Debt Ceiling Chicken

Given that we don't have the political will to cut spending and increase taxes the only other option is to inflate our way out of the debt. In layman terms it is really going to suck to be middle class in the next decade.

bandit0013 wrote:
Given that we don't have the political will to cut spending and increase taxes the only other option is to inflate our way out of the debt. In layman terms it is really going to suck to be middle class in the next decade.

I wouldn't say that we don't have the political will to do both. It's that one party has completely eliminated the increase taxes option because of their ideology. If you take away entitlements, the military, and servicing the debt you only have about $600 billion in discretionary spending that you can cut to reduce the debt. It's simply not enough. The sad truth is Republicans would rather see our country get wrecked than make the wealthy--who've done wondrously well these past years--pay ever so slightly more in taxes.

OG_slinger wrote:
bandit0013 wrote:
Given that we don't have the political will to cut spending and increase taxes the only other option is to inflate our way out of the debt. In layman terms it is really going to suck to be middle class in the next decade.

I wouldn't say that we don't have the political will to do both. It's that one party has completely eliminated the increase taxes option because of their ideology. If you take away entitlements, the military, and servicing the debt you only have about $600 billion in discretionary spending that you can cut to reduce the debt. It's simply not enough. The sad truth is Republicans would rather see our country get wrecked than make the wealthy--who've done wondrously well these past years--pay ever so slightly more in taxes.

We do need to reduce our military, as I've advocated here before. However we can't overlook the fact that medicare + social security is double what the military costs and over 40% of the budget. If you look at some CBO estimates the cost of these programs is likely going to double in the next 20 years which is completely unsustainable.

You can't really blame everything on the republicans either. Neither party will piss off the old people.

The middle class is on its death throes now!

In layman terms it is really going to suck to be middle class in the next decade.

Given the amount of inflation required, there won't be a middle class in another fifteen or twenty years.

bandit0013 wrote:
We do need to reduce our military, as I've advocated here before. However we can't overlook the fact that medicare + social security is double what the military costs and over 40% of the budget. If you look at some CBO estimates the cost of these programs is likely going to double in the next 20 years which is completely unsustainable.

You can't really blame everything on the republicans either. Neither party will piss off the old people. :(

I think we also have to be careful not to look at these "entitlements" in a vacuum. Many of the people that are drawing Medicare and Social Security spent their lives paying into the system. I'm sure their individual contributions may not come anywhere near withdrawals but it does slew the overall expenditure.

Anyone have an estimate of what the actual expenses of medicare and SS are after income?

I do agree though, the current system is completely unsustainable, especially when considering we've done virtually nothing to control the cost of care.

bandit0013 wrote:
We do need to reduce our military, as I've advocated here before. However we can't overlook the fact that medicare + social security is double what the military costs and over 40% of the budget. If you look at some CBO estimates the cost of these programs is likely going to double in the next 20 years which is completely unsustainable.

You can't really blame everything on the republicans either. Neither party will piss off the old people. :(

Social security can be handled by delaying when people get benefits, means testing, and removing the $115,000 contribution cap. But that's a tax increase so it's a no-no to Republicans.

Medicare requires extensive change and streamlining to our healthcare systems, which can only really happen if it becomes a single payer system. But that's "socialism" to Republicans.

And I certainly can blame them for the $1.7+ trillion in Bush era tax cuts and the $4 trillion we've put on our Chinese MasterCard fighting "terrorism".

Bear wrote:
bandit0013 wrote:
We do need to reduce our military, as I've advocated here before. However we can't overlook the fact that medicare + social security is double what the military costs and over 40% of the budget. If you look at some CBO estimates the cost of these programs is likely going to double in the next 20 years which is completely unsustainable.

You can't really blame everything on the republicans either. Neither party will piss off the old people. :(

I think we also have to be careful not to look at these "entitlements" in a vacuum. Many of the people that are drawing Medicare and Social Security spent their lives paying into the system. I'm sure their individual contributions may not come anywhere near withdrawals but it does slew the overall expenditure.

Anyone have an estimate of what the actual expenses of medicare and SS are after income?

I do agree though, the current system is completely unsustainable, especially when considering we've done virtually nothing to control the cost of care.

There are a lot of things we can do in reform to fix things. Not the least of which is tying benefits received to net worth, lifting the cap on the FICA tax, and ensuring that benefit levels are pegged to life expectancy.

Medicare is just flat out broken. Here's my cool story. My grandfather is disabled, retired. He had severe trauma to his eye back in the day, and while on medicare he has had 7, yes 7 cornea transplants. I mean, quality of life I can understand one, maybe a second if the doctors think it will take, but jeez guys, he's nearly 80 years old, how many times is society going to be expected to pony up tens of thousands of dollars for his eyes? I remember all the kerfuffle about death panels, etc during the health care reform debate but frankly, we need a panel that is willing to look at someone like my Grandfather and say "no".

Bear wrote:
Many of the people that are drawing Medicare and Social Security spent their lives paying into the system.

Yes, but back then workers were getting a much bigger portion of the economic pie than today's workers get, and each generation was doing a little better than the last one. We don't have that situation today. How do you tell a 25 year old today to give more money from his paycheck to support elderly people when he or she is being told that they will never, ever get those kinds of benefits when they retire?

OG_slinger wrote:
This is pretty damned serious in that we won't have enough money to service our existing debt and we would be in default.

I feel compelled to point out that this is simply wrong. While debt service is a growing portion of the budget, it is not yet anywhere near all of the budget. Making a statement like this is pure fearmongering in an effort to keep the government borrowing and spending over a $1 trillion a year more than it takes in, because politicians would suffer politically if cuts were forced. Debt service only accounts for 6% of spending ($197 billion), and our debt obligations could easily be met without borrowing - if we were willing to cut spending elsewhere, especially military spending and entitlements.

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.

The Democrats are saying that the #1 issue in America is, in fact, the economy

Is there anyone left in the world who actually thinks this? The previous Republican administration would have held the record for increased debt and spending ... except for the current administration's even more profligate ways. They have no intention whatsoever of cutting anything, they just want control of the spending.

Observe the role reversal by casting your mind back to 2006:

Barack Obama wrote:
"The fact that we are here today to debate raising America’s debt limit is a sign of leadership failure. It is a sign that the U.S. Government can’t pay its own bills. It is a sign that we now depend on ongoing financial assistance from foreign countries to finance our Government’s reckless fiscal policies. … Increasing America’s debt weakens us domestically and internationally. Leadership means that “the buck stops here.” Instead, Washington is shifting the burden of bad choices today onto the backs of our children and grandchildren. America has a debt problem and a failure of leadership. Americans deserve better.

The fact of the matter is that we'll see a lot of posturing and political grandstanding, and then the debt ceiling will be increased and we'll go on digging our economic grave. It would be far better for us as a country to leave it in place, but that is exceedingly unlikely - there's too much at stake politically.

Aetius wrote:
It would be far better for us as a country to leave [the debt ceiling] in place, but that is exceedingly unlikely - there's too much at stake politically.

Nice assertion. Please add some explanation for those of us who think you're completely bonkers about why this would be in *any* way a good idea. Thanks.

Hypatian wrote:
Aetius wrote:
It would be far better for us as a country to leave [the debt ceiling] in place, but that is exceedingly unlikely - there's too much at stake politically.

Nice assertion. Please add some explanation for those of us who think you're completely bonkers about why this would be in *any* way a good idea. Thanks.

Ultimately we'll need to stop borrowing large amounts of capital to prop up a failing economy. *IF*, and that's a big if, we could restructure and reduce expenditures to stop borrowing, the cap would not need to move. If we are to survive long term, this MUST happen.

The only honest debate is whether it can feasibly be done now (recessions are a bad time to cut spending) or when we phase it in (which should be soon).

It's realistically politically impossible for it to happen right now though. What will most likely happen is that we'll keep raising it and continue our economic suicide by credit card.

LilCodger wrote:
Ultimately we'll need to stop borrowing large amounts of capital to prop up a failing economy. *IF*, and that's a big if, we could restructure and reduce expenditures to stop borrowing, the cap would not need to move. If we are to survive long term, this MUST happen.

Or we could raise taxes to more closely match expenditures.

So I've asked this question, or a similar one, before - years ago, even, but that was in a different economic and political environment - but I'm curious about it once more, what with all the people talking about how depressed this thread makes them...

With apologies for the slight derail: As far as I can tell, the whole world's economy is in pain; nobody is doing particularly well. But if one were to hypothetically expatriate in order to reduce the chance of him, or his children, suffering the brunt of "The Great U.S. Fiscal Meltdown of 20xx," where would he go? (Note: Assume that one would have the financial means to do so but do not disregard the fact that some countries are nearly impossible to emigrate to, due to political policies.)

In short, yeah, we've got issues but is there somewhere else you'd rather be when the sh*t hits the fan? Given that we don't know when or if that will actually happen, when would you go?

Historically, cutting taxes has almost always been accompanied by rises in spending. The reasons for this are political and psychological. When taxpayers are paying less, there is little or no voter pressure to reform spending on cases of rubber dog sh1t or bridges to nowhere. In fact, voters seem to love it because it "creates jobs" in voter districts.

If you really REALLY want to cut spending, start taxing more.

Grumpicus wrote:
As far as I can tell, the whole world's economy is in pain; nobody is doing particularly well.

The wealthy and corporate leaders are doing fabulously in the U.S., so there is at least one group who get everything they need to prosper and stay protected from market risks. A worker from the U.S. won't be able to go anywhere better, but that's because industrial countries are ruled for the benefit of the Davos crowd and either work the same way this country does or will soon.

The emerging economies are building worker wages and benefits from a much lower base than what people get here. No point in moving to China to work for lower pay and even lower benefits. Eventually they might get closer to parity, and maybe then we'll see some bargaining power returned to workers. Right now? Forget it. Too many unskilled workers chasing too few jobs. We've got worker deflation.

The bigger question implied by that one is if, by emigrating to another country, you can become one of the economic elite. That's potentially possible if you position yourself correctly in China or Brazil or India right now. That's also tremendously hard to do, so not a very feasible course of action.

The USA is doing pretty well... you could also look for countries with low debt to GDP and high government benefits and then decide if the culture there is one you like and if you are able to emigrate. Some East/Northeastern European economies are like this (Sweden? Finland? I can't remember off-hand and I'm not inclined to look it up right now), although I don't know how they like immigrants. Canada might be a good option, too. Both have exposure to the global crises though (through the EU and USA respectively).

Aetius wrote:
I feel compelled to point out that this is simply wrong. While debt service is a growing portion of the budget, it is not yet anywhere near all of the budget. Making a statement like this is pure fearmongering in an effort to keep the government borrowing and spending over a $1 trillion a year more than it takes in, because politicians would suffer politically if cuts were forced. Debt service only accounts for 6% of spending ($197 billion), and our debt obligations could easily be met without borrowing - if we were willing to cut spending elsewhere, especially military spending and entitlements.

It's not really wrong, Aetius. It's not like Congress can prioritize who the Treasury cuts checks to and when. If we don't raise the debt ceiling the financial markets will melt down because everyone who owns a chunk of our debt will suddenly be wondering if we're going to pay them back. The American electorate isn't really in the mood to have it's politicians tell them that the same financial companies who caused this economic sh*t storm and who were bailed out with their taxes now want to make sure they get paid before Grandma get's her Social Security check.

For your plan to work we'd need to cut government spending by a *third*. Immediately. Non-military discretionary spending is only $600 billion so we'd essentially have to shut the government as we know it down and we'd still have a couple hundred billion dollar gap that we'd have to cover with borrowing. If you want to see what austerity measures like that do, just look at the UK and Greece. The UK's economy is set to grow at a searing 1.7% this year and Greece, well...

Heck, we already have a good idea of what that kind of spending reduction would look like considering that the vast majority of jobs that were shed last year were from state and local governments who couldn't afford those employees after the federal stimulus money ran out. It wouldn't exactly help our economy bounce back if Uncle Sam had to send out 710,000 pink slips on August 3rd.

Cutting spending can only go so far. We have to start talking about increasing revenues but that is a non-starter for Republicans. Hell, even talking reducing the military's budget (which went up some 80% since 9/11) is a political non-starter for the right because that means we'd "lose" the war. Their version of American exceptionalism *requires* a massive military because we're certainly not an economic superpower these days.

Aetius wrote:
The fact of the matter is that we'll see a lot of posturing and political grandstanding, and then the debt ceiling will be increased and we'll go on digging our economic grave. It would be far better for us as a country to leave it in place, but that is exceedingly unlikely - there's too much at stake politically.

The debt ceiling is a wonderful piece of legislative bullsh*t. When Congress passes a budget, it authorizes the Treasury to spend that money. The debt ceiling law is essentially a useless budgetary speed bump that makes the Treasury crawl back to Congress to get approval to get the money Congress already authorized them to spend. In other words Congress knew it was going to blow the debt ceiling when it passed the budget in the first place and yet not a peep was heard then.

Jolly Bill wrote:
The bigger question implied by that one is if, by emigrating to another country, you can become one of the economic elite. That's potentially possible if you position yourself correctly in China or Brazil or India right now. That's also tremendously hard to do, so not a very feasible course of action.

The USA is doing pretty well... you could also look for countries with low debt to GDP and high government benefits and then decide if the culture there is one you like and if you are able to emigrate. Some East/Northeastern European economies are like this (Sweden? Finland? I can't remember off-hand and I'm not inclined to look it up right now), although I don't know how they like immigrants. Canada might be a good option, too. Both have exposure to the global crises though (through the EU and USA respectively).

Norway, massive oil reserves, nearly no debt.

I hate to be picky, but is there anywhere warmer?

Not if you want a reasonable justice system and social stability. Just about anything around the equator is poop.

bandit0013 wrote:
Not if you want a reasonable justice system and social stability. Just about anything around the equator is poop.

Singapore welcomes you.

PShaw! They probably'd cane you for jaywalking...

fangblackbone wrote:
PShaw! They probably'd cane you for jaywalking...

If you spray paint graffiti on cars whilst jaywalking they will.

bandit0013 wrote:
Not if you want a reasonable justice system and social stability. Just about anything around the equator is poop.

Oh goodness that's too warm! Is only go down to the equator to build a space elevator.

On a more optimistic note, one of my coworkers has a similarly pessimistic view of the near future, albeit it's less depressing because he has a lot less facts and logic to back up his views than Major does.

I posited to him that there was some undefined limit in unemployment, wealth hap, and overall lower and middle-class frustration that the rich people and corporations had to keep the US over. If things get too bad then eventually enough citizens and their guns will want to change things up. We're nowhere near that now, but I think that that will serve as a barrier between us and the more apocalyptic scenarios.

Of course that's assuming that the disaffected masses properly identify those who have been causing or financial hardships, I suppose it's entirely possible that Pain will lead the angry unemployed on a mark to sweep the liberals into the sea, similar things have happened before.

Debt service only accounts for 6% of spending ($197 billion), and our debt obligations could easily be met without borrowing - if we were willing to cut spending elsewhere, especially military spending and entitlements.

That's only true this year. It gets worse every year from here for about five decades. The total debt that we KNOW we're on the hook for is about $115 trillion, and with the advent of 'too big to fail', I guarantee there are many, many more trillions of unknown exposure.

So apparently the head of the Senate Republicans is saying that this whole "debt crisis" thing is just being made up by the Whitehouse. I predict that todays negotiations will make a lot of progress! /sarcasm off

I'm wondering whether Obama will call their bluff. Wall Street is not behind this, and as Wall Street's reaction to news has an impact on CEO salaries, the CEOs won't be behind the republicans, either.

I suspect the plan for republicans is to angle for a cut in the corporate tax rate, cut a few loopholes that nobody much cares about, and get plans for major cuts in social spending in exchange for approving the debt ceiling increase. And then they plan to redo this exercise next year.

Malor wrote:
Debt service only accounts for 6% of spending ($197 billion), and our debt obligations could easily be met without borrowing - if we were willing to cut spending elsewhere, especially military spending and entitlements.

That's only true this year. It gets worse every year from here for about five decades. The total debt that we KNOW we're on the hook for is about $115 trillion, and with the advent of 'too big to fail', I guarantee there are many, many more trillions of unknown exposure.

True, but actual spending cuts will drastically limit that by stopping the increase. There would need to be further cuts to permit repayment of the debt.

OG_slinger wrote:
It's not like Congress can prioritize who the Treasury cuts checks to and when.

So Congress is powerless before an Executive branch agency? Hardly.

If we don't raise the debt ceiling the financial markets will melt down because everyone who owns a chunk of our debt will suddenly be wondering if we're going to pay them back.

The government has far more than enough revenue to pay its debts. No one would be worried about that. The thing that would cause a melt down would be the removal of the massive subsidies to government corporate cronies, which would entirely re-arrange the market.

For your plan to work we'd need to cut government spending by a *third*. Immediately. Non-military discretionary spending is only $600 billion so we'd essentially have to shut the government as we know it down and we'd still have a couple hundred billion dollar gap that we'd have to cover with borrowing.

Then I guess we'd better include military spending and entitlements, as I noted. I didn't say it would be easy, or painless - just better in the long run.

Cutting spending can only go so far. We have to start talking about increasing revenues but that is a non-starter for Republicans. Hell, even talking reducing the military's budget (which went up some 80% since 9/11) is a political non-starter for the right because that means we'd "lose" the war. Their version of American exceptionalism *requires* a massive military because we're certainly not an economic superpower these days.

I'm talking about what's best economically for the country, which should obviously include not spending hundreds of billions of dollars blowing up goatherders on the other side of the world. If push ever came to shove, who are they going to cut funding to - the Afghan government, or their constituents? If either major party was actually serious about spending cuts, they would just need a little backbone to accomplish it.

Further, increasing revenues will not help. Our revenues have grown quite a bit in the last thirty years, but we've always spent more. If we increased revenues, we'd just spend EVEN MORE. We have a spending problem, not a revenue problem - we're consistently unable to live within our means. It doesn't matter whether you are a burger-flipper or a millionaire, if you can't live within your means you're going to eventually be broke.

Aetius wrote:
Further, increasing revenues will not help. Our revenues have grown quite a bit in the last thirty years, but we've always spent more. If we increased revenues, we'd just spend EVEN MORE.

If we cut spending, how do you know Congress won't use the cuts as an excuse for tax cuts and borrow the difference? That's what happened the last time we were even close to matching revenue against expenditure.