News Debt limit ceiling

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Re: How much the rich are being taxed

No you should not. Those are primarily private US holdings of foreign debt. You should not subtract that from the government debt. If Astronuc, whom you quoted, was looking at total US debt, private and public, then you could consider removing that value.

From the link:

U.S. portfolio investment in foreign securities, for the purposes of this report, includes all foreign securities owned
by U.S. residents except those that are part of a direct investment relationship between the U.S. resident owner of the
foreign securities and the foreign issuer of the securities.
 
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Re: How much the rich are being taxed

You seem to be confusing the debt ceiling issue with a budget-induced (or lack-there of) government shutdown. This is in a completely different galaxy.
Are you sure? From what I can tell, revenues will be large enough to cover all interest payments, and debt due can be rolled over. There is even money left over to pay several of the larger obligations. So it is entirely possible to shut down portions of the government and stay current on external financial obligations.

I’m not saying this is wise, I just don’t see how a government shut down is “a completely different galaxy."
 

russ_watters

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But they have been passing spending laws, if not an actual budget. So both are Congessional problems. Congress mandates the spending but not the borrowing authority, even though it knows it is needed.

The Democrats have loaded the gun and dared Republicans to pull the trigger.
 

mheslep

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...Default would be a catastrophe. ...
Commonly stated but I think highly unlikely. The federal government brings in ~$2.5T/year, and even if the debt limit is not raised, new debt can still be issued as old expires, the government can still borrow under the limit.
 

SixNein

Gold Member
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Re: How much the rich are being taxed

Are you sure? From what I can tell, revenues will be large enough to cover all interest payments, and debt due can be rolled over. There is even money left over to pay several of the larger obligations. So it is entirely possible to shut down portions of the government and stay current on external financial obligations.

I’m not saying this is wise, I just don’t see how a government shut down is “a completely different galaxy."
In a budget induced shutdown, the question is about what new obligations the government should undertake.
In a debt limit situation, the question is about all current and previous obligations that the government said it would take on (All passed budgets).

With a budget crisis, the risks are fairly well known and manageable. Lots of stuff keeps on working due to mandatory spending, but we don't know if the government will hire 10 postal workers or lay off 10 postal workers.

With a debt limit crisis, there is no real way to calculate the risk. The world considers the US T-bill to be a great safe haven. If we default, how will the perception of the T-bill change? What happens when it's no longer a safe asset? If your holding these bills, do you look a them in the same way before and after default? If someone starts selling in a panic, are you gong to hold out?
 
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Re: How much the rich are being taxed

If we self-default, how will the perception of the T-Bill change? What happens when it's no longer a safe asset?
Why are you assuming we'll default? If the debt limit isn't raised, there's enough revenues to pay interest and debt due can be rolled over.
 
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Commonly stated but I think highly unlikely. The federal government brings in ~$2.5T/year, and even if the debt limit is not raised, new debt can still be issued as old expires, the government can still borrow under the limit.
That's true. I was being loose. Actually defaulting on the debt isn't going to happen. But whatever they did would be highly embarrassing and bad for the credit rating. One of the US main assets is its reputation for fiscal honesty. A great deal of money is invested here for that reason, a situation greatly to the advantage to the US, and jeopardizing that could very well lead to catastrophe.
 

russ_watters

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But whatever they did would be highly embarrassing and bad for the credit rating.
Not really. Most people don't even know (much less feel embarrassed) that we've actually already passed the deadline and the Fed has started contingency action (before we hit it):
The U.S. Treasury on Wednesday announced the first of a series of measures to delay hitting the government's $16.4 trillion borrowing limit. Without those steps, the debt ceiling would be hit on Dec. 31.
http://www.nbcnews.com/business/us-treasury-take-steps-avoid-hitting-debt-ceiling-monday-1C7662780 [Broken]

As we get closer and closer, there are more and more actions to be taken to avoid default. The embarrassing one for Obama would be a partial government shutdown.
 
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russ_watters

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Re: How much the rich are being taxed

You seem to be confusing the debt ceiling issue with a budget-induced (or lack-there of) government shutdown. This is in a completely different galaxy. If the debt ceiling isn't raised, the government essentially tells the world that it will no longer be participating in the financial markets, and it will not honor any prior obligation.

I honestly don't know what would happen after such an event, and I don't believe anyone else does either. The world market operates by and large off of the US financial system, and for the government to just literally drop it and walk away....

I just don't see an outcome that wouldn't destroy the US and much if not all the world economy.

And what kind of political system do we end up with where one side threatens the other with economic disaster unless it gets what it wants?
Fire and brimstone predictions are overblown. As I posted in the other thread (perhaps they should be merged...), the deadline has actually already come and gone and contingency plans have already started and few people have even noticed. The further we go, the more contingency plans get put in place, but we are a long, long way from default. http://www.nbcnews.com/business/us-treasury-take-steps-avoid-hitting-debt-ceiling-monday-1C7662780 [Broken]

And yes, one of those contingency plans could be a partial government shutdown.

Obama's flip-flop on the issue (his position was precisely opposite of now, when he was on the other side of the fence) is probably a reflection of:
1. Even as ideologically driven as he is, he's more political than principled.
2. He knows that he has a lot to lose politically from this. Fortunately for him, he's going against a weak opponent in Boehner

Based on previous experience and predictions, we can probably operate under various contingency actions for at least 3 months:
Treasury Secretary Timothy Geithner explained that when the debt ceiling is reached, the US Treasury can declare a debt issuance suspension period and utilize "extraordinary measures" to acquire funds to meet federal obligations but which do not require the issue of new debt,[48] such as the sale of assets from the Civil Service Retirement and Disability Fund and the G Fund of the Thrift Savings Plan. These measures were implemented on May 16, 2011, when Geithner declared a "debt issuance suspension period". According to his letter to Congress, this period could "last until August 2, 2011, when the Department of the Treasury projects that the borrowing authority of the United States will be exhausted".[2] These methods have been used on several previous occasions in which federal debt neared its statutory limit.[49]
http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis
 
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mheslep

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That's true. I was being loose. Actually defaulting on the debt isn't going to happen. But whatever they did would be highly embarrassing and bad for the credit rating. One of the US main assets is its reputation for fiscal honesty. A great deal of money is invested here for that reason, a situation greatly to the advantage to the US, and jeopardizing that could very well lead to catastrophe.
I think the policy resulting in borrowing over a trillion dollars a year should be the focus of embarrassment. That policy is guaranteed to cause eventual catastrophe, unlike one that stops additional borrowing.
 

BobG

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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.
But they have been passing spending laws, if not an actual budget. So both are Congessional problems. Congress mandates the spending but not the borrowing authority, even though it knows it is needed.
It all smacks of a group that has seemed to reach a point where it's impossible for them to do their job.

Passing a budget/passing spending bills and then refusing to authorize the government to obtain the money necessary to execute that budget is just asinine. Just on principle, a government shutdown for that reason would be worse than a government shutdown because Congress couldn't agree on a budget.

But, shutting down government because Congress can't agree on a budget is still a bad thing. One of Congress's key duties is to pass a budget and keep government running. Individual members can pass the blame back and forth, but the bottom line would be that Congress failed to do its job.

And the solution Congress comes up for not being able to do its job (pass a budget) is to not do its job (keep government running)? If that's the solution, at least scrap that stupid requirement to include which part of the Constitution authorizes the bill and instead include in the introduction of each bill the statement, "Us being idiots.... "

The important thing is to get something passed that's relatively close to being balanced. If the taxes required to do that are too high, then people will feel that in their wallets and you're going to see quite a few liberal Congressmen bounced out of office. If the services provided are too low, people will feel that, too, and quite a few conservative Congressmen will get bounced out of office.

If the budget is close to being balanced (i.e. - realistic), you'll get some type of equilibrium created by people's opinions. The only long term damage that can be done is with budget deficits where people won't feel the pain for years.
 

SixNein

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Re: How much the rich are being taxed

Fire and brimstone predictions are overblown. As I posted in the other thread (perhaps they should be merged...), the deadline has actually already come and gone and contingency plans have already started and few people have even noticed. The further we go, the more contingency plans get put in place, but we are a long, long way from default. http://www.nbcnews.com/business/us-treasury-take-steps-avoid-hitting-debt-ceiling-monday-1C7662780 [Broken]

And yes, one of those contingency plans could be a partial government shutdown.

Obama's flip-flop on the issue (his position was precisely opposite of now, when he was on the other side of the fence) is probably a reflection of:
1. Even as ideologically driven as he is, he's more political than principled.
2. He knows that he has a lot to lose politically from this. Fortunately for him, he's going against a weak opponent in Boehner

Based on previous experience and predictions, we can probably operate under various contingency actions for at least 3 months: http://en.wikipedia.org/wiki/United_States_debt-ceiling_crisis
A partial government shutdown means that the government would no longer be meeting it's obligations and would be in default. And while contingency plans may help explain how we are going to manage our default, it would still be a default. And what happens depends how how the bond markets react to a default.

Maybe the bond market brushes the default aside, or maybe the last one out of the t-bill is a rotten egg. We don't know. It's a crazy risk to take.

In my opinion, the bond market is viewing this as nothing more than political theater, and it believes the US will raise its debt limit. But at the same time, it opens itself up to the risk of being surprised.
 
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Re: How much the rich are being taxed

A partial government shutdown means that the government would no longer be meeting it's obligations and would be in default.
False.

You can shut down some parts of the government and still pay interest on notes and bonds while rolling over debt due. If you do that, you are not in default.
 

SixNein

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Re: How much the rich are being taxed

False.

You can shut down some parts of the government and still pay interest on notes and bonds while rolling over debt due. If you do that, you are not in default.
The government is obligated by law to fund the things it will no longer be able to fund due to lack of funds. Thus the government goes into default on its obligations. How the government manages the default is in the details of who continues to get paid and who doesn't.

Suppose the government defaults but continues to pay interest on its bonds. Bond holders are faced with the political reality that their now in direct competition with granny's SSI check or some soldier's paycheck, and bond holders may lose that political battle in the long run.
 
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The embarrassing one for Obama would be a partial government shutdown.
The Gingrich government shutdown cost the Rs some seats in Congress. The will hesitate to do that again.
 

russ_watters

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Re: How much the rich are being taxed

A partial government shutdown means that the government would no longer be meeting it's obligations and would be in default.
No, the two things have nothing to do with each other. We had a partial government shutdown in 1995 and didn't default.

A partial government shutdown means shutting down government offices funded by discretionary spending: http://en.wikipedia.org/wiki/United_States_federal_government_shutdown_of_1995_and_1996

And while contingency plans may help explain how we are going to manage our default, it would still be a default.
No it isn't. We're not in default now, are we?

A default is completely unnecessary. Debt service is a relatively small part of the budget and currently we are borrowing 40% of the budget so we'd be able to fund 60% of spending without a debt deal. The biggest risk is a halt to Social Security payments.

Your understanding of the issue is severely wrong.

[edit2] I'm really not certain if you do understand and are trolling or if you really are confused. Let me be more explicit about it:

Since we are currently borrowing 40% of our spending, if the debt ceiling is not raised, we could still spend 60% of what we spend now. Here's what it gets spent on:

er%20Spending%203%|Interest%207%&chtt=Federal%20Spending%20for%20United%20States%20-%20FY%202013.png


Now Geitner, not being an idiot, would likely not do something self-destructive like "default" on debt service payments, which at 7% of the budget should not be in danger. In order of what I think is likely:

1. Shutting down the national parks, etc. (partial government shutdown) = not a "default"/not a disaster/happened before.
2. Ground the military. (also not a "default")
3. Delay "entitlement" spending such as social security checks by a week. (also not a "default")

"Entitlement" spending would have the biggest direct impact of course. And it would be unavoidable since it is such a huge fraction of the government. But that's not a "default" either. It would impact people but not have a major impact our financial stature, unlike a default which would likely cause an instant collapse of our economy.
 
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BobG

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The Gingrich government shutdown cost the Rs some seats in Congress. The will hesitate to do that again.
Republicans lost 8 seats in the House and gained 2 seats in the Senate. Republicans still retained their majority in both the House and the Senate. I don't think that would give them all that much reason to hesitate.

On the other hand, that was also the best possible scenario for Republicans. Both the House and Senate passed a budget, but Clinton vetoed it.

That's an entirely different scenario than Congress being unable to create a budget bill at all. The President is never put on the spot to sign or veto the bill because it never makes it to his desk in the first place.

If the best possible scenario didn't turn out well, the worst possible scenario (House Republicans unable to agree among themselves on a budget bill) surely can't turn out well.
 

turbo

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Re: How much the rich are being taxed

The biggest risk is a halt to Social Security payments.
Let's clarify: SS is paid for by payroll taxes and cannot add to our country's deficit. If the obstructionists in Congress want to put SS payments at risk, they would be thoroughly voted out of office in the next election. The people who rely on SS for their incomes aren't all liberals or moderates. There are lots of Republican voters who rely on SS to keep body and soul together,and they will be severely ticked off if these political games threaten the meager income that they have paid for all their lives.
 

BobG

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Re: How much the rich are being taxed

Failing to pay Social Security retirement benefits and/or other federal pension benefits wouldn't be a default?

Perhaps not in the sense of loans the government has taken, but these are surely legal obligations the government has committed itself to and they are surely obligations the government has already received money for in one way or another (either by retirees paying into Social Security during their working career or as a deferred part of workers compensation in the case of retiree benefits).
 
1,797
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Re: How much the rich are being taxed

The government is obligated by law to fund the things it will no longer be able to fund due to lack of funds. Thus the government goes into default on its obligations. How the government manages the default is in the details of who continues to get paid and who doesn't.

Suppose the government defaults but continues to pay interest on its bonds. Bond holders are faced with the political reality that their now in direct competition with granny's SSI check or some soldier's paycheck, and bond holders may lose that political battle in the long run.
There appears to be some disagreement over the definition of the word "default". So let's be clear: you default if you don't pay your debts. If the government pays the interest on its debt and either rolls over standing debt or pays it, then it is not in default.

It's that simple.
 
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Re: How much the rich are being taxed

There are lots of Republican voters who rely on SS to keep body and soul together,and they will be severely ticked off if these political games threaten the meager income that they have paid for all their lives.
Agreed; many US citizens wrongly beleive they have "paid for" their social security. Of course, SS is a pay-go system that transfers money from workers to retirees (and the disabled), but neither party can count on people being aware of this.

The good people of this forum should work to educate others as to how SS finances actually work.
 
1,797
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Re: How much the rich are being taxed

Failing to pay Social Security retirement benefits and/or other federal pension benefits wouldn't be a default?
Failing to pay interest on SS trust fund debt would be a default. Debt due can be rolled over. Choosing not to pay SS benefits, if done correctly, would not be a default, as SS is not a funded plan.

Pension benefits are supposed to be funded, and so, if funded appropriately, wouldn't be impacted one way or another. In reality they probably would be. (Haven't they been drawing from them for months now? Someone clarify if you know the details)
 
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SixNein

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Re: How much the rich are being taxed

No, the two things have nothing to do with each other. We had a partial government shutdown in 1995 and didn't default.
But that's because the nature of the shutdown was fundamentally different. A budget induced shutdown is a disagreement on future obligations that the government should or shouldn't take on.As I have been saying, this type of shutdown is in a different galaxy than what we are currently discussing. The shutdown via debt limit would be a default. The government would not have the funds to fund all of its existing obligations. So it is forced to start shutting things down despite its obligations to fund them.


A default is completely unnecessary. Debt service is a relatively small part of the budget and currently we are borrowing 40% of the budget so we'd be able to fund 60% of spending without a debt deal. The biggest risk is a halt to Social Security payments.
You just contradicted yourself. Funding 60% of our bills isn't 100% now is it? Thus the government defaults.

Now Geitner, not being an idiot, would likely not do something self-destructive like "default" on debt service payments, which at 7% of the budget should not be in danger. In order of what I think is likely:

1. Shutting down the national parks, etc. (partial government shutdown) = not a "default"/not a disaster/happened before.
2. Ground the military. (also not a "default")
3. Delay "entitlement" spending such as social security checks by a week. (also not a "default")

"Entitlement" spending would have the biggest direct impact of course. And it would be unavoidable since it is such a huge fraction of the government. But that's not a "default" either. It would impact people but not have a major impact our financial stature, unlike a default which would likely cause an instant collapse of our economy.
And here is where you are wrong. These are defaults!!

The government has the legal obligation to fund these things because it said it would do it. It passed a budget, and it said we're going to pay xyz on this or that. The bill comes due, and the government is unable to pay. It's a default.

Again, you people confuse this situation with a budget induced shutdown. In a budget induced shutdown, some programs may or may not be renewed in the future budget that congress is having trouble passing. In such a situation, the programs will be funded until it expires as per the contract the government agreed to in its previous budget. So when that contract expires, the entity receiving the funds has been fully paid off. It will shutdown unless the government takes on new obligations (ie: renews the contract or whatever) in the new budget.

In the above situation, there is no default because the government paid what it said it would pay.

In the situation of the debt limit, congress passed the budget agreeing to take out all of these contracts. The bill comes due, and the government doesn't have enough funds to cover all of its obligations. Thus, things will still get shutdown but due to default. The government is legally obligated to pay these things, it simply can't raise enough money to do so.

As for consequences to a default, I have no clue how the bond market will react. The government is saying ok, if we default we'll continue paying you bond holders interest. In reality, we are essentially debating about throwing a torch in the middle of a bond market and hopping it doesn't catch on fire. There really is no other way of looking at it. It's pure insanity.
 
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SixNein

Gold Member
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Re: How much the rich are being taxed

False.

You can shut down some parts of the government and still pay interest on notes and bonds while rolling over debt due. If you do that, you are not in default.
Let me try a different approach... because my current explanation is getting absolutely nowhere.

I take out a cable subscription with a cable company.
I sign on the dotted line that I agree to pay x amount a month for a year.
In three months, I can no longer afford to pay x amount.
I default on my obligation.
The cable company shuts down my service (amongst other things).

The same situation is occurring with the debt limit. The government signed on the dotted line that it would pay x amount over a certain period of time to various different parties. These parties can be anything from bond holders to granny waiting on her SSI check. If the government is unable to make payments to meet its obligations, it defaults.

People are confusing this with a budget induced shutdown. In such a situation....

I take out a cable subscription with a cable company.
I sign on the dotted line that I'll agree to pay x amount for a year.
I pay x amount for a year.
I do not renew the contract and thus I"ll lose my service unless I change my mind.
 

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