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.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...
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...
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.
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.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.
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.
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.
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)...
Welcome to the Permanent Floating Crisis and Can-Kicking Competition.
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.
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.
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
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 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.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)...
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.
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.
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.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....
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.
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.
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...
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.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.
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.Spending is not limited to transfers. It includes tax breaks, deductions, special rates, exemptions, and also business contracts and subsidies.
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).