".....$14.294 trillion debt ceiling..."

[DeCi]

"The U.S. government is expected to hit the $14.294 trillion debt ceiling Monday, setting in motion an uncertain, 11-week political scramble to avoid a default."

Source: http://online.wsj.com/article/SB10001424052748703421204576325583050561022.html

Orginally found on: Drudgereport.com

Guess i've been out of the loop on this particular subject for a long while. Last time I remember, they were talking about 3trill debt and I thought that was a shit load, the fact that it's this big is fucking nuts.

edit: debt instead of dead. damn, i make stupid fucking typos sometimes.

[warrior]

Okay, I'll entertain this.

Can you tell me why being 14 trillion dollars in debt is bad for the United States? What will happen? Why is it so terrible?

Let's see how much you actually know vs how much you were coached to believe.

[pikachu]

How could it possibly be good...?

[Loud]

If America was a crackhead, and our debtors were crack dealers, we'd all get blasted or have our legs broken, no doubt.

That's how I know this is bad.

[warrior]

I didnt say it was good, just that it is significantly less bad than it is made out to see by many. Which is why I asked.
Most people cry about inflation, Chinese debtors, or a collapsed dollar, or something.

None of which is backed up by any type of evidence whatsoever.

[Loud]

While we don't have evidence that there will be an economic disaster directly resulting from our huge and growing deficit, there is no evidence supporting the contrary either. We haven't (at least anytime lately) ever been in a situation like the one we currently face, so it's difficult to say what will actually happen.

We may have a great grasp on how the economic machine operates, and be able to predict and potentially even influence the direction that it goes. There is also the flip-side to that, which has been demonstrated numerous times throughout human history, that we have a false grasp on how this machine functions, which will lead us to inaccurate predictions of what will happen and potentially failed attempts at corrective/preventative measures.

What I do know is that I do not know.

[warrior]

While we don't have evidence that there will be an economic disaster directly resulting from our huge and growing deficit, there is no evidence supporting the contrary either. We haven't (at least anytime lately) ever been in a situation like the one we currently face, so it's difficult to say what will actually happen.

Actually, according to the Economic Report to the President in 1947 , our Debt to GDP Ratio was 121.7%. The situation is much worse than the situation today fiscally. We're at about 85% of GDP today, depending on what you want to include in the equation. Also, in 1947 the Unemployment Rate was under 4%.

[warrior]

Actually, to further illustrate my point:
http://www.census.gov/statab/hist/HS-49.pdf

Look at the huge fluctuation in Debt to GDP ratio. No dollar crash, no inflation, and if you look at unemployment numbers for that year .. no relationship between debt and unemployment.

Furthermore, as long as we pay interest on debt (Which can be achieved by outgrowing our debt in a meaningful way .. ) then we can stabilize it to a point that principal can be payed down whenever we feel like it.

In addition, China is actually quite glad to be our debtor, as their purchases of treasury bonds are actually one of the safest assets on the planet. If they were to do anything to disrupt the dollar (Mainly hint that they would move away from it as their reserve currency, or stop sucking up treasury bills) they would send the value of the dollar into a tailspin, causing them massive losses in capital (due to their huge majority ownership of T-Bills).

What would that do? It would devalue our currency to the point where our exports are comparatively cheaper than others, which would decimate our trade deficit, lower unemployment rapidly, and cause them massive pain. All before they relent and just carry on business as usual.

China is trapped with our dollar (It seems fcking insane, because it is, but it has happened in history once before with France and Sterling, but that ended drastically which is a warning China has heeded).

These discussions are big, intertwined, complex discussions. A lot of people like to simplify them and make the United States akin to running a business, but really, its not that at all.

So we can borrow more money, invest it wiseless, and produce multipliers in our economy to grow us out of the rest of our debt. That's the plan, its the only way.

[DeCi]

While we don't have evidence that there will be an economic disaster directly resulting from our huge and growing deficit, there is no evidence supporting the contrary either. We haven't (at least anytime lately) ever been in a situation like the one we currently face, so it's difficult to say what will actually happen.

Actually, according to the Economic Report to the President in 1947 , our Debt to GDP Ratio was 121.7%. The situation is much worse than the situation today fiscally. We're at about 85% of GDP today, depending on what you want to include in the equation. Also, in 1947 the Unemployment Rate was under 4%.

Yeah but during that time, we were the last strong economy intact after a major world war, and we were rebuiling countries that we bombed, and we were aiding allies, and this is when we became the super power. I believe that situation was fiscally worse due to the world being in rebuilding stages, not years of spending and spending, or a poor enconomy, hence the low unemployment %.

And I said nothing about a collapsed dollar or inflation, but as the article I linked says:

"Bankers and business executives warned lawmakers last week that default could trigger a financial crisis, sending interest rates soaring, which would make it harder for families and businesses to borrow. That's because a default would throw into question the value of U.S. Treasury securities, long considered one of the world's safest investments. Many loans and business deals are based on the value of Treasurys, and if their value eroded the impact would be felt broadly."

We're just getting over a recession, we don't need to default to make shit even tougher during our recovery and further slow it. yeah, maybe you're right and this isn't some empire collapsing problem, but nothing good can come from it.

[warrior]

Yeah but during that time, we were the last strong economy intact after a major world war, and we were rebuiling countries that we bombed, and we were aiding allies, and this is when we became the super power. I believe that situation was fiscally worse due to the world being in rebuilding stages, not years of spending and spending, or a poor enconomy, hence the low unemployment %.

FYI: Going to war, rebuilding countries, aiding allies, etc.. all cost insane amounts of money. Hence 121.7% Debt to GDP ratio. We were undoubtedly spending money. How can you see massive insane amounts of debt and say we were not spending? Prior to WW2, we spent the most money in the history of the country on FDR's New Deal, and again, there was no collapse in the economy. Actually, the opposite, there was a sharp downtick in unemployment.

And if you dont want to use my 1945 figure as an example, then fine, you can use 1950 where Debt to GDP was around 94%. Again, do you remember anyone telling JFK that the debt was about to destroy the country?

"Bankers and business executives warned lawmakers last week that default could trigger a financial crisis, sending interest rates soaring, which would make it harder for families and businesses to borrow. That's because a default would throw into question the value of U.S. Treasury securities, long considered one of the world's safest investments. Many loans and business deals are based on the value of Treasurys, and if their value eroded the impact would be felt broadly."

We're just getting over a recession, we don't need to default to make shit even tougher during our recovery and further slow it. yeah, maybe you're right and this isn't some empire collapsing problem, but nothing good can come from it.

/facepalm. You know the article linked is talking about raising the debt cieling. Do you know what that means? It means we're allowed to spend more money. The article talks about what would happen if we wouldnt raise the debt cieling, and would instead force the nation to default on its obligations.

You're actually agreeing with people who agree with every word of what I've said in this thread.

[Nico]

That's one hefty phone bill.

[Loud]

Our situation, while in some aspects is comparable to the 40's, is also different in many ways. Society, our economy, and the political climate in the world are all now very different and in many ways much more complicated. Things we found to be true then may not be applicable now because so many things have changed in so many ways.

I guess that's my whole point. While history can be a very useful guide, it is not always the be-all end-all source of knowledge. At least when you're comparing things that differ so much that while they may appear similar upon first inspection, they are for the most part different entities (apples to oranges).

[warrior]

That's true, but I think its wrong for others to have this "sky is falling" mentality when there is no evidence to suggest it, on the contrary, there is a mountan of evidence to disprove it.

If we want to focus on the now, we can see that the CPI is actually showing that we're on a deflationary trajectory(as opposed to an inflationary one caused by increasing the monetary base) and that interest rates on borrowing debt are at an all time low.

Then, you can look at countries which are savagely cutting spending and you'll see that their economy actually contracted to the point where it made their debt situation worse which more than offset the amount they had cut. Oh, and look at their 10yr bond interest rates .. they actually became worse.

Cutting spending to reduce the deficit during a recession is counter-intuitive. You'll have a contractionary reaction which will just make things worse.

[Loud]

I agree that spending cuts are definitely not the answer, and will result in a shrinking of our economy. I don't really have an opinion on the subject though. I didn't pay attention in my econ class, so I can't make really make any legitimate arguments for or against anything. I just know shit can't stay how it is hehe.

[warrior]

I think our fiscal situation can be remedied greatly without hurting a fragile recovery in a few ways:

1) Reform entitlement programs
2) Reform the tax code

For 1) the big elephant in the room is Medicare and that ties really into health care costs as a whole which really threaten to behead our economy in the long term. We need to further reforms we started last year, for example, we could use the clout of the Federal Government to try to get the lowest possible prices from big pharmaceuticals. Look at Canda, the UK, et all they all do this, we're the only ones who don't and our drug costs are substantially higher because of it.

We can reform the food our children eat at school, make them healthier which in the long run results in a healthier population and lower health costs. We can subsidize preventive screening a few times a year for people, we can basically emphasize on prevention instead of treatment. That will go a long way towards bending the health curve.

We can completely eliminate Medicare Advantage, its a wasteful program with 18% overhead vs 3% overhead of normal medicare. The only ones who even remotely benefit are private insurers, its akin to how Student Loaning used to use Government money, but be handled by private banks. Its stupid.

We can make Medicare opt in for people under 65. Meaning, have the be a public insurer that people can chose to pay into, vs a private insurer. That would spur competition in the market, or even deemphasize private insurers to the point where they become "luxury" insurance ontop of the public offerings. Something like that would have substantial benefits for Medicare.

People paying Medicare taxes + optionally paying into Medicare to cover their own treatment = Making Medicare's fiscal situation dramatically better, and its really no additional burden on the average person.

Top this off with an independent council on entitlement reform which periodically recommends actions Congress should take, something akin to the debt comission.

Now, as for 2) Tax reform, it's pretty simple: We simplify it.
Let's first replace the multitude of individual taxes into one consolidated consumption tax, a VAT style tax of say 15-17%. VAT taxes are incredibly hard to cheat, so we'd collect much closer to that 15-17% than we do for all the other taxes combined. The tax burden actually may even be lower, just more efficient, and easier to understand.

Add those two big things with continued infrastructure investment, R&D investment, and green energy investment, and we could both grow and tax our way out of debt, and bend the cost curve downward to make our fiscal outlook much healthier.

All without the savage cuts to things like education, healthcare, infrastructure. We're not a 3rd world country, we should stop acting like it.

[warrior]

“I came to the House as a real deficit hawk, but I am no longer a deficit hawk,” said Sen. Rick Santorum (R-Pa.). “I’ll tell you why. I had to spend the surpluses. Deficits make it easier to say no.”

Republicans in 2003 on spending President Clinton's budget surplus. Republicans spend money, create an incredible deficit, then use the deficit to justify cutting social services. Starve the beast, ladies and gentlemen.