It is beginning to look as though conservatives are serious about their proposal to refuse to raise the debt ceiling and to allow the country to default on its obligations. This is a serious business and the results could be catastrophic for the economy.

Whenever expenditures exceed revenues, the resulting deficit must be funded by borrowing. Throughout most of its history the government has run an annual deficit and issued Treasury Bonds/Notes to makeup the difference. These are purchased by individuals, organizations, and other nations. They are considered safe investments by investors around the world and as a result the United States can offer these instruments at low interest rates.

Before 1917 Congress had to approve every borrowing, but this was replaced by a debt ceiling, approved by Congress every so often, which allowed for smoother operation. 

Expenditure and debt authorization are separate actions by Congress. The debt ceiling does not place any limit on expenditure in advance—it merely permits  financing of deficits after they have been accrued. The debt ceiling has been raised numerous times in the past and until recently this action by Congress was routine.

Deficits are generally small—except when the country is fighting a war or in the midst of a recession—and the national debt is not a problem. Wars are enormously expensive. Recessions reduce revenue because people are out of work and not paying taxes.

What happens if Congress refuses to raise the debt ceiling to cover deficits resulting from expenditures they have approved? The country's credit rating will be downgraded and investors will demand higher interest rates to purchase our bonds. The increase in interest rates will actually make the deficit even worse. The lack of confidence in the nation's fiscal policies could also do substantial harm in the markets and push the country back into recession.

Defaulting is something you do only once, like losing your virginity. Getting the credit rating back to previous levels after a default would be extremely difficult. Investors would be likely to take a wait and see attitude, meanwhile enjoying a higher rate of return on their investments.

Threatening default has always been an unthinkable option to this point, but it is now a serious threat.

Views: 671

Reply to This

Replies to This Discussion

It's hard to believe how the Republican leadership is willing to endanger the country's stability for political gain -- or, even more, to harm the opposition.  Putting us all at risk for selfish reasons is unconscionable.

I have a hard time seeing how they will gain politically from it.

Suppose for the sake of argument that Democrats and President Obama agreed to make major cuts in Medicare, Medicaid, and Social Security  to win a rise in the debt ceiling from the Republicans, while allowing a major increase in military spending. Who would be happy with that result other than military contractors?

They'll gain because their constituents see pig headedness as a moral virtue.

But once people see the results from default they may not be so pig-happy.

As bad as the leadership is, the rank and file are worse. Watch one of last month's TV interviews with Rep. Huelskamp and you'll see what I mean.

Deficits Don’t Matter?

There are two ways of looking at debt.  1. Go into debt to wage wars with the result of dead and damaged bodies and minds and destroyed societies in foreign countries, and returning military with a lifetime of injuries that need care and support for their families. 

2. Go into debt to build schools, hospitals, highways, railroads, airports, law enforcement and fire fighters, improve potale water supplies, health care, research and development, and all these keep the money inside the borders of USA, improves our infrastructure, creates jobs at home, improves the quality of life and investments in people and commerce at home. We don't lose anything, we create a better income stream, thus creating new tax sources. It is a Win/Win situation.  

Excellent graphs. Deficits do matter, but small temporary deficits are not the real concern—it's large deficits extending over many years that are the real problem. I question whether conservatives are sincere about deficits or whether they want to use the opportunity of large deficits to eliminate or restructure social programs they do not like.

Before Medicare one third of those over 65 were living in poverty; now it is one eleventh. The advent of universal health care for the elderly has improved their lives in many ways and relieved the burden on younger generations to care for them.

Changes to Medicare and Medicaid need to be made carefully to avoid hurting those least able to provide for their own medical care.

Excellent graphs Joan. Thanks for posting them. It's a good way to visualize the debt.

I am certain conservatives want to eliminate social programs and I don't know of one they like. The fact that both Dem. and Rep. have been a party to running up these huge deficits tells me our government is in business to take care of business, not people.
Medicare and Medicaid greatly reduced the suffering that occurs with aging and with the costs going so high, there has to be a radical change. I think we have to get over our fear of "socialized medicine" and start thinking of ways to provide health care for all our citizens.
I further don't like extending the dying period. Both my mother and father and all my grandparents wanted a way to "go" because their bodies caused them suffering, they couldn't see, hear, or taste delicious foods any more and were ready. When a person feels ready to die I think they should be helped to do that. Assisted dying isn't killing them it is assisting them to do what they want to do. That decision cannot lie in the hands of children or doctors or family or anyone else. The individual, when ready to die can be facilitated. Let's put an end to these gun shots or cut wrists, and all the other ways to make it a gruesome event. My family knows I will tell them I am ready and they know I am serious.
As to poverty of elderly. That is a tough one and going to get worse as the economy continues its downward trend. I believe we have not hit bottom yet because of all the war expenses and the disgraceful salaries and bonuses the top 1 or 2 percent of the population receive, even as jobs go over seas to lower wages. My children's retirement will be problematic because they haven't been able to save for retirement the way they want to. Cost of living is just too high and going to get higher. We are all growing gardens, but with long hours of work, that becomes problematic. As I grow older I can't raise as much food as I once did.
Big problems, lots of chaos; conflict in economics, politics and religion only compound factors facing us.
I believe those who will be successful getting through this period will be the ones who are flexible, who stop following as sheep to the slaughter and who use their minds and bodies wisely. We can't afford to mistreat minds and bodies as we have been doing. Style of life makes a big difference.
As a 76 year old woman, I saw the end of the Great Depression although I didn't know it at the time. Little girls don'g notice such things, but I can remember cardboard in my shoes and lard on my toast. My dad's businesses went bankrupt and some Morrison Knudson recruiters came through the small farming towns hiring up all the husky young men to work on the southern tier railroad. My dad, mom and I lived in migrant worker camps with men we called Arkies and Oakies, and all their families. As a child it was a wonderful place to grow up, me, from Washington state, playing with kids from all over the USA. It was the best childhood one could have. After the war, living to the peak of prosperity and now watching the decline again. Younger ones look on with dispair. I remember! We survived and thrived and flourished.
That is what will lie ahead of us ... if we don't smother under CO2. That is a new and different factor to take into account.

You've made a number of good points.

I'll just  add a note about the report from the Institute of Medicine which appeared yesterday. Essentially it says the United States pays more than twice the cost of medical care in other countries for healthcare with far worse outcomes. We really need to find our way to providing universal coverage for healthcare. This report was devastating indictment of our healthcare system. The fact is that is doesn't work for large numbers of people in the country and needs major changes.

Of course in one sense the report was unfair—it failed to note that our healthcare system generates profits while others don't do nearly as well as businesses. The pharmaceutical industry and the banks in the US are tied for profitability. Other countries don't see any need to make money off illness the way we do. 

Interestingly enough, during the depression, my grandfather's family, from Kansas, moved to Washington because they found jobs there.

Thank you, Joan, for those terrific charts. They illustrate well what the Repubs did in the middle 1980s.

Upon realizing they did not have the votes in Congress to shut down the social programs, they decided to borrow the government into bankruptcy, which would force the shutdown of those programs. In two words, they succeeded.

The second chart reveals the borrowing that Reagan and the two Bushes did to help their policy along.

At about the same time, the Repub "attack machine" started charging Dems with taxing and spending. The Dems, as if frightened, did not charge Repubs with borrowing and spending.

A few years earlier I had run for a state legislature and was still paying attention. I wrote letter after furious letter to Dems, telling them they were helping Repubs economically abuse America's children. The Dems, as if still intimidated by their Viet Nam disaster, remained silent. I finally decided that Dems, traditionally big spenders, were letting Repubs supply them with money they could spend and were thus allies in the economic abuse of children.

Has anyone heard of the Kick the Can Back organization of young people who are organizing to deal with with the debt in ways more effective than either major party has?

Again Joan, thanks for the charts.I clicked on the link you provided and found their sources. I copied and pasted the charts into an MSWord document I can use in my occasional political speeches.

I nail both parties to the wall for corruption. I nail them by name too, the Dems for lying us into a war in Viet Nam and the Repubs for lying us into a war in Iraq.


© 2019   Atheist Nexus. All rights reserved. Admin: The Nexus Group.   Powered by

Badges  |  Report an Issue  |  Terms of Service