny531 wrote:
Get more people paying taxes by employing them and have incomes increase by those already employed.

And I'd like a pony.

Sure you can have a pony. If you pay for it yourself with the income you earn.

goman wrote:

Okay - Lets assume that the deficit is a bad thing in and of itself. I'll do that for argument sake. All I hear from Democrats is tax the rich. All I hear from Republicans is spend less.

How about this for the solution. Get more people paying taxes by employing them and have incomes increase by those already employed.

I think the answer is actually somewhere in the middle. The "rich" shouldn't be taxed any more than their share. However, the current system is completely bent to allow the "rich" to pay a fraction of what they should. We subsidize corporations who are earning billions and allow them to claim zero taxable income. There's plenty of revenue out there if it's actually split evenly and collected. Instead, one party seems myopically focused on making the extremely rich insanely rich.

We also need to have a rational discussion on spending. We're dropping $10 BILLION a day in Afghanistan because we seem to be a nation that has a insatiable blood lust. I don't even know what the figure is for Iraq now.

Increase revenue by 10% and cut spending by 10%. Everyone is miserable and pissed off but we're a lot closer to solving our budget deficit.

The average rate of inflation over the past 10 years (Dec to Dec) is around 2.4%

Right, but realize there's at least two problems with that headline number. First, the number itself is so damaged by statistical whackjobbery that it's useless. They have come up with a truly amazing number of ways to ignore numbers they don't like, and use numbers they do. They couch it in jargon, I think precisely because they know people would catch on if they didn't. An example is 'owner's equivalent rent', which they used as a method to ignore housing inflation all through the bubble. I bet they've come up with a new method of incorporating house prices into their figures again, now that houses are going down.

The second major problem is that everyone's currencies are linked to ours; most foreign governments try to maintain roughly similar exchange rates against the dollar. This means they have to print their currency and buy ours. This means that the inflation still happens, but it happens in THEIR currencies at first, and takes substantially longer to get passed through to final pricing on our shelves.

China is having particularly nasty inflation problems, and India is struggling some, too. And the primary reason is dollar printing, aka "quantitative easing".

goman wrote:

Okay - Lets assume that the deficit is a bad thing in and of itself. I'll do that for argument sake. All I hear from Democrats is tax the rich. All I hear from Republicans is spend less.

It's true that that's where most of the Democrats sadly stop. Liberals, however, have a more thorough plan that includes knocking trillions off of our Aggression spending, ending the War on Drugs, Oil and other subsidies, and often a comprehensive medical reform that brings our health spending/return a little more in line with civilized nations.

How about this for the solution. Get more people paying taxes by employing them and have incomes increase by those already employed.

Alright, employing people I get. Congress could come out tomorrow and say "in the next two years we are building a high speed Los Angeles to New York rail line, six new Nuclear Power Plants, revamping of our electrical grid, replacing aging bridges and other road systems, etc, etc, etc."

Lets say that gets rid of our excess employment and we go from our current 9.2% unemployment to a healthy 3%. (That's a 7% increase in the number of employed people, not too astronomical of a number). That leaves us with a big problem though, now that everyone is employed, how does the federal government increase everyone's wages? The minimum wage could be raised (causing it's own economic pains) but that does little to nothing to increase median or mean wages. Really it seems like all the Federal government could do is raise the wages of all of their workers: Armed Forces, three letter agencies, post office, DMV, IRS, park rangers, etc. That's not a very large percentage of US workers...

If they could force states to raise their wages that would be another big chunk of workers: police officers, fire fighters, teachers, etc, but the Federal Government has no way to affect that change. Most people that actually "work for the government" are contractors, aka all the people that are doing all those infrastructure upgrades I proposed. The government can increase the pay to those corporations, but there is absolutely no reason to believe that will trickle down to the workers (hint, it won't). As for companies that aren't government contractors, the government can't affect anything there either. They can give a tax break to the companies so that they can sit on more cash, but they won't have a reason to pass that money on to their workers.

Sure, some industries will have to raise pay. UPS and FedEx, for example, will have to raise wages to compete with the post office, and Halliburton will have to raise wages so that their private mercenaries don't stay in the army, but the Federal Government doesn't have enough employees to actually have an affect on raising wages across the entire economy.

Malor wrote:
The average rate of inflation over the past 10 years (Dec to Dec) is around 2.4%

Right, but realize there's at least two problems with that headline number. First, the number itself is so damaged by statistical whackjobbery that it's useless. They have come up with a truly amazing number of ways to ignore numbers they don't like, and use numbers they do. They couch it in jargon, I think precisely because they know people would catch on if they didn't. An example is 'owner's equivalent rent', which they used as a method to ignore housing inflation all through the bubble. I bet they've come up with a new method of incorporating house prices into their figures again, now that houses are going down.

To corroborate this, see this graph from shadowstats.com. It's what inflation is if they still calculated it the same way as they did in 1980 (further alterations were made in 1991 and one or two other years during Bush Jr's term). Our "deflation" of a couple years ago was still >5% inflation using the older numbers. Tends to do a better job explaining why my 3% cost-of-living adjustment didn't cover my increase in expenses.

IMAGE(http://www.shadowstats.com/imgs/sgs-cpi.gif?hl=ad&t=)

goman wrote:

Okay - Lets assume that the deficit is a bad thing in and of itself. I'll do that for argument sake. All I hear from Democrats is tax the rich. All I hear from Republicans is spend less.

How about this for the solution. Get more people paying taxes by employing them and have incomes increase by those already employed.

First, I'm not going to get into the whole deficit/debt spending thing with you (or Malor). It gives me a headache to hear you guys go back and forth.

Second, we're you even listening during the debt ceiling debate? The Democrats accepted some spending cuts and simply asked that revenue increases be accepted by the Republicans. They didn't even ask for the Bush era tax cuts to be repealed (causing the highest marginal tax rate to sky rocket from 36% to, oh the humanity, 39.6%). They simply wanted some tax loopholes closed that would have had the effect of increasing tax revenues by closing off ways people and companies could dodge paying taxes.

Aggressively taxing the rich would be saying that the highest marginal income tax bracket is going back to where it was in the days of Truman and counting capital gains as income instead of taxing it at a much, much lower level. Considering the explosion of income inequality and the concentration of wealth over the years (and especially the past decade), this isn't exactly a horrible idea these days.

People aren't going to be employed until companies feel safe and that won't happen until they experience two quarters of solid revenue and demand growth. Short of that happening, the government can either provide stimulus funds in the form of unemployment insurance, etc. (which is going away under the debt deal) or outright hire people (which is also going away under the debt deal).

Republicans pulled a Hoover and decided that the most important thing they could do during a severe economic downturn was to tackle the deficit. And we all know how that turned out the last time.

Bear wrote:

We also need to have a rational discussion on spending. We're dropping $10 BILLION a day in Afghanistan because we seem to be a nation that has a insatiable blood lust. I don't even know what the figure is for Iraq now.

It's about $10 billion a month, but your point is entirely valid. We've determined that spending $50 billion or so a year on providing out-of-work Americans with just enough money to keep their heads above water is a waste, but shelling out $150+ billion a year to keep troops in Iraq and Afghanistan (something most Americans don't want) and propping up corrupt governments is a necessary investment. That's horribly f*cked up national priorities. I mean we spent $20 billion just on air conditioning for these wars last year.

You know 2.4% inflation might sound "nice" but even that notionally small figure represents astoundingly high inflation. At that rate the value of your money will half every 15 years (approx). Fine if you have the wealth and resources so you can invest in such a way to stay ahead of it, terrible for all the rest of us.

Malor wrote:

[Right, but realize there's at least two problems with that headline number. First, the number itself is so damaged by statistical whackjobbery that it's useless.

I'd be happy to go along with this claim if the bond market was demanding higher yields to account for shadow inflation. It's a subject of controversy, and people argue about it endlessly on the internet.

DanB wrote:

You know 2.4% inflation might sound "nice" but even that notionally small figure represents astoundingly high inflation.

I don't agree. If during the period wages rise at an average of 2.4% or higher, and yields on debt are 2.4% or higher, then everyone is either in the same position or better off than they were at the beginning of the period. I may be paying more for a loaf a bread in 15 years, but I'll also be making more in nominal terms to compensate.

We could target 0% inflation/deflation, but that raises the risk of slipping into deflation at any given moment, which economists fear more than a little inflation.

If credit ratings are about solvency, rather than inflation risks, then S&P is violating the 14th amendment. - The debt shall not be questioned.

Actually, that's not what it says in the fourth clause. It says "...the validity of the public debt, authorized by law...shall not be questioned". This means that Congress can't go back and undo the spending it's done in previous sessions or acts. It has *nothing* to do with the credit rating of the country.

Funkenpants wrote:

I don't agree. If during the period wages rise at an average of 2.4% or higher, and yields on debt are 2.4% or higher, then everyone is either in the same position or better off than they were at the beginning of the period. I may be paying more for a loaf a bread in 15 years, but I'll also be making more in nominal terms to compensate.

If you have a 2.4% increase in prices and 2.4% increase in wages then you don't have inflation. Inflation is the devaluation of currency.

Funkenpants wrote:

I'd be happy to go along with this claim if the bond market was demanding higher yields to account for shadow inflation.

It's awfully hard to get yields with your cash when you're competing against unlimited supplies of the stuff for free.

Someone back there, maybe goman? wrote:

If credit ratings are about solvency, rather than inflation risks, then S&P is violating the 14th amendment. - The debt shall not be questioned.

This is bullsh*t. The validity of the debt is not being questioned in the least. What's being questioned is the willingness to pay that debt. We owe the money without question. But will we actually pay it, without diluting the currency to do so? From a big picture perspective, it looks exceptionally unlikely.

S&P has every right to say what they are saying.

Robear wrote:
If credit ratings are about solvency, rather than inflation risks, then S&P is violating the 14th amendment. - The debt shall not be questioned.

Actually, that's not what it says in the fourth clause. It says "...the validity of the public debt, authorized by law...shall not be questioned". This means that Congress can't go back and undo the spending it's done in previous sessions or acts. It has *nothing* to do with the credit rating of the country.

What does the credit rating of the country mean then? If it is about solvency then it is illegal per the 14th amendment. Of course this is just opinion based on my understanding of that clause. You have yours. It has never gone to the Supreme Court to figure out which one is right.

For US Currency, there is nothing safer than US Treasuries. Except one thing. Your couch.

Malor wrote:

S&P has every right to say what they are saying.

Let's not forget, S&P is also complicit in this mess. They had no problem falsifying credit ratings when banks were writing fraudulent CDO's as fast as they could compile them. Their actions had a direct impact one the absurd TARP and stimulus spending. packages.

goman wrote:

What does the credit rating of the country mean then? If it is about solvency then it is illegal per the 14th amendment. Of course this is just opinion based on my understanding of that clause. You have yours. It has never gone to the Supreme Court to figure out which one is right.

Note: I am far from an expert on Constitutional law.

As far as I understand it, the Constitution is not a set of laws that applies to individuals, but a set of rules that applies to the Government as to what they are and are not allowed to do. The Feds and the States have to comply with the Constitution when they're writing laws and making executive orders.

But I don't know that the Constitution itself is legally binding for individuals or corporations. Given such, is it even possible for S&P to violate the 14th Amendment at all, seeing as they aren't part of the Government?

Keldar wrote:

But I don't know that the Constitution itself is legally binding for individuals or corporations. Given such, is it even possible for S&P to violate the 14th Amendment at all, seeing as they aren't part of the Government?

I agree. That was an odd thing to say, that a corporation could be violating the Constitution. I can't, for example, abridge your right to free speech. I can try and shut you up, but that becomes a criminal or civil case if I'm breaking other laws in the process. If, however, the government were to aid in me taking away your first amendment rights, they'd be doing something unconstitutional. So yeah, that's generally my understanding as well.

Keldar is correct. The Constitution only has a few things that pertain directly to citizens. It is well understood that the 14th Amendment applies to the government repudiating debt - both asserting that federal debt could not be repudiated, and making sure that the federal government would not be considered responsible for Confederate debt or freed slaves. There aren't any laws against S&P stating their opinion of U.S. debt, and the only possible repercussion would be the removal of the legal structures surrounding the ratings agencies, which would be a good thing.

Bear wrote:

Let's not forget, S&P is also complicit in this mess. They had no problem falsifying credit ratings when banks were writing fraudulent CDO's as fast as they could compile them. Their actions had a direct impact one the absurd TARP and stimulus spending. packages.

And it should be a sign of how bad things have to be, even with their newfound caution, for such a step to be taken. They don't operate in anything like a free market, but there are still some market pressures remaining.

Keldar wrote:

As far as I understand it, the Constitution is not a set of laws that applies to individuals, but a set of rules that applies to the Government as to what they are and are not allowed to do. The Feds and the States have to comply with the Constitution when they're writing laws and making executive orders.

Yeah, too bad they don't obey Article 1 Section 10...

Recon wrote:
Keldar wrote:

As far as I understand it, the Constitution is not a set of laws that applies to individuals, but a set of rules that applies to the Government as to what they are and are not allowed to do. The Feds and the States have to comply with the Constitution when they're writing laws and making executive orders.

Yeah, too bad they don't obey Article 1 Section 10...

That is about States, not the Federal government.

Think about that logically. If States don't have the right to make anything but silver and gold legal tender, obviously the intent in the constitution is that gold and silver are the only legal tender of the nation. It doesn't implicitly permit the Fed to make a different currency. If the Fed is allowed to make up its own legal tender, why not allow the states to as well?

Besides, even if your point stands, it still confirms that gold is money.

Recon wrote:

Think about that logically. If States don't have the right to make anything but silver and gold legal tender, obviously the intent in the constitution is that gold and silver are the only legal tender of the nation. It doesn't implicitly permit the Fed to make a different currency. If the Fed is allowed to make up its own legal tender, why not allow the states to as well?

The reason the states are not allowed to make their own currency is because Article 1, Section 10 of the Constitution explicitly states that the States may not create their own legal tender. In the same paragraph it also says that the States may not enter into Treaties.

I don't believe that the intent of the Constitution was to make gold and silver the only legal tender of the nation any more than I believe that we were never intended to ever sign any treaties. I believe, rather, that the Constitution was reserving the power to enter into treaties and to create currency to the Federal Government, so that we didn't end up with 15 different states with 15 different forms of currency and then have to worry about dealing with all the stupid exchange rates every time we were buying something across state lines.

Besides, even if your point stands, it still confirms that gold is money.

Technically speaking, it doesn't state that outright, either. It says that States cannot pass a law (or write an executive order, or put it into their own constitutions, or whatever) that says that something besides gold or silver is legal tender. It does not say that the States must accept gold and silver themselves as legal tender, just that they can't decide to use something else.

It certainly implies that at the time the Constitution was written gold and silver were used as money, but it doesn't force them into being legal tender now.

Besides, even if your point stands, it still confirms that gold is money.

Money is just the most marketable commodity. It's an outgrowth from the original barter economies. Some goods are more popular than others, and over time, you learn what your trading partners like, so you may take something they like in trade for something you have, knowing you can trade it on later. If enough people want a given good, their close contacts start taking it, and then THEIR close contacts start taking it, and it very rapidly snowballs into broad acceptance throughout the economy. If it's also durable, high value, and fungible, it becomes money. Historically, that's usually been metals, but other things have served as well.

There's nothing about gold that inherently makes it money and not, say, copper. There's no magic money fairy who has chosen to bless only gold as the medium of exchange.

That's why I say I want to see some kind of commodity money, rather than a literal gold standard. I just want something that can't be waved into existence to bail out crooks or juice the economy temporarily to win an election. Maybe that'll need to be gold, but I don't care, as long as it's SOMETHING.

Malor wrote:
Besides, even if your point stands, it still confirms that gold is money.

That's why I say I want to see some kind of commodity money, rather than a literal gold standard. I just want something that can't be waved into existence to bail out crooks or juice the economy temporarily to win an election. Maybe that'll need to be gold, but I don't care, as long as it's SOMETHING.

That SOMETHING is us. The voters of the USA.

Keldar wrote:
goman wrote:

What does the credit rating of the country mean then? If it is about solvency then it is illegal per the 14th amendment. Of course this is just opinion based on my understanding of that clause. You have yours. It has never gone to the Supreme Court to figure out which one is right.

Note: I am far from an expert on Constitutional law.

As far as I understand it, the Constitution is not a set of laws that applies to individuals, but a set of rules that applies to the Government as to what they are and are not allowed to do. The Feds and the States have to comply with the Constitution when they're writing laws and making executive orders.

But I don't know that the Constitution itself is legally binding for individuals or corporations. Given such, is it even possible for S&P to violate the 14th Amendment at all, seeing as they aren't part of the Government?

I should probably have said meaningless instead of illegal.

Krugman is a little agitated today.

Carnage in stock markets as I write — and all of the headlines I see attribute it to S&P’s downgrade.

They really are trying to make my head explode, aren’t they?

Once again: S&P declared that US debt is no longer a safe investment; yet investors are piling into US debt, not out of it, driving the 10-year interest rate below 2.4%. This amounts to a massive market rejection of S&P’s concerns.

goman wrote:

I should probably have said meaningless instead of illegal.

So many things are meaningless when it comes to our deficit huh? The amount, what we spent for it, the level of global comfort with our stability, the interest rates that domestic and foreign agencies demand for lending us money.

Yonder wrote:
goman wrote:

I should probably have said meaningless instead of illegal.

So many things are meaningless when it comes to our deficit huh? The amount, what we spent for it, the level of global comfort with our stability, the interest rates that domestic and foreign agencies demand for lending us money.

I specifically said solvency. Which is what the point of credit agency ratings in the first place.

What the deficit buys is certainly important.

I admit I didn't read the 24 pages. After the S&D lowered the US's credit score to AA+ the TASE(Israeli stock market) dropped about 7%. I've heard Israeli government bonds dropped. the TASE works on Sunday so it was the first to react. I suspect there is going to be an earthquake on the markets .

I've heard Yoram's Sheftel's show on 103FM(Israeli station) and he explained the budget in lay words. He talked about how there are always pressures to either raise the budget and pressures to lower the budgets . The people who want things want to raise the budgets and the people who pay most of the taxes want to lower it. He also said the main parameter for how large the government budget can be is depended on the GDP. He said that the government budget should be at most 1/3 of the GDP because most economists claim that when the taxes are too high people "don't feel like working". He said that when the budget of a government grow and it's taxes stay the same the government get into debt.

After that he talked about how a national debt is a disaster. The debt causes the government budget to shrink because some of the budget has to go to pay back the debt. This means that each year there is less money for government operations which causes the government to go into more debt (he calls it a financial cancer). He also mentioned the Israel bi-yearly budget which helps avoid pressures. He said that because going into debt has such a negative effect he think there should be a "constitutional law" (it's called base law in Israel) that there must be at least 1% surplus on the budget which would effectively disallow government debt with the exception of the state of war (he said "the budget serve the government and not the other way around"). He said that while the budget roof is fixed the budget is self is flexible.

He also claims that the 2 years budget is not good enough and there should be a 4 year budget. He claims that each political party should publish their budget on their ballot and let people vote on it. He mentioned that 1/3 of the Israeli budget goes to paying back debt which means if we didn't have debt government spending could have been 50% higher. After that he took a question from a listener. The listener asked about the US government debt and how it's going to affect us because the USA is a super-giant .

Sheftel told the listener that Israel isn't in that kind of trouble (the US is going bankrupt and we are not) and we are getting better because 10 years ago to have over 85% GDP debt and now we are at 70% while the US is at 95% while it was under 50% 320 years ago and it's going to go up to 105%. He said this is why the USA is heading to bankruptcy and the credit raters are considering to drop its credit rating for the first time in history( he said that Thursday and S&P dropped it).

He said that

Yoram Shftel wrote:

]The reason for the USA is going bankrupt is that the two last presidents were two " perfect financial degenerates". Bush raised the national debt by 5 trillion dollars in 8 years. Obama is going to break that record by raising the debt by 4 trillion dollars in 2.5 years. That these two lunatics,Bush and Obama, are responsible for 9 trillion out of 14 trillion of the national debt and that's the way to bankruptcy.We aren't on our way to bankruptcy but we have to eliminate the national debt.

Then he talked about the Euro... Things there are pretty bad. He said that because Greece managed to collect 150% GDP debt they gave up some of their sovereignty.

If you know Hebrew you can listen to it here.

DOW down 634 today, all other indexes more than 6%. That's almost 20% down from the recent highs in late May. Color me not-at-all surprised. Unfortunately.

God help us. Because the first one worked so very, very well.