"Red Ink": A frank conversation on the federal debt

[Alan]

I included the debt in the "and such" part of my post.........

So, just the usual finance-speak of using the word deficit in the sentence and the number $16 trillion, which actually refers to "and such".

Got it, a good example of how the average American is confused with all this stuff

 

[frayne]

Actually I think we were screwed about thirty years ago when they first started to raise the debt ceiling, and have done so in a bipartisan way until recently.

 

[Alan]

Actually I think we were screwed about thirty years ago when they first started to raise the debt ceiling, and have done so in a bipartisan way until recently.

Why do we have a debt ceiling? Has the debt ceiling ever stopped us from borrowing more? Do other industrialized countries have a debt ceiling? (their politicians argue about their countries' debt levels all the time but I don't recall a hard and fast limit that they legally cannot exceed without dire consequences)

 

[frayne]

A little history on the debt ceiling and why we have it.

Why Do We Even Have A Debt Ceiling Law?

 

[gauss]

I soured on government efficiency ... ... I thought they would be excited, instead they were mad at me and told me, their budget would be cut next year because of it. Thats when I realized the system is set up in a way not to be efficient with money.

I have seen this many times in the MegaCorp world.

 

[Alan]

A little history on the debt ceiling and why we have it.

Why Do We Even Have A Debt Ceiling Law?

Thanks for the link. It appears that from it's introduction in 1917 it has only ever been a political instrument and never actually constrained spending. The debt ceiling is set by the same body (Congress) that sets the budget, so it is not a constraint as they can always increase it.

At no time has the debt ceiling acted to restrain either Federal spending or Federal borrowing. Moreover, during the 30 year period from the late 1970s to today, the debt ceiling was routinely increased at least once every two years as we racked up more debt than we’d ever had in the previous 200 years of the Republic.

 

[george76]

I am not opposed to modifing the SS system. But care must be taken on changes made to older contributors. No time to make up the loss.

It depends what they define as old. And it depends what they mean by modify. The changes I have seen would only apply to people below the age of 55. That seems very unfair to some one who is 54, 50 or even 45 years old. Someone who is 45 has paid in to the system for perhaps 20 years.

 

[Midpack]

I see we're still proving the authors point over and over, even with this (likely) above average intelligence crowd. Deficits will be brought under control sooner or later, almost certainly within the life time of most here I'd guess. But it won't be pretty, and it'll be considered grossly unfair by most people I suspect...fasten your seatbelt.

 

[GrayHare]

Kick-the-can means that rather than wean, the majority opt to go cold turkey from the government tit, probably because they've never experienced such upheaval. I agree with fasten your seatbelt.

 

[scrabbler1]

When I think about the consequences of a debt ceiling being hit, I recall what happened in New York City back in the 1970s. The city government had become accustomed to having area banks lend money endlessly until the banks shut their windows and stop lending. The city was only hours away from bankruptcy until it struck a deal with the unions and made some severe cost-cutting moves such an increase in the transit fare and to start charging tuition to attend city colleges.

The markets ended up forcing big changes to the business-as-usual, kick-the-can policies. I hope it doesn't come to that on the federal level.

 

[haha]

When I think about the consequences of a debt ceiling being hit, I recall what happened in New York City back in the 1970s. The city government had become accustomed to having area banks lend money endlessly until the banks shut their windows and stop lending. The city was only hours away from bankruptcy until it struck a deal with the unions and made some severe cost-cutting moves such an increase in the transit fare and to start charging tuition to attend city colleges.

The markets ended up forcing big changes to the business-as-usual, kick-the-can policies. I hope it doesn't come to that on the federal level.

I hope it does. New York turned a corner and never looked back.

Ha

 

[HFWR]

Waste, fraud, abuse, and earmarks need to be reined in, but without addressing the big three - defense, SS, and medicare, all else is whizzing in the breeze. All three have large, unyielding constituencies, though.

I doubt the "banks" will close their windows on the Fed Gov, but bond rates will likely go much higher eventually, which will make the other "biggie", interest on the debt, all the more intractable.

Defense is relatively easy to fix, as is SS, assuming the willpower to do it. Medicare will have to survive the baby boomers getting older and sicker, is ill prepared to do so, and no solution that isn't painful and costly exists, at least that I'm aware of.

The primary problem is the citizens who believe the politicians when they say taxes can be low and services high, no worries...

 

[samclem]

It appears that from [the debt ceiling's] introduction in 1917 it has only ever been a political instrument and never actually constrained spending.

Let's not be too cavalier in denigrating "political instruments." The debt is a political problem and it will be solved through political means (maybe in response to apolitical economic factors).

 

[Alan]

Let's not be too cavalier in denigrating "political instruments." The debt is a political problem and it will be solved through political means (maybe in response to apolitical economic factors).

Since Congress sets both the budget and the debt ceiling I see no purpose in it since the decision is always on what the budget should be. If Congress decide on a budget that is larger than the debt ceiling then they raise the debt ceiling.

 

[FinanceDude]

Since Congress sets both the budget and the debt ceiling I see no purpose in it since the decision is always on what the budget should be. If Congress decide on a budget that is larger than the debt ceiling then they raise the debt ceiling.

Sounds easy and logical, as long as the Chinese will continue to buy short-term T-Bills at negative returns, so far so good........

 

[MichaelB]

US public debt is caused not only by budget deficit but also trade deficit. China buys Treasuries to offset the trade imbalance. Domestic US demand from institutional investors and pension funds more than covers the need for budgetary deficit financing.

 

[HFWR]

US public debt is caused not only by budget deficit but also trade deficit. China buys Treasuries to offset the trade imbalance. Domestic US demand from institutional investors and pension funds more than covers the need for budgetary deficit financing.

The trade deficit is a topic that seems to be missing from the discussion when talking about keeping jobs and manufacturing in the USA. Not to mention the industrial espionage and the blatant copyright/trademark/patent infringement of a certain "trading partner"... Of course, crude oil accounts for a fair amount as well.

http://www.census.gov/foreign-trade/top/dst/current/deficit.html

 

[Midpack]

The primary problem is the citizens who believe the politicians when they say taxes can be low and services high, no worries...

Don't know who originated it, but 'politics is the art of bribing people with their own money.' Don't know how long that's been the case but more than my lifetime, but less than 236 years.

The only way to break the cycle is a smarter electorate majority (long odds) or an even more obvious financial collapse (hate to think what it would take to be more 'obvious.'

Again, this thread illustrates how far away we still are, and this is an above average group...

 

[haha]

Don't know who originated it, but 'politics is the art of bribing people with their own money.'

I would say that it is the art of bribing people with someone else's money. My money has so far been way to heavy on the bribe funding side. I will never live long enough to get my bribe money back, no matter how downtrodden I may become.

The big change in USA is that recently the majority have become bribe takers, not bribe funders.

Ha