The debt ceiling issue in a nutshell........

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http://www.themorningnews.org/article/the-debt-ceiling




EDIT:
Help! I'm in a nutshell! How did I get into this nutshell? Look at the size of this bloody great big nutshell! What sort of shell has a nut like this?

All the debt ceiling does is limit how much the government can borrow in order to pay for NEW stuff.

Our annual budget well-exceeds what we bring in...that's just bad economic policy...period.

Most government programs, departments and employees are not sustainable on a level of taxation that would still permit a workable economy.

Nobody wants to cut these programs, departments and employees, so we keep borrowing to keep them at their jobs.

Nobody wants to impose the taxation needed to balance the budget, so we keep borrowing to pay the bills.

What happens when we can't borrow anymore? We are forced to spend only what we bring in. Anything not deemed "essential" will have to be ended.

We won't default on a penny of existing debt...unless those in power CHOOSE to default by using the money for paying the monthly check on the debt for something else.

Therein lies the rub. How do you decide between programs that benefit the citizens directly, ensuring compliance with safety regulations, paying debt interest, and funding the growing expenses of the current shutdown? With a debt ceiling, something has to give, and it will hurt a whole lot of people no matter what is on the chopping block.

As for the whole paying for "new stuff" statement, that is just where it starts, not where it ends. The US economy relies heavily on the federal government. The government provides many positions that offer "job security" (as long as it is operating), puts the majority of it revenues back into US circulation, and stimulates the growth of many businesses and industries through its contracting process.

I do believe that spending needs to be reined in and that revenues need to be increased, but where do you propose we start making cuts, and how would you offset the negative consequences?

The cartoon misses my main question.
What would "blowing up the world economy" actually involve ?
ie, how would the economic shenanigans of one country affect all of the other countries in the world, in the event of that country's debt exceeding their presently set 'debt ceiling' ?

Exceeding the debt ceiling can result in a massive reduction in the value of the US dollar (the US dollar's value is entirely based on international confidence in it ever since we left the gold standard). US dollars are the largest portion of the world's reserve currency. Any devaluation negatively impacts every nation that has US dollars in reserve. Much of the world's economy depends on US mass consumerism and the profits and investments of the large US financial institutions (who provide a large bulk of financing world wide business). Interest rates would rise significantly, which would put a drag on the US economy. A down US economy drastically reduces our demand for oil and consumer goods, as well as companies with large foreign customer service departments; all of which would negatively impact most nations.

The United States dollar is one of the staple currencies of the world. OPEC trades in dollars for example.

I agree, we cannot default on our current debts unless our leaders choose to.

But we have a serious problem with debt. When I was younger, I was like the Democrats, I kept asking for debt limit increases on my credit card and I kept getting them, and I kept spending.

Then one day, they stopped approving increases. I now had all this debt, couldn't get anymore credit, and they wanted their money back. It was then I learned I had to cut back, stop traveling so much, stop eating out at nice places so much, save money by doing things like buying store brand vs name brand. I didn't have to cut everything, but I also couldn't keep going.

After the "economic crisis" a few years ago, banks in this country are almost all giving 0 % interest on every account.
Even an ISA will earn you pennies at best, after a year... and they used to have quite good rates of interest before that.

As far as intererst rates being charged to people who spend money which they don't have (ie debt interest charges), well.... of course, the spending of such people is not truly enhancing a country's long-term economy much in the first place.
Surely at best, it would only give the superficial sense of economy enhancement (ie, the creation of a bubble economy situation).

A lot of people should really learn how to live without constantly spending money which they don't have using credit cards, if debt interest charges and general economy slump are things which they are keen to avoid.

Agreed. However, the condition of the world economy is already poor, and to cease lending would cause many governments to collapse, which in turn would damage the economies that are interdependant on those countries. Drastic political and economical restructuring world-wide is desperately needed, but seems unlikely as most national governments focus on the next few months (or less) rather than long term.

But here lies the key problem.

What we're dealing with is not this scenario: the government's inflow of cash is less than its outflow of cash if it pays all its bills, and the government is not allowed to borrow any more money. Therefore, someone will have to pick and chose which of the government's bills to pay, and which to not pay.

The reality is, as I understand it, that federal law does not allow the treasury department or anyone else decide which bills to pay and which not to pay in such a situation. This most likely means that once we run out of cash, no bills get paid even as new cash comes in.

Even if that's not true, paying some bills and not others would likely have enormous consequences.

That's too absolutist a position.

Remember, the rest of the world is perfectly happy to keep buying dollars. Over 60% of the world's reserves are kept in USD, and every single one of those dollars is borrowed against the credit of the United States at effective interest rates well below what the government could borrow in the liquidity market. This isn't the case of the government having a big giant Visa card, it's a case of customers saying, "I'll give you a deposit today against the price of goods that I will buy tomorrow."

So Congress and the Executive branch have choices. When you can borrow at rock-bottom rates, it may make sense to finance your deficit through currency rather than to take the hit on GDP that would result from marginal tax increases.



Your first statement is a nonsense. It is perfectly possible to have an entire suite of government programs funded on a going forward basis. Plenty of other countries have done it, and the United States has done it. Even the military expenditures of the last decade have not been a complete loss because they put money into the pockets of military personnel who turn around and spend it, and into the hands of contractors who create employment. As economic stimulus goes, military spending is vastly more effective than tax cuts.

The fiscal policy problem that you face is mostly a partisan political one. Some combination of expenditure cuts and tax increases is essential, but no one has the political will to put that on the table and enact it.



I beg to differ. As soon as the United States has to start working with cash on hand, even if the Treasury had the actual capacity to decide what cheques to issue (which it is not clear that they can), they would still be creating defaults regardless of what payments they chose to withhold. If you default on your social security payments, it's still a default, and bondholders (and the market) can react to that.

Woe betide you if a group of bondholders sue for early redemption.

The treasury department says we can't pick and choose bills. The system isnt set up for that. It's automated and pays a million bills a day. They arent even sure they have the legal authority to do so. Inevitably there will be a lot of problems and a lot of suffering. One mistake and we default.

But it looks like the GOP is looking for a debt ceiling increase now.

The debt limit must increase to make all payments.

The problem is that is always seen not as cover for debt, but as new funding that calls for new programs.

Voting in a Trillion to back up debts, raised from new debt, would work, if the spending level stayed the same.

The problem is it always gets spent, spending goes up, the problem returns.

Someday, the well runs dry.

Taxes are what fills the well.

Less spending, more income, and US debt would be even more stable of an investment.

German Bonds were paying less than zero, because they are secure.

Managing things to produce a long term strong dollar, we can have lower interest rates,

We have to go farther into debt, the War Babies Social Security must be paid, and all the moneys gone.

Less spending, more income, and we can finance the next thirty years.

More unsupported spending, our interest rates will go up.

Doing right now means we can borrow twice as much for the same cost.

Our economy is still iffy, and the cost of cheap Chinese goods is not cheap.

Today I bought a foot long brake hose, Made in China, for $36.

The consumer does not get the benefit of global trade.

Washington's idea of the economy is the same as how to dispose of all of the spent reactor fuel.

Stop spending, and stop producing long term atomic waste.

No one in Washington thinks beyond the next election.