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Old 01-10-2013, 03:09 PM   #101
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Let those who take risks have the gains of success, and also the burdens of failure. Those who take risks, fail, and are bailed out are too easily able to repeat the process despite their poor track record.
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Old 01-10-2013, 03:22 PM   #102
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The debt of the country was WAY different in 2000.... remember that when Clinton was leaving office they were worried that they would actually pay off ALL US debt if something did not change...
Makes my point actually. The taxpayers were supporting the debt and the entitlements and were not clamoring for a tax cut. Politicians made up the danger of paying off all the debt (long term it was clearly turning back upward) as an excuse to cut below what we really needed to support the entitlement programs for any period of time. It is academic now since the bulk of the tax cuts are permanent. We now have no choice but to cut both entitlements and defense to make things work, even with any reasonably foreseeable increase in revenues.
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Old 01-10-2013, 04:15 PM   #103
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The part of AIG that brought them down was essentially completely unregulated, because we made a choice to pass the Commodity Futures Modernization Act of 2000 that left derivatives unregulated.

It's pretty clear to me that that was a mistake.

We're getting into the weeds now, but I don't see how they could have let that part of AIG go down without taking down the rest of the financial system, since having them fail would have left a couple hundred billion dollar hole in their trading partners.

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To answer the question.... no, I do not
think AIG should insure that much without reserves....

But, it was not the CDS that was the problem.... there are many CDS that work just great... work as intended and protects the people who buy them...

I have no problem in regulation on these instruments... with the potential for them to do a lot of harm if someone else decides to get outside prudent bounds... regulation might help....

But, be aware that these big banks were already heavily regulated... even AIG... it was a very small part of AIG that brought it down... without getting to far off this thread.... they should have let it go and protected the rest of AIG... just my opinion...
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Old 01-10-2013, 04:34 PM   #104
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Modern Monetary Theory

Here is a link that explains the MMT: Modern Monetary Theory

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As the issuer of the currency, there is no solvency constraint at the government level as there might be for a household, state or business. In this regard, one must be careful comparing the federal government to a household because the federal government has no solvency constraint (i.e., there’s no such thing as the federal government “running out of money” as it can always call on the banks and the Federal Reserve to serve as agents of the government). Households, on the other hand, have a very real solvency constraint.
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The federal government’s true constraint is never solvency, but inflation. The government must manage the money supply so as to avoid imposing undue harm on the populace via mismanagement of the money supply.
If you compare the actions of the government/treasury/Federal Reserve bank for the last few decades you can see a consistency with this theory.

Sorry for the delay in posting this as requested above in post # 5.
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Old 01-10-2013, 04:58 PM   #105
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Makes my point actually. The taxpayers were supporting the debt and the entitlements and were not clamoring for a tax cut. Politicians made up the danger of paying off all the debt (long term it was clearly turning back upward) as an excuse to cut below what we really needed to support the entitlement programs for any period of time. It is academic now since the bulk of the tax cuts are permanent. We now have no choice but to cut both entitlements and defense to make things work, even with any reasonably foreseeable increase in revenues.

I guess I am not understanding what you are trying to say.... gvmt spending has increased in almost any measure you use.... the major one is % of GDP... I think if spending went back down to the 20% of GDP it has been back in 2000ish, nobody would be as upset as they are... also, income (taxes) are going back to 18% of GDP even with the lower rates (or at least that is what I heard)...
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Old 01-10-2013, 05:01 PM   #106
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The part of AIG that brought them down was essentially completely unregulated, because we made a choice to pass the Commodity Futures Modernization Act of 2000 that left derivatives unregulated.

It's pretty clear to me that that was a mistake.

We're getting into the weeds now, but I don't see how they could have let that part of AIG go down without taking down the rest of the financial system, since having them fail would have left a couple hundred billion dollar hole in their trading partners.
Way off the main subject... but that was the risk that they took.... and I agree that it was a mistake...
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Old 01-10-2013, 05:21 PM   #107
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I think it's worth keeping in mind that much of the increase in government spending is recession related. It's hard to say how much, but my guess is that if we get back to a normal employment situation ( hopefully by 2015 ), it won't look near as bad as a percent of GDP.

We haven't had a vast expansion of the role of government since 2000. We entered two major wars, and have had a crisis that collapsed GDP and government revenues and vastly increased automatic government safety-net spending.

Granted, we've also cut revenues at times when it was foolish, and expanded Medicare to include drug benefits. We've also got a serious problem with Medicare and Medicaid long term. These are all problems that will be easier to solve once the employment situation is better.

It's all about jobs. If we can get everyone back to work, half of the deficit problem goes away on its own. If we can't get everyone back to work, trying to balance the budget will fail miserably no matter how much we cut.

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I guess I am not understanding what you are trying to say.... gvmt spending has increased in almost any measure you use.... the major one is % of GDP... I think if spending went back down to the 20% of GDP it has been back in 2000ish, nobody would be as upset as they are... also, income (taxes) are going back to 18% of GDP even with the lower rates (or at least that is what I heard)...
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Old 01-10-2013, 05:22 PM   #108
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Govt, budget v. family budget.

Kind of like unfathomable amount income and expenses v. nickel and dime stuff. Would not know how to compare.
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Old 01-10-2013, 05:57 PM   #109
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Welcome to the Permanent Floating Crisis and Can-Kicking Competition.
PFCCKC. Or PFC-CKC. Nice! They both have a certain ring. I'd trademark each before someone else does.
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Old 01-10-2013, 11:12 PM   #110
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I.....There are derivatives that have real economic value, but they are a tiny fraction of the market. Most of them are just pure gambling.

They need to be regulated, or there is no way to enforce insurance reserve requirements or bank leverage limits. Anytime one financial institution gets into trouble, all of its trading partners are going to be in trouble.

If we don't get a handle on derivatives, we'll just have another disaster 5-10 years from now.
Totally agree. It would seem sensible to allow a party to buy or sell a derivative only as a hedge of an existing asset or cash flow to eliminate speculation (or enact a 100% tax on any speculative gains with no deduction for speculative losses).

I also don't get why we allow short sales of securities. Where else other than stocks or bonds can you legally sell an asset that you don't own and have title to? Same thing there - a 100% tax on any short sale profits with no deduction for short sale losses.
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Old 01-11-2013, 10:12 AM   #111
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I think it's worth keeping in mind that much of the increase in government spending is recession related. It's hard to say how much, but my guess is that if we get back to a normal employment situation ( hopefully by 2015 ), it won't look near as bad as a percent of GDP.

We haven't had a vast expansion of the role of government since 2000. We entered two major wars, and have had a crisis that collapsed GDP and government revenues and vastly increased automatic government safety-net spending.

Granted, we've also cut revenues at times when it was foolish, and expanded Medicare to include drug benefits. We've also got a serious problem with Medicare and Medicaid long term. These are all problems that will be easier to solve once the employment situation is better.

It's all about jobs. If we can get everyone back to work, half of the deficit problem goes away on its own. If we can't get everyone back to work, trying to balance the budget will fail miserably no matter how much we cut.

Sorry, but that is just wrong....

As you can see by the chart below, the run rate for spending is staying high for the next 10 years (and even beyond that).... it is not recession related...

Now, I will give you that the peak on the graph was recession related.... but not the next 10 years...

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Old 01-11-2013, 10:17 AM   #112
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A good clarification on some of the issues in the ongoing debt ceiling debate in today's WSJ by people with knowledge of the legalities. Their main points:
- Talk of a "government default" is inaccurate. The 14th Amendment requires "debts" (not "obligations" or other, less specific terms) of the USG to be paid. Holders of US bonds are the first in line for government revenues, and the amount taken in is more than enough to pay them.
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This means that a failure to raise the debt ceiling—to prevent new borrowing—does not and cannot put America's current creditors at risk. So long as this government exists, and barring a further constitutional amendment, those creditors must be paid.
. . .
Second, despite . . . claims that Congress must raise the debt ceiling to pay the bills it has incurred, the obligations protected as "debts" by the 14th Amendment do not include entitlement programs such as Medicare and Social Security. These programs are not part of the "public debt," which consist of loans that are made to the federal government through bonds and similar financial instruments. Entitlement programs are instead political measures that are fully subject to the general rule that one Congress cannot, by simple legislation, prevent a future Congress from making cuts
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Third, assertions, most recently made by [some] that the president can rely on Section 4 as a pretext for raising the debt ceiling by himself are manifestly incorrect and constitutionally dangerous. Section 4 grants no power whatsoever to the president—instead, the 14th Amendment grants Congress the "power to enforce, by appropriate legislation, the provisions of this article."
The debate will surely continue . . .
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Old 01-11-2013, 10:54 AM   #113
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I guess I am not understanding what you are trying to say.... gvmt spending has increased in almost any measure you use.... the major one is % of GDP... I think if spending went back down to the 20% of GDP it has been back in 2000ish, nobody would be as upset as they are... also, income (taxes) are going back to 18% of GDP even with the lower rates (or at least that is what I heard)...
The point was simply that people were prepared to support the programs that support them. We were doing so in the late 90s until the politicians blew the pot. Sure we are vastly overspending now due primarily to three things: huge tax cuts, unfunded wars, and a massive recession cutting revenues. The only one of those three that may eventually resolve itself is the recession related cut in revenues. With the tax cuts permanent and the massive overhanging debt from the past decade of profligacy, we are now in such bad shape that I agree that the people may not be willing to support the entitlement programs going forward.
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Old 01-11-2013, 11:16 AM   #114
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With the tax cuts permanent and the massive overhanging debt from the past decade of profligacy, we are now in such bad shape that I agree that the people may not be willing to support the entitlement programs going forward.
Maybe the people can not afford to support some entitlement programs going forward?
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Old 01-11-2013, 11:35 AM   #115
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The point was simply that people were prepared to support the programs that support them. We were doing so in the late 90s until the politicians blew the pot. Sure we are vastly overspending now due primarily to three things: huge tax cuts, unfunded wars, and a massive recession cutting revenues. The only one of those three that may eventually resolve itself is the recession related cut in revenues. With the tax cuts permanent and the massive overhanging debt from the past decade of profligacy, we are now in such bad shape that I agree that the people may not be willing to support the entitlement programs going forward.
It is interesting looking at the graph.... but it does not look like the unfunded wars are that big of a deal... sure, spending almot a trillion is a big deal, but I do not see the graph going wild like during the recession...

Also, it looks like revenue was coming back up even with the tax breaks... you can see the massive cut in revenues due to the recession, but it does look like income was moving back up...

Even in the out years with the tax cuts permanent.... it does not look like the tax cuts put us below the longer term run rate as a % of GDP...

It still looks like to me it is the long term spending that is the problem going forward, not the war spending, the recession spending or the recession income losses....
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Old 01-11-2013, 12:09 PM   #116
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It is interesting looking at the graph.... but it does not look like the unfunded wars are that big of a deal... sure, spending almot a trillion is a big deal, but I do not see the graph going wild like during the recession...

Also, it looks like revenue was coming back up even with the tax breaks... you can see the massive cut in revenues due to the recession, but it does look like income was moving back up...

Even in the out years with the tax cuts permanent.... it does not look like the tax cuts put us below the longer term run rate as a % of GDP...

It still looks like to me it is the long term spending that is the problem going forward, not the war spending, the recession spending or the recession income losses....
Yes, taxes were coming back up and will -- to the post 2001 tax cut, pre-recession levels. But they will not come up to the 2000 pre-tax cut levels - the time at which modest spending cuts could potentially have addressed the problem. The wars are almost over and left a fair sized chunk of debt. The recession may be over and will leave a fair sized chunk of debt. The stimulus spending may be pretty much over and will leave its chunk. The tax cuts are permanent. So, yes, in that context, and assuming major new revenues are not likely, spending is now the problem. The people who wanted to shrink government (read dismantle the New Deal and Great Society programs) by cutting off its taxes won.
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Old 01-11-2013, 12:19 PM   #117
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Back to the Platinum Coin/debt ceiling discussion -- a lot of posters seemed to feel that the debt ceiling is a good thing because it can be used to force action. I am curious how folks would react to an opposite lever. What if a law was on the books that forced taxes to rise to rates sufficient to keep debt below some arbitrary ceiling unless Congress took action to raise that ceiling? Would you support such a mechanism? If Congressional failure threatened to let large auto tax raises go into effect in the middle of a recession (a la the recent fiscal cliff) would you support the use of executive loopholes to mitigate or avoid the ensuing mess?
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Old 01-11-2013, 12:19 PM   #118
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A good clarification on some of the issues in the ongoing debt ceiling debate in today's WSJ by people with knowledge of the legalities. Their main points:
- Talk of a "government default" is inaccurate. The 14th Amendment requires "debts" (not "obligations" or other, less specific terms) of the USG to be paid. Holders of US bonds are the first in line for government revenues, and the amount taken in is more than enough to pay them.
I can agree with the article on the point that the gov't has enough tax revenue to pay interest and maturities on bonds without going over the debt ceiling. And, in fact, it has enough left over to pay for a lot of other stuff, but not everything else.

I can also agree that the Prez is obligated to pay the debts. But I'm not sure about the "first in line" business. I wish they would have gone on to look at the other spending.

It seems to me that any vendor who sells something to the gov't and hasn't been paid yet is a "creditor" who would be right up there with the bondholders. Any employee who has already worked and is expecting to get paid for that past work also ranks up there. Any doctor/hospital presenting a bill for Medicare/Medicaid services already provided is in that category.

Then we get to "entitlements". They use that word because there is no spending discretion. Current law requires the Administration to pay anyone who meets certain criteria. Congress can change the law, but until they do, the Prez has a legal obligation to pay them. (I think, I'm not sure)

It could easily be that if we add up all the categories above, they exceed tax revenue. I can't think of much else in the budget.

It seems that if Congress doesn't act to decide which spending to cut, the Administration is legally required to spend more money than the gov't has in revenue.
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Old 01-11-2013, 12:30 PM   #119
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Yes, taxes were coming back up and will -- to the post 2001 tax cut, pre-recession levels. But they will not come up to the 2000 pre-tax cut levels - the time at which modest spending cuts could potentially have addressed the problem. The wars are almost over and left a fair sized chunk of debt. The recession may be over and will leave a fair sized chunk of debt. The stimulus spending may be pretty much over and will leave its chunk. The tax cuts are permanent. So, yes, in that context, and assuming major new revenues are not likely, spending is now the problem. The people who wanted to shrink government (read dismantle the New Deal and Great Society programs) by cutting off its taxes won.

Heck, I just want gvmt back to where it was in 2000.... when someone says we are not spending more than then except for things that are going away, then why is spending going form 18% of GDP in 2000 to 24% as a baseline today

Revenue seems to be going up to 19% even with the tax cuts which is higher than historical rates....

I think you are looking through a rose colored lens if you are seeing that taxes have been cut... sure, lower than in 2000, but that was a peak over the last 40 years.... I am talking the normal tax rate....
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Old 01-11-2013, 12:44 PM   #120
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You're using last year's projections. This year's look a little better.

http://www.cbo.gov/sites/default/fil...03-16-APB1.pdf

Their projection for 2016 have the following numbers for the President's budget--

Outlays $4186 B
Revenues $3657 B
Deficit $529 B

GDP $18704 B

So in 2016, they project that the President's budget would have a deficit that is 2.8% of GDP. The Federal budget would be 22.4% of GDP. That's about 2% higher than our average since 1971, mainly because Medicare, Medicaid, and SS are a rapidly rising cost.

Note that the baseline is about $100 B less in spending and $200 B more in revenue, which would put the deficit down to 1.4% of GDP.

When I look at these numbers, I see that we had a big problem with the recession, and that we have a problem longer term with rising health care costs.

Which is what I already said.

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Sorry, but that is just wrong....

As you can see by the chart below, the run rate for spending is staying high for the next 10 years (and even beyond that).... it is not recession related...

Now, I will give you that the peak on the graph was recession related.... but not the next 10 years...

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