Debt Ceiling Chicken

Funkenpants wrote:
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.

After all, "the surplus belongs to the (rich) people".

Aetius wrote:
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.

From an NPR story about the what the debt default would look like:


Trouble would begin as soon as the government exhausts its borrowing authority on Aug. 2. The next day, the government is expected to collect some $12 billion in taxes, but that wouldn't begin to cover the daily expenses.

"The problem is that $23 billion in Social Security payments are supposed to go out on Aug. 3," Powell says. "And there's a really good chance we don't have the cash to pay that."

In addition to Social Security, there are bills for Medicare and Medicaid, defense contractors, and federal workers who expect to be paid. Within 24 hours, the government would be $20 billion behind. And the delinquent bills would continue to pile up with each passing day.

"Very quickly, you're dragging 20, 30, 40, 50, 75 billion dollars in unpaid bills," says Powell.

Just as the government is trying to decide between stiffing Social Security recipients or active-duty military, a $29 billion interest payment comes due on Monday, Aug. 15. That's also the day that $27 billion worth of Treasury bonds mature.

Do you really think Congress could even begin to keep up with juggling payments on a daily basis? There's a reason why Congress stopped passing individual appropriation bills for every individual thing the government needs.

What Congressman is going to pass a bill saying Granny get's paid after the banks or wants to go on record with a vote that postpones a deployed solider's pay indefinitely?

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. 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.

No, we're consistently unable to pay for the services we want. People want and like government services. They just don't like to pay for them. When politicians figured out that they could provide services without requiring people to pay for them immediately, they jumped all over it. It was the easy thing to do.

Increasing revenues will help. Federal tax revenues have only increased in absolute amounts. As a percentage of GDP they are actually much lower now than they were in the early 1980s (14.9% vs. 19.2%). It should be no surprise that the big deficits and our debt started to pile up in the 80s as Reagan cut taxes. The only time those deficits went away was when Clinton cranked up federal tax receipts back to the early 80s levels. Then Bush came along and screwed the pooch by dramatically lowering taxes and increasing spending.

One of the biggest budget item is healthcare spending. We spent more than a year pushing through a health care reform bill that really did nothing to address actual costs. Do you really think more progress is going to be made over the next few weeks as everyone is posturing for the 2012 elections?

The only time those deficits went away was when Clinton cranked up federal tax receipts back to the early 80s levels.

Clinton was in charge during the first big bubble. The balanced budget was an illusion on two fronts; first, it was propped up by normal tax receipts that were artificially inflated by an economic boom caused by excess liquidity, and second, massive revenue was coming in from Social Security. But that money is all borrowed, from old people. In exchange for the huge revenues at the peak of the Boomer earnings, we were taking on a massive liability in the future.

So while revenues were ostensibly close to expenditures, that was only on a cash basis. For an entity the size of the Federal Government, cash-basis accounting is a direct synonym for lying.

Malor wrote:
So while revenues were ostensibly close to expenditures, that was only on a cash basis. For an entity the size of the Federal Government, cash-basis accounting is a direct synonym for lying.

Is that really true from an accounting perspective? I'd think any industry would be very to happy to have a pure cash revenue stream. Its would be difficult to maintain long term but I'm not sure I'd call a balanced budget that was based on cash receipts "lying". Not to mention the assets of the Federal government are almost incalculable.

It's lying because, in cash-basis accounting, if you take a million dollars from someone today, and promise to give them two million dollars in exchange five years from now, then you can say with a perfectly straight face that you made a million dollars.

In accrual-based accounting, you would show the correct loss of a million dollars, because you've taken on a future liability in exchange for revenue today. The government requires that all corporate entities in this country use accrual-basis accounting, with extremely specific rules, because of how badly cash-basis accounting can be abused. But the government doesn't hold itself to the same standards. They do this because it lets them lie about our true fiscal position, so they can spend money like water and still get re-elected.

All those hundreds and hundreds of billions of dollars during the Clinton years weren't really spendable revenue. That money was supposed to fund old people's retirements. But they took it, and spent it, and now we have to pay for the retirements without the massive wad of cash we were supposed to be using to do so. And because they were using cash-basis accounting, they could crow about a balanced budget, because they could count the revenue today, while ignoring the offsetting liabilities that would show up fifteen years later.

Cash-basis accounting is only suitable for mom and pop stores, not the most complex fiscal entity ever created.

Oh, edit to add:

Not to mention the assets of the Federal government are almost incalculable.

What you're indirectly saying there is that we can sell off the national parks to pay off our liabilities. In this context, assets are just something you can sell to pay off your creditors. And I'd say selling the Grand Canyon because we couldn't be bothered to keep honest books would be a suboptimal outcome.

Malor wrote:

Oh, edit to add:

Not to mention the assets of the Federal government are almost incalculable.

What you're indirectly saying there is that we can sell off the national parks to pay off our liabilities. In this context, assets are just something you can sell to pay off your creditors. And I'd say selling the Grand Canyon because we couldn't be bothered to keep honest books would be a suboptimal outcome.

I am willing to trade Arizona, New Mexico, and Socal to Mexico for rights to their oil reserves

I understand that Arizona is filled with Wackos, but what did Socal ever do to you?

Yonder wrote:
:( I understand that Arizona is filled with Wackos, but what did Socal ever do to you?

They took an awesome food (burrito) and turned into a horrid, hippy mockery of itself (wrap). I can't enjoy burritos anymore, it feels like cheating. f*ck 'em.

From what I've been hearing on the news the Republicans have agreed to a "major concession" by stating they will consider eliminating certain tax loopholes as long as those loopholes are offset with tax breaks? Surely I'm not understanding that properly. Are they saying they'll let Obama close a billion dollars in tax loopholes as long as he agrees to a billion dollars in tax cuts? I'm thinking I missed something in these reports I was listening to.

It has to do with a tax pledge a large number of republicans (and some democrats) in both the house and senate have signed. It had two main parts:

CSMonitor[/url]]Until recently, GOP opposition to tax breaks has strictly followed Americans for Tax Reform (ATR) pledge, crafted in 1986. The pledge commits lawmakers to two positions: The first is opposition to “any and all efforts to increase the marginal income tax rates for individuals and/or businesses.” The second – and the crux of the current debt negotiations – rejects “any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.”

Not much of a concession if you ask me...

And no, I don't think you're missing anything. That just shows how in control of these whole negotiations the Republicans have become.

Funny thing about the Debt Ceiling discussion going on in Washington.... There is talk about how the Debt Ceiling is unconstitutional. Some might remember that this came up here in another thread.

http://www.gamerswithjobs.com/node/108473?page=1

So is Goman really Joe Biden posting on GWJ or has this 14th Amendment issue been out in the air and I haven't noticed it. I thought it was crazy when it was brought up here and now I'm shocked that it's actually making news headlines. Goman is either Joe Biden or extremely prescient.

DSGamer wrote:
Funny thing about the Debt Ceiling discussion going on in Washington.... There is talk about how the Debt Ceiling is unconstitutional. Some might remember that this came up here in another thread.

http://www.gamerswithjobs.com/node/108473?page=1

So is Goman really Joe Biden posting on GWJ or has this 14th Amendment issue been out in the air and I haven't noticed it. I thought it was crazy when it was brought up here and now I'm shocked that it's actually making news headlines. Goman is either Joe Biden or extremely prescient.

That's actually a pretty compelling argument, and I think that it's very applicable.

If Obama's team pursues the debt ceiling constitutionality issue, it kind of lets the Republicans off the hook here. Right now, odds are good they'll agree to some tax increases in order to get a compromise, which will piss off the base. Or they'll be totally obstinate and take the lion's share of the blame if negotiations fall through.*

If Obama successfully uses the constitutionality argument, the Republicans will be able to avoid any responsibility at all for how things go down and they'll just act all righteously indignant and grouse on and on about how Obama is fiscally irresponsible and abuses power, etc.

* Or of course the Democrats could completely cave and give the Republicans most of what they want for nothing, which is kind of what it looks like is going on to me, but still...

Or they'll be totally obstinate and take the lion's share of the blame if negotiations fall through.

Ha! Accept blame? No, the GOP will say it's the Dems fault for not compromising, and the Dems will say vice versa. Facts don't enter into it.

Mixolyde wrote:
Or they'll be totally obstinate and take the lion's share of the blame if negotiations fall through.

Ha! Accept blame? No, the GOP will say it's the Dems fault for not compromising, and the Dems will say vice versa. Facts don't enter into it.

You're right of course about accepting the blame. I was talking more about public opinion among independent voters. The public would probably blame everyone involved, including Obama, but the polls suggest they'd hold the Republicans the most responsible if a deal wasn't made.

DSGamer wrote:
Funny thing about the Debt Ceiling discussion going on in Washington.... There is talk about how the Debt Ceiling is unconstitutional. Some might remember that this came up here in another thread.

http://www.gamerswithjobs.com/node/108473?page=1

So is Goman really Joe Biden posting on GWJ or has this 14th Amendment issue been out in the air and I haven't noticed it. I thought it was crazy when it was brought up here and now I'm shocked that it's actually making news headlines. Goman is either Joe Biden or extremely prescient.

It is because MMT, the theory that I try to represent, is the only economic paradigm that uses accounting practices. It sees what other are blind to. Joe Biden has some economic advisers that read this MMT stuff.

I haven't chimed in until now because I have been on vacation.

again here are some websites that I read.

http://pragcap.com/
http://mikenormaneconomics.blogspot....
http://moslereconomics.com/
http://www.nakedcapitalism.com/

Oh yeah here is the way to kill the debt.

http://pragcap.com/lets-end-this-deb...

A reader points out a very interesting loophole in the debt ceiling debate that would give the US Treasury the ability to tell the US Congress to take their fearmongering and shove it you know where. Reader “Beowulf” notes:

“No, Tsy isn’t authorized to just “print” money, the Federal Reserve Act gives that power to the Fed, However, the Coinage Act grants the Secretary of the Treasury rather broad coin seigniorage authority. Geithner could sidestep the debt ceiling this afternoon by ordering the West Point Mint to coin a 1 oz. $ 1 trillion coin. Tsy can then present the jumbo coins at the NY Fed to buy back $1 trillion in Fed-held debt (the Fed has to accept it, a creditor can’t refuse legal tender paid in to settle a debt):

(h) The coins issued under this title shall be legal tender… (k) The Secretary may mint and issue platinum bullion coins and proof platinum coins in accordance with such specifications, designs, varieties, quantities, denominations, and inscriptions as the Secretary, in the Secretary’s discretion, may prescribe from time to time.”

The simple threat of doing this would end this debate right here and right now. It’s time for Congress to stop playing Russian roulette with the US economy. If you want to take a stand on spending then do so before you pass legislation that causes us to run up into the debt ceiling. Don’t use some phony law to try to scare people into thinking that we are Greece (something that’s entirely impossible anyhow).

Update: I also think Beowulf’s presentation of the coin would be excellent (although I personally think a long and slow presentation on horse drawn carriage escorted by a marching band and a dozen or so M1 Abrams tanks would be the only thing sufficient enough to match the theater that is the Paul Ryan show):

“Dear Mary, congratulations on your nomination to Under Secretary. Platinum coinage is your license to print money. The West Point Mint has plenty of it in stock, though an ounce should be enough to stamp the words “$1 trillion” on. If you ask nicely, the Army will even fly it (and you if you wish, Blackhawks are pretty awesome) down the Hudson Valley to Manhattan to buy back as much debt as you wish… hmm, to make this as foolproof as possible, anyone know the closest helipad to the New York Fed?”

Update 2: Joe Firestone stops by with some more excellent details:

“Hi Cullen,

See: full discussion here: http://moslereconomics.com/2011/01/2...

Latest wrinkles:

http://www.dailykos.com/story/2011/0...

and:http://www.correntewire.com/holding_...

and:

http://my.firedoglake.com/letsgetitd...

This solution will work, and no one thereafter will ever be able to say that the US can run out of money.”


The famous economist John Kenneth Galbraith's son, Jaime Galbraith is in the MMT paradigm.

Wouldn't printing $1T in fiat currency immediately take US currency to Zimbabwe-land?

Goman, I dug just a little bit into one of your links, this one:

America Cannot Go the Way of Greece, and one of the very first assertions is eyepoppingly stupid:

IN FACT, IN ORDER FOR US CITIZENS TO PAY THEIR TAXES OR BUY US GOVERNMENT BONDS THE US GOVERNMENT MUST FIRST SPEND MONEY INTO EXISTENCE.

(caps his)

Dude, if he's making assertions like that in all caps, he's high, and you shouldn't be reading or trusting his stuff. Dollars come from the Fed, not Congress. And when they did come from Congress, they were minted by the Treasury from raw bullion that was brought in. They charged a percentage of the total raw bullion as a minting fee, and returned the remainder in coins. That is, if someone brought in 1000 ounces of raw bullion, the Treasury might give them back coins containing about 950 ounces of gold.

In other words, money came from the private sector, from real work being done by real people. That's very healthy.

It became less healthy when they started issuing paper money in exchange, because they didn't firmly fix the amount of dollars to the amount of specie on hand; printing too much money in the late teens and 20s is what led to the Roaring 20s bubble, and the ensuing crash and depression, just as printing too much money today is trying so desperately to do the same. The only reason we haven't gone through a Second Great Depression is because they keep increasing the amount of money they're injecting, doubling down on the original bad bet. The ultimate crash will, therefore, be that much worse.

So the statement that the US must spend money for it to exist is not true, and it has never been true. They had to coin it, not spend it. If nobody had bullion to sell, no coins were created.

This is not a trustworthy source.

Malor, through the Fed, the US government is the monopoly issuer of dollar currency.

Without deficit spending there would be no new issued bonds. So it is government spending that controls bond issuance.

No, the Fed issues money directly to banks. Bond purchases are a relatively new misfeature, where the Fed guarantees that the actual government will get a certain demand for its bonds, by buying up whatever the private sector doesn't, printing whatever money is necessary to do so.

That process creates money, but we haven't needed to do that until the last couple years. Almost all of the government borrowing was from the private sector. By recycling dollars in this way, there was no net money creation, and hence no inflation. It's only since 2008 or so that the Fed has actually been directly printing money to buy US bonds.

Deficit spending is absolutely not required for money creation.

You have really bad sources. Really, really bad. I'm teliing you this clearly and directly: you are being deliberately misled by people who have something to sell. I don't know what their game is or what they're selling, but you are being misled.

Minting coins is an asset without a corresponding liability, hence not debt.

Real assets are limited. If you issue more claims against limited assets, those claims will become worth less. It's the simplest of supply and demand.

Now, if you can convince the market that the issuance of new claims will somehow cause enough new wealth to be generated to support them, then you could suppress inflation maybe for awhile, largely by other countries stepping in and pulling the inflation to THEIR economies by maintaining currency parity with us. But unless you actually DO generate enough new wealth to support the dollars, it's going to end up being inflationary in the medium to long term.

The government spending that is happening now is probably close to 75% wealth-destructive; we're wasting titanic sums on stupid sh*t.

Just printing money and handing it to creditors will cause terrible inflation. More dollars chasing the same amount of stuff means higher prices. Money isn't completely a supply and demand thing, there's an element of voting to it. But at its most fundamental, it still is, and if you f*ck with the supply that much, you'll have a disaster.

We're having inflation problems all over the world from the money printing we're doing already; it's just being shown at the periphery because the exporting countries are holding their currencies at par value to ours. So they inflate, and we mostly don't. If we do what you're prescribing, we'll be seeing it very clearly, probably in very short order.

Malor, post your thoughts on their websites. I know they will be happy to engage you.

Also it is not inflation that is the problem but rather the lack of income and jobs.

Malor wrote:
Goman, I dug just a little bit into one of your links, this one:

America Cannot Go the Way of Greece, and one of the very first assertions is eyepoppingly stupid:

IN FACT, IN ORDER FOR US CITIZENS TO PAY THEIR TAXES OR BUY US GOVERNMENT BONDS THE US GOVERNMENT MUST FIRST SPEND MONEY INTO EXISTENCE.

(caps his)

Dude, if he's making assertions like that in all caps, he's high, and you shouldn't be reading or trusting his stuff. Dollars come from the Fed, not Congress. And when they did come from Congress, they were minted by the Treasury from raw bullion that was brought in. They charged a percentage of the total raw bullion as a minting fee, and returned the remainder in coins. That is, if someone brought in 1000 ounces of raw bullion, the Treasury might give them back coins containing about 950 ounces of gold.

In other words, money came from the private sector, from real work being done by real people. That's very healthy.

It became less healthy when they started issuing paper money in exchange, because they didn't firmly fix the amount of dollars to the amount of specie on hand; printing too much money in the late teens and 20s is what led to the Roaring 20s bubble, and the ensuing crash and depression, just as printing too much money today is trying so desperately to do the same. The only reason we haven't gone through a Second Great Depression is because they keep increasing the amount of money they're injecting, doubling down on the original bad bet. The ultimate crash will, therefore, be that much worse.

So the statement that the US must spend money for it to exist is not true, and it has never been true. They had to coin it, not spend it. If nobody had bullion to sell, no coins were created.

This is not a trustworthy source.

IMAGE(http://i321.photobucket.com/albums/nn365/xxjukeboxheroinexx/Idiocracy_Money.jpg?t=1242081102)

Obama pre-caved and got rejected. When will he learn? He's like Charlie Brown with the football.

I really don't want to sound like a conspiracy theory alarmist, but it seems to me that if the Republicans ran the economy into the ground and were able to blame it on the Democrats, then defaulting could be seen as a shrewd manuever. I'm really hoping they're not willing to take that chance.

Warren Buffett: "I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for re-election."

Buffett '12

jdzappa wrote:
I really don't want to sound like a conspiracy theory alarmist, but it seems to me that if the Republicans ran the economy into the ground and were able to blame it on the Democrats, then defaulting could be seen as a shrewd manuever. I'm really hoping they're not willing to take that chance.

I think they are. It's all about politics and re-election right now on both sides. It's obscenely crass. I wish I knew how it could be fixed.

DSGamer wrote:
I think they are. It's all about politics and re-election right now on both sides. It's obscenely crass. I wish I knew how it could be fixed.

Term limits.

I will refuse to vote for anyone who takes raising revenues off the table. The Republicans are talking crazy.

bandit0013 wrote:
Warren Buffett: "I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for re-election."

Buffett '12

The man's a genius.

Parallax Abstraction wrote:
bandit0013 wrote:
Warren Buffett: "I could end the deficit in five minutes. You just pass a law that says that anytime there is a deficit of more than 3% of GDP all sitting members of congress are ineligible for re-election."

Buffett '12

The man's a genius.

You'd probably have to put in a special provision for a higher deficit if war is actually formally declared, but even so yeah, genius.