# News Debt limit ceiling

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1. Jan 5, 2013

### StevieTNZ

I've heard this many times - but don't really understand a lot about it.

Is it a limit from borrowing from all potential sources, or a select few?

Wikipedia says the Govt. can borrow from the Treasury. I gather investors will buy shares in what the Govt. borrows, so they get a pay-out? Where does the Treasury get their money from? Is it simply printing the required amount?

2. Jan 6, 2013

### Astronuc

Staff Emeritus
The ceiling applies to all government borrowing, including inter-governmental borrowing, e.g., raiding the SS trust fund replacing the cash with IOUs of treasury notes.

It wouldn't apply to printing money.

3. Jan 6, 2013

### JonDE

To add to what astronuc said, the treasury can add debt by selling US Treasury securities (trasuries is the short form). These are sold to either other government agencies (such as the social security trust fund) or to sources outside of the government, some common examples are individuals, businesses or foreign countries. These are essentially just loans in most aspects and pay interest based on market value.
http://en.wikipedia.org/wiki/United_States_Treasury_security

In order for the Treasury to sell securities, they must have approval to do so. In the current situation, which you are referring, the max amount of debt that congress has agreed the government can have, has been reached, and congress will need to increase the limit before further borrowing can occur.

As an aside, the Treasury is not normally responsible for printing money, that falls into the hands of the Federal Reserve, this is not normally responsible for financing the governments operations.

4. Jan 7, 2013

### Astronuc

Staff Emeritus
Both the US Mint (responsible for coins) and the Bureau of Engraving and Printing (responsible for currency) are part of the US Dept. of Treasury.
http://en.wikipedia.org/wiki/United_States_Mint

Bureau of Engraving and Printing
http://www.moneyfactory.gov/

Technically, the Federal Reserve distributes the currency - Federal Reserve Notes. In theory, the Department of the Treasury and Federal Reserve are mutually independent.

Last edited by a moderator: May 6, 2017
5. Jan 10, 2013

### Staff: Mentor

Re: How much the rich are being taxed

Yes, the media spun the Republicans as the inflexible ones, but the truth is that it was more like 90%-10%, with the Republicans giving almost everything. Obama's only compromise was on how much more to tax the rich and at what threshold. He was completely unwilling to even discuss, much less compromise other major aspects of the fiscal cliff negotiations that Republicans wanted to deal with:

-Spending cuts (despite saying he wanted a "balanced approach", the result was actually increased spending)
-Social Security/Medicare reform

In addition, what neither side discussed at all was the Social Security tax cut from last year expiring, which meant that everyone saw a tax increase, not just the rich.

Last edited: Jan 10, 2013
6. Jan 11, 2013

### mheslep

Re: How much the rich are being taxed

I think that Obama will remain inflexible on spending, cutting nothing through the end of his term. Every action to date indicates as much. So unless the House goes all in on the debt limit, the US will end up with a ~$20 trillion debt at the end of his term along with a ~$500 billion interest payment IF rates stay where they are. Will that outcome also be spun as the result of Republican intransigence?

7. Jan 11, 2013

### BobG

Re: How much the rich are being taxed

I think this is a reasonable prediction. I doubt he will get away with no cuts at all, but concessions on spending will definitely be hard to get.

Health care reform is what Obama is banking his historical legacy on. History rarely remembers whether a President had budget deficits or surpluses - it remembers great social or diplomatic accomplishments, success or failure in war, etc.

He will eventually have to make some concessions, though, because the situation is just that bad when it comes to deficits. Balancing the budget may not be a priority, but he probably doesn't want to go down as the President that had the US economy completely collapse, either (like Hoover). He only needs to make enough spending cuts to kick the can four years further down the road.

I kind of felt like Romney had no great cause motivating him to run for President. To Romney, becoming President was the ultimate smiley face on his homework paper. But being shallow isn't all bad. Slipping in a President with no goals, one that just worked on whatever problems came across his desk, would give everyone a chance to catch up the maintenance a little bit.

8. Jan 11, 2013

### Staff: Mentor

Re: How much the rich are being taxed

That's not really a prediction, but a paraphrase of Obama's stated (secondhand) intent:

Personally, I would call Obama's "balanced approach" comment from a few months ago a flat-out lie given that he sees no spending problem and therefore has no intention of accepting any spending cuts.
Uh huh:
http://www.cnn.com/2013/01/10/opinion/bennett-obama-debt-celing/index.html?hpt=op_bn6

Last edited: Jan 11, 2013
9. Jan 11, 2013

### Astronuc

Staff Emeritus
Re: How much the rich are being taxed

Unfortuantely it appears that Obama is digging in his heals. He essentially said he will not negotiate on the debt ceiling, which is inappropriate.

This is where we are today
01/10/2013
$11,577,361,703,183.51 Debt Held by the Public (foreign/domestic)$ 4,855,330,426,327.33 Intragovernmental Holdings (held by US government depts.)
$16,432,692,129,510.84 Total Public Debt Outstanding http://www.treasurydirect.gov/govt/reports/ir/ir_expense.htm Interest paid 2012 =$359,796,008,919.49
Interest paid 2011 = $454,393,280,417.03 http://www.treasurydirect.gov/govt/govt.htm It's time to stop kicking the bucket down the road! It seems it's never 'the right time' to deal with the burgeoning debt. The Federal government's health care program would work, ONLY IF, it actually reduced health care spending, or increased revenue to cover increased expenses. It does not work if it is only a subsidy to the current healthcare system. Health insurance (like any insurance) only work when a fraction of the population needs to use it. There is a presumption that a fraction of folks will need to be paid. At some point, it stops being insurance and becomes a subsidy, and if the system pays out more than it takes in, then at some point it collapses. It is absurd to think that the government can accumulate debt at the current rate! The current situation is unsustainable. Even though the economy is growing (barely), the rate is only about 2%. The government debt is growing at close to 6% or more. The US economy averages between 3 to 4% per year on average. The talk should be about eliminating the deficit - not reducing the deficit. 10. Jan 13, 2013 ### nanosiborg Re: How much the rich are being taxed I think that people are saying that Obama compromised severely because given his campaign rhetoric he's compromised severely. You might say that tax rates (for the rich) are high as it is. But they remain quite a bit lower than past rates. If the debate is about whether tax rates for the rich should be increased, then my opinion is that they should, that that wouldn't affect the general economy at all, and that that's a necessary step toward reducing the deficit and debt. Will that happen? No idea. My guess is that it probably won't. 11. Jan 13, 2013 ### nanosiborg Re: How much the rich are being taxed Excellent post imo. Problem is that what should be done is probably not what's going to be done. Projections based on current status quo(s) are alarming. I don't see any solutions that can be realistically expected to be implemented. 12. Jan 13, 2013 ### lugita15 Here's an old post of mine explaining the debt ceiling: 13. Jan 13, 2013 ### mheslep Re: How much the rich are being taxed Why *must* Obama make cuts? Yes the deficit is ridiculously out of hand. But that has no legal force on the President. Given the current federal officer holders, there is only one constitutional or political instrument in the US capable of forcing any cuts past the piddling sequester agreed on last year, aside from one: the debt ceiling in the House. The last debt ceiling vote had some leverage on Obama because of the then pending election. As others have already posted Obama has stated he intends to suffer no negotiations on the debt ceiling. Unless the House Republicans are willing to go all in on government shut down (I think they should, but will not), then I expect there will indeed be no negotiation. 14. Jan 13, 2013 ### mheslep Re: How much the rich are being taxed Agreed. 15. Jan 13, 2013 ### Drakkith ### Staff: Mentor Re: How much the rich are being taxed Realistically, where could cuts to the budget come from? IE what programs/organizations would need to have their funding reduced? I am of the opinion that one cannot simply keep increasing taxes as more and more programs are brought online and their funding increased. That seems to my mostly uneducated mind to be a spiral of doom. Or is that one of the main sources of disagreement, on where to cut? 16. Jan 13, 2013 ### russ_watters ### Staff: Mentor Re: How much the rich are being taxed Everywhere. I'd start with an across-the board cuts in everything. Pulling a number out of the air: 10%. That's about$130 Billion a year. Then I'd make automatic budget increase amounts .5% below previous years' GDP increase for at least 5 years after that (or until we reach a target debt-to-gdp ratio). That way, the trajectory stays below rising revenue's.

Why 10% across the board?
1. It is easy. No need to argue, as every dept feels the pain equally. That avoids fierce fights over specific programs.

2. The value of those cuts would bring some "balance" to federal debt reduction policy -- depending on if you include the SS tax increase in the calculus or not.

3. The government never suffers during recessions. Normal companies lay workers off when they feel the squeeze during recessions. This is actually a positive thing. It provides an opportunity to cut poor performers, motivating the workers to work harder and management to make their businesses more efficient. Much government bloat/waste comes from never having to actually care about principles of economics. The government and government workers would benefit from such a lesson. I suspect that a 10% cut could be done with little or no impact in services because of the vast waste that exists.

Entitlement reform is still a bigger issue, but that would be a nice start.

By the way, the fiscal cliff deal included the following revenue increases:
1. Social Security Tax: $160 Billion a year 2. Income tax:$60 Billion a year

These are gleaned from several sources. It is difficult doing the accounting because the CBO does their baseline predictions based on existing tax law, which means the fiscal cliff deal was calculated as a massive tax cut, not a small tax increase. The same problem existed for the sequestration: even though nothing happened, the CBO calls it a massive spending increase because the spending decrease that was written into law didn't happen. The CBO is required to use such logic, even though we all knew that at least the spending cuts were just a gamesmanship tactic to begin with (caveat: The one part I wasn't sure about was that I considered it possible that Obama did want all of the Bush tax cuts to expire.).

http://ctj.org/pdf/fiscalcliffdealrevenueimpacts.pdf
http://www.cbo.gov/sites/default/files/cbofiles/attachments/American Taxpayer Relief Act.pdf

17. Jan 14, 2013

### mheslep

Re: How much the rich are being taxed

A point on the new revenues: unlike spending, those figures only hold if the economy continues as is and does not slow down. Spending on the other hand will increase if the economy turns down (more unemployment insurance, more food stamps, etc)

Last edited: Jan 14, 2013
18. Jan 14, 2013

### Greg Bernhardt

To what end?

19. Jan 15, 2013

### ImaLooser

The government gets most of its money from taxes and the almost all of the rest from selling bonds through the Federal Reserve. Those bonds are the debt. The money-creation thing is complicated.

The debt ceiling thing is purely a political maneuver. Congress passes a budget which REQUIRES the executive to spend large sums of money, considerably more than the income. Congress orders the government to run at a (very large) deficit. Congress then denies the executive the power to borrow, which is the only reasonable way to finance the deficit.

Default would be a catastrophe. So essentially the Republican House threatens to force a catastrophe unless certain measures are passed into law. The hope is to avoid the blame by relying on public ignorance of Constitutional law.

In short, it is a form of extortion. "Nice little economy you got's dere. Would be too bad if something was to happen to it!"

20. Jan 15, 2013

### Astronuc

Staff Emeritus
Something to ponder on the debt and chronic deficits:

Looking for someone to blame? Congress is a good place to start
Back then the debt was only ~$4 trillion. Now it's close to$16 trillion.