U.S. Debt discussion

[Slava]

Heres the part that I can't figure out though. If the teapartiers get their way and the markets react "unfavourably" (which is basically a foregone conclusion in my estimation) then how do you go back and explain that to the people?

If they essentially make a decision that rather than prudent cuts along with increasing the debt ceiling to get through things for a while, that the US should head back to recession and potentially a longer and more painful one then they really are dumber than I would give them credit for. How that position is tenable for even half of an election campaign is just so far beyond my grasp I suppose...simply bizarre.

[afc wimbledon]

Originally Posted by Calgaryborn

The Reid plan is just a blank check for Obama through the next election. It doesn't do anything productive.

The Boehner plan of course creates a huge problem for Obama by forcing a look at the books around Christmas which would play against his election bid. It also forces the Senate to vote on a balanced budget amendment before Christmas. If the Senate votes down the amendment it might hurt some of their election bids. That's why they have avoided voting on the measure.

On the productive side it does provide some time for the government to look into the tax code and also make some decisions regarding entitlements. Even if there was a will to address those things now there is no time left.

The Tea party believes they were elected to balance the budget and they aren't too interested in even Boehner's plan of delaying the hard decisions by allowing the Government to borrow a little until Christmas. I suppose if Aug 2 comes and Obama has to shut down most government operations it will be a powerful incentive to get something done. Also, even if the government's rating is downgraded on the second it isn't unreasonable to think that rating might be restored whenever a plan is finally adopted. Surely whatever they came up with under that pressure would be deeper and more meaningful then anyone has come up with so far.

There is no particular reason to think the US will get its triple A rating back anytime soon once it has been downgraded, it is much like a personal bankruptcy, it will concievably take years of deficit reduction before the markets will trust them, in fact it is highly likely the downgrade will happen no matter what, as the genie is now out of the bottle, so to speak and it is obvious that the US is no longer as credit worthy.

[Caged Great]

The Republicans should rebrand themselves to represent what they actually are, which is the Corporate party of America.

F... the 99% of people in the country, it's more important that the 1% gets theirs.

[Calgaryborn]

Originally Posted by Slava

Heres the part that I can't figure out though. If the teapartiers get their way and the markets react "unfavourably" (which is basically a foregone conclusion in my estimation) then how do you go back and explain that to the people?

If they essentially make a decision that rather than prudent cuts along with increasing the debt ceiling to get through things for a while, that the US should head back to recession and potentially a longer and more painful one then they really are dumber than I would give them credit for. How that position is tenable for even half of an election campaign is just so far beyond my grasp I suppose...simply bizarre.

We don't know how much a government shut down will effect the markets. Also, if the tea party gets their way and cuts entitlements while reforming the tax code you might see some quick gains once an agreement is reached.

Anyways for the Teaparty House Representatives it is a matter of keeping their promise to the electorate.

[afc wimbledon]

Originally Posted by Slava

Heres the part that I can't figure out though. If the teapartiers get their way and the markets react "unfavourably" (which is basically a foregone conclusion in my estimation) then how do you go back and explain that to the people?

If they essentially make a decision that rather than prudent cuts along with increasing the debt ceiling to get through things for a while, that the US should head back to recession and potentially a longer and more painful one then they really are dumber than I would give them credit for. How that position is tenable for even half of an election campaign is just so far beyond my grasp I suppose...simply bizarre.

Its not just that, if they go ahead and default the US interest rate will almost certainly go up precipitasly as a consequence, this is the same as a tax increase for virtually all americans, except the money goes to the banks and not to service the debt.

[Calgaryborn]

Originally Posted by afc wimbledon

There is no particular reason to think the US will get its triple A rating back anytime soon once it has been downgraded, it is much like a personal bankruptcy, it will concievably take years of deficit reduction before the markets will trust them.

First you say we don't know when the government would get its rating back then you predict years. I think you simply don't know.

What we do know is that the Reid plan won't save the rating. It doesn't have enough real cuts. Boehner's plan might postpone a down grade until they see what is cut at Christmas but, we don't know that either.

4 Trillon in real cuts would be needed to protect America's rating come August second. If the tea party didn't exist that fact would still be true.

[afc wimbledon]

Originally Posted by Calgaryborn

First you say we don't know when the government would get its rating back then you predict years. I think you simply don't know.

What we do know is that the Reid plan won't save the rating. It doesn't have enough real cuts. Boehner's plan might postpone a down grade until they see what is cut at Christmas but, we don't know that either.

4 Trillon in real cuts would be needed to protect America's rating come August second. If the tea party didn't exist that fact would still be true.

No one knows, this is an eff up of unprecidented proportions. That said the reason the US is triple A rated is because it has never defaulted, as soon as it does that reason is gone forever, it then has to justify its rating based purely on its financial status, which we know is not good, the only reason I think the bond markets might want to reupgrade the US is because it is such a huge market, if it was any other country you would have to assume it would take decades to bring the debt and deficit under control to regain the markets trust.

[Calgaryborn]

Originally Posted by afc wimbledon

Its not just that, if they go ahead and default the US interest rate will almost certainly go up precipitasly as a consequence, this is the same as a tax increase for virtually all americans, except the money goes to the banks and not to service the debt.

That is something that makes little sense to me. The federal reserve is the one who sets interest rates and they are also the ones lending America money: Why do they have to raise interest rates if some secular agency lowers America's rating?

[Slava]

Originally Posted by Calgaryborn

We don't know how much a government shut down will effect the markets. Also, if the tea party gets their way and cuts entitlements while reforming the tax code you might see some quick gains once an agreement is reached.

Anyways for the Teaparty House Representatives it is a matter of keeping their promise to the electorate.

While its true no one is really sure of exactly how the markets will react there is one word to sum it up: badly. The teaparty must be dreaming if they think anything else will happen.

Heres a Coles notes of where we are, sort of put in personal finance terms. You run around and sign for a bunch of spending...the Visa bill shows up and the debate is whether you should pay it.

Congress has already authorized the spending. By law though the treasury has to have them raise the ceiling to pay for it. To even contemplate not paying at this point is just ridiculous, whether you made electoral promises or not.

[afc wimbledon]

Originally Posted by Calgaryborn

That is something that makes little sense to me. The federal reserve is the one who sets interest rates and they are also the ones lending America money: Why do they have to raise interest rates if some secular agency lowers America's rating?

Because the cost of money goes up to the whole country, if the goverment has to pay more to borrow money and they are the safest bet then everyone else less safe that wants money goes up in lock step, its a market that has goverment bonds at its base, everything else is priced based on that.

In effect we all compete with the goverment to borrow money for our own needs, as we are a less safe bet to repay than them we have to pay more than them.

Money is just as much a commodity as oil or steel or pork bellies, it is just priced (bought and sold) with interest rates.

[seattleflamer]

Originally Posted by Calgaryborn

The Reid plan is just a blank check for Obama through the next election. It doesn't do anything productive.

The Boehner plan of course creates a huge problem for Obama by forcing a look at the books around Christmas which would play against his election bid. .

The Reid plan is hardly a blank check. It essentially punts complicated policy issues past the '12 election leaving the big 3: entitlement reform, deficit reduction and potential revenue increases/decreases to where it belongs as a separate legislative measure rather than tied to running the everyday operations of govt.

Noone benefits from bringing up the debt ceiling issue again in another 6 months except those who believe or want the electorate to believe govt is broken.

Decisions can't be made so lets throw everyone out and try something radical. IMHO, it is the fringe tea party movement of the GOP that is holding the economy hostage.

[Calgaryborn]

Originally Posted by afc wimbledon

No one knows, this is an eff up of unprecidented proportions. That said the reason the US is triple A rated is because it has never defaulted, as soon as it does that reason is gone forever, it then has to justify its rating based purely on its financial status, which we know is not good, the only reason I think the bond markets might want to reupgrade the US is because it is such a huge market, if it was any other country you would have to assume it would take decades to bring the debt and deficit under control to regain the markets trust.

America isn't going to default on its debt. They have enough money from revenue to cover it. What will happen is partual and full shut downs in the different government departments combined with most government sponsered projects being postponed.

The reason America might lose its credit rating is the unresolved spiraling debt. The Credit agency is calling for 4 trillion in cuts over ten years. They want a realistic plan.

[mikey_the_redneck]

The whole world is near $50 trillion dollars in "government" debt at the moment. This is unsustainable.

These little cuts and tax increases are not going to correct the core of the problem, and that is most governments (especially in the west) borrowing money into the economy rather than spending into the economy like they were supposed to.

The Fed (fractional reserve banking) needs to be nationalized or shut down and the Glass–Steagall Act reinstated.

[afc wimbledon]

Originally Posted by Calgaryborn

America isn't going to default on its debt. They have enough money from revenue to cover it. What will happen is partual and full shut downs in the different government departments combined with most government sponsered projects being postponed.

The reason America might lose its credit rating is the unresolved spiraling debt. The Credit agency is calling for 4 trillion in cuts over ten years. They want a realistic plan.

A partial shut down of the goverment for anything longer than a week or two will lead to utter chaos, at some point in time the feds will have to decide to default rather than, say withdraw all US forces from Korea, Iraq and Afghanistan or shut down medicare with the associated hundreds of thousands of deaths.

[Calgaryborn]

Originally Posted by seattleflamer

The Reid plan is hardly a blank check. It essentially punts complicated policy issues past the '12 election leaving the big 3: entitlement reform, deficit reduction and potential revenue increases/decreases to where it belongs as a separate legislative measure rather than tied to running the everyday operations of govt.

Noone benefits from bringing up the debt ceiling issue again in another 6 months except those who believe or want the electorate to believe govt is broken.

Decisions can't be made so lets throw everyone out and try something radical. IMHO, it is the fringe tea party movement of the GOP that is holding the economy hostage.

So do you believe that whoever wins the election will tackle the entitlement problem? History says they are more likely to spend more money.

Niether Reid or Boehner call instruct the next congress on how to act. Well they can't short of a constitutional amendment. That is the problem with both plans.

[valo403]

Originally Posted by Calgaryborn

We don't know how much a government shut down will effect the markets. Also, if the tea party gets their way and cuts entitlements while reforming the tax code you might see some quick gains once an agreement is reached.

Anyways for the Teaparty House Representatives it is a matter of keeping their promise to the electorate.

Seriously? That's the argument? Is your head buried in the sand? The market will nose dive, whether it's a 70 degree dive or just 63 is inconsequential.

[Calgaryborn]

Originally Posted by afc wimbledon

A partial shut down of the goverment for anything longer than a week or two will lead to utter chaos, at some point in time the feds will have to decide to default rather than, say withdraw all US forces from Korea, Iraq and Afghanistan or shut down medicare with the associated hundreds of thousands of deaths.

No they won't default. That 29 billion woukln't help enough to be worth it. Withdrawing US forces isn't an option either. It would cost more money to bring them home then leave them there. What they will have to do is make enough painful cuts to satisfy the tea party and then wait and see who the American voters rewards.

[afc wimbledon]

The problem with both sides is neither really want to admit to the US voter that the country is screwed, the Tea Party isn't going to want to close down 2/3rds of the US military, cancel all new weapons programmes, let S Korea fend for itself, withdraw from the middle east, close down homeland security, abandon Isreal to the arabs and fire most of its border guards. Nor can they survive when the average american realises that they will have to somehow cover their parents medical etc, basic services they take for granted will start to break down or disappear, like border guards or roads and highways.

[afc wimbledon]

Originally Posted by Calgaryborn

No they won't default. That 29 billion woukln't help enough to be worth it. Withdrawing US forces isn't an option either. It would cost more money to bring them home then leave them there. What they will have to do is make enough painful cuts to satisfy the tea party and then wait and see who the American voters rewards.

The trouble is the deficit is made up of lots of 29 billions and they will all have to be clawed back, the military is the easiest pain free cut the feds have at hand to be honest, and if you can't afford to pay them or feed them then you have to bring the troops back, you cant leave them scattered all over the world to look after themselves.

[Flames Fan, Ph.D.]

Originally Posted by Calgaryborn

We don't know how much a government shut down will effect the markets. Also, if the tea party gets their way and cuts entitlements while reforming the tax code you might see some quick gains once an agreement is reached.

Anyways for the Teaparty House Representatives it is a matter of keeping their promise to the electorate.

Why would cutting entitlements help the stock market????

You do realize that those entitlements, like social security, contribute to GDP. When they cut people's Medicare / Medicaid, it's not that they're going to spend out of pocket... they're just going to defer the visit / procedure / buy less drugs. That means Kaiser, Pfizer and the local general practitioner all take a hit, thereby reducing their income and reducing their taxes paid.

All of the above results in less revenues to corporations, and the government taking in less taxes. In effect, back to recession.

Also, why would any US citizen want their country to mandatorily run a balanced budget??? They're the country with the best credit rating in the world, so they're supposed to forgo making any type of national investment that would require them to draw a line of credit? Can you name any successful company that doesn't leverage its balance sheet?


I really have to shake my head at what you're writing.