U.S. Debt discussion

[Delthefunky]

Was hoping some people could shed some light on this, as the U.S. approaches their debt ceiling. What are the implications this time around, compared to 1995? How much of this is just posturing by the Rep's, and what are the consequences of an on-going debate, or if the U.S. fails to come to any agreement?

[Cowperson]

Originally Posted by Delthefunky

Was hoping some people could shed some light on this, as the U.S. approaches their debt ceiling. What are the implications this time around, compared to 1995? How much of this is just posturing by the Rep's, and what are the consequences of an on-going debate, or if the U.S. fails to come to any agreement?

Ultimately, its about negotiating and reaching a point of maximum pressure which is where the August date comes into play.

There is clearly one side that subscribes to the notion "Deficits don't matter" and the other side that believes its either important or a good way to distinguish themselves from the side that is becoming increasingly unpopular.

The American people seem to believe in polling that "Deficits Do Matter," although, like people everywhere, including Greece, as long as reductions don't affect them.

This article in a calmer moment in 2004 is probably still relevant in giving some explanation as to why some people feel government deficits don't matter: http://money.cnn.com/2004/02/02/news...dget/index.htm

Jean Chretien in the early 1990's also had a Finance Minister who also publicly thought "deficits don't matter."

These days . . . . . . deficits probably do matter.

Cowperson

[MarchHare]

Until the Republicans acknowledge that the deficit cannot be eliminated without some combination of the following, they're just posturing for political points:

1. Reduction of military spending
2. Reduction of Social Security spending
3. Reduction of Medicare/Medicaid spending
4. Increase of taxes

All four of those points are sacred cows to the Tea Party types, though, so it seems unlikely the US will make any serious, long-term efforts towards deficit reduction anytime soon.

[ken0042]

Question that I've wondered. How much is the US spending on debt service compared to what their deficit is?

I'm just thinking that there has to be a point where the amount required to just pay the interest has got to be only compounding the issue.

[Delthefunky]

I think they borrow something like $.40 for every $1 they spend

[Cowperson]

Originally Posted by ken0042

Question that I've wondered. How much is the US spending on debt service compared to what their deficit is?

I'm just thinking that there has to be a point where the amount required to just pay the interest has got to be only compounding the issue.

Your answers are here: http://www.bloomberg.com/news/2011-0...to-record.html

Part of the issue with most governments right now, including the USA, is tax revenues took a gigantic hit in the 2008-09 recession.

Its not all about spending. Revenues are important as well.

California, if I remember right, had an unexpected $8 billion pickup in tax revenue in the last few months as economic activity increased.

In one single year in roughly 2006 or 2007, the USA federal government increased tax revenues by more than the USA defence budget.

Revenues are an underrated factor in this.

Cowperson

[Delthefunky]

Just to add to this, looks like negotiations have halted for this weekend:


http://m.cnn.com/primary/_eRgUZX-ikDimUneI2

[Calgaryborn]

Originally Posted by MarchHare

Until the Republicans acknowledge that the deficit cannot be eliminated without some combination of the following, they're just posturing for political points:

1. Reduction of military spending
2. Reduction of Social Security spending
3. Reduction of Medicare/Medicaid spending
4. Increase of taxes

All four of those points are sacred cows to the Tea Party types, though, so it seems unlikely the US will make any serious, long-term efforts towards deficit reduction anytime soon.

1. There has already been cuts in military spending. I don't know how Obama could justify more while he has men and women in harms way. As a percentage of the GDP it is actually lower than it has been since shortly after World War II. I suppose you could cut development dollars but, that would hurt America in the future.

2. Social Security spending is on the table. Seems both sides know that the age of entitlement must be raised. The problem is no one is willing to let it effect people who are coming up to retirement soon because of the political fall out. Bush's idea of letting folks invest there own money looks a little more attractive a decade later. It would have moved the federal government away from a huge entitlement problem in the near future. I suspect they will agree on a later age of entitlement eventually but, that won't help them today. They might look at introducing a means test as well which would save them a lot now.

3. Medicare is already being gutted by Obama care. Obama care is what needs to be on the table. It is hurting job creation as well, which has a trickle down effect on everything else.

4. Taxes for the rich is the only thing being proposed. Right now if they do nothing the Bush tax reductions will already be disappearing next year. Can't see that helping the economy if these are the guys who are suppose to hire the unemployed.

If nothing gets done by Aug 2 Obama will still have the money for entitlements, the military, and to make payments on the debt. Government agencies will have to lay off the bulk of their employees and moneys still going out for make work projects or research will be suspended. That will be painful for many and of course some of those jobs won't come back at all. But, that might be what it takes to change the spending habits of American government. Spending is after all the problem. The problem isn't people not being taxed too much or Congress trying to show up Obama. It is too much being spent.

The threat of a diminished credit rating seems to me to be over blown. First of all they won't default unless Obama choses to default. The creditors can still be paid. Secondly, lately the primary lender to the US has been the Federal reserve. I simply don't get why the Federal Reserve would have to listen to the Moody credit agency or anybody else. They can set their own lending rate much like the bank of Canada.

[Regorium]

I cannot see this ending well.

The main reason is not because there are no good solutions (there are), but because any good solution that one side comes up with will be immediately shot down by the other due to politics.

Nobody wants to be the "loser" in this particular battle with the election coming up, so my guess is that they do nothing, make a band-aid fix, then leave it for the next president to be even more screwed. Then you have the same ######s that blame Obama for Bush's policies blaming the next president for Obama's policies.

[Cowperson]

As long as the USA is perceived to be the Big Daddy, the threat of a credit downgrade is irrelevant.

One thing about 2008 was that it was a rare moment of absolute truth and honesty . . . . . and when the entire world thought the global financial system was going to collapse, everyone ran to the USA dollar.

There was a moment in early 2008 when USA treasuries were trading at negative yields, meaning people were basically willing to pay the USA government to hold their money for them because they didn't trust the banks or countries of the world. The USA dollar soared in the credit crunch of 2008-09. As things have normalized, the USA dollar has fallen with the money moving out into the world with confidence enough to take on risk again.

Right now, in markets, there's just not a great perception there's a lot of risk that will result from what we see happening in the USA.

One of the things lost in the last few years is that the percentage of total American debt, including government, businesses and individuals, is actually shrinking relative to GDP. We focus on government debt rising while ignoring the fact business and personal debt is shrinking fairly rapidly while the percentage of income Americans are socking away in savings is back at its highest level in more than a decade.

Right now, overall debt to GDP in America is about 275% of GDP, in the UK its about 450%, in France and Spain, its about 300% to 350%.

We focus on government debt because business and personal debt could be redirected to the government, making the situation worse.

Cowperson

[MarchHare]

3. Medicare is already being gutted by Obama care. Obama care is what needs to be on the table. It is hurting job creation as well, which has a trickle down effect on everything else.

Here's a high level overview of US federal government spending and revenues:

Social Security budget: $701B
Medicare/Medicaid budget: $793B
Defense budget: $689B
Interest on debt: $197B
Everything Else budget: $1076B (includes Obamacare and literally every other US federal government department aside from Defense)

Total income: $2162B

Simple math shows that if they were to literally shut down the US government except for Social Security, Medicare/Medicaid, and the Defense Department, they would STILL be $21B in the red and have a completely non-functional government. Obamacare is not the problem.

[Calgaryborn]

Obamacare represents only about 5 billion of the budget right now but, that is going to mushroom in the next 10 years. Today it is already having a negative effect on the economy through reduced job growth. If an employer has more than 50 employees he is required to provide government approved health insurance for them. The insurance has already become more expensive because of government requirements and companies can't project how much it is going to rise in the next four years because many of the government regulations governing Obamacare aren't spelled out in the bill but, are to be decided as it is fully enforced. Here is a link to a Heritage Foundation study of the early impact of Obamacare:

http://www.heritage.org/Research/Rep...amacare-Passed

[Jedi Ninja]

^ Small potatoes. The annual cost of George W Bush's medicaid part D drug benefits was almost $50b in 2008, and the program currently has an unfunded liability of $20 trillion. The medicare liability is about $80 trillion, and the US has a total unfunded liability of $115 trillion, or $1.0m per taxpayer. The total net worth of all US citizens is about $50 trillion by comparison.

http://usdebtclock.org/

[Rockin' Flames]

Personally I think there should be a combination of increasing taxes and cutting spending. If taxes are raised though they should be raised on everyone, including people who are currently paying nothing and the tax rate should be raised evenly accross the board. For example if taxes are raised by 3% than people who are paying 0% now should be paying 3% on all of their earnings. This will bring a lot more people contributing to the tax rolls. Finally there has to be a crackdown on businesses employing illegal immigrants because these people aren't paying taxes.

As for Medicaid/Medicare the system is broken and needs severe cuts. My wife is a doctor working in an area that sees a lot of medicaid patients and compared to Canada it pays for items that not even the healthcare system in Canada pays for. They need to start cutting some of the items that are covered and cracking down on the abuse of the system.

As for social security its just going to get worse with an aging population.

I'm even at a point where I personally think the US needs to start looking out for themselves and should probably start pulling people out of Iraq and Afganastan which would help in accomplishing some additional cuts to the military. It's time that these countries stand on their own two feet.

Obamacare does need to be on the table as well as some of the other departments as well.

Just my two cents though.

[afc wimbledon]

It would be nice to see the dopes from the tea party take a pledge to stop spending money, they have been just as quick to get their noses in the trough for their constituancies

[Calgaryborn]

Originally Posted by afc wimbledon

It would be nice to see the dopes from the tea party take a pledge to stop spending money, they have been just as quick to get their noses in the trough for their constituancies

Really? The Tea party has only fielded candidates in last November's election. Where have they had time to belly up to the trough. I think they deserve a lot of credit for trying to accomplish what they got elected for: Moving towards balancing the budget.

[Hemi-Cuda]

Originally Posted by Regorium

I cannot see this ending well.

The main reason is not because there are no good solutions (there are), but because any good solution that one side comes up with will be immediately shot down by the other due to politics.

Nobody wants to be the "loser" in this particular battle with the election coming up, so my guess is that they do nothing, make a band-aid fix, then leave it for the next president to be even more screwed. Then you have the same ######s that blame Obama for Bush's policies blaming the next president for Obama's policies.

this is what makes this so stupid, and why the US is so broken right now. the election is over 15 months away, that's not exactly "coming up". in Canada the most warning we ever get for an election is 5 weeks. the culture of unending political campaigning in the US makes it so that virtually nothing of worth can get accomplished unless one party has a majority in both houses

you know the situation is screwed when immediately after one election, the political news outlets start talking about who could make a run 4 years later

[Bonded]

The teapartiers are delusional in my opinion. They are grossly misinformed on a lot of topics, and mainstream republicans have started to distance themselves from the rightwing fringe because they are scared that if the party rums with tea-partiers they will lose harshly to the democrats.

I think the main problem with American politics is that there is little to no middle ground because of the two-party political system. There is no middling party that can bring about compromise. Every time a divisive issue comes up both parties revert to bullish politics that disallow smart compromises for fear of looking weak. It has really split the american public into two camps that hate each other. Hard lines are drawn and will not be broken until crisis. It worsens the inborn shortsightedness of democratic politics and hampers effective long-term planning and policy even further than is seen in other Western democracies. While election cycles and choice are what democracy is built upon, it also emphasizes for short0term gains over choices that may hurt in the short run but provide a better long-term gains and stability.

Yes, it is a disadvantage of having fixed election dates, and I worry that it will only get more ridiculous because of the supreme court's decision that corporations have free-reign on how much money they pump into elections, Karl Rove and the Tort 'reformers' swayed judicial elections to favour corporations over consumer rights, and now with unlimited contributions I fear that the US will become further entrenched in corporatist politics that favours business interests over citizen interests.

[afc wimbledon]

Originally Posted by Calgaryborn

Really? The Tea party has only fielded candidates in last November's election. Where have they had time to belly up to the trough. I think they deserve a lot of credit for trying to accomplish what they got elected for: Moving towards balancing the budget.

From the New York Times.

WASHINGTON — Freshman House Republicans who rode a wave of voter discontent into office last year vowed to stop out-of-control spending, but that has not stopped several of them from quietly trying to funnel millions of federal dollars into projects back home.

They have pushed for dozens of projects in their districts, including military programs opposed by the president, replenishing beach sand lost to erosion, a $700 million bridge in Minnesota and a harbor dredging project in Charleston, S.C. Some of their projects were once earmarks, political shorthand for pet projects penciled into spending bills, which Republicans banned when they took over the House.
An examination of spending bills, news releases and communications with federal agencies obtained under the Freedom of Information Act shows that nearly two dozen freshmen have sought money for projects that could ultimately cost billions of dollars, while calling for less spending and banning pork projects.

As the Who put it 'Meet the new boss, same as the old boss'

[FlamesAddiction]

I've been reading a little about this on internet forums, so as you'd expect, everything that I am hearing is complete doom and gloom. I don't know what is fact and what is just fearmongering by biased sources. From what I read, people are making it sound like the Republican party is willing to sacrifice the American economy and destroy Obabma by refusing to sign off an anything Obama wants to do to control the crisis. They want to see things go down the drain so that Obama's name and the Democrats are forever associated with the economic collapse. Similar to how Jay Feaster will forever be associated with losing Tim Erixon in some people's minds even though he was pretty much powerless.

Again, I don't want to say that the above statement is fact, but it does seem like it is a growing opinion among a lot of people.

So what is the worst case scenerio? If the Republicans can't get onside with Obama and the U.S. defaults on August 2nd, are we looking at a catastropic economic collapse?