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Old Oct 9, 2013, 08:44 AM   #1
Michael Goff
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Debt Ceiling validity questioned

http://www.slate.com/blogs/weigel/20...e_is_real.html

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Since yesterday's story about the rising Republican skepticism about our government funding crises, and the rising certitude that Barack Obama is making them worse on purpose, I've been asking Republicans who are not seen as "Tea Party" wacko birds whether the debt limit deadline is real. Treasury Secretary Jack Lew says Oct. 17 is the deadline. That might be moved. But there's a growing certitude among Republicans that any deadline is somewhat manufactured, and can be survived if the Treasury moves money around to service debt while shutting down other services.
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Old Oct 9, 2013, 11:50 AM   #2
Dmunjal
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Surprisingly, I believe we should get rid of the debt ceiling. It's a big waste of time, energy, and political machinations because we always increase it. Let the market decide if our debt is manageable or not.

Oh Btw, we should also get rid of the Fed so the bankers aren't the first to benefit from the increased debt.
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Old Oct 9, 2013, 01:14 PM   #3
jnpy!$4g3cwk
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Surprisingly, I believe we should get rid of the debt ceiling. It's a big waste of time, energy, and political machinations because we always increase it. Let the market decide if our debt is manageable or not.
Agreed.

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Oh Btw, we should also get rid of the Fed so the bankers aren't the first to benefit from the increased debt.
You are dreaming. With or without the Fed, with or without the FDIC, with or without the gold standard, bankers will always benefit with either increased debt or decreased debt. There is no panacea.

Last edited by jnpy!$4g3cwk; Oct 9, 2013 at 01:15 PM. Reason: typo
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Old Oct 9, 2013, 01:25 PM   #4
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It sounds like shooting the bankers might be a good start
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Old Oct 9, 2013, 02:14 PM   #5
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It sounds like shooting the bankers might be a good start
Only some.

Pour encourager les autres.
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Old Oct 9, 2013, 02:15 PM   #6
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It's all smoke and mirrors out of DC:

http://www.washingtonpost.com/blogs/...b-327c5c814d82

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Not so, Moody’s says in the memo dated Oct. 7.

” We believe the government would continue to pay interest and principal on its debt even in the event that the debt limit is not raised, leaving its creditworthiness intact,” the memo says. “The debt limit restricts government expenditures to the amount of its incoming revenues; it does not prohibit the government from servicing its debt. There is no direct connection between the debt limit (actually the exhaustion of the Treasury’s extraordinary measures to raise funds) and a default.
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Old Oct 10, 2013, 01:16 PM   #7
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It's all smoke and mirrors out of DC:

http://www.washingtonpost.com/blogs/...b-327c5c814d82
Not only that, but the government is actually required to service the debt at a higher priority level than most government spending (except Social Security and a few other things). No likelihood at all of default, but both sides are using it as some sort of media weapon because the public has little general understanding of the money system, the debt and the relationship of taxes, spending, borrowing, lending, etc.
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Old Oct 10, 2013, 01:26 PM   #8
Shrink
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Yup...defaulting on all our payment shouldn't cause any problems at all, here or elsewhere.

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Old Oct 10, 2013, 01:28 PM   #9
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Not only that, but the government is actually required to service the debt at a higher priority level than most government spending (except Social Security and a few other things). No likelihood at all of default, but both sides are using it as some sort of media weapon because the public has little general understanding of the money system, the debt and the relationship of taxes, spending, borrowing, lending, etc.
Not only that, but also the stigma around the word "debt". Most people don't realize that there is the concept of good debt and bad debt, and what the differences between those are.

Good debt: education (e.g., college, getting a degree, etc.); infrastructure (e.g., building/fixing/repairing roads, bridges, buildings, etc.). List goes on and on.

Bad debt: borrowing for tax breaks; wasteful spending (e.g., the Pentagon sending $50 million cargo planes straight from the assembly line to be mothballed because it has no use for them, but doesn't stop ordering the aircraft); in short, spending money on something that won't get us a return on investment.

So when we all hear the word "debt", we only think of the latter, not the former; and because as such, we only hear about 'cutting spending'. Ever wonder why we don't hear about ROIs from those who only support spending cuts?

BL.
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Old Oct 10, 2013, 01:43 PM   #10
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Yup...defaulting on all our payment shouldn't cause any problems at all, here or elsewhere.

I'm pretty sure I addressed the default on our debt as my point because that's what both Republicans and Democrats are saying in the media will be the most reckless act of not raising the debt ceiling. Raising the ceiling in no way hampers servicing the debt.

Will it impact other things? Absolutely. If my recollection of the percentages is anywhere close to accurate, we borrow $0.40 of every dollar we spend so lots of things won't get bought until they raise it. However, that still does not impact the debt servicing and that was my point.

I get the whole picture, but was addressing the part that was being discussed. Thanks, though, for what appears to be an sarcastic insinuation that you, and not I, understand economics. Many Americans have no understanding of the Fed, the money system, the debt, the history of how we got to where we are (which started in 1913 and won't end until we change the entire system), the people behind the change to a central bank (Jeckyll Island), what a fiat money system is and how it works, fractional lending and so much more.
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Old Oct 10, 2013, 02:21 PM   #11
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Originally Posted by Dmunjal View Post
Surprisingly, I believe we should get rid of the debt ceiling. It's a big waste of time, energy, and political machinations because we always increase it. Let the market decide if our debt is manageable or not.

Oh Btw, we should also get rid of the Fed so the bankers aren't the first to benefit from the increased debt.
Agreed. It's really silly when they just increase the "limit" over and over again...
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Old Oct 10, 2013, 03:02 PM   #12
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Originally Posted by SMDBill View Post
If my recollection of the percentages is anywhere close to accurate, we borrow $0.40 of every dollar we spend
Eyeballing it, it looks like it is down to about 15% now. Anybody have a more current figure than this one?



There was a huge spike in 2008-2009, but, now that the economy has stabilized things have returned to a sustainable balance. I guess that is why the Tea Party Wing is trying so hard to create a crisis where there was none.
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Old Oct 10, 2013, 05:03 PM   #13
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Eyeballing it, it looks like it is down to about 15% now. Anybody have a more current figure than this one?

Image

There was a huge spike in 2008-2009, but, now that the economy has stabilized things have returned to a sustainable balance. I guess that is why the Tea Party Wing is trying so hard to create a crisis where there was none.
Yes, the deficit has shrunk from above $1T a year to about $600-700B. This is progress but we should put this into perspective. The Fed has been printing over $1T every year with their QE program and it's not likely to end anytime soon.

So, to generate a "savings" of $400B (increased revenues via taxes and lower expenses via sequester), we had to borrow $1T from the Federal Reserve.

During the Clinton era, we were able to reduce the deficit and even have a temporary surplus without resorting to this tactic.

So I would put a big asterisk on this deficit reduction because if QE were to stop, interest rates would rise and the housing and stock market would crash. That would take the wealth we've been using to prop up the economy and return us back into recession and $1T deficits.

Now if QE actually does jumpstart the economy so it can sustain itself, then it was worth the investment. My thought is that QE hasn't done anything to the real economy (99%) and most of the gains have gone to the rich (1%) who have gained the most with a recovering housing and stock market.

Let's not get too excited.
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Old Oct 10, 2013, 07:05 PM   #14
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Originally Posted by jnpy!$4g3cwk View Post
Eyeballing it, it looks like it is down to about 15% now. Anybody have a more current figure than this one?

Image

There was a huge spike in 2008-2009, but, now that the economy has stabilized things have returned to a sustainable balance. I guess that is why the Tea Party Wing is trying so hard to create a crisis where there was none.
The real crisis is spread across a couple things. Debt is important, but without debt the money system crashes. The huge problem is the derivatives market, estimated from hundreds of trillions of dollars (yes, with a "T") to over one quadrillion. The derivatives market is basic gambling with nobody holding the actual asset being bet upon. If the contracts begin to default, the dominos fall and we're in for trouble with a worthless dollar.

The other huge concern is trust in the dollar. Countries trading oil in currency other than the dollar is a huge threat to the demise of the dollar. Iran has a market established already for it and other countries are trading with currencies that are non-dollar trades. Reliance on the dollar globally is critical to the fiat money system we have. How this plays out will be interesting. Wonder why we want war with Iran? Hmmmm....could be more than weapons capability. Sadaam also tried to trade in Euros and we now see where that ended. They now trade in dollars.
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Old Oct 10, 2013, 09:52 PM   #15
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Originally Posted by SMDBill View Post
The real crisis is spread across a couple things. Debt is important, but without debt the money system crashes. The huge problem is the derivatives market, estimated from hundreds of trillions of dollars (yes, with a "T") to over one quadrillion. The derivatives market is basic gambling with nobody holding the actual asset being bet upon. If the contracts begin to default, the dominos fall and we're in for trouble with a worthless dollar.
I agree that the derivatives market is a destabilizing force, but, the risk is not necessarily a "worthless dollar". Just the same boom/bust speculation cycle that we are plagued with in regards to all assets from equities to real estate.

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The other huge concern is trust in the dollar. Countries trading oil in currency other than the dollar is a huge threat to the demise of the dollar. Iran has a market established already for it and other countries are trading with currencies that are non-dollar trades. Reliance on the dollar globally is critical to the fiat money system we have. How this plays out will be interesting. Wonder why we want war with Iran? Hmmmm....could be more than weapons capability. Sadaam also tried to trade in Euros and we now see where that ended. They now trade in dollars.
This is the Petrodollar Warfare theory from the 70's that didn't make sense to me then, and, it still doesn't. To begin with, there is less U.S. currency in circulation than you would think, and although the U.S. economy benefits from seigniorage, it isn't a huge amount per year. The hidden assumption behind this theory is that a currency somehow requires a commodity to "back" it. It doesn't. The aggregate of all trade largely determines exchange rates, with bond purchases making up the difference. Within every country it seems there are those who are worried about foreign ownership of government debt, but, it seems to be a natural, and perhaps even healthy, result of all the international trade the world is experiencing.
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Old Oct 10, 2013, 10:31 PM   #16
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Originally Posted by bradl View Post

Bad debt: borrowing for tax breaks; wasteful spending (e.g., the Pentagon sending $50 million cargo planes straight from the assembly line to be mothballed because it has no use for them, but doesn't stop ordering the aircraft); in short, spending money on something that won't get us a return on investment.



BL.
I have to jump in here...

The pentagon does not want these planes, congress is making them purchase them. Happens a lot unfortunately. All politics are local.

On a slightly good note, I believe certain branches of the government (forestry and perhaps coast guard), were looking at acquiring at least some of them.

One more reason to hate the workings of our congress.
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Old Oct 11, 2013, 12:09 AM   #17
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How about raising taxes on everyone equally to pay for the entitlements that are needed? A 5-6% federal sales tax might have to do.
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Old Oct 11, 2013, 01:24 AM   #18
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I have to jump in here...

The pentagon does not want these planes, congress is making them purchase them. Happens a lot unfortunately. All politics are local.

On a slightly good note, I believe certain branches of the government (forestry and perhaps coast guard), were looking at acquiring at least some of them.

One more reason to hate the workings of our congress.
No argument there, and not totally accusing the Pentagon..

but merely pointing out that without some use of what we are purchasing, the ROI on those planes is nothing. But Congress is making them buy more of it with money coming from the people's pockets. no ROI? bad debt.

BL.
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Old Oct 11, 2013, 05:45 AM   #19
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Oh Btw, we should also get rid of the Fed so the bankers aren't the first to benefit from the increased debt.
JP Morgan and other bankers were incredibly influential in the Gilded Age before the Fed existed.
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Old Oct 11, 2013, 09:55 AM   #20
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How about raising taxes on everyone equally to pay for the entitlements that are needed? A 5-6% federal sales tax might have to do.
"Entitlements" is a red herring. Social Security is doing just fine. Disability has a small problem. Medicare has a big problem, but, it is the same problem that all healthcare spending has.

Sales tax? How about not? Sales tax hits the bottom half of income/wealth most. I guess that is why Republicans love sales tax so much.

Back when things were working better, income tax was structured to work much more like a sales tax on the wealthy. It worked very well until Reagan "reformed" it.
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Old Oct 11, 2013, 02:49 PM   #21
Dmunjal
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JP Morgan and other bankers were incredibly influential in the Gilded Age before the Fed existed.
Are you going to be the last liberal who still defends the Fed and their QE programs that only support the rich (trickle-up)?

The last 5 years of QE have been very destructive for the middle-class while the rich have gotten richer than anytime in the past. Since the gilded age you mention.

----------

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"Entitlements" is a red herring. Social Security is doing just fine. Disability has a small problem. Medicare has a big problem, but, it is the same problem that all healthcare spending has.

Sales tax? How about not? Sales tax hits the bottom half of income/wealth most. I guess that is why Republicans love sales tax so much.

Back when things were working better, income tax was structured to work much more like a sales tax on the wealthy. It worked very well until Reagan "reformed" it.
Talk about a red herring. Tell me what worked so well until Reagan "reformed" it. As I've said here before, no matter WHAT the income tax has been, the Treasury always collects only 18-21% of GDP in terms of actual revenues. What's really changed over the last 40 years is the size of government compared to the 50-60s and the debasement of the dollar via the Fed.

http://en.wikipedia.org/wiki/Hauser's_law

"Hauser's law is the proposition that, in the United States, federal tax revenues since World War II have always been approximately equal to 19.5% of GDP, regardless of wide fluctuations in the marginal tax rate.[1] Historically, since the end of World War II, federal tax receipts as a percentage of gross domestic product averaged 17.9%, with a range from 14.4% to 20.9% between 1946 - 2007."
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Old Oct 11, 2013, 05:30 PM   #22
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I agree that the rich have done well out of QE - but I don't think that means the Fed is bad per say.
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Old Oct 11, 2013, 05:33 PM   #23
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I agree that the rich have done well out of QE - but I don't think that means the Fed is bad per say.
Well that's a start. Should we stop QE then? What do you think the result would be to the housing and stock markets if we did stop?
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Old Oct 11, 2013, 05:36 PM   #24
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Well that's a start. Should we stop QE then? What do you think the result would be to the housing and stock markets if we did stop?
I don't know.
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Old Oct 11, 2013, 05:57 PM   #25
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I don't know.
Do you recall what happened in May when the Fed announced that they would just taper QE? Not even stop it, just the idea of reducing it from $85B to $60B a month.

The stock market corrected immediately about 5% and interest rates almost doubled from 1.67% to almost 3%. This caused mortgage rates to rise up to 4.5%.

This slowed down housing sales and the wealth being created in the stock market.

Of course, after this happened, the Fed reversed course and decided against the taper altogether.

The point is the economy is only better on paper due to QE. The real economy is still in recession. If you look at disability, food stamps, actual unemployment, etc., things are actually worse than they were 5 years ago.

It's not Obama's fault. He was dealt a very bad hand. He should have been a bit more populist and took on the banks and the Fed.
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