Debt Ceiling and Default

Discussion in 'Economics' started by joneog, Jul 14, 2011.

  1. joneog


    It seems like many believe a failure to raise the debt ceiling would lead to a debt default.

    Can someone explain why they believe the government not issueing more treasuries to cover the deficit will lead to a debt default? Do you really mean a default on spending promises?

    Federal spending ~ $3.5 T/yr
    Federal revenues ~ $2.2 T/yr
    Federal Budged Deficit ~ $ 1.3 T/yr

    Current interest expense ~ $220 Billion/yr

    For every $1 in revenue ~ 10 cents goes to interest payments.

    If the gov. can't borrow to fund the $1.3 T deficit they will have to cut spending so the budget is not in deficit. This doesn't mean they can't pay the interest on the debt. Either revenues would have to collapse or debt service would have to sky rocket very quickly for there to be an actual debt default.

    The gov. can still roll the debt since that doesn't increase the outsanding amount. They can still make most if not all of the entitlement payments.

    Is this just a case of everyone repeating a talking point so much it becomes reality for many? Or am I missing something?

    (btw, I'm not saying they should or shouldn't raise the ceiling, just curious why people believe this would be a debt default)
  2. =============
    You hit that TARGET exactly,NAMED it, nailed it.
    Its a lie promoted as a scare tatic
    [ABC, NBC, CBS/ big gov fanatics........:D

    It would force most likely the gov to live with a budget perhaps;
    that why many hate the idea:cool:

    Best to simply cut ALL progrms;
    sounds like some are actually aiming at a crisis''never let a good crisis, go to waste'' is the power grabber s vain vision.:cool:
  3. The existing debt is due to excessive pay for Federal gov't employees, excessive military spending, and cost overruns on gov't contracts. NONE of the existing debt is due to social security and medicare. I believe the ratings agencies realize this so they know unless those three issues are fixed we will have recurring debt issues. That's why they are threatening to downgrade even if a stopgap measure is passed.
  4. And here I cynically thought they were in the pocket of the Dems and Odumbo, trying to add to the scare factor.
  5. achilles28


    Exactly. +10
  6. in case you cubicle farmers are unaware most of the revenue comes at the end of each quarter and the month of april. so the shortfall will be large and alot of people are going to be profoundly disappointed.

    However, if the republicans fuck off with their once a century charade about debt angst and raise the limit the dow rallies 700 more points and everybody here should be happy, right?
  7. achilles28


    ^Long the market, huh?
  8. piezoe


    In principle I suppose the decision could be made to continue paying on Treasuries and default on internal obligations. But that would still be a default on U.S. financial obligations, and it wouldn't avoid a downgrade of U.S. issued securities.

    The threat of a rating downgrade if the debt ceiling is not raised is very real. It can't be avoided by paying on Treasuries but defaulting on internal obligations.

    Default would be disastrous for jobs recovery.

    Those congressmen who stupidly signed a pledge that they would never raise taxes, and also told their constituents that they would make jobs their first priority and that they would not vote to raise the debt ceiling, have boxed themselves into a corner!

    If the debt ceiling is not raised, the economy will be wrecked along with any prospects for a jobs recovery. If the debt ceiling is raised but there are draconian budget cuts; the fragile recovery will be stalled and prospects for a jobs recovery will stall as well.

    There is only one reasonable way out of this mess, and that is:

    1. to raise the debt ceiling;
    2. make very modest cuts in the budget now, but deeper cuts with time, as the economy recovers;
    3. raise marginal tax rates on the wealthy back to the pre-Bush level plus an additional amount to compensate for a meaningful lowering of the tax rate on the middle class. Without money in the hands of the middle class a robust economy is only wishful thinking.

    If congress does these things, and also closes unneeded tax loopholes, the international community will be assured that the U.S. is serious about getting its financial house in order. Interest rates can be kept low. Uncertainties going forward will be reduced, and the groundwork for a jobs recovery will have been laid.

    Unfortunately, those congressman stupid enough to have signed that tax pledge can't act responsibly without breaking their idiot pledge. This pledge business turned out to be an I.Q. test. Those who signed it failed!

    These same congressmen are now running around saying that a roll-back to the pre-Bush tax rate on the top dollars earned by the wealthy would be a bad idea. They are claiming that raising the marginal rate on the wealthy would harm job creation; hard evidence to the contrary. In fact, there is plenty of data to show that robustness of the economy, and NOT tax rate, is the important factor in business health and jobs creation. (see the column by Robert Reich at the link provided.)

    I want low taxes. We all do. But right now we have a crisis on our hands. The country's future is threatened, and if we don't get serious, this economy has the potential to suck for years to come. I'm happy to pay a few percent more in taxes on my top dollars earned to help restore the economy and put people back to work. Once we are running on all cylinders, it will be time for tax cuts, but not until. And too, we must have a substantial, phased in reduction in military spending while inventing ways to bring medical costs in line with other countries. These are the two budget items that are pushing us toward insolvency. It only makes sense that these are two areas that budget reductions must focus on.
    *It is only a modest increase of a few percent on the last dollars earned by high income individuals that's being proposed, but this would be very effective, i.e., ~0.33 Trillion per year additional revenue, because it is the top 5% of individuals that own most of the non-government assets and wealth in the U.S., and provide ~60% of the tax revenues. It was the Bush tax cuts combined with the Bush wars, that was largely responsible for the increase in Federal debt since 2001. It is reasonable to reverse those cuts. Expenditures must be cut first, then revenues. The Bush administration got this backwards.
  9. The main concern is US external debt ~$14 T.
  10. ammo


    i'm dumb as a rock,so don't attack,but why don't they just restructure all the debt,every country owes every other country,i'm paying so much to this country A,while recieving x amount form country B,znd C,this musical chair of pass the debt or pass the cash,no one wants to be left standing so they keep creating more chairs,just stop the music,change the amount of the debt owed and credit recieved marginally across the board,it's al imaginary ,(supposedly representing hard assets,cash) but for decades it's all been imaginary,no one has ever been paid all of what they are owed,nor payed all that they owe.....inside that little puzzle is room for billions,trillions of miscalculations ,for the never aware public taxpayer to be on the hook for...why don;t they have a large summit ,or several and restructure all loans,debts,issued by all's obvious that the figure out a way to actually pay it option is off the table, much of it is interest..compounded numbers of an imaginary number...what a mind blowing scam,,, is that why they can't recalibrate the numbers because they are false to begin with,there is no way to find zero and redo the math
    #10     Jul 15, 2011