Government budgets versus family budgets

[donheff]

Sorry to backtrack to the platinum coin discussion but I missed it earlier. This is not a tongue in cheek discussion, it is a real possibility. Certainly a legal loophole expanding the law to do something never originally envisioned - sort of like off label use of medicine. But a loophole to get around what? A Congressional choice to possibly wreak the world economy by defaulting on our national debt? Keep in mind, the coin itself is held by the Fed which simply credits the General Account allowing us to continue to spend. As long as Treasury matched the ensuing spending with increased debt, the existence of the coin would have no more impact on inflation than would an increase in the ceiling. And everyone agrees that raising the debt ceiling is ultimately something we must do to live up to the promises we have already made. I vote for the coin. In fact, mint a much, much bigger coin - enough to assure the world that this stupid debt ceiling debate can't be used hold the economy hostage again a few months or years down the road.

There is a different concept floating around that might be another alternative. Issue consuls - debt instrument without a face value, sort of an annuity like promise to pay a certain amount for x years or in perpetuity in return for lending us $Y now. The debt ceiling is apparently based not on the volume of payments but on the total face value of the instruments used. Consuls would be invisible to the Ceiling. None of the discussion I have read on consuls answer whether they are something Treasury has the authority to issue without a law being passed. Maybe some of the savvy readers on this forum can answer that.

The third option, to simply declare the ceiling unconstitutional based on the 14th amendment's demand that we honor our debt, would be a very questionable approach if either platinum coins or consuls are real possibilities. After all, the courts don't look fondly on repudiating laws you can implement through constitutional means.

[Lazarus]

Quote:

Originally Posted by donheff And everyone agrees that raising the debt ceiling is ultimately something we must do to live up to the promises we have already made.

I do not agree. I am sure there are a few others.

[REWahoo]

Rather than a $1T coin, or consuls or declarations of unconstitutionality, how about something really radical: Congress actually reaching an agreement (shock!) on reasonable, measured spending cuts linked to corresponding adjustments in the debt ceiling.

Yes, completely unrealistic and totally pie-in-the-sky, but a guy can dream can't he?

[donheff]

Quote:

Originally Posted by REWahoo Rather than a $1T coin, or consuls or declarations of unconstitutionality, how about something really radical: Congress actually reaching an agreement (shock!) on reasonable, measured spending cuts linked to corresponding adjustments in the debt ceiling.

Duh. Of course that is preferable. I doubt there is a member of this forum who does not agree. But what should we ask our Executive to do if the Hill fails to reach agreement? At some point the question becomes rather black and white. We either default on the debt and see what happens to the world economy or we take some radical action to avoid that.

[MichaelB]

Quote:

Originally Posted by REWahoo Yes, completely unrealistic and totally pie-in-the-sky, but a guy can dream can't he?

I think you have a better chance of going on a date with Scarlett Johansson.

[Lazarus]

I think accounting tricks like the coin and clever end runs around the Constitution do not befit the United States. There is a division of power between the branches of the Government for a good reason.

[Hamlet]

I think the existence of the debt ceiling at all is idiotic. Remember, Congress is the branch of government that makes spending decisions. So if they don't raise the debt ceiling, they are essentially sending the Executive branch two conflicting sets of instructions.

1. Spend all of this money that we told you to spend
2. Don't borrow money to do it.

If they don't raise the debt ceiling, they force the Executive branch into breaking one of those instructions, since they are in contradiction to each other.

It's not clear to me at all that the debt ceiling is constitutional, given the 14th amendment, but I suspect that we are going to have some judicial rulings on this before we are through.

My question is-- If we hit the debt ceiling and have to cut spending down to what is coming into the Treasury, who gets to decide how that spending is cut? I'm assuming that it is the Executive branch, since Congress will not be able to pass anything.

Can the Executive branch just decide what doesn't get funded? How granular can he get on that? California SS checks go out but Texas's don't?

[MichaelB]

Quote:

Originally Posted by Hamlet My question is-- If we hit the debt ceiling and have to cut spending down to what is coming into the Treasury, who gets to decide how that spending is cut? I'm assuming that it is the Executive branch, since Congress will not be able to pass anything. Can the Executive branch just decide what doesn't get funded? How granular can he get on that? California SS checks go out but Texas's don't?

Spending is not affected, paying bills is. The US Treasury dept is responsible for paying, and they would determine which bills to pay and which to defer. It can probably get as granular as they want. It has never happened, so how they would act, and react, is speculative.

[samclem]

I'm ready for a balanced budget amendment to the Constitution. I didn't favor it in the past, but the present foolishness (Trillion dollar coin, no Senate budget since 2009, the accounting tricks both sides engage in, legislating spending with no provisions to pay for it, etc) have made it clear that the situation is out of control, apparently there's a systemic flaw in the way we, as a nation, decide to run our finances. We need a systemic solution. Sure there would be more accounting tricks, but then they could be challenged all the way to the Supreme Court. One more defense against irresponsibility and a protection of the rights (to property) of American Citizens yet unborn. Emergency spending? Write an emergency tax. The present flexibility is killing us.

[Lazarus]

Quote:

Originally Posted by samclem I'm ready for a balanced budget amendment to the Constitution. I didn't favor it in the past, but the present foolishness (Trillion dollar coin, no Senate budget since 2009, the accounting tricks both sides engage in, legislating spending with no provisions to pay for it, etc) have made it clear that the situation is out of control. Sure there would be more accounting trick, but then they could be challenged all the way to the Supreme Court. Emergency spending? Write an emergency tax. The present flexibility is killing us.

+1

[NW-Bound]

Quote:

Originally Posted by Hamlet I think the existence of the debt ceiling at all is idiotic. Remember, Congress is the branch of government that makes spending decisions. So if they don't raise the debt ceiling, they are essentially sending the Executive branch two conflicting sets of instructions. 1. Spend all of this money that we told you to spend 2. Don't borrow money to do it. If they don't raise the debt ceiling, they force the Executive branch into breaking one of those instructions, since they are in contradiction to each other.

The problem is that spending is not easily cut; entitlement expenses still go on, and even discretionary spending cannot be easily cut without a lot of disruption to programs, contracts, and people whose livelihood depend on it. On the other hand the income due to taxes drops dramatically during a recession.

So, the question is "can a gummint at any level, federal or local, build surplus in good years to tide them over in bad years"?

[NW-Bound]

Looking again at the title of this thread, "Government budgets versus family budgets", and thinking about a concurrent thread about spousal dispute over spending issues, I can see some similarities.

When the " income > expenses " criteria is met, the spouses may not quite agree with how the other spends but still keep their mouth shut, but when " income < expenses " due to one taking ER, oh la la, much unhappiness and grudges in the past boil to the surface.

[Hamlet]

With a balanced budget required, normal recessions would almost surely become depressions.

Imagine having a recession, and suddenly having to cut $500 billion from the budget. That's going to turn a run-of-the-mill downturn into a disaster.

The only thing worse than running budget deficits in a recession is not running those deficits.

Trust me, split government doesn't get any better because you "can't" borrow money. Here in Minnesota, we had to shut down the government for a month or so, and only got an agreement when both sides agreed to borrowing against future tax revenues. I'm not sure how that was legal, given our balanced budget requirement, but we did it.

Quote:

Originally Posted by samclem I'm ready for a balanced budget amendment to the Constitution. I didn't favor it in the past, but the present foolishness (Trillion dollar coin, no Senate budget since 2009, the accounting tricks both sides engage in, legislating spending with no provisions to pay for it, etc) have made it clear that the situation is out of control. Sure there would be more accounting trick, but then they could be challenged all the way to the Supreme Court. Emergency spending? Write an emergency tax. The present flexibility is killing us.

[Texas Proud]

Quote:

Originally Posted by donheff Sorry to backtrack to the platinum coin discussion but I missed it earlier. This is not a tongue in cheek discussion, it is a real possibility. Certainly a legal loophole expanding the law to do something never originally envisioned - sort of like off label use of medicine. But a loophole to get around what? A Congressional choice to possibly wreak the world economy by defaulting on our national debt? Keep in mind, the coin itself is held by the Fed which simply credits the General Account allowing us to continue to spend. As long as Treasury matched the ensuing spending with increased debt, the existence of the coin would have no more impact on inflation than would an increase in the ceiling. And everyone agrees that raising the debt ceiling is ultimately something we must do to live up to the promises we have already made. I vote for the coin. In fact, mint a much, much bigger coin - enough to assure the world that this stupid debt ceiling debate can't be used hold the economy hostage again a few months or years down the road. There is a different concept floating around that might be another alternative. Issue consuls - debt instrument without a face value, sort of an annuity like promise to pay a certain amount for x years or in perpetuity in return for lending us $Y now. The debt ceiling is apparently based not on the volume of payments but on the total face value of the instruments used. Consuls would be invisible to the Ceiling. None of the discussion I have read on consuls answer whether they are something Treasury has the authority to issue without a law being passed. Maybe some of the savvy readers on this forum can answer that. The third option, to simply declare the ceiling unconstitutional based on the 14th amendment's demand that we honor our debt, would be a very questionable approach if either platinum coins or consuls are real possibilities. After all, the courts don't look fondly on repudiating laws you can implement through constitutional means.

First, all this talk about 'default' is just wrong.... as many people have said, the gvmt takes in a LOT of money... plenty of money to pay interest on the debt and any maturing obligations.... and they can even borrow any principal that is due because we can go up to the debt ceiling...


The real question is spending. I disagree with MichaelB that spending will continue as is... spending money that you can not pay is debt... from the interviews that I have seen, both sides have basically said spending will be cut...

Who get's to decide Again, according to the interviews that I have seen, it is the Executive branch.... so they can say that SS checks will not go out, or that we will not pay our soldiers..... or whatever else they decide to pay...

[Lazarus]

This is what happens when Government spending is too large a portion of the economy. If it were smaller it would have a much smaller effect when spending was cut.

They should not be spending more than comes in period. I don't think there is any effective way for a Government to store wealth for the future.

Borrowing in an emergency? Maybe ok but who decides what an emergency is?

[NW-Bound]

Quote:

Originally Posted by Hamlet I think the existence of the debt ceiling at all is idiotic. Remember, Congress is the branch of government that makes spending decisions. So if they don't raise the debt ceiling, they are essentially sending the Executive branch two conflicting sets of instructions. 1. Spend all of this money that we told you to spend 2. Don't borrow money to do it.

Also do not forget that the US President has veto power, and can reject a budget approved by Congress if he does not like it. And the balance of power in Congress is such that it never has the majority to overcome that veto, no matter which party is in control.

[Hamlet]

I'm waiting for the Executive to explain that SS checks will be going out only to people living in zip codes with Congressmen that voted to raise the debt ceiling. If your Congressmen voted no, the checks stop.

I suspect that that would get us past the debt ceiling issue pretty quickly.

Quote:

Originally Posted by Texas Proud Who get's to decide Again, according to the interviews that I have seen, it is the Executive branch.... so they can say that SS checks will not go out, or that we will not pay our soldiers..... or whatever else they decide to pay...

[MichaelB]

Quote:

Originally Posted by Hamlet I'm waiting for the Executive to explain that SS checks will be going out only to people living in zip codes with Congressmen that voted to raise the debt ceiling. If your Congressmen voted no, the checks stop. I suspect that that would get us past the debt ceiling issue pretty quickly.

Getting into detail would probably have the same effect on this thread.

[Independent]

Quote:

Originally Posted by haha The common phrase in economic journalism "kick start the economy" might suggest that Keynes at least had a motorcycle. Ha

[samclem]

Quote:

Originally Posted by Hamlet With a balanced budget required, normal recessions would almost surely become depressions. Imagine having a recession, and suddenly having to cut $500 billion from the budget. That's going to turn a run-of-the-mill downturn into a disaster.

If any reduction in government spending threatens to spin us into a depression, then maybe we should decrease the risk by not putting so many eggs in that basket.
Let's remember that government spending does not directly increase US GDP by a single cent. From a productivity perspective, it is all overhead--a drag on growth. Every dime of government spending comes out of the productive economy. Avoiding depressions is a poor excuse for relegating ourselves to continued high govt spending and the miniscule annual growth rates that will result. There are certainly government expenditures that are necessary (defense, public infrastructure, courts and law enforcement, etc), but we're >>way<< beyond that today.

Are there any important trends shown here that might be germane to our present discussion and the ability of our private sector to create wealth? Does the term "tooth-to-tail ratio" come to mind?*


* (Disregard the flattening out in the "future years" below--that's a fiction we all know ain't gonna happen. No doc fix for Medicare? C'mon).