Government budgets versus family budgets

[samclem]

Quote:

Originally Posted by Independent 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)

And I'm not sure either. But it seems to me that the obligations that the Constitution specifically says must be paid have higher standing than those which are necessitated by "mere" laws. If push comes to shove, Congress can change those laws in the blink of an eye to nullify that spending, not so with the bonds (and probably not so with employee pay and contracts for services performed). I'm not sure how retirement pay for military/government types would be treated under this scheme: are these payments for services already received? Medicaid, food stamps, SNAP, Section 8 housing through HUD, etc clearly are not.

[Independent]

Quote:

Originally Posted by samclem And I'm not sure either. But it seems to me that the obligations that the Constitution specifically says must be paid have higher standing than those which are necessitated by "mere" laws. If push comes to shove, Congress can change those laws in the blink of an eye to nullify that spending, not so with the bonds (and probably not so with employee pay and contracts for services performed). I'm not sure how retirement pay for military/government types would be treated under this scheme: are these payments for services already received? Medicaid, food stamps, SNAP, Section 8 housing through HUD, etc clearly are not.

Yes, it's complicated. I'd love to see Congress "in the blink of an eye" specify which spending should go on. Like I said, I'm speculating that they would discover they would have to renege on some type of "debt".

Medicaid spending is reimbursements for services already provided. Section 8 may well be lease payments on leases already signed.

I could see them cutting SNAP (AFAIK, the same as food stamps), but I think it would take an act of Congress, I'm not sure that the President could unilaterally decide to stop giving aid to people who meet the criteria in the law.

It amazes me that people, who are supposedly willing to prevent the debt ceiling from going up, haven't written bills that explain what gets cut if that happens.

[MichaelB]

Spending is not limited to transfers. It includes tax breaks, deductions, special rates, exemptions, and also business contracts and subsidies. Every person, organization and institution gets a part of this. This is why it is so difficult to manage, and also why Bowles Simpson was so compelling.

Here's an interesting article from Wonk Blog, referencing The Center for Budget and Policy Priorities, that estimates $1.4T in additional deficit reduction is needed to bring the debt level down to a more easily sustainable level. How much more deficit reduction do we need? CBPP says $1.4 trillion. It also has a nice chart (which I don't know how to link here on the iPad).

[samclem]

Quote:

Originally Posted by MichaelB Spending is not limited to transfers. It includes tax breaks, deductions, special rates, exemptions, and also business contracts and subsidies.

I'm not sure most "ordinary people" would classify spending this broadly. Tax breaks, deductions, exemptions, etc reduce government revenue, they aren't spending. It's money the government decided not to collect. If the tax rate is set at 15% instead of 18%, did the government "spend" the difference? And it's not like the tax code is intended to capture every dollar of earned income. Re: Tax Credits--I think the case is less clear, but since they can exceed taxes due and some result in a check directly from the general fund to a taxpayer, I think most people would see that as spending.

Back to the analogy in the OP: If I decide not to work that overtime shift and thereby don't earn an extra $249, is that really spending $249? Of course not, and it's the same if the government collects less revenue--it's not spending. It's mainly in partisan discussions (on both sides of the aisle) that we hear of tax breaks counted as "expenditures," I doubt John Q. Public sees it this way. And he's right.

[Texas Proud]

Quote:

Originally Posted by MichaelB Spending is not limited to transfers. It includes tax breaks, deductions, special rates, exemptions, and also business contracts and subsidies. Every person, organization and institution gets a part of this. This is why it is so difficult to manage, and also why Bowles Simpson was so compelling. Here's an interesting article from Wonk Blog, referencing The Center for Budget and Policy Priorities, that estimates $1.4T in additional deficit reduction is needed to bring the debt level down to a more easily sustainable level. How much more deficit reduction do we need? CBPP says $1.4 trillion. It also has a nice chart (which I don't know how to link here on the iPad).

Is this the one

[Texas Proud]

I have been reading some of the discussion on the $1 trillion coin.... just read the actual law and it does appear that they can do this without any vote from Congress... others say it is not legal, so who knows...

Read the part that talks about it and see if you see any restrictions....

31 USC § 5112 - Denominations, specifications, and design of coins


'(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."


31 USC § 5112 - Denominations, specifications, and design of coins | LII / Legal Information Institute

[M Paquette]

Dear Bank of America:

As a lender to my small business, you should be the first to know of a decision I’ve decided to take. It wasn’t easy, and I’ve given it a lot of thought, but now I’m convinced it’s the right course of action. I won’t be making my next monthly payment.

It is true that I have already ordered shipments of equipment and materials using the funds I’ve borrowed from you. It is also true that I have adopted a pricing policy that’s designed to increase market share at the expense of current cash flow. The result of these choices is that my financial obligations will exceed my revenues for an extended period of time.

I have a line of credit that can cover this shortfall; we discussed it at length in our meeting last month. I appreciate your willingness to finance it at a negative real interest rate. But I now believe that it is immoral for me to increase my debt, which could be a burden on my children and grandchildren. As a result, I have imposed a debt limit on myself—a limit which I refuse to raise.

I’m sure you can understand the sound principles on which this choice is based: taking on more debt is evil. That’s why I have chosen instead to default on your loan, as well as withhold wages I’ve promised to pay to my workers. Please support me in this virtuous undertaking.

Sincerely yours.....

http://econospeak.blogspot.com/2013/...iling.html?m=1

This is about dead on for the household vs government comparison.

[NW-Bound]

I found the politics a bit too tiresome to follow it that close, but what I've thought is that the question is not really about not raising the debt limit, but about what to do to keep the entitlements from ballooning up, once the limit gets raised. That limit has been held hostage because of the negotiation. Maybe I am all wrong.

[M Paquette]

Barry Ritholtz over at The Big Picture blog came up with the 'perfect' trillion dollar coin.


It appears that the coin idea is both maximally silly, and quite legal. What's really fun is that it turns out to be economically equivalent to issuing more treasury bonds and notes.

The US Mint routinely produces new coins. These get trucked over to the Federal Reserve who credits the value of the coins to the US Treasury account, and distributes the coins. (I'm pretty sure there is a drop-shipping provision to keep freight costs down...) Similarly, when old coins or currency are returned to be destroyed, that value is removed from the books. The difference between the cost to make a coin and the face value of the coin is booked as a profit to the Treasury as seigniorage.

So, why isn't this hyperinflationary, like in the Weimar Republic or Zimbabwe? Well, it's not being done in the ludicrous quantities that Zimbabwe in particular cranked out currency. Instead, knocking out coins to cover 20 billion a day in expenses for a finite period of time while we wait for Congress to get its act together would look like, yes, more quantitative easing. The Federal Reserve would likely be aware of the change in the money supply (seeing as the Evil Coins are being deposited there), and would do what it usually does should they want to shrink the money supply...

The Fed would sell some of their inventory of previously issued bonds. Treasury Bonds. Treasury Notes. In exchange for cash. It's what they do.

The net money supply is adjusted down if needed, and more Treasury debt enters the market. Just like what we would see if the Treasury Department could sell bonds. As of Q3 2012 there was One Trillion Six Hundred Forty-Five Billion ($1,645,000,000,000) in US Treasuries held by the Fed, so they could do this for a while...

[MichaelB]

Quote:

Originally Posted by Texas Proud Is this the one

That was the one. Thanks. Seems we're on the yellow line now.

[samclem]

Looks like we won't get a Dr Evil trillion dollar coin. From the WSJ:

Quote:

The U.S. Treasury and Federal Reserve said they won't pursue a plan to mint a trillion dollar coin as a device to avoid the debt ceiling. "Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit," said Treasury spokesman Anthony Coley

[donheff]

Quote:

Originally Posted by samclem Looks like we won't get a Dr Evil trillion dollar coin. From the WSJ:

Oh well, it was fun while it lasted. Back to doomsday.

[kjpliny]

There is little possibility of a solution to the spending problem unless two things changed:

1. Politicians are currently owned in part by corporations. Reverse the ruling that Corporations are "people", and remove all involvement of corporations from affecting elections (monitarily/advertising, etc.).

2. Politicians are currently owned in part by public unions. Do not allow government employees and individuals completely and utterly on the "public dole" to vote. Since the employees are supposed to be "public servants" and are paid by the producing people in the country, they should not have a say or any pull with regards to the budget. Since politicians get elected by promising more to their constituents, the fat salaries, pensions and "free stuff" should slowly normalize over time.

This will never happen, but it makes logical sense to me. Over the next few voting cycles, the system would likely right itself.

[Lsbcal]

Quote:

Originally Posted by Nords ...(snip)... I know that austerity during the Great Depression was not such a winner, and I know that we tested the concept again during the Great Recession. Better still, I'm happy to have a better analogy to use when I'm discussing the idea with my daughter...

I've been reading Paul Krugman's new book and it's pretty interesting, thin and readable. This interview is a short take on some of the concepts discussed:
U.S. Still Suffering Depression Conditions: Paul Krugman | Daily Ticker - Yahoo! Finance

I'm not sure if analogies were discussed in the interview.

[bondi688]

Zimbabwe Is Down to Its Last $217 - Global - The Atlantic Wire

Zimbabwe, the country that's home to some of the world's largest plutonium and diamond reserves, literally has the same financial standing as a 14-year-old girl after a really good birthday party.

"The country's finance minister admitted as much in a press conference on Tuesday. "Last week when we paid civil servants there was $217 [left] in government coffers," Tendai Biti told reporters. "The government finances are in paralysis state at the present moment. We are failing to meet our targets."

The country spiraled into an extended period of hyperinflation, the likes of which the world almost never sees. It peaked in August 2008, when inflation reached 11,200,000 percent and economists around the world started to say that the country's situation was hopeless. Prices were doubling by the day, and the government had to print Z$100 billion notes. The following year, they went ahead and printed Z$100 trillion notes,just before deciding to chop 12 zeroes off of the currency."


Their solution: "We will be approaching the international community"

[Htown Harry]

Quote:

Originally Posted by bondi688 The following year, they went ahead and printed Z$100 trillion notes,just before deciding to chop 12 zeroes off of the currency.

Reflation is in progress already. According to my currency exchange sources at eBay Buy It Now, $5.00 US can be exchanged for a $100 trillion Zimbabwe note. (With free shipping, of course.)

By contrast, it takes $2.95 US to buy a $50 million Yugoslav dinera note. Clearly Yugoslavia has a much stronger currency than Zimbabwe.

[MichaelB]

I recall a trip (sales convention) to Brazil in the late 70's. While driving around town a coworker asked to stop in a bank and exchanged some currency, leaving with a large amount of coins and bills. He said he played poker, the Brazilian currency was cheaper than poker chips and all the players enjoyed it more because they were playing with real money.

[grasshopper]

I see today that we depend on government spending to feed our GDP.