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So... It might just be because it's late and I'm tired... I'll have it figured out in the morning, but this would be a good conversation for many here.
The stories have started popping up regarding what happens if the US doesn't raise the debt ceiling. Go into default, US dollar loses value, etc.
Wouldn't hitting the debt limit just cause more government shut down, as it redirects its revenue towards meeting debt obligations before being allowed to pay for any other service?
Of course it will impact the economy. It'll stop government spending that many rely on. But it doesn't mean the end of the day for the dollar, bond holders, or the markets (which will take a hit, but shouldn't be catastrophic).
Just a quick google to find the first article to further this:
Quote:
Under the 14th amendment and applicable case law, the government is not allowed to default on the public debt, according to Rivkin.
This is all politics right now. The house has passed two bills in recent years that would prioritize debt payments so that default is off the table but the senate and WH do not want that and they have not moved forward. It is an all or nothing crisis because bureaucrats want the spending to go on without question.
Bottom line is we are to blame electing these clowns and not demanding real plans and results.
'The Treasury market can rest assured that the Republican-'owned' House has done its very best to avoid a default on the debt securities of the US. The 'debt prioritization' bill narrowly passed the House 221-207 and now moves on to the Senate where it stands a snowball's chance in hell of passing.'
If they actually defaulted, yeah it would be bad. Really really bad. They could possibly avoid it through some political manuevering even without the debt ceiling being raised, but that would still be pretty bad for the economy just due to a loss of confidence. I'm fairly confident an actual default won't happen, because as dumb as the politicians have been through this whole thing they'd smart enough to know we cannot go down that road.
Wouldn't hitting the debt limit just cause more government shut down, as it redirects its revenue towards meeting debt obligations before being allowed to pay for any other service?
Wow, we haven't been getting too many intelligent posters on the Economics Forum lately.
And as an additional shocker, you actually asked a question instead of posting some nonsense from Rense or Glebeck or LEAP 2020 or DumkaFiles or Global Retards or some idiot biblical apocalyptic site, so excuse me if I stagger around a bit until the shock wears off.
You are 100% correct, as the government would shift revenues toward meeting debt obligations.
Those who bother to do their Civic Duty and read an actual budget once in their life-time know that government spending comes in two forms:
Mandatory Spending: spending obligated by public laws
Discretionary Spending: a wish list with no obligation
Accordingly, the annual budget can be expressed as the percentage of the budget that is Mandatory and the percentage that is Discretionary. I do not know the percentage for the 2013 budget, but they used to publish the percentages in the annual budget summary (which is easy to wade through), and they used to break it down by office, meaning, X% of Department of Education budget was Mandatory, and N% is Discretionary.
That would be your starting point.
There hasn't been a balanced budget in decades, so the next step is to look at projected revenues.
Since all deficit spending is eliminated, you'd simply shift whatever Discretionary spending remains to debt servicing.
If that is not sufficient, then you'll have to make deeper cuts.
Quote:
Originally Posted by LordSquidworth
Of course it will impact the economy.
Not necessarily.
I can cut $1 TRILLION out of your budget and your economy would not miss a beat.
It all depends on what you cut.
Quote:
Originally Posted by LordSquidworth
It'll stop government spending that many rely on.
Only Discretionary spending.
I guarantee you that somewhere in the US, a federal court house is undergoing renovation and remodeling. That is Discretionary spending and the government will cease making payments to the contractors....which may or may not give rise to legal issues allowing the contractor to sue the government for damages.
Government employees naturally rely on government spending, so quite a few would lose their jobs temporarily, if not permanently.
Social Security and VA payments are Mandatory, so those will continue.
Quote:
Originally Posted by LordSquidworth
But it doesn't mean the end of the day for the dollar, bond holders, or the markets (which will take a hit, but shouldn't be catastrophic).
Those people scream no matter what is happening, so it's hard to tell when they're serious or when they're just screaming to get some love.
It could actually be beneficial......not raising the debt ceiling forces the government to operate more efficiently.....in the same way when an household or business runs out of credit, it is then forced to reorganize and become more efficient with its finances.
Forcing the government operate on a balanced budget might frighten those when they see that it can be done.
Wow, we haven't been getting too many intelligent posters on the Economics Forum lately.
And as an additional shocker, you actually asked a question instead of posting some nonsense from Rense or Glebeck or LEAP 2020 or DumkaFiles or Global Retards or some idiot biblical apocalyptic site, so excuse me if I stagger around a bit until the shock wears off.
You are 100% correct, as the government would shift revenues toward meeting debt obligations.
Those who bother to do their Civic Duty and read an actual budget once in their life-time know that government spending comes in two forms:
Mandatory Spending: spending obligated by public laws
Discretionary Spending: a wish list with no obligation
Accordingly, the annual budget can be expressed as the percentage of the budget that is Mandatory and the percentage that is Discretionary. I do not know the percentage for the 2013 budget, but they used to publish the percentages in the annual budget summary (which is easy to wade through), and they used to break it down by office, meaning, X% of Department of Education budget was Mandatory, and N% is Discretionary.
That would be your starting point.
There hasn't been a balanced budget in decades, so the next step is to look at projected revenues.
Since all deficit spending is eliminated, you'd simply shift whatever Discretionary spending remains to debt servicing.
If that is not sufficient, then you'll have to make deeper cuts.
Not necessarily.
I can cut $1 TRILLION out of your budget and your economy would not miss a beat.
It all depends on what you cut.
Only Discretionary spending.
I guarantee you that somewhere in the US, a federal court house is undergoing renovation and remodeling. That is Discretionary spending and the government will cease making payments to the contractors....which may or may not give rise to legal issues allowing the contractor to sue the government for damages.
Government employees naturally rely on government spending, so quite a few would lose their jobs temporarily, if not permanently.
Social Security and VA payments are Mandatory, so those will continue.
Those people scream no matter what is happening, so it's hard to tell when they're serious or when they're just screaming to get some love.
It could actually be beneficial......not raising the debt ceiling forces the government to operate more efficiently.....in the same way when an household or business runs out of credit, it is then forced to reorganize and become more efficient with its finances.
Forcing the government operate on a balanced budget might frighten those when they see that it can be done.
It could actually be beneficial......not raising the debt ceiling forces the government to operate more efficiently.....in the same way when an household or business runs out of credit, it is then forced to reorganize and become more efficient with its finances.
Beneficial to what? I'm pretty sure even without a full on default, the crisis could cause major ramifications if not handled properly. Like credit downgrade, financial markets tanking, interest rates spiking. I'm as unhappy as the next person about how the debt load is growing out of control but I don't think the answer is to force a crash landing. It seems like that should be a last resort to balancing the budget but I guess I can understand if people have completely lost faith in the gov't they could support that.
Beneficial to what? I'm pretty sure even without a full on default, the crisis could cause major ramifications if not handled properly. Like credit downgrade, financial markets tanking, interest rates spiking. I'm as unhappy as the next person about how the debt load is growing out of control but I don't think the answer is to force a crash landing. It seems like that should be a last resort to balancing the budget but I guess I can understand if people have completely lost faith in the gov't they could support that.
It's hard to predict because it has never happened before, the fact that the USD is the reserve currency makes modeling more problematic. A bunch of the managers at my firm have been in NY and Singapore most of the week attending conferences and building "what if" scenarios. The bottom line is that it would be a technical default, but some of the models actually have the interest rates dropping because of the resulting recession. Other models have the interest rates spiking as people move from the US bonds into UK or German bonds.
The problem though, is not our debt, our obligations - though that needs reform - or our revenues. which needs reform as well. Our problem is that any default would be a conscious decision. I sincerely doubt a the debt ceiling won't be raised though. Wall St. has a lot of influence on capitol hill and if the debt ceiling wasn't raised because of politics the Republican party wouldn't get any more campaign contributions form Wall St.
...........................................
This data is from 2011. The projection for 2013 is better, but without cuts to entitlements, specifically medicare, we have to borrow to pay our bills. The trust fund "IOU's" have to be redeemed just like all the other treasury bonds. The military budget is made up of underlying contracts, which may or may not be cancelled, depending on the language of the contracts. Refundable tax credits are found in the tax code, which is the law - for now.
"IF" we shut down the military and "IF" we shut down all of the government and "IF" we raised taxes we would have had a "theoretical" surplus of 200 billion in 2011, but cutting that much that quick would lead to lower revenues and a recession. Failure to raise the debt ceiling is a default, this isn't my opinion, this isn't academic, this is reality.
Anybody that wants to talk about cutting spending and isn't talking about the Military, SS, Medicare/Medicaid isn't ready to have a real discussion about cutting spending.
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Stockman argues tea party Republicans should use the debt ceiling to extract concessions from the White House including defunding Obamacare. The “federal budget is a doomsday machine,” says Stockman. And he insists that $2.5 trillion of spending is already mandatory or automatic entitlements that were never voted for by the people in congress today (implying this spending is unsustainable).
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